Bank Nifty to be launched in F&O on Monday

The National Stock Exchange (NSE) is launching Bank Nifty in futures and options (F&O) segment on Monday.

The trading in Bank Nifty futures and options would commence on the exchange on June 13.

The Bank Nifty contracts are based on the CNX Bank index, which is a 12 stock index owned and managed by India Index Services & Products Ltd. (IISL) "" a joint venture between rating agency Crisil and the NSE.

NSE had earlier introduced the CNX IT index in the F&O segment last year.

The Bank Nifty contracts would go a long way in addressing the needs of retail and institutional investors for hedging their exposure to bank stocks.

At present, foreign institutional investors (FIIs) have a large exposure to Indian banking stocks, with some of the stocks which form part of the CNX Bank index, already having reached the permissible FII limits.

For FIIs, therefore, Bank Nifty derivatives contracts would be the ideal hedging instrument.

Secondly, all the 12 securities consisting of the CNX Bank Index are available in the F&O segment of NSE as single-stock derivatives. These 12 stocks have a very high correlation with the CNX Bank index.

Investors can create investing and arbitrage strategies to benefit from the high correlation between the single stocks and the Bank Nifty contracts.

The retail investors also have significant trading interest in banking stocks and the Bank Nifty derivative contracts should be ideal for retail investors in hedging their exposure to banking stocks, devising arbitrage strategies using Bank Nifty futures and the underlying securities and in taking a view on the banking sector as a whole by buying or selling the Bank Nifty contracts instead of any single specific Bank stock.

The Bank Nifty contracts will be cash settled with three consecutive month contracts being available. The contracts will expire on the last Thursday of the respective months.

The options contracts will be European style and the lot size of each Bank Nifty futures and options contract will be 100.

CNX Bank index comprises liquid and large cap banking stocks, and represents about 79 per cent of the total market capitalisation of the banking sector stocks listed on the NSE.

The index is a market capitalisation weighted index with the base year of the index being January 1, 2000, and the base value being 1,000.

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Bright futures

The trading in Bank Nifty futures and options would commence on the exchange on June 13

The Bank Nifty contracts are based on the CNX Bank index

CNX Bank index is a 12 stock index owned and managed by India Index Services & Products Ltd. (IISL) "" a joint venture between rating agency Crisil and the NSE