Before derivatives trading began, NSE and BSE were all-electronic equity spot markets. By international standards, they were small markets. Derivatives trading, which started in June 2000, was a turning point in many ways. And after all the changes had fallen into place, NSE and BSE were both amongst the top 10 exchanges in the world by the number of transactions.
At NSE, at the outset, there was only one contract: Nifty futures. A full set of equity derivatives products was only available by November 2001. The 9/11 attacks on the World Trade Centre in the US were the first important event surrounding which index derivatives trading came to be of interest. Starting from November 2001, the growth in the number of contracts traded at NSE has been remarkable: an average compounded growth of 5.1% per month. Few derivatives exchanges worldwide have obtained such a hectic pace of growth in the early years after launch.
In early 2002, the market had a new technique (options and futures) for expressing old ideas (views on individual stocks). The idea of trading an index was something new. Gradually, knowledge about the index percolated within the community, and the share of index derivatives went up to over 80% of the overall equity derivatives trading.
There has also been a shift away from equity derivatives. Currency derivatives trading commenced at NSE in August 2008 with a limited form of currency futures trading. At the time, trading was permitted in only futures on the rupee-dollar rate, options and swaps were banned, participations by FIIs and NRIs was banned. Yet, currency derivatives trading rapidly gained prominence at NSE, rising to above 10% of the overall NSE derivatives business within six months.