INTRODUCTION
BSE created history on June 9, 2000 by launching the first Exchange traded Index Derivative Contract i.e. futures on the capital market benchmark index - the BSE Sensex. The inauguration of trading was done by Prof. J.R. Varma, member of SEBI and chairman of the committee responsible for formulation of risk containment measures for the Derivatives market. The first historical trade of 5 contracts of June series was done on June 9, 2000 at 9:55:03 a.m. between M/s Kaji & Maulik Securities Pvt. Ltd. and M/s Emkay Share & Stock Brokers Ltd. at the rate of 4755.
In the sequence of product innovation, the exchange commenced trading in Index Options on Sensex on June 1, 2001. Stock options were introduced on 31 stocks on July 9, 2001 and single stock futures were launched on November 9, 2002.
September 13, 2004 marked another milestone in the history of Indian Capital Markets, the day on which the Bombay Stock Exchange launched Weekly Options, a unique product unparallel in derivatives markets, both domestic and international. BSE permitted trading in weekly contracts in options in the shares of four leading companies namely Reliance, Satyam, State Bank of India, and Tisco in addition to the flagship index-Sensex.
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Contract Specifications :
• Contract Specification for Sensex® Futures contracts
| Security Symbol |
BSX
SENSEX®
25 |
| Underlying |
| Contract Multiplier |
| Contract Period | 1, 2, 3 months |
| Tick size | 0.05 index points |
| Price Quotation | SENSEX points |
| Trading Hours | 9:55 a.m. to 3:30 p.m. |
| Last Trading/Expiration Day | Last Thursday of the contract month. If it is holiday, the immediately preceding business day. Note: Business day is a day during which the underlying stock market is open for trading. |
| Final Settlement | Cash Settlement. On the last trading day, the closing value of the underlying index would be the final settlement price of the expiring futures contract. |
Why SENSEX Futures:
There are many reasons why SENSEX® futures:
- SENSEX® as compared with other indices shows less volatility and at the same time gives returns equivalent to the returns given by the other indices.
- SENSEX® is widely used to describe the mood in Indian stock market, and because of its long history and wide acceptance, no other index matches the BSE SENSEX® in reflecting market movements and sentiments and it makes an attractive underlying for index based products like Index funds, futures & options and Exchange traded fund.
- SENSEX® is truly investable as it is the only broad based index in India that is “free float market capitalization weighted”, which reflects the market trends more rationally and takes into consideration only those shares that are available for trading in the market.
It may be noted that in addition to the SENSEX®, six sectoral indices belonging to the 90/FF series are also available for trading in the Futures and Options Segment of BSE Limited. The term ‘90 /FF' means that the indices cover 90% of the market capitalisation of the sector to which the index belongs and is thus well representative of that sector. Also, FF stands for free float – i.e. the indices are based on the globally followed standard of free float market capitalisiation methodology. The six sectoral indices that are presently available for F&O are BSE PSU, BSE TECK, BSE FMCG, BSE Metal, BSE Bankex and BSE Oil & Gas.
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TYPES OF PRODUCTS
Index Futures
A futures contract is a standardized contract to buy or sell a specific security at a future date at an agreed price.
An index future is, as the name suggests, a future on the index i.e. the underlying is the index itself. There is no underlying security or a stock, which is to be delivered to fulfill the obligations as index futures are cash settled. As other derivatives, the contract derives its value from the underlying index. The underlying indices in this case will be the various eligible indices and as permitted by the Regulator from time to time.
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Index Options
Options contract give its holder the right, but not the obligation, to buy or sell something on or before a specified date at a stated price. Generally index options are European Style. European Style options are those option contracts that can be exercised only on the expiration date. The underlying indices for index options are the various eligible indices and as permitted by the Regulator from time to time.
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Stock Futures
A stock futures contract is a standardized contract to buy or sell a specific stock at a future date at an agreed price. A stock future is, as the name suggests, a future on a stock i.e. the underlying is a stock. The contract derives its value from the underlying stock. Single stock futures are cash settled.
