The turnover in the derivatives segment on the Bombay Stock Exchange (BSE) has seen a sharp decline over the last one week. After crossing the R10,000-crore mark in early February and averaging as much as R33,070 crore for two seeks since then, the turnover of the F&O ( futures & options) segment on the BSE has again dropped since the start of the March contracts.
According to a senior executive of a brokerage house, the spurt in the volumes in February was a result of a liquidity scheme promoted by the BSE to encourage participation as also a rallying market.
?The exchange was quite aggressive in promoting the liquidity enhancement scheme last month. That apart, the rally in the market provided additional interest to traders and brokers to use the BSE platform for derivatives trading,? he added.
However, he said that with the markets subdued, especially,since the start of the March series, the interest has come off. “There are no meaningful volumes now and most of the activity is the result of market making,?he added. The Sensex has lost 6% from its recent highs which it hit on february 21 of 18428.6. Traders attribute limited liquidity as the main reason for the somewhat “erratic” volumes on the BSE even as the exchange introduced liquidity enhancement scheme (LES) provides a cushion.
In 2011, the BSE announced three rounds of enhancement schemes named liquidity enhancement incentive rogramme for Derivatives ( LEIPS). While the first round of the scheme, introduced in September 2011, was aimed at getting members introduced to the processes, the other two tranches, introduced in last October and February 2012, were proposed to maximise participation in index and stocks derivatives. This incentive-based schemes rewards traders identified as a Market Maker (MM) or General Market Participant (GEM) for trading into the illiquid securities in the derivatives segment.
? There is still lack of any institutional participation on the BSE derivatives segment as the open interest continues to remain low,? said another trader. According to him, the growth in the volumes is not matched by a similar jump in open interest. ? This indicates intra-day participation but absence of longer involvement that institutional desks generally have,? he added.