Highest traded instrument till last month in F&O segment finds no takers once incentives withdrawn
It seems that the Bombay Stock Exchange (BSE) will have to think beyond the traditional trade-and-get-paid approach to attract genuine investors to its derivatives segment. Sensex options, which till last month were the highest traded instruments in the BSE F&O segment, have vanished from the investor radar as soon as the exchange stopped paying incentives.
This comes as a big setback for Asia?s oldest stock exchange and its top management that has been betting big on its market-making scheme to revive its derivatives (F&O) segment. Early this month, the BSE stopped its market-making scheme on Sensex options to focus on derivatives-based scheme on BSE 100 index. Data show that the current month has seen a steep decline in the turnover for Sensex options, for which the market-making scheme ended in July. Options contracts based on the exchange’s benchmark index now account for less than 1% of the daily total index options turnover.
The average daily volume of Sensex options in August is R118 crore. This is not even 1% of the daily options turnover in the BSE F&O segment. This is significantly lower than that of last month, when some of the days saw a volume of more than R25,000 crore in Sensex options alone.
Market players say the trend has reinforced the widely-held belief that the volumes on the BSE derivative segment are primarily on account of the market-making scheme. There is very little or absolutely no genuine interest from institutions, they add.
?BSE has been able to get most of the leading brokerages to trade on its derivative segment, but it seems that they are trading only in their own prop books and not on behalf of the clients,? said a compliance head of a domestic broking outfit. ?So, everything boils down to incentives and, once it is stopped on a particular product, the trading activity also comes to an end,? he added.
Meanwhile, as expected, the volumes in options based on BSE 100 have registered a massive jump. On an average the BSE 100 options contract see a daily turnover of around R40,000 crore. The current week is expected to see a further jump in the volumes due to the expiry scheduled on Thursday.
Incidentally, July 2012 saw BSE being ranked third in the world in terms of number of index options contracts traded, according to the World Federation of Exchanges (WFE). At that time, BSE attributed its high ranking to ?encouraging widespread support by… all type of market participants.?
In June last year, BSE had said that it plans to spend R108 crore on liquidity enhancement schemes. It started its first liquidity scheme (LEIPS) in September last year. In February 2012, LEIPS 3 was launched to promote Sensex options. It ended on July 31 after which LEIPS 5 and LEIPS 6 were launched for single stock futures and F&O on BSE 100, respectively.