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Stock Options
Options on Individual Stocks are options contracts where the underlyings are individual stocks. Based on eligibility criteria and subject to the approval from the regulator, stocks are selected on which options are introduced. These contracts are cash settled and are American style. American Style options are those option contracts that can be exercised on or before the expiration date.
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Weekly Options
Equity Futures & Options were introduced in India having a maximum life of 3 months. These options expire on the last Thursday of the expiring month. There was a need felt in the market for options of shorter maturity. To cater to this need of the market participants BSE launched weekly options on September 13, 2004 on 4 stocks and the BSE Sensex.
Weekly options have the same characteristics as that of the Monthly Stock Options (stocks and indices) except that these options settle on Friday of every week. These options are introduced on Monday of every week and have a maturity of 2 weeks, expiring on Friday of the expiring week.
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CONTRACT SPECIFICATIONS
Contract Specification for Index Futures contracts
| Security Symbol | Click here for details |
| Underlying |
| Contract Multiplier |
| Contract Period | 1, 2, 3 months |
| Tick size | 0.05 index points |
| Price Quotation | index points |
| Trading Hours | 9:55 a.m. to 3:30 p.m. |
| Last Trading/Expiration Day | Last Thursday of the contract month. If it is holiday, the immediately preceding business day.Note: Business day is a day during which the underlying stock market is open for trading. |
| Final Settlement | Cash Settlement. On the last trading day, the closing value of the underlying index would be the final settlement price of the expiring futures contract. |
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Contract Specification for Index Options contracts (Monthly & Weekly)
| Security Symbol | Click here for details |
| Underlying |
| Contract Multiplier |
| Contract Period | 1, 2, 3 months & 1, 2 weeks |
| Exercise Style | European |
| Settlement Style | Cash |
| Tick size | 0.05 index points |
| Premium Quotation | In index points |
| Strike price Intervals | Shall have a minimum of 3 strikes (1 in-the-money, 1 near-the-money, 1 out-of-the-money). |
| Trading Hours | 9:55 a.m. to 3:30 p.m. |
| Last Trading/Expiration Day | Last Thursday of the contract month in case of monthly & last Friday of contract maturity in case of weekly options. If it is a holiday, then the immediately preceding business day.Note: Business day is a day during which the underlying stock market is open for trading. |
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Contract Specifications for Single Stock futures
| Security Symbol | Click here for details |
| Underlying |
| Contract Multiplier |
Contract Period | 1, 2 & 3 months | | Tick size | 0.05 points i.e. 5 paisa |
| Price Quotation | Rupees per share. |
| Trading Hours | 9:55 a.m. to 3:30 p.m. |
| Last Trading/Expiration Day | Last Thursday of the contract month. If it is holiday, then the immediately preceding business day.Note: Business day is a day during which the underlying stock market is open for trading. |
| Final Settlement | Cash Settlement. On the last trading day, the closing value of the underlying stock is the final settlement price of the expiring futures contract. |
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Contract Specification for Stock Options contracts (Monthly & Weekly Options)
| Security Symbol | Click here for details |
Underlying | Contract Multiplier | | Contract Period | 1, 2, 3 months & 1, 2 weeks |
| Exercise Style | American |
| Settlement Style | Cash |
| Tick size | 0.05 i.e. 5 paisa |
| Premium Quotation | Rupees per share |
| Strike price Intervals | Shall have a minimum of 3 strikes (1 in-the-money, 1 near-the-money, 1 out-of-the-money). |
| Trading Hours | 9:55 a.m. to 3:30 p.m. |
| Last Trading/Expiration Day | Last Thursday of the contract month in case of monthly & last Friday of contract maturity in case of weekly options. If it is a holiday, then the immediately preceding business day during which the underlying stock market is open for trading.
