| Arbitrage business
to stay under derivatives system
Yagnesh Kansara
Mumbai, June 11: Contrary to the common perception that with
the scrapping of the badla system, the lucrative arbitrage business
on the various stock exchanges would disappear, rolling settlements
and options in stocks (OIS) would provide ample individual arbitrage
opportunities on the two main bourses.
What is more, in order to exploit this opportunity, The Stock Exchange,
Mumbai (BSE) is expected to initially offer 10 stocks for OIS against
the markets regulator Sebi’s indication of 35.
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Derivatives to be live
on BSE site
Our Markets Bureau
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Mumbai, June 11: The Stock Exchange, Mumbai, has launched
the derivatives segment live on bseindia.com on Monday. This
would help view live prices of the futures and options (F&O)
market.
The site will have the following features on the F&O market
such as realtime prices of the index and futures market, high-level
snapshots of the traded series, extensive and detailed quotes
with comparisons to indices at respective places. The site will
also show intra-day graphs, prices, volumes, spreads and market
depth. The recently launched options series will be available
realtime. |
According to BSE derivatives segment’s chief executive officer
(CEO) Dr Sanjeev Mehta, “We plan to initially experiment with 10
stocks, the list of which is likely to be cleared by the governing
council of the exchange soon. This list will then be forwarded to
and cleared by the BSE’s governing board whereafter it will be sent
to Sebi for its final approval to commence trading in these by July
2.”
Arbitrage business forms over 50 per cent of the speculative business
on the bourses. Under the badla system, speculators made merry while
taking advantage of the price and settlement date differences prevalent
on the bourses. This therefore, gave them ample opportunities for
arbitrage.
While intra-stock exchanges arbitrage opportunities would not be
available after July 2, the emergence of the new derivatives system
of trading (aimed at segregating the cash and the speculative businesses)
will however, offer ample arbitrage opportunities to speculators
and day traders. As the OIS and index options would be exchange
specific, the inter-exchange volatility between the two segments
of the exchange would continue to provide ample opportunities in
this lucrative arbitrage business.
The stock specific options (or options in stocks — OIS) to be launched
by both the BSE and the NSE from July 2, would be exchange-specific
and would not be available for trading on the other exchanges in
the country. For example, under the OIS, if an investor is bullish
on a particular stock, he will buy that particular stock in the
cash market and hedge his position by entering into a sell contract
for the same number of shares in the options market.
According to Sebi’s four-tier criteria for stocks to qualify for
OIS, the stock should be in the top 200 list in terms of market
capitalisation and trading volume, it should be traded for at least
90 per cent of the trading days in the last six months, the non-promoter
holding should be at least 30 per cent and it should have an average
minimum market capitalisation of Rs 750 crore. In addition, the
stock should have an average daily turnover of Rs 5 crore.
While releasing these criteria earlier this month, Sebi said that
these would be reviewed after a period of six months to examine
whether in the light of experience, the list of eligible stocks
could be expanded.
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