derivative market

Sebi board approves new derivatives products
2007-11-14 17:05:20 Source : moneycontrol
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The Sebi board met in Chennai and has approved new derivatives products. It has approved the introduction of volatility index and F&O contracts, as well as options on futures, reports CNBC-TV18.
Apart from that, the board approved mini contracts on equity indices. Options with longer tenor, bond indices and F&O contracts have also been approved. It has approved exchange-traded currency (forex) F&O.
The Sebi Chairman has been speaking about the expansion of the derivative market. We trade normally between USD 15-20 billion on a daily basis in the market. Analysts said that it was time that we expand the market to various derivative products. That is what the Ram Mohan Rao Committee on derivatives has done. It has suggested a lot of derivative products to the Sebi Board and the Board has accepted the interim recommendation.

Now, the Committee was set up on March 30 this year. Within a span of 6-7 months, they have come out with interim recommendations. Analysts added that these are just interim recommendations that have been approved by the Sebi board and it requires a lot of regulatory work to be done, before these products can come into the market.

Among the products that have been approved are the mini contract on equity indices. Currently, the minimum value of equity indices or any futures contract has to be Rs 2 lakh. It is understood that mini contracts would mean less than Rs 2 lakh. That could require some regulatory permission, because the Rs 2 lakh figure was approved by the Parliamentary Standing Committee on Finance, and it has to go through that Committee which has to approve it.

That is the reason why none of the contracts were brought down below Rs 2 lakh, in terms of contract value. There were options with longer life and longer tenor, which basically means that we are looking at LEAS or Long-term Equity Anticipation Securities, which is the expanded version of the current options in the market.

The options market has also grown big, but it is not as big as the futures market. But there is very little interest coming in the second and third month contracts. According to analysts, we need to see how the long-term options contract will work out, because eventually it would mean that the long-term options contract would be much cheaper, as compared to the current options contract. So, it is a move in the right direction. But it will require a lot of regulatory framework and a lot of risk framework before it can come out in the open