The board of the Securities and Exchange Board of India, which met in Chennai, approved in-principle the introduction of some new derivative products.
Mini contracts on equity indices, volatility index among them
MUMBAI: The board of the Securities and Exchange Board of India (Sebi), which met in Chennai on Wednesday, approved in-principle the introduction of some new derivative products.
This is expected to increase liquidity in the market, and according to Sebi, “provide investors with a larger range of risk mitigation products and create more activity in the Indian onshore markets.”
Among the new products set to be introduced are mini-contracts based on equity indices. Currently, one Nifty futures contract is as large as 50 units.
With the Nifty around the 6,000 levels now, this means that one contract approximately costs Rs 3 lakh.
The introduction of smaller-sized contracts would make more market participants trade in them, which should hopefully lead to higher liquidity and increased pricing efficiency.
Further, the tenure of options, which is now a maximum of 3 months, may be extended to six months or a year - again aimed at creating a bigger market for such contracts.
But, how this will eventually pan out is not known, considering that volumes, even today, are lesser in the far month (3 month) series.
A volatility index, on the lines of the Chicago Board Options Exchange SPX Volatility Index or VIX, is also on the cards. This will serve to estimate future market volatility.
Futures and options contracts, based on this volatility, will also be introduced.
Exchange-traded foreign exchange derivative contract is the other new product set for a launch. This would allow individuals to access the forex market and profit from fluctuations in value of the rupee vis-à-vis other currencies.
According to a note on Sebi’s website, the other products include options on futures, bond indices and futures and options based on them, and other exchange-traded products to cater to different investment strategies.
All these are being introduced on the basis of the interim recommendations of the Sebi committee on derivatives headed by Professor M Rammohan Rao.
“The products will be introduced under suitable regulatory framework in due consultation wherever necessary with other regulatory authorities,” says Sebi.
The note also adds that a wider consultative process would be followed before finalising the specifications.
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