Derivatives volumes spurt on BSE, NSE

Derivatives volumes spurt on BSE, NSE
ENS ECONOMIC BUREAU

MUMBAI, JULY 15: For the first time since stock index futures was launched by the Bombay and National Stock Exchanges, volumes traded in a single day have crossed double digits with a turnover of over Rs 20 crore, presumably the result of a rise in the number of participants. On Friday, 535 contracts valued at Rs 13.09 crore were traded on the BSE, while 269 contracts worth Rs 8.16 crore were concluded on the NSE.

Participants said volumes had picked up in the last one week, with average contracts traded on the BSE going up to 200 per day, against barely 100 daily in June.

As of now, sources said, there is only one institutional player in the derivatives market and has a token presence at best. Over time, as more institutions participate, trading volumes are expected to pick up, and the BSE has estimated volumes to touch 1,000 contracts daily in due course.

In the July series, on the BSE the cost-of-carry (the aggregate of costs incurred on a similar position in the cash market which is carried till maturity of the futures contract less any accruals like dividend etc) works out to a negative 2.50 per cent, while on the NSE it is 6.88 per cent.

Exchange sources indicated that the variance in the cost-of-carry for the near term (one month) and far term (three month) contracts and between the BSE and NSE was "to be expected as there is no market yield curve". Besides, there is limited arbitrage interest to "build an implicit yield curve". The discounted cost-of-carry, one member said, was partly an indication of the bearish view of the broader market.

The cost-of-carry is also showing a wide fluctuation intra-day, as well as inter-day, because there is a wide bid, and the ask spread and liquidity in far month contracts is small.

The closing price, sources added, is more like an average of the day. Besides, the last derivatives trade done may be much before the actual closing of the market. In this situation, the cost-of-carry "may not always show the correct picture as it is calculated against the closing Sensex".

This distortion, sources said, is likely to be removed as the market becomes more liquid and deep. In fact, in Friday's trading on the BSE, the July series futures closed at 4852.5, against the closing Sensex value of 4856.82 in the cash market. On the NSE, the July series closing value was 1513, against the cash market value of 1509.3.

The open interest on the BSE was 314 contracts out of 535 traded, while on the NSE, it was 179 out of 269 traded. Open interest is an indication of the depth of the market and also shows the extent of day trades that is taking place.