The BRICS Securities and Derivatives Markets - Hong Kong ...

The BRICS Securities and Derivatives Markets4.3 Financial derivatives marketThe NSE is not only the largest exchange in India in terms of contract volume of financialderivatives but also a prominent derivatives exchange in the world. It ranked 3 rd in terms ofaggregate derivatives volume in 2011, behind Korea Exchange (KRX) and CME Group 7 .Among the various product types, index options are the most actively traded, surpassingcurrency futures in 2011/12 — contributing 40% of the NSE’s total derivatives volume,compared to 32% for currency futures (see Figure 4-3). In respect of trading activity byunderlying, option contracts on the S&P CNX Nifty Index were the most active in the year2011, contributing 39% of the total 8 . It was followed by futures contracts on US dollar (US$)against Indian Rupee (32%), option contracts on US$ against Indian Rupee (11%) and futurescontracts on the S&P CNX Nifty Index (6%). Stock futures and stock options accountedfor 7.3% and 1.5% respectively of the total (see Table 4-1).Table 4-1. Top 5 derivatives products by contract volume on NSE (2011)Rank Derivatives Contract volume % of total1 S&P CNX Nifty Index Options 868,684,582 39.5%2 US Dollar/Indian Rupee Futures 697,825,411 31.7%3 US Dollar/Indian Rupee Options 252,807,126 11.5%4 S&P CNX Nifty Index Futures 123,144,880 5.6%5 EUR/Indian Rupee Futures 18,065,186 0.8%- All individual stock futures 160,878,260 7.3%- All individual stock options 33,172,963 1.5%- Others 45,788,242 2.1%All NSE products 2,200,366,650 100.0%Source: FIA statisticsAlthough the BSE is the first exchange to offer equity derivatives in India (SENSEX futuresin 2000), it captured only a 1%-3% market share in equity derivatives each year in the pastdecade. In view of this lacklustre performance, the BSE introduced a series of LiquidityEnhancement Incentive Programmes (LEIPS) in late September 2011 to boost lastingliquidity in the segment. As a result, total trading volume in the BSE derivatives marketincreased from 6,000 contracts in 2010/11 to 32 million contracts in 2011/12 contributedmainly by equity derivatives — 77% in 2011/12 by index options and 22% by index futuresproducts (mainly SENSEX Index futures). (See Figure 4-3.)78Source: FIA statistics. It should be noted that the contract sizes of the NSE’s products are much smallerthan the US standards. For example, the multiplier of the NSE’s S&P CNX Nifty Index futures/options isINR100 (US$1.9 as of end-2011) per index point, with a contract size of US$8,324, compared with US$50per index point for CME’s E-mini S&P 500 Index futures, with a contract size of US$62,880 as of end-2011;the contract size of the NSE’s US dollar/Indian Rupee futures/options is US$1,000, compared with €125,000(US$162,156) for CME’s Euro FX futures.Source: FIA statistics- 16 - Research & Corporate Development, HKEx31 December 2012