NSE launches market-making scheme for the two US indices.
Leading US indices — S&P 500 and Dow Jones Industrial Average (DJIA) — made their Indian debut on the National Stock Exchange on Monday, clocking a volume of Rs 122 crore. The Indian exchange, as part of its attempt to attract more players to the new segment, has also announced a market-making scheme for derivatives contracts on both the indices.
Market making — liquidity enhancement scheme, in regulatory parlance — is essentially a way in which an exchange can reward entities that generate a certain amount of volume in a particular segment. The Securities and Exchange Board of India (Sebi), in June, allowed stock exchanges to introduce such schemes for equity derivatives and any new instruments to be launched.
Monday saw S&P 500 near-month futures clocking the highest volume within the segment at nearly Rs 37 crore, followed by DJIA futures at Rs 35.56 crore. The S&P 500 options generated volumes of a little over Rs 32 crore.
According to a circular issued by NSE, the market-making scheme will come into effect from September 15 and will remain in force for six months. For any entity to be eligible for the scheme, “the average daily traded value (the total of the traded value for futures on S&P 500 and DJIA and notional value for S&P 500 options)” in a month should be at least Rs 35 crore.
“The performance shall be monitored and incentives shall be paid on a monthly basis from a pool of Rs 18 lakh, proportionately to the top-five participants, with the highest open interest in derivatives on both S&P 500 and DJIA put together,” added the release. More, if the trading members have to pass the benefit on to clients, it has to be done within 48 hours of the payment by the exchange.
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In respect of trade-level incentives, a buy trade shall entail an incentive of Rs 400 per Rs crore and a sell trade Rs 1,700 per Rs crore, said the release. The incentive will be given on the basis of the value of the futures contract and, in the case of options, on the basis of premium paid for the contracts. In respect of open-interest-level incentives the top the five participants in terms of total open interest will be provided incentives from a pool specifically allocated for this purpose.
This is the first time an Indian exchange has launched a market-making scheme after the capital market regulator gave its go-ahead in June. The Bombay Stock Exchange (BSE) also has plans to incentivise traders in the equity derivatives segment but has not officially launched it. Asia’s oldest stock exchange intends to spend nearly Rs 110 crore for its market-making scheme.
“We will give money to brokers who come on BSE’s derivatives platform for trade,” Ashishkumar Chauhan, deputy chief executive officer, BSE, had told Business Standard in July. “This step will be taken to increase our derivatives volume, which is less than one per cent in overall business.” The exchange will give Rs 1,050-1,100 to brokers for Rs 1 crore turnover on the exchange’ derivatives segment for both buy and sell orders. The amount will nearly double for market makers, who give both buy and sell quotes.