NSE's key index to debut on SGX in February

S&P CNX Nifty will soon be getting the contracts.

The options contract of the most widely traded Indian index S&P CNX Nifty will make its debut on the Singapore Stock Exchange (SGX) in February. The SGX on Thursday put out a consultation paper inviting public comments before introducing the contracts.

While futures contract of the Nifty index are traded on the Chicago Mercantile Exchange and the SGX, Nifty options will be traded for the first time outside India.

On the National Stock Exchange (NSE) — the derivative leader where Nifty index is listed — its options generate an average daily volumes of 50,000-56,000 contracts with an open interest of over 1,98,000 last month. The share of stock and index option trading has witnessed a steady rise in the past couple of years and form 40-50 per cent of the total equity derivative volumes in the country.

A couple of months back NSE had also signed a letter of intent to launch stock and index options on the London Stock Exchange, but the agreement is in limbo.

Interestingly, the SGX move will coincide with NSE’s move to replace the present American-style stock options with European-style ones from January. Both moves could deepen the options trading market on NSE.

European-style stock options usually go well with cash-settled derivatives, which NSE has. They reduce the overnight risk for uncovered sellers of stock options. If NSE’s volumes rise it will be able to retain trader attention and not be vulnerable to losing some derivatives volume.

The importance of trading in Nifty index on SGX can be gauged from the fact that in 2008, after the ban on participatory notes (offshore derivative instrument), a major chunk of equity derivative volumes had shifted to Singapore.

Nifty index is one of the top traded index on SGX and it also lists four exchange-traded funds (ETFs) linked to Indian equity indices — the db x-trackers S&P CNX Nifty ETF, iShares MSCI India ETF, Lyxor India S&P CNX Nifty ETF and Lyxor MSCI India ETF. These four ETFs with an combined assets under management of nearly 1,000 million.

BSE too is trying to make its benchmark index Sensex a tradable commodity. This year, the Bombay Stock Exchange launched Sensex on Eurex, a Deutsche Borse platform. However, trading is yet to pick up.