-Note: Business day is a day during which the underlying stock market is open for trading. |
| Final Settlement | The final settlement of the expiring option contracts would be based on the closing price of the underlying stock. The following algorithm is used for calculating closing value of the individual stocks in the cash segment of BSE including the stocks constituting Sensex:
-Weighted Average price of all the trades in the last thirty minutes of the continuous trading session.
-If there are no trades during the last thirty minutes, then the last traded price in the continuous trading session would be taken as the official closing price. |
| Exercise Notice Time | It is a specified time (Exercise Session) everyday. All in-the-money options would be deemed to be exercised on the day of expiry unless the participant communicates otherwise in the manner specified by the Derivatives Segment. |
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ELIGIBILITY CRITERIA
As prescribed by SEBI vide its Circulars regarding the eligibility criteria for introducing Futures & Options Contracts on stocks and indices, the following revised eligibility criteria would be applied w.e.f. September 22nd, 2006 to determine the eligibility of stocks and indices on which Futures & Options contract could be introduced for trading in Derivatives.
Eligibility criteria for introducing Futures & Options Contracts on Stocks.
- The stocks would be chosen from amongst the top 500 stocks in terms of average daily market capitalization and average daily traded value in the previous six-month on a rolling basis.
- For a stock to be eligible, the median quarter-sigma order size over the last six months should not be less than Rs. 1 lac (Rs 0.01 Million). For this purpose, a stock's quarter sigma order size shall mean the order size (in value terms) required to cause a change in the stock price equal to one-quarter of a standard deviation.
- The Market Wide Position Limit in the Stock shall not be less than Rs 50 crores (Rs 500 Million). The Market Wide Position Limit is valued taking into consideration 20% of number of shares held by the Non Promoters (i.e free-float holding) in the relevant underlying Security(i.e free-float holding) and the closing prices of the stock in the underlying cash market on the date of expiry of contract in the month. Market Wide Position Limit is calculated at the end of every month.
The methodology used for calculating quarter sigma order size is as follows:
- Quarter sigma order size would be calculated taking four snapshots in a day from the order book of the stock in the past six months.
- The sigma (standard deviation) or volatility estimate would be calculated in the manner specified by Prof. J. R. Varma Committee on risk containment measures for Index Futures. This daily closing volatility estimate value would be applied to the day's order book snapshots to compute the order size.
- The quarter sigma percentage would be applied to the average of the best bid and offer price in the order book snapshot to compute the order size to move price of the stock by quarter sigma.
- The median order size to cause quarter sigma price movement shall be determined separately for the buy side and the sell side. The average of the median order size for the buy and the sell side is taken as the median quarter sigma order size.
- The quarter sigma order size in stock shall be calculated on the 15th of each month, on a rolling basis, considering the order book snapshots in the previous six months. Similarly, the average daily market capitalization and the average daily traded value shall also be computed on the 15th of each month, on a rolling basis, to arrive at the list of top 500 stocks.
Eligibility criteria for unlisted companies coming out with Initial Public Offering :
For unlisted companies coming out with initial public offering, if the net public offer is Rs. 500 crores (Rs 5 Billion) or more, then the exchange may consider introducing stock options and stock futures on such stocks at the time of its listing in the cash market.
Eligibility criteria for stocks on account of corporate restructuring:
All the following conditions should be met in the case of shares of a company undergoing restructuring through any means for eligibility to re-introduce derivative contracts on that company from the first day of listing of the post restructured company in the underlying market:
- The Futures and Options contracts on the stock of the original (pre-restructure) company were traded on any exchange prior to its restructuring.
- o The pre restructured company had a market capitalization of at least Rs. 1000 crores (Rs 10 Billion) prior to restructuring.
- o The post restructure company would be treated like a new stock and if it is, in the opinion of the exchange, likely to be at least one third of the size of the pre structuring company in terms of revenues or assets or analyst valuations, and
- o In the opinion of the exchange, the scheme of restructuring does not suggest that the post restructured company would have any characteristic that would render the company ineligible for derivatives trading.
