Sebi opens the doors to Dow, S&P & Footsie contracts

Investors in the country could soon get to trade in rupee-denominated derivatives contracts on major global indices such as the Dow Jones Industrial Average, the S&P 500 and the FTSE 100.

The Securities and Exchange Board of India (Sebi) has allowed stock exchanges to start offering derivatives contracts on foreign indices.

Following this, the National Stock Exchange (NSE), which had entered into agreements with Chicago Mercantile Exchange and London Stock Exchange Group for introducing their benchmark indices in the Indian market in 2010, is expected to start operations in a few weeks.

“We are happy that the approval has come through and will be looking to educate investors about the indices before the launch,” an NSE spokesperson said.

The Sebi circular has provided a list of 24 exchanges whose indices could be adapted to Indian markets.

These include the Brazlian BM&F Bovespa from South America, the Chicago Mercantile Exchange group from North America, Tokyo Stock Exchange Group and Australian Securities Exchange from Asia Pacific, and exchanges from Europe, Africa and the Middle East such as Eurex and Borsa Italiana.

For a stock exchange to adopt derivatives based on any of the indices, the contracts should be among the top 15 index derivatives globally or have a minimum market capitalisation of $100 billion.

The index would also have to be broad-based with a minimum of ten constituent stocks and no single one accounting for more than 25% of its market capitalisation.

All contracts would be settled and traded in Indian rupees and all price sensitive information would have to be made available to Indian investors.

If these eligibility criteria are not met for three months in a row after the introduction of the contract, no fresh contracts would be allowed to be issued, said the Sebi circular.