Book Closures, Record Dates Hit Derivatives Turnover

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Mumbai, May 14: : The rise in book closures and record dates of companies in May and June has has hit the turnover in the derivatives segment in the last four to six weeks.

In fact, the derivatives turnover has been impacted by around 15 to 25 per cent in the last few weeks on account of the book closures and record dates.

The average derivatives turnover on the National Stock Exchange (NSE), which stood higher as compared to the total cash market turnover in the months of February and March, has started to fall on the back of declining arbitrage opportunities.

The arbitrage business started to shrink in the last few weeks because of the heavy price difference between the underlying cash market and the derivatives segment due to the ex-dividend prices on the derivatives market and cum-dividend rates in the cash market.

Normally, the stock price in the futures market of the derivatives segment should trade at a premium to its underlying stock price because of the carrying cost attached to its cash market price. However, currently, the stock price in the derivatives segment is trading at a discount to the cash market price because the stock prices in the derivatives market are minus the dividend, while the cash market includes the dividend amount.

Select stocks that are trading at a discount in the derivatives market include Hindustan Lever Ltd and Reliance.

HLL’s cash market closing price as on Wednesday was Rs 146.75, but its June futures price closed at Rs 139.85. The company’s record date is June 23 and the ex-dividend date is June 20 for bonus debenture.

In case of Reliance, the book-closure date is May 27, while the ex-dividend date is May 23. Reliance has announced a dividend of Rs five. In the cash market, Reliance closed at Rs 266.45, while its May futures price was at Rs 262.20.

Some of the other stocks which have announced book closures in May and June include Infosys Technologies and Mahindra & Mahindra.

A derivatives dealer at a domestic brokerage said: “From the 42 stocks availaible for trading in the derivatives segment, around 20 provide bulk of the turnover. And from these 20 stocks, around four to six companies have book closures or record dates in May and June. This has stalled the arbitrage opportunity in these stocks.”