- o If the post restructured company comes out with an Initial Public Offering (IPO), then the same prescribed criteria as currently applicable for introduction of derivatives on a company coming out with an IPO is applied for introduction of derivatives on stocks of the post restructured company from its first day of listing.
Discontinuance / Exit of Futures & Options Contracts on stocks : No fresh month contracts shall be issued on the stocks under the following instances
- o If a stock does not conform to the above eligibility criteria for a consecutive period of three months, no fresh month contracts shall be issued on the same.
- o If the stock remains in the banned position in the manner stated in SEBI Circular No. SEBI/DNPD/Cir-26/2004/07/16 dated July 16, 2004 as per para 4 (i) (a), (b) (c) of the aforementioned SEBI circular, for a significant part of the month, consistently for three months, then no fresh month contracts shall be issued on those scrips.
- The exit criteria shall be more flexible as compared to entry criteria in order to prevent frequent entry and exit of stocks in the derivatives segment. Therefore, for a stock to become ineligible, the criteria for market wide position limit shall be relaxed upto 10% of the criteria applicable for the stock to become eligible for derivatives trading. The other eligibility conditions would be applicable mutas mutandis for the stock to become ineligible.
If a stock fails to meet the aforesaid eligibility criteria for three months consecutively, then no fresh month contract shall be issued on that stock
However, the exstinig unexpired contracts may be permitted to trade till expiry and new strikes may also be introduced in the existing contract months.
The Exchange may compulsorily close out all derivative contract positions in a particular underlying when that underlying has ceased to satisfy the eligibility criteria or the exchange is of the view that the continuance of derivative contracts on such underlying is detrimental to the interest of the market keeping in view the market integrity and safety. The decision of such forced closure of derivative contracts shall be taken in consultation with other exchanges where such derivative contracts and are also traded shall be applied uniformly across all exchanges.
- Re-Introduction of Stocks Discontinued from Futures & Options Trading :
A stock, which is dropped from derivatives trading, may become eligible once again. In such instances, the stock is required to fulfill the eligibility criteria for three consecutive months (instead of one month as specified earlier) to be re-introduced for derivatives trading. Derivative contracts on such stocks may be re-introduced by the exchange itself. However, introduction of futures and option contracts on a stock for the first time would continue to be subject to SEBI approval.
Eligibility criteria for introducing Futures & Options Contracts on Index
The Futures Options Contracts on an index can be issued only if 80% of the index constituents are individually eligible for derivatives trading. However, no single ineligible stock in the index shall have a weightage of more than 5% in the index. The index on which Futures and Options contracts are introduced shall be required to comply with the eligibility criteria on a monthly basis.
SEBI has subsequently clarified that "The Exchange may consider introducing derivative contracts on an index if the stocks contributing to 80% weightage of the index are individually eligible for derivative trading. However, no single ineligible stock in the index shall have a weightage of more than 5% in the index."
Discontinuance of Futures & Options Contracts on index:
If the index fails to meet the above eligibility criteria for three months consecutively, then no fresh month contract shall be issued on that Index. However, the existing unexpired contracts shall be permitted to trade till expiry and new strike prices will continue to be introduced in the existing contracts.
The above requirements as prescribed by SEBI need to be necessarily met for introduction of F&O contracts on underlying stocks of the cash market. However, once the criteria are met, it is at the discretion of the Exchange to apply to SEBI for permission to launch F&O contract on the eligible stocks. Once the SEBI approval in respect of those stocks is obtained, the exchange issues a suitable notice to the market, in advance and then introduces F&O contracts on the respective stocks.
To get a list of the scrips which have become eligible for trading in the Derivatives Segment of the exchange please click here (http://www.bseindia.com/about/ordersize.asp)
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TRADING SYSTEM
The Derivatives Trading at BSE takes place through a fully automated screen based trading platform called as DTSS (Derivatives Trading and Settlement System). The DTSS is designed to allow trading on a real time basis. In addition to generating trades by matching opposite orders, the DTSS also generates various reports for the member participants.
