Lack of active market makers results in zero trade in the F&O contracts since launch.
Futures and options (F&O) contracts of the Bombay Stock Exchange (BSE) benchmark Sensex have made a poor start on Eurex, Europe’s largest derivatives exchange.
The contracts, which were launched on Eurex on October 4, have not registered any trades till date as market makers have not yet become active in these products.
Eurex offers trading in four products on Sensex futures and eight on Sensex options. However, not a single trade has taken place in any of these products since their launch, statistics available on the Eurex website show. The exchange is not charging any trading or clearing fee for Sensex products between October 4 and March 31, 2011.
“As of on Tuesday, no transactions have been recorded (in Sensex F&O contracts). Many of our potential market makers are still in the process of getting connected to the Eurex system, which is in some cases more challenging than they originally expected,” said Roland Schwinn, head of sales, Asia & Middle East, Eurex. “Jointly, we work with urgency to solve the open issues in order to build up liquidity in the order book,” he added.
According to Schwinn, the volume in Sensex futures and options on Eurex will highly depend on the readiness of market makers. “We put a lot of effort into the issue of connectivity and incentivising market makers,” he said.
For Sensex futures and options, Eurex has offered designated and permanent market making schemes, respectively, to its members for supplying continuous bid and ask prices (quotes) for a minimum number of contracts in compliance with the maximum spreads.
Once the free-of-charge period is over, the exchange will give 30 per cent share of the transaction fees to a designated market maker in case of Sensex futures between April 1, 2011 and December 31, 2011 as per his share in order book trading. For Sensex options, permanent market makers may trade for reduced fees as of April 1, 2011 after the free-of-charge period.
Lack of liquidity in Sensex F&O contracts on BSE is also an issue. “Eurex is starting a market from zero in the absence of liquidity in Sensex derivatives in India,” said Jayanth Varma, professor of finance at IIM-Ahmedabad. “Theoretically, it is possible to launch index derivatives in the overseas market, without having those products in the home market. However, if the Sensex F&O contracts had been liquid in India, starting of those contracts on Eurex would have become a bit easier.”
At present, there is hardly any trading in Sensex F&O contracts on BSE. Asia’s oldest stock exchange has been trying for quite some time to make inroads in the derivatives segment, where the National Stock Exchange has a near monopoly.
