Equity F&O turnover at an all-time high

Last Updated: Fri, Dec 28, 2012 04:10 hrs

Trading activity in India's stock markets is scaling new heights. Equity derivatives turnover crossed the Rs 4-lakh crore mark on Thursday for the first time in the domestic market on the back of high volumes in the options segment. With this, the tussle between the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) has intensified.

The futures and options (F&O) turnover on the NSE and the BSE combined rose to Rs 4.048 lakh crore. The BSE overtook the NSE in the index options trading segment to corner a 58 per cent market share on the expiry of December series contracts on Thursday. Index options worth over Rs 1.71 lakh crore were traded on the BSE, while the NSE saw a turnover of over Rs 1.21 lakh crore in the segment. Trading on the BSE's derivative segment is aided by a market making scheme, but the exchange says a majority of the turnover is based on trading activity without incentive. Overall, equity derivatives worth Rs 2.27 lakh crore were traded on the NSE, while Rs 1.72 lakh crore were traded on the BSE on Thursday.

According to the BSE, the spend on incentivising the derivatives segment was only 25-30 per cent since November against what it used to be at the start of this year. The BSE was spending around Rs 12-13 crore every month on derivative incentive scheme between January and March 2012, which has now come down to Rs 3-4 crore, says the exchange. While trading in NSE's Nifty index dominates the derivative segment on that exchange, it is the BSE Sensex and BSE 100 index that generate a majority of volumes for the BSE. The NSE follows cash-based settlement system in derivatives segment, while the BSE follows physical settlement.

Experts say, pick-up of options trading on the BSE may result in yet another price war in the exchange industry. While NSE charges Rs 5,000 for every Rs 1 crore of options turnover, BSE takes a measly Rs 50 for the same. The NSE had lowered F&O and the cash segments costs by 10 per cent in September 2009. This had resulted in a major spurt in options trading volumes, from around 10 per cent of all derivative trades to 45 per cent, on the NSE. In response, the BSE had lowered the membership fees on its platform by 90 per cent to Rs 10 lakh in 2010.

However, stock brokers say NSE may not be in a hurry to cut charges as yet. Open interest in BSE's derivative segment was significantly lower and volumes in single stock F&O were extremely poor. From January, BSE will introduce a market making scheme to incentivise trading in single stock F&O, the exchange said in a circular. While NSE is home to foreign institutional investors (FIIs) in India, nine of the 135 brokers actively trading on the BSE cater to FIIs and it has seen nearly 44,000 clients participate in the derivatives segment in the past three months.

The third exchange, Multi Commodity Exchange (MCX SX), which will launch trading in equity segment, has said that its thrust will be mainly on delivery-based trading than speculative' derivative segment. Recently, the Securities and Exchange Board of India (Sebi) has made attempts to keep retail participants away from derivative trading by measures such as banning mini index contracts in derivative segment. Also, deposits were increased for propriety and algorithmic trading.

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