New brokerage norms to boost options trade

Turnover in the options market is poised for a mutlifold increase in the coming months following a decision by the National Stock Exchange (NSE) to change the way brokerages are calculated for options contracts. Trading in options has not taken off in a major way since its inception more than five years ago.

As per the new rules, effective January 2, brokerage for options contracts will be charged only on the premium at which the contract is bought or sold and not on the strike price.

Till now, investors were required to pay brokerage for the strike price, making it a costly affair. For instance, if a stock is ruling at Rs 500 and an option contract is bought at a premium of Rs 10, earlier an investor was required to pay brokerage for Rs 510. From now on, the brokerage will only be on Rs 10.

While futures see an average daily turnover of Rs 25,000 crore, the volume in options is around Rs 2,500-2,800 crore. A chunk of the volumes in options comes from foreign institutional investors.

"It is a welcome step. The liquidity in options will now go up considerably," said Biren Mehta, derivatives analyst with JM Financial Mutual Fund. "Earlier, trading in options was very expensive. Now, things will change for the better," he opined.