Derivatives Trade Darts Up In November

Total volumes in the derivatives segment of the Bombay Stock Exchange (BSE) witnessed an increase of 30.67 per cent till November 23 to Rs 170.99 crore from 6,875 contracts, compared with Rs 130.85 crore from 5,554 contracts in October.

The National Stock Exchange (NSE) also saw a jump in the trading volume in its derivatives segment at Rs 161.99 crore from 6,507 contracts till November 23 against Rs 152.85 crore from 6,388 contracts in October.

Manoj Vaish, deputy executive director, BSE, said, "We expect the derivatives segment to witness a daily trading volume of Rs 100 crore by March 2001."

Derivatives trading started in June with a modest volume of Rs 35.22 crore from 1,190 contracts on the BSE and Rs 35.25 crore from 1,191 contracts on the NSE.

In July, on the BSE the volume moved up to Rs 88.08 crore (3,109 contracts). On the NSE, the volume increased to Rs 108.40 crore (3,583 contracts).

Since then, the trading volume in the segment has been gradually improving, despite the fact that most institutional players are not much active in the segment.

Analysts point out that another major hurdle in the derivatives sector is the lack of a pricing mechanism for contracts. Normally, pricing of derivatives is dependent on the interest rates in the country and there are arbitrage opportunities across the debt, derivatives and equity markets. In the absence of a debt market, no proper pricing mechanism has been established yet in the country.

"Arbitrage opportunities are essential for the healthy development of the capital market and today we only have speculators in this segment as hedging is virtually absent owing to the absence of index funds. Also, arbitrage cannot be done because there is no debt market in the country. So, only speculation can be done and no market can be developed with mere speculators. Hence, institutional presence in the derivatives market will take time," analysts said.

Meanwhile, the BSE has received 10 new applications for limited trading membership in the derivatives segment. This is in addition to the 150 regular members.

Commenting on the bourse's future plans to start option trading in indices, Vaish said, "We will start index options within two months of the announcement of risk management parameters by the Securities and Exchange Board of India."