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Praveen Gurwani
INVESTORS may now find derivatives more attractive. The Securities & Exchange Board of India (Sebi) is considering a proposal to redefine the universe of stocks eligible for trading in the derivatives segment. Also, stock exchanges may be able to launch new sectoral futures indices, such as an auto index and a pharma index.
Currently, the scrips eligible for derivatives trading are chosen from among the top 500 scrips in the basis of various criteria, including data on market capitalisation, average daily traded value and order size over a six-month period. The market regulator is now considering relaxing some of these criteria for selecting individual stocks, which can be traded in the futures market. The new parameters are intended to increase the universe of stocks which can constitute sectoral indices. The move will thus help stock exchanges in launching different sectoral and subsectoral future indices, sources in the government said.
Details on the exact nature of the changes to be introduced were not available. Currently, 118 scrips are traded in the futures and options (derivatives) segment.
“It is proposed to increase the number of stocks on which derivatives will be permitted. A presentation to this effect was made by Sebi officials at its board meeting on Monday. The board has asked Sebi to provide additional details before giving its nod,� a source said. The market regulator is scheduled to provide this information to Sebi board members before its meeting on July 10, 2006. Sectoral indices were permitted for derivatives trading in December 2002.
Experts say that the move will help inclusion of new stocks (including B1 stocks) in sectoral indices, making investments in futures and options more attractive. According to PricewaterhouseCoopers associate director Dinesh Arora, “The derivative market in India is still evolving. Allowing more stocks in futures and options would certainly attract investors in derivative segment.�
KPMG director- advisory services Manish Mohnot said that the change seems to be focused on bringing “more depth to the derivatives market.�
Introducing financial derivatives will facilitate hedging in the most cost-efficient way against market risk. In the late 1990s, the LC Gupta Committee had stressed on the need to have equity derivatives, interest rate derivatives and currency derivatives and had suggested starting with stock index futures.
A survey conducted by the Committee in May 1997 revealed that stock index futures ranked as the most popular and preferred type of equity derivatives, the second being stock index options and the third being options on individual stocks. Stock Index Futures are internationally the most popular forms of equity derivative.
MORE THE MERRIER
• Proposal to relax criteria for F&O under consideration
• Stock exchanges will be able to launch sectoral and sub-sectoral indices
• Currently, 118 scrips are available in the F&O segment
• Expanding derivatives basket expected to attract more investors
Currently, the scrips eligible for derivatives trading are chosen from among the top 500 scrips in the basis of various criteria, including data on market capitalisation, average daily traded value and order size over a six-month period. The market regulator is now considering relaxing some of these criteria for selecting individual stocks, which can be traded in the futures market. The new parameters are intended to increase the universe of stocks which can constitute sectoral indices. The move will thus help stock exchanges in launching different sectoral and subsectoral future indices, sources in the government said.
Details on the exact nature of the changes to be introduced were not available. Currently, 118 scrips are traded in the futures and options (derivatives) segment.
“It is proposed to increase the number of stocks on which derivatives will be permitted. A presentation to this effect was made by Sebi officials at its board meeting on Monday. The board has asked Sebi to provide additional details before giving its nod,� a source said. The market regulator is scheduled to provide this information to Sebi board members before its meeting on July 10, 2006. Sectoral indices were permitted for derivatives trading in December 2002.
Experts say that the move will help inclusion of new stocks (including B1 stocks) in sectoral indices, making investments in futures and options more attractive. According to PricewaterhouseCoopers associate director Dinesh Arora, “The derivative market in India is still evolving. Allowing more stocks in futures and options would certainly attract investors in derivative segment.�
KPMG director- advisory services Manish Mohnot said that the change seems to be focused on bringing “more depth to the derivatives market.�
Introducing financial derivatives will facilitate hedging in the most cost-efficient way against market risk. In the late 1990s, the LC Gupta Committee had stressed on the need to have equity derivatives, interest rate derivatives and currency derivatives and had suggested starting with stock index futures.
A survey conducted by the Committee in May 1997 revealed that stock index futures ranked as the most popular and preferred type of equity derivatives, the second being stock index options and the third being options on individual stocks. Stock Index Futures are internationally the most popular forms of equity derivative.
MORE THE MERRIER
• Proposal to relax criteria for F&O under consideration
• Stock exchanges will be able to launch sectoral and sub-sectoral indices
• Currently, 118 scrips are available in the F&O segment
• Expanding derivatives basket expected to attract more investors