Now Futures and Options on Global Indices at NSE

The stock market watch dog, SEBI, has now allowed Indian stock exchanges to offer futures and options on 24 major global stock exchange indices covering the U.S., Europe and Asia. I think this would make the Indian market places vibrant and stand them at par with global exchanges in future years if not immediately.

This is an excellent move by the SEBI to show emerging India as a global market place to the world. NSE would come up with these derivatives in a month and investors can start trading. At this point,  only Indian investors can trade in these derivatives.

The SEBI has given a list of 24 global stock exchanges. The indices on these stock stock exchanges which can be used as underlying to offer derivatives. It has also put the below restrictions on the exchanges while continuing these indices for derivatives.

1. The global index should not have any constituent with more than 25% weight computed using free-float market capitalization methodology.
2. The global index should have more than 10 constituents
3. In terms of trading volumes (number of contracts), derivatives on that Index figure among the top 15 Index derivatives globally.  (or)  The market capitalization of the index (collective market capitalization of the constituents) should at least be $ 100 Billions.

If any of the index doesn’t meet any one of the above criteria consecutively for 3 months, the exchange should not offer fresh derivatives on the index further. However, the existing unexpired contracts would be traded till expiry and new strikes may be introduced on those contracts.

“The absolute numerical value of the underlying foreign index shall be denominated in Indian rupees (INR). The derivatives contracts on that foreign index would be denominated traded and settled in Indian rupees.” SEBI mentioned.

As of now we had Hang Seng BeES, an exchange Traded fund which gives exposure to Hangseng Index. But no derivatives were allowed on the index.

Here is the list of 24 stock exchanges SEBI has approved for derivative contracts for Indian investors. Any Index haviing derivatives on these stock exchanges and meeting the above mentioned criteria is eligible for derivatives on Indian stock exchanges. So the indices list could be more than 24.

As far as derivatives are concerned, they would be same  as derivatives on NIFTY or MINIFTY. Only difference would be the underlying index could be of NASDAQ OMX or TAIFEX etc.

Do you think this would change the dynalics of the Indian markets and place India at global peers in long run? Are you up and waiting to trade in these foreign index derivatives?

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Sathish Emmadi

Sathish Emmadi is a co-founder & editor at Lastbull.com. He is presently working in IT for one of the world’s top mutual fund companies. Handled multiple projects in BFSI (Banking,Financial Services and Insurance) domain. An Engineering Graduate from NITW.

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