Says a DSE official, ``The talks are at a very initial stage, so we can't say what the end result will be." The move towards derivatives trading is based on DSE's motto of offering all kinds of services to the investing community. ``To be competitive, we have to offer the whole gamut of facilities offered by other exchanges. With the Bombay and the National stock exchanges firming up plans to introduce derivatives trading once the bill is cleared by Parliament, we have to think along those lines too,'' the official noted.

According to DSE officials, the exchange is at present not prepared to offer futures and options to its members. ``To thateffect, the delay in enacting the bill in Parliament will help us get the necessary infrastructure in place. The foundation has been laid, now it's a question of when the structure will come up,'' the official added.

DSE's move to approach Chicago Board should be seen in light of the feelers sent by the Singapore International Monetary Exchange (Simex) for a possible tie-up with the National Stock Exchange and the Bombay Stock Exchange. Both NSE and BSE have set up the basic infrastructure for starting stock index derivatives. NSE has, in fact, already received in-principal approval from the Securities and Exchange Board of India.

Chicago Board Options Exchange (CBOE), founded in 1973, is a pioneer in derivatives trading. It has revolutionized options trading by creating standardized, listed stock options. Prior to that, options were traded on an unregulated basis and did not have to adhere to the principle of "fair and orderly markets". The quick acceptance of listed options propelled the Chicago BoardOptions Exchange to become the second largest securities exchange in the country and the world's largest options exchange. Today, the Chicago Board Options Exchange accounts for more than 51 per cent of all US options trading and 91 per cent of all index options trading.

Derivatives are essentially financial instruments to facilitate hedging of price risk by entering into a forward, future or option contract for a pre-determined duration. In April 1998, SEBI had approved the L C Gupta committee report on derivatives trading on stock exchanges and recommended an amendment to the Securities Contract and Regulation Act for including derivatives as a security.

Online IPO facility also in the offing

Following the footsteps of the National Stock Exchange and the Bombay Stock Exchange, Delhi Stock Exchange proposes to provide a screen-based facility for issue of securities through initial public offerings (IPOs). The bourse has conveyed its willingness to offer the facility to the Securities andExchange Board of India.

``We are in process of making changes in our software,'' said DSE officials.

Both the National and Bombay stock exchanges have an interim software ready to provide this facility and are just waiting for SEBI's go-ahead. At present, it is not clear how the system will operate -- whether the price will be determined by the company or market determined.

In the US, the system is akin to book-building wherein the price is based on the bids given by market players. Outlining the advantages of a screen-based automated trading system, the DSE officials said it will not only reduce the cost of an issue, but will also prevent listing delays. ``The facility will also help achieve a quantum improvement in the process of primary issues,'' they added.