In an effort to keep brokers and trading members interested in derivatives trading on its platform, the Bombay Stock Exchange (BSE) is mulling extending the Liquidity Enhancement Incentive Programmes-II (LEIPS-II) by six more months, said informed sources. The incentive is slated to end on April 26.
“The management is planning to propose to the board of directors of the exchange at its meeting scheduled later this month for an extension of the LEIPS-II. There has been robust participation from members and it has helped BSE achieve significant volumes in the derivatives segment. Therefore, we think an extension of six months will be helpful,” added a source privy to the development.
However, according to directions from the Securities and Exchange Board of India (Sebi), the scheme can continue for six months only.
“Nothing in specific has been decided yet, but we would recommend extending the period of LEIPS with some changes in the existing scheme or as it is,” said the source, requesting anonymity.
LEIPS-II was launched on October 26, 2011 for a period of six months, with the intention of fostering development of a healthy derivatives order book for the Sensex and its underlying 30 stocks as well as its sectoral index, the Bankex, by maximising participation across the board, both from market participants and investors, in general.
BSE had made a provision for incentives to the tune of Rs 102 crore (Rs 17 crore on a monthly basis) to all participating members during this period. “The decision on the allocation of funds for incentives during the extended period would be taken after the board’s approval for the same,” the source informed.
Since the launch of LEIPS, BSE’s derivatives segment has seen a sharp rise in volumes. According to officials, the average daily turnover for March 2012 was in the range of Rs 12,000-Rs 13,000 crore, which is significantly higher than the Rs 40 crore clocked in September 2011, when the first series of LEIPS-I was launched. The average daily turnover had crossed the Rs 1,000-crore mark in November, 2011.
“When we started, our daily turnover was negligible and there were only a few members participating in the derivatives contracts. This programme has helped us achieve significant volumes in the derivatives segment,” a senior BSE official said.
According to traders, the derivatives contracts on the BSE would pick up pace with further encouragement. “Given the fact that LEIPS has incentivised participants to actively take up derivatives contracts, we believe there will be a further boost for volumes in the future and options segment on BSE,” said a trader from Ahmedabad, who is also a member of BSE.
However, participation from Gujarat has not been as high as it was visualised at the time of launch. BSE officials had expected at least 25-30 per cent of total daily volumes to come from Gujarat.
“There is slow participation from traders and members in Gujarat and the state’s share in daily volumes would be less than what we had estimated,” said the BSE official. The state controls 35-40 per cent share of daily volumes of the cash segment on BSE.
On February 1, 2012, BSE had introduced the third series of the liquidity enhancement programme - LEIPS-III, for its Options sub-segment. LEIPS-III is aimed at infusing greater impetus and focused participation in developing the options market on BSE.
LEIPS-III focuses on options in the Sensex and covers all Sensex options contracts with end-of-month expiry cycle. It incentivises market makers and general market participants by payment of cash for their participation in accordance with prescribed terms and conditions.
