Come Monday, Indian investors will be able to directly place bets on two of the leading US equity indices, without worrying about foreign currency. The National Stock Exchange (NSE) will go live with rupee-denominated derivative contracts on S&P500 and Dow Jones Industrial Average (DJIA) indices. It will conduct a mock trading session for these contracts on Saturday.
The move comes more than seven months after the Securities and Exchange Board of India (Sebi) released the regulatory framework for the launch of derivative contracts, based on overseas indices. The new contracts will include futures on DJIA as well as S&P 500, and options on the latter, a release by NSE said.
While this is the first time that derivative contracts are being launched on global indices in India, it will also be the first instance of S&P500 futures being listed on an exchange outside the US. Meanwhile, in its attempts to popularise the product, NSE has decided to waive off transaction charges till February 29, 2012.
The S&P500 index comprises 500 leading US companies, representing approximately 75 per cent of the total market capitalisation of the US equity market. DJIA, meanwhile, is a price-weighted index, including 30 of the most-liquid bluechip companies, representing roughly 28 per cent of the float-adjusted market capitalisation of the US stock market.
According to Ravi Narain, managing director and chief executive officer, NSE, the new instruments would allow Indian investors “easy access to US markets in Indian market hours, without any currency risk”.
While the derivatives contracts would be denominated and settled in Indian rupees, trading will be restricted only to Indian residents. The derivative contracts will comprise three, serial monthly contracts and follow three, quarterly expiry contracts in the March-June-September-December cycle. The contracts will expire on the third Friday of the expiry month.
“Members of the NSE equity derivatives segment shall be able to trade this product for themselves and their clients, through their existing trading, clearing and risk management infrastructure, with no additional investment,” added the release. In its circular, Sebi has clarified that after the introduction of derivatives on a particular stock index, if it fails to meet any of the eligibility criteria for three months consecutively, no fresh contract shall be introduced on that index. Exchanges have also been directed to make available any material price-sensitive information or that relating to regulatory and corporate actions regarding the constituent stocks of the foreign stock index to the Indian investors.