With dollies, BSE is figuring the derivatives math

After being nowhere on the derivatives horizon, the Bombay Stock Exchange (BSE), Asia’s oldest bourse, is finally clawing in.
Turnover in index (Sensex) futures on the bourse has been inching up of late, and now touches a tenth the National Stock Exchange’s average, as a liquidity enhancement incentive scheme and novelty factor drew the hopefuls.

The Sensex futures segment on Wednesday stood at Rs1,094.86 crore, which amounts to a little more than 8% of Rs13,360 crore turnover seen in Nifty index futures.

Experts believe the incentive programme to revive its derivatives segment, which till two months back had almost negligible turnover, is paying off finally. Under the scheme, market makers, traders and investors in the derivatives segment are paid for their participation.

While market makers may earn up to Rs2,300 for every Rs1 crore of trading volumes in the futures segment for each leg of buy/sell order, they are also eligible for additional incentive of Rs5,000 for every Rs1 crore of open interest held on an average over a month.
Market makers are the ones who provide two-way continuous quotes during regular trading hours with specific quote size and spread ratios.

Even the general participants would get up to Rs1,100 per Rs1 crore as volume-based incentive and up to Rs5,000 per Rs1 crore for maintaining specific average monthly open interest in futures segment. Similarly, there’s incentive for trading in options segment for both the category of participants and also reduced transaction fees.

“We are seeing considerable traction in our derivatives segment and the scheme will help to rebuild the equity derivatives product segment for long term. The scheme would be running for six months and this would help to broaden the participation and attract retail investors,” said Madhu Kannan, managing director & chief executive officer at BSE Ltd.

But even as the sops are for all derivatives products, only Sensex futures has taken off which, experts said,  may be due to its wider appeal and following.

“The Sensex is widely tracked with many retail investors looking to it to gauge market levels. As the retail participation increases, the contribution of single stock futures would start going up,” said Ketan Karkhanis, vice-president at ICICI Securities. But the bourse remains way behind bigger rival NSE in terms of derivatives turnover.

That’s because of low interest in BSE’s index options, stock futures and stock options, which currently contribute less than 15% to total turnover in its derivatives segment.

The total derivatives turnover on the BSE stands at close to Rs1,280 crore, just about 1% of NSE’s Rs100,000 crore.    

Participants said the acid test for BSE would begin once the incentive scheme expires.

“This is a good endeavor and attaining 20-25% of the Nifty futures volumes or close to Rs5,000 crore average daily turnover would be a good target for the BSE,” said Sandeep Singhal, co-head institutional equities at Emkay Global Financial Services.

He said success of the attempt will depend on whether the BSE is able to reach critical mass for a sustained period of time both in terms of volumes as well as number of participants.