Mumbai: Derivatives turnover on BSE crossed that of equities for the first time in its history, with Asia’s oldest bourse recording futures and options trade worth more than Rs 2,500 crore on Friday.
While BSE’s cash segment clocked a turnover of Rs 2,187.93 crore, derivatives trades worth Rs 2,528.29 crore were recorded as 100,000 contracts changed hands.
“Average daily participation of about 120 members indicates the growing interest by market participants that has contributed to the growth,” BSE managing director and CEO Madhu Kannan said.
However, derivatives turnover at BSE is still a paltry 1.38% of the value of futures and options contracts traded at its younger rival, the National Stock Exchange of India Ltd. On Friday, BSE had a 16.52% market share in the cash segment.
“First time in BSE history, the Sensex traded more than one million units—more than 95,000 contracts,” BSE said in a release.
With the turnover crossing the Rs 2,500 crore mark, BSE has now lifted the cap on turnover for incentives from Rs 1,000 crore to Rs 1,800 crore starting Friday. This means, market makers will now be incentivized for up to Rs ,800 crore of derivatives instead of Rs 1,000 crore earlier, and turnover in excess of Rs 1,800 crore will carry no incentives.
After the markets regulator Securities and Exchange Board of India, or Sebi, allowed incentivized trading in illiquid derivatives in June, BSE started its liquidity enhancement incentive programmes in October for a period of six months, drawing trading members to register as market makers or general market participants.
“Now we have more than 100 members trading in derivatives, out of which more than 20 qualify as market makers and the remaining are general market participants. We are seeing increased interest and have introduced a first derivatives customer incentive of Rs 100 for brokers who introduce a first-time client to BSE derivatives,” said a BSE official.
Market makers, who have the responsibility to provide both buy and sell side quotes so that contracts are available on either side at any given point of time on a trading day, are paid up to Rs 2,300 per crore worth of futures bought or sold. General market participants are paid up to Rs 1,100 per crore worth of trades. For options, they are paid at least Rs 200 per crore worth of turnover.
Besides, in options there is an incentive of Rs 5,000 for every Rs 1 crore of open interest (outstanding positions) held on average over a month. The intent is to encourage trading members to create medium-term positions, rather than just make intra-day trades to pocket volume-based incentives. BSE members can avail of some of these benefits without having the obligations of a market maker. In that case, the volume-based incentives will be lower, while the open interest-linked payment will be the same.
Index futures based on the 30-share Sensex account for roughly 90% of the total derivatives turnover on BSE, with index options and stock derivatives accounting for the rest. This is contrary to the industry trend where index options have outpaced futures and account for the lion’s share of the total derivatives pie.
Options are derivatives that provide a buyer with the right to bet on the price movement of an asset without placing the buyer under any obligation to transact in case the bet turns wrong.
The seller of the option earns a premium paid by the buyer. Market makers provide two-way quotes on a contract. They are brokers who take the risk of holding a certain number of contracts with themselves to facilitate trading and, in turn, are remunerated by the exchange.