When someone pays to play the market, well, people play.
The Bombay Stock Exchange’s carrots for options traders, and a change in expiry timings have had a sildenafil citrate — go Google the brand name of your choice — effect on turnover, which more than tripled in the last two sessions to reach nearly a tenth the National Stock Exchange’s.
To be exact, volumes rocketed 230% from Rs3,784.99 crore on Monday to Rs12,490.63 crore on Wednesday, compared with Rs128,000 crore in the NSE derivatives segment.
That’s big change from just six months back, the time when the segment got a boost from the Securities and Exchange Board of India’s decision to permit stock exchanges to introduce liquidity enhancement schemes for illiquid securities in the equity derivative segment.
BSE, which launched its first phase of Liquidity Enhancement Incentive Programmes (LEIPS) on September 28, 2011, followed by the second phase on October 26, 2011, saw volumes reaching the Rs3,000 crore mark in three months to January, as market makers and brokers cashed in on the liberal incentives.
The latest surge in volumes this month comes as a result of the exchange’s decision to introduce the third phase of LEIPS with effect from February 1 — mainly to infuse liquidity in its options sub-segment, which includes index option contracts with end-of-the-month expiry.
The LEIPS-III programme provides quoting obligation-based cash incentives to market makers in addition to incentives on generating specific trading volumes and daily open interest and lower transaction fees for all participants.
Sandeep Singhal, co-head of institutional equity at Emkay Global Financial Services, believes that the latest round of the incentive scheme has helped contribute to the participation.
The options segment, particularly the put options, has accounted for majority of the derivatives turnover with Rs9,423 crore turnover clocked in this segment on Wednesday.
“The option segment requires lesser commitment in terms of margin and this may be leading to larger activity in this segment,” said Siddharth Bhamre, head of derivatives at Angel Broking.
A pick-up in algorithmic trading could also have contributed to the increase, according to one source.
The exchange has recently announced change in expiry cycle for derivatives contracts from mid-month to end-of-month expiry with effect from February 2012 contracts and onwards.
Yogesh Radke, head of quantitative research at Edelweiss Securities, said the change in expiry will probably aid volumes.
“With the initiative of the BSE to bring in their expiry in sync with the NSE, volumes could further pick up as this allows for greater opportunities for arbitrage between the two indices,” he said.
Despite the BSE turnover now clocking five-digit mark on daily basis, experts are little enthused and believe that one needs to see how the volumes shape up post incentive scheme is withdrawn.
“There should be sufficient volumes from the client side in addition to proprietary books and the turnover should sustain for some time for it to take off,” said Singhal.
Proprietary trades, or intraday trades, currently contribute almost two-thirds to the total turnover.
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On BSE, derivatives show signs of taking off
Bhamre said one needs to look at index futures volumes and the open interest in derivatives segments to assess the true client interest. The open interest is still quite low as compared with that in the NSE derivatives segment.
From that perspective, the BSE derivatives have still a lot of way to go, said Bhamre.
Madhu Kannan, managing director and CEO of the BSE, said the participation is widespread.
“Over 400 members registered for LEIPS and about 120 regularly participate,” he said.
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