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Order Matching Rules
Order Matching will take place after order acceptance wherein the system searches for an opposite matching order. If a match is found, a trade will be generated. The order against which the trade has been generated will be removed from the system. In case the order is not exhausted further matching orders will be searched for and trades generated till the order gets exhausted or no more match-able orders are found. If the order is not entirely exhausted, the system will retain the order in the pending order book. Matching of the orders will be in the priority of price and timestamp. A unique trade-id will be generated for each trade and the entire information of the trade is sent to the members involved.
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Order Conditions
The derivatives market is order driven i.e. the traders can place only Orders in the system. Following are the Order types allowed for the derivative products. These order types have characteristics similar to ones in the cash market.
- Limit Order: An order for buying or selling at a limit price or better, if possible. Any unexecuted portion of the order remains as a pending order till it is matched or its duration expires.
- Market Order: An order for buying or selling at the best price prevailing in the market at the time of submission of the order. There are two types of Market orders:
- Partial fill rest Kill (PF): execute the available quantity and kill any unexecuted portion.
- Partial fill rest Convert (PC): execute the available quantity and convert any unexecuted portion into a limit order at the traded price.
- Stop Loss: An order that becomes a limit order only when the market trades at a specified price.
All orders shall have the following attributes:- Order Type (Limit / Market PF/Market PC/ Stop Loss)
- The Asset Code, Product Type, Maturity, Call/Put and Strike Price.
- Buy/Sell Indicator
- Order Quantity
- Price
- Client Type (Own / Institutional / Normal)
- Client Code
- Order Retention Type (GFD / GTD / GTC)
Good For Day (GFD) - The lifetime of the order is that trading session.
Good Till Date (GTD) - The life of the order is till the number of days as specified by the Order Retention Period.
Good Till Cancelled (GTC) - The order if not traded will remain in the system till it is cancelled or the series expires, whichever is earlier.
- Order Retention Period (in calendar days) This field is enabled only if the value of the previous attribute is GTD. It specifies the number of days the order is to be retained.
- Protection Points This is a field relevant in Market Orders and Stop Loss orders. The value enterable will be in absolute underlying points and specifies the band from the touchline price or the trigger price within which the market order or the stop loss order respectively can be traded.
- Risk Reducing Orders (Y/N): When the member's collateral falls below 50 lacs then he will be allowed to put only risk reducing orders and he will not be allowed to take any fresh positions. It is not essentially a type of order but a mode into which the member is put into when he violates his collateral limit. A member who has entered the risk-reducing mode will be allowed to put only one risk reducing order at a time.
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TRADING HOLIDAYS
| | Holidays | Date | Day |
| 1 | Mahashivratri | 6th March 2008 | Thursday |
| 2 | Id-E-Milad | 20th March 2008 | Thursday |
| 3 | Good Friday / Holi (1 st Day) | 21st March 2008 | Friday |
| 4 | Ambedkar Jayanti | 14th April 2008 | Monday |
| 5 | Mahavir Jayanti | 18th April 2008 | Friday |
| 6 | Maharashtra Day | 1st May 2008 | Thursday |
| 7 | Buddha Purnima | 19th May 2008 | Monday |
| 8 | Independence Day | 15th August 2008 | Friday |
| 9 | Ganesh Chathurthi | 3rd September 2008 | Wednesday |
| 10 | Ramzan Id / Gandhi Jayanti | 2nd October 2008 | Thursday |
| 11 | Dasera | 9th October 2008 | Thursday |
| 12 | Diwali (Laxmi Pujan) | 28th October 2008 | Tuesday |
| 13 | Diwali ( Bhaubeez) | 30th October 2008 | Thursday |
| 14 | Gurunanak Jayanti | 13th November 2008 | Thursday |
| 15 | Bakri-Id | 9th December 2008 | Tuesday |
| 16 | Christmas | 25th December 2008 | Thursday |
Muhurat Trading will be held on Tuesday, 28th October 2008 (Diwali Amavasya - Laxmi Puja)
The Exchange may alter / change any of the above Holidays, for which a separate circular will be issued in advance.
