Derivatives trading will soon be available in the top 500 scrips (by market capitalisation) in the country. This will provide a phenomenal impetus to the growth of the derivatives market which has done reasonably well in the last two years.
According to a National Stock Exchange (NSE) report, the number of contracts traded on the exchange increased from 13,274 in April 2001 to 751,958 by March 2002.
Similarly, the turnover increased from a paltry Rs 292 crore to Rs 20,490 crore during the same period. But with the introduction of more scrips, the rate of growth in this segment will increase manifold.
At present, derivative products such single-stock futures and options are permitted only in 31 shares specified by the Securities and Exchange Board of India (Sebi) in consolation with the stock exchanges.
But the Sebi board today paved the way for increasing the number of scrips on which derivative products can be traded. It approved the eligibility criteria for the selection of scrips, broadly on the lines set out by the Kania committee, but left it to individual exchanges to pick the individual stocks.
These eligibility criteria will be applicable to the top 500 stocks by market capitalisation. Expanding the number of scrips will bring more depth to the market as well as present investors with more choices.
At present, there is a concentration of volumes in the top five scrips. The availability of more stocks in the derivatives segment coupled with a reduction in the contract size are expected to make the products even more accessible to the retail investor. It would also improve product differentiation across the exchanges, while addressing the risks of market manipulation.
The Sebi board, however, did not approve the proposal to allow physical settlement of derivatives contracts.
All scrips found eligible for trading in derivatives would have to be approved by Sebi. G N Bajpai, chairman, Sebi, said that the physical settlement of derivatives contracts would have to wait until the margin trading scheme was properly in place and other issues were ironed out.
Sub-brokers can also trade in derivatives but they will not be registered with Sebi and the responsibility will lie with the brokers concerned.
The Sebi board also approved the reduction in minimum contract size from Rs 2 lakh to Rs 1 lakh but the proposal has to wait for the finance ministry
