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Derivative products in BSE and its

Functioning mechanism

GROUP 5

The Bombay Stock Exchange (BSE) created history on June 9, 2000


when it launched trading in Sensex based futures contract for the
first time. It was then followed by trading in index options on June 1,
2001; in stock options and single stock futures (31 stocks) on July 9,
2001 and November 9, 2002, respectively.
It permitted trading in the stocks of four leading companies namely;
Satyam, State Bank of India, Reliance Industries and TISCO (renamed
now Tata Steel).
Chhota (mini) SENSEX7 was launched on January 1, 2008. With a
small or'mini' market lot of 5, it allows for comparatively lower capital
outlay, lower trading costs,more precise hedging and flexible trading.
Currency futures were introduced on October 1,2008 to enable
participants to hedge their currency risks through trading in the U.S.
dollarrupee future platforms.

Products Traded in Derivatives Segment of the


BSE
Sl.
No

Product

Traded with
underlying
asset

Introduction
date

Index Futures

Sensex

June 9,2000

Index Options

Sensex

June 1,2001

Individual
Stock Option

Concerned
July 9, 2001
Company Stock

Individual
Stock futures

Concerned
November
Company Stock 9,2002

Weekly Option

4 Stocks

September
13,2004

Chhota (mini)

SENSEX

January 1, 2008

Currency
Futures

US Dollar
Rupee

October 1,2008

Source: Compiled from BSE website

Trade details of
Derivatives in BSE

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, as the name suggests, is a future on
the index i.e. the underlying is the index itself. There
is no underlying security 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 are various eligible indices and
as permitted by SEBI.

Index Futures Product


Product
Code

Contract
Multiplier

BSXFUT

15

BSE S&P BSE


SENSEX MINI
FUTURES

MSXFUT

BSE S&P BSE


TECK FUTURES

TECKFUT

70

Sr.No

Product
BSE 30 S&P
BSE SENSEX
FUTURES

Content Period

Tick Size

Trading Hours

Last Trading/Expiration Day

Final Settlement

1,2,3 Month
Rs. 0.25 in spread price terms for
S&P BSE SENSEX futures contracts
Rs. 0.05 in spread price terms for
S&P BSE-100 futures contracts
Rs. 1 in spread price terms for
other index futures contracts
9 .15 a.m to 3.30 p.m
Last Thursday of each contract
maturity month.
Note:
A. Business day is a day during
which the underlying stock market
is open for trading.
B. If expiry day is a holiday, then
the immediately preceding
business day.
Cash Settlement. On the last
trading day, the closing value of
the underlying index would be the
final settlement price of the

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, being those option contracts that can
be exercised only on the expiration date.
The underlying indices for index options are
the various eligible indices as permitted by
SEBI.

Index options products

Long Dated Options


(LDO)
SEBI , on January 11, 2008, had announced the introduction
of Index Options with a longer tenure. BSE introduced 'Long
Dated Options' on its flagship index - Sensex -on
February 29, 2008, whereby the Members can trade in
Sensex (in the normal lot of 15 only and not 'mini' Sensex)
Options contracts with an expiry of up to 3 years.

Features of Long Dated Options (LDO)

Later expiration dates offer an opportunity for long term


investors to take a view on prolonged price changes without
requiring to use a combination of short term option contracts.
Premia for long-term options tend to be higher than that of
short term options because the increased expiration period
means increased possibility of larger movement in the price of
the underlying.
Long-term high net worth investors and institutions need not
be burdened with the cost of rolling over the options
purchased to protect their portfolios from downside risks.
LDOs offer a good alternative to a long-term trader to gain
exposure to a prolonged period in a given security without
having to roll several short term contracts

Following new options series are available for the


Sensex (normal lot of 15) Options contracts are:Along
with the existing 3 monthly rolling contracts, three
additional 3 fixed quarterly months of the cycle
Mar/Jun/Sep/Dec would be available.
Further, 5 additional semi-annual months of the cycle
Jun/Dec would be available, so that at any point in time
there would be options contract with up to 3 years
tenure available.
All risk management measures and contract
specifications (except for the longer expiries) for normal
monthly contracts would also apply to the Long Dated
Options contracts.

STOCK OPTIONS
Options on individual stocks are options
contracts where the underlyings are
individual stocks.
Based on the eligibility criteria and subject
to the approval from SEBI, stocks are
selected on which options are introduced.
These contracts are cash settled and are
American style, being those option
contracts that can be exercised on or
before the expiration date.

Single Stock Futures


Options on individual stocks are options
contracts where the underlyings are
individual stocks.
Based on the eligibility criteria and subject
to the approval from SEBI, stocks are
selected on which options are introduced.
These contracts are cash settled and are
American style, being those option
contracts that can be exercised on or
before the expiration date.

Stock Futures Products


Sr.No
1
2
3
4
5
6
7
8
9
10

Product
Aban Offshore
Ltd
ABB Ltd
ALOK
INDUSTRIES LTD.
Associated
Cement
Companys Ltd.
Axis Bank Ltd.
Bajaj Hindusthan
Ltd
Balrampur Chini
Mills Ltd
Bank Of Baroda
Bank Of India
Bharat Heavy
Electricals Ltd.

Product Code

Contract
Multiplier

ABOFUT

250

ABBFUT

250

ALIFUT

10000

ACCFUT

250

AXSFUT

250

BHLFUT

2000

BLCFUT

4000

BLCFUT
BOIFUT

250
500

BHEFUT

125

Content Period
Tick Size
Trading Hours

Last Trading/Expiration Day

Final Settlement

1,2,3 Month
Rs.0.05
9 .15 a.m to 3.30 p.m
Last Thursday of each
contract maturity month.
Note:
A. Business day is a day
during which the underlying
stock market is open for
trading.
B. If expiry day is a holiday,
then the immediately
preceding business day.
Cash Settlement. On the last
trading day, the closing value
of the underlying stock is the
final settlement price of the
expiring futures contract