Derivatives, playfield of the big fry

Despite the surge in derivative volumes, trade continues to remains skewed towards big brokers.

On the National Stock Exchange's derivatives segment, 103 members contributed more than Rs 1000 crore in November 2003, while 80 members contributed between Rs 500 crore and Rs 1000 crore.

In the last six months, the number of broker-members contributing more than Rs 1,000 crore to the turnover has been on the rise.

In June 2003, a mere 33 members contributed to more than Rs 1,000 crore turnover. As on November 30, 2003, the NSE had 600 members registered in the futures and option.

Interestingly, Mumbai contributes around 42.28 per cent of the total turnover, followed by Delhi (22.25 per cent) and Kolkata (12.89 per cent.)

Recent data submitted by the Securities and Exchange Board of India (Sebi), proprietary trading by brokers in derivatives amounts to more than 47 per cent of the total trading volumes in the market. Trading on client's behalf, however, still forms majority of the trading at 51.4 per cent.

Meanwhile contrary to popular perception, the participation of foreign institutional investors is considerably low. There has been a slow increase, however, over the months. From 1.55 per cent in July, the share of the FII trades in the total trading volumes has increased to 1.58 per cent in August and to 2.11 per cent in September 2003.

The total turnover on NSE's derivative segment has surged from Rs 73,017 in June 2003 to Rs 192,171 crore in November 2003. Almost 206.89 per cent higher than the turnover in the cash segment at Rs 92,866 crore in November 2003.

But the total volumes are dominated by stock futures as more new companies are added to the list and stock futures continue to be netted (trader takes the difference between prices) and remain cash settle.

Navneet Bansal, associate vice president (Derivatives) at Kotak Securities said, "Most day traders (in the cash segment) have moved into derivatives segment in a big way."

Ashok Mittal, who heads derivatives at SSKI adds, "It is the reverse case in derivatives. The retailers are creating the market for the institutions."

The net gain from arbitrage business, playing for differences between the cash and derivatives markets, is estimated at 8-9 per cent.

Kotak's Bansal adds, "The total return on arbitrage is around 12 per cent. On most occasions, the returns are higher in the beginning of the month but as the cost of carry (finance cost) declines towards the month-end, the returns too fall."

Interestingly, Satayam Computers Reliance Industries, Tata Steel, Tata Motors, ACC, Maruti Udyog, Infosys Technologies, ONGC, Hindustan Petroleum and Bharat Petroleum contribute to the big volumes.

Meanwhile, trading volumes in options has declined. The average daily traded value of stock option has declined from Rs 929 crore in July 2003 to Rs 819 in November 2003.