The exchange currently has the approval from Securities and Exchange Board of India (Sebi) to launch trading in futures contracts while it is awaiting a regulatory nod for the launch of option contracts for S&P 500 Index. The exchange is likely to seek SEBI approval at a later date for launching options contracts on Dow Jones Index, according to a person familiar with the development.
NSE plans to launch four quarterly contracts with expiry in March, June, September and December. The contracts size for S&P 500 futures Index will be in multiples of 250 units while the Dow Jones futures index will have a contract size in multiple of 25 units. With S&P 500 Index and Dow Jones Index closing at 1,297 points and 12,189 points respectively on Tuesday, the notional value of its rupee-denominated futures contract will be R3.24 lakh and R3.04 lakh, respectively. Ballpark estimates suggests that at todays prices, a domestic investor would be able to take positions in these global indices at about R25,000-30,000, with margins of 8-10%.
Also, the stock exchange is planning to launch a dedicated section on its existing website, which will provide all crucial information regarding companies that form part of these indices. Additionally, it will provide macro-economic news and data that can have an impact on these companies, indices and the broader US markets. S&P 500 index comprises large cap companies listed in the US equity market and accounts for 75% of the US market capitalisation while Dow Jones Index include 30 most liquid blue chip companies listed in the US.
The introduction of futures contract based on overseas equity indices will help domestic investors to diversify their portfolio beyond Indian borders without having the need to expose them to currency risk. This is because the products will be denominated in the local currency. These products also allows investors to hedge their Indian market portfolio against any shocks emanating from overseas markets. Additionally, they can also be used as a hedging tool by investors having high exposure to stocks in sectors whose financial performance depends significantly on the prospects of the US economy.
According to current SEBI norms, a stock exchange can introduce derivatives on a foreign stock index if its derivative contracts figure among the top 15 index derivative globally in terms of the total trading volumes (number of contacts).