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SESSION TIMINGS
SESSION NAME | FROM | TO |
Login Session | 8:30 | 9:55 |
Trading Session | 9:55 | 15:30 |
Position Transfer Session | 15:30 | 15:50 |
Closing Session | 15:50 | 16:10 |
Option Exercise Session | 16:10 | 16:40 |
Margin Session | 16:40 | 16:55 |
Query Session | 16:55 | 17:40 |
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PRICE BANDS
There are no maximum and minimum price ranges for Futures and Options Contracts. However, to avoid erroneous order entry, dummy price bands have been introduced in the Derivatives Segment. Further, no price bands are prescribed in the Cash Segment for stocks on which Futures & Options contracts are available for trading. Also, for those stocks which do not have Futures & Options Contracts available on them but are forming part of the index on which Futures & Options contracts are available, no price bands are attracted provided the daily average trading on such indices in the F & O Segment is not less than 20 contracts and traded on not less than 10 days in the preceding month.Top
LIMITED TRADING MEMBERSHIP FOR BSE DERIVATIVES SEGMENT
A Limited Trading Member (LTM) is a non-clearing trading participant having full trading rights and access to the Derivatives Trading System of the Exchange.
- A LTM is provided with derivatives trading terminals for execution of trades either on his own account or on account of his clients.
- A LTM can issue contract notes to his clients in his own name.
- A LTM can exercise and perform trade and position management functions online and also check his payment obligations that may result from his trading activities.
- A LTM, however, cannot clear and settle trades executed by him directly with the Clearing House of the Exchange. For this purpose, LTM would need to enter into an arrangement with an existing Clearing Member of the Derivatives Segment of BSE. (A list of Clearing Members can be obtained from the Exchange.)
What are the advantages of becoming a LTM?
There are following significant advantages in becoming LTM of the Derivatives Segment of the BSE.
- Access to the on-line Derivatives Trading & settlement System(DTSS) of the Exchange
- Trading in Option and Futures on Sensex,Sectoral Indices,Single Stock Futures and Options in eligible scrips.
- Access to new products as and when they are introduced
Who can become LTM?
Individuals, firms, corporates and institutions, who are not members of the Cash Segment of BSE, can become LTM.
What are the requirements for becoming a LTM?
- Minimum networth of Rs. 25 lakhs
- A registration with SEBI
Charges payable by LTM:
One-time (non-refundable) contribution to Trade Guarantee Fund (TGF) : Rs.1,00,000 One-time (non-refundable) contribution to Investors Protection Fund (IPF) : Rs.2,00,000
* Annual membership charges : Rs.25,000
Minimum Security Deposit:
LTM has to maintain a minimum security deposit of Rs.7,50,000 with the Clearing Member and the same is available to him for the purpose of trading limits and initial margin requirements.
Transaction Charges:
The members are at present required to pay transaction charges at a Re. 0.25 per Rs.1,00,000 of turnover which is appropriated towards TGF & IPF.
Sub-brokers in the Cash Segment can become LTMs of the Derivatives Segment with minimum investment and significant advantages as mentioned above.
* Annual membership charges of Rs. 25,000/- have been waived for the financial year, 2004-05.
For further information please contact us on -
Neeraj Agarwal - Tel: 22723887 (D) ; 22721233/34 (Extn: 8346)
Girish Vyas - Tel: 22721233/34 (Extn: 8502)
Ameya Bhagwat - Tel: 22721233/34 (Extn: 8419)
Email: derivativesinfo@bseindia.com
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