Derivatives is a new product in India. In other emerging markets where indexfutures were launched, the same trend was seen. Take the case of SouthKorea, index futures were launched in 1996 and initially they were not verypopular. But after four years, derivatives are quite popular. I feel thesame trend will be seen in India in the next couple of years. In addition,the lack of institutional participation, especially from mutual funds, isalso affecting the growth of the market.Under the present situation, what the BSE is planning to do to boostvolumes in this segment?
Since derivatives being new financial product in India, the first importantthing we have done is to increase investor awareness. Lot of trainingprogrammes has been conducted in cities like Chennai, Kochi, Bangalore andother parts of the country.
BSE is also looking at retail participation, especially high networthindividuals. For tapping this section of investors, BSE has been talking tovarious banks and educating their managers about the derivatives so thatthey can bring in more customers to it.
But looking at the present state of stock markets, where there is notmuch depth, do you feel that derivatives trading will at alltake-off?
There is always a link between the cash and derivatives markets. So, as themarket matures, there will be more depth in the cash market. But indeveloped markets, it is the futures markets which discount the variousmarket sensitive developments much faster than the cash market. Anotherimportant point, derivatives are always better in having a price discoverythan the cash market.
Recently the Securities and Exchange Board of India (Sebi) has issuedguidelines for Index Options. So when can we expect the BSE to start tradingin this new product?
Yes, BSE is working actively in introducing this product. But before weannounce there are various factors like development of software withnecessary features for back-office operations. The other important part istraining market participants. Till the market participants are familiar withthe product there is no use of introducing the product. But I will say thatIndex Options would be shortly introduced.
Unit Trust of India (UTI) along with BSE is planning to come out withExchange Traded Fund (ETF). Don't you think that ETF would be a competitorto derivative products?
No, I don't agree that ETF will be a competitor to the index futures andother derivative product. The fact is that ETF and derivatives arecomplimentary to each other. If one product becomes popular, the other toohas to move in the same trend.
Could you explain, how this will happen?
Both derivatives and ETF are hedging instruments, and so, once both theproducts are there in the market, investors will have the choice. But whenthis happens there will be an arbitrage opportunity between the two and thisarbitrage will help growth in both the products. BSE would not have joinedhands with UTI for ETF without this kind of an advantage. Moreover, we seethat in the next few years, ETF and derivatives accounting for major chunkof the trading in the stock markets.
NSE's S&P CNX Nifty futures are being traded at Singapore Stock Exchange.Does BSE have any plan to go abroad with its index futures?
No doubt, global alliance is the new business plan for every body and thesame goes well with the BSE. But Sensex futures being traded in an overseasstock exchange is possible.... but when, is difficult to say. Even tough wehave strategic alliances with the various global stock exchanges, launchingBSE's index futures on them in short run is not possible.
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