The boardroom battle at Asia?s oldest bourse, the Bombay Stock Exchange (BSE), has taken its toll on one of its successful futures and options (F&O) products, the Sensex Futures (SFs). The exchanges? sudden decision to withdraw market makers last month has resulted in the SFs turnover dwindling. BSE?s F&O segment has seen only index futures (SF) as the active product and other three products namely; index options, stock options and stock futures have seen hardly any interest from investors.
BSE had appointed two of its members ?SAM Global and Apollo Sindhoori Securities as market makers for the Sensex Futures about a year and half ago. These two firms were giving two-way quotes for the product and were generating quite a sizeable amount of turnover.
The average daily SF turnover in the first quarter of calendar year 2008 was around Rs 1,000 crore. However, it began to slide from April this year and fell to a miniscule Rs 41 crore in July till date, following the decision to withdraw market-making.
It is understood that the decision to withdraw the market making facility was the fall out of the findings of an internal enquiry ordered by the audit committee of the BSE board. The audit committee appointed PricewaterhouseCoopers (PwC) to look into the issue of market making of SFs and the validity of the incentives that were given to the entities chosen for market-making.
Confirming the move, Subhash Chanda Aggrawal, chairman, SAM Global, told FE, ?We were asked in the month of June verbally by the exchange authorities not to carry out market-making in the Sensex Futures any further. The decision to this effect may have been taken due to differences at the exchange?s board level. The F&O segment of the exchange could not reach the desired level of turnover as there was no whole hearted support forthcoming from the exchange as a whole. The F&O department of the exchange was trying its level best to push the turnover, but lacked the requisite support from its management and the board.?
PB Subramanian, executive director, Apollo Sindhoori, however, refused to comment on the issue, while BSE officials were not available for comment.
According to reliable sources, PwC, in its report, has noted that the way in which the trades were conducted through market-making were inappropriate. It also recommended to recover Rs 65 crore, the amount the exchange lost, from the two parties who were carrying out the market-making activity.