SEBI Suggests Mini Contracts In Equity Derivatives

MUMBAI: Market regulator Securities and Exchange Board of India has suggested the introduction of mini contracts in the equity derivatives market on main indexes to improve liquidity and increase investor participation.

Mini contracts are a fraction of normal derivatives contracts and help individual investors hedge risks of a smaller portfolio. In a note on 'New Products in F&O segment' released late on Monday, the Securities and Exchange Board of India has suggested initially having mini contracts for index futures and options on the 30-share BSE index and 50-share NSE index.

The note, put up on the regulator's Web site for public comments, said the popularity of mini contracts has been increasing globally due to the higher liquidity and the ability to get in and out of a trade quickly with low impact cost.

The regulator has also suggested the introduction of options contracts with longer tenures. At present the maximum life tenure of an options contract is three months. The note proposes to create and disseminate a volatility index. This index would be a measure of market expectations of near-term volatility conveyed by the prices of stock index options or a basket of options on stocks and would be an indicator of investor sentiment. Futures and options on the volatility index may be considered for introduction at a later stage, SEBI said.

Introduction of options on futures on the existing interest rate products traded on exchanges has also been suggested. Introduction of options on futures on interest rates, which are not active in the derivatives segment, is expected to provide liquidity in the interest rate futures segment.

The note also suggests the creation of a bond index and derivatives on this index could be introduced on the lines of equity derivatives. The possibility of exchange-traded single bond futures and exchange-traded credit derivatives could also be explored, it said.