2. www.nseindia.com 7 th Annual Conference – Association of Futures Markets (March 4-5), Budapest Derivatives Market At National Stock Exchange of India J. Ravichandran, Director (L&S, C&I, F&A), NSE

3. www.nseindia.com Milestones Demutualised Exchange since beginning (1994) Wholesale Debt market from June 94 Equity (cash) market from Nov 94 Became largest stock exchange in India Nov-95 Index futures from Jun-00 Index Options from June-01

4. www.nseindia.com Milestones (contd…) Stock Options from July-01 Stock Futures Nov-01 Exchange Traded Funds from Jan- 02 Retail debt Market from Jan-03 Interest Rate futures from Jun-03 Sectoral (IT) index futures from Aug-03 National Commodities & Derivatives Exchange (NSE Associate) trading from Dec- 04

5. www.nseindia.com NSE Today Three segments : Cash, Derivatives & Debt Online trading from more than 400 towns/cities VSAT/land line based trading net work More than 3000 VSAT & 1000 land line connections More than 5% of trading through internet More than 800 members, who can trade for themselves and for clients including FIs & FIIs. More than 20,000 trading terminals Membership on tap – Deposit for Cash & Derivatives segments (About USD 3.90 Mill)

6. www.nseindia.com NSE Today (Contd) Settlement in Cash & Derivatives through National Securities Clearing Corporation Ltd (Subsidiary of NSE) NSCCL guarantees settlement (guarantees against counterparty settlement risk) Settlement on T + 2 on netted basis All securities settlement through demat mode. Laws amended in 2000 to enable financial derivatives trading. Commodities derivatives under different regulator and hence different exchange.

7. www.nseindia.com Derivatives Market Products: –Futures on S&P CNX NIFTY and CNXIT Indices –Options on S&P CNX NIFTY and CNXIT Indices –Futures on 53 single stocks –Options on 53 single stocks –Futures on Interest Rate

8. www.nseindia.com Cash Vs. Derivatives volume growth

9. www.nseindia.com Derivatives volume growth – various products

10. www.nseindia.com Daily avg. trade statistics MarketAvg. no. of trades (million) Avg.no of contracts / shares traded (million) Avg. Value traded (US $ million) Derivatives0.200.272665 Cash1.7203201190 Debt0.0005NA720 Avg. of Nov 03 – Jan 04

11. www.nseindia.com Daily avg. trade statistics – product wise ProductAvg. no. of trades Avg. shares / contracts traded (mill.) Avg. Value traded (US $ mill.) % contribution Index Futures0.0390.9675728% Index Options0.0040.07572% Stock Futures0.1411.57165563% Stock Options0.0150.171947% Avg. of Nov 03 – Jan 04

12. www.nseindia.com Stock Futures Exchange Daily Average contracts traded (Nov 03 - Jan 04) 1National Stock Exchange of India156.92 2SOFFEX (Swiss)100.56 3MEFF (Spain)54.73 4Euronext18.49 5Sydney Futures Exchange0.25 6Hong Kong Stock Exchange0.06 Figs in ‘000 Source: Respective web sites

13. www.nseindia.com Comparison Table – Financial Derivatives Name of the Exchange Average No of contracts (Monthly) (Jan03-Oct03) 1Korea Stock Exchange (Asia)239,731,299 2Eurex (Europe)87,441,549 3Euronext (Europe)59,881,492 4Chicago Mercantile Exchange (U.S.)*53,954,764 5Chicago Board of Trade (U.S.)*38,164,727 6Chicago Board Options Exchange (U.S.)*23,365,494 7International Securities Exchange (U.S.)19,845,453 8Mexican Derivatives Exchange (S. America)15,184,404 9American Stock Exchange (U.S.)15,138,504 10Philadelphia Exchange (U.S.)8,862,505 11Pacific Stock Exchange (U.S.)6,936,409 12Stockholmborsen (Europe)6,197,704 13Sydney Futures Exchange (Aus.)*3,696,075 14National Stock Exchange of India3,258,800 15Singapore Exchange (Asia)3,068,516 * Includes commodity derivates Source FIA Web site

14. www.nseindia.com Other Derivatives Market Highlights All contracts are cash settled All contracts traded in Indian Rupees Minimum single contract value : US $ 4450 More than 530 members participate Mostly retail market (97%) Index Futures account for 30 %

15. www.nseindia.com Other Derivatives Market Highlights (Contd) Contract Life cycle 1, 2 & 3 months Most interest in near month Daily average contracts traded : 320,000 Average Open Interest (Nov 03 – Jan 04) US $ 2267 mill. Growth of over 230% in 2003 99% Market Share of Indian Market

16. www.nseindia.com Other Derivatives Market Highlights (Contd) No OTC market in equity derivatives Spread of hedging, arbitrage and day trading 370 investors education program for derivatives conducted in 90 cities/towns 2 nd largest Financial Derivatives Exchange in Asia after KSE

17. www.nseindia.com Futures on Individual Stocks Contracts on 53 individual stocks Selection based on liquidity criteria (last six months) Review on monthly basis Most active on NSE (62%) Highest volume (contracts) in the world

18. www.nseindia.com Futures on S&P CNX NIFTY Nifty Index Criteria: –Average (six monthly) Market Capitalisation of US $ 120 Millions –Average (six monthly) Impact cost less than 1.5% –Reviewed every quarter Consists 50 blue chip and highly liquid equity Covers more than 20 sectors Accurately reflects Indian market movement Futures & Options in CNX IT Sector Index launched recently

19. www.nseindia.com Interest rate futures Introduced in July 2003 Cash settled Currently three notional bonds traded : –Notional 91 day T-Bill –Notional 10 year Zero Coupon bond –Notional 10 year 6% Coupon bearing bond Volumes yet to pick up Futures based on YTM methodology to be introduced OTC market also present

20. www.nseindia.com Risk Management Managed by NSCCL, a subsidiary of NSE Stringent Margins & Position Limits Client level Margining & Position Limits SPAN ® (Portfolio based) margining methodology Margins calculated 6 times a day

21. www.nseindia.com Risk Management (Contd) On-line, Real time position monitoring Upfront collection of margins at member & client level Daily market to market settlement Stringent penalty for non/short collection Country Party Guarantee through Settlement Guarantee Fund

22. www.nseindia.com Future Plans Introduction of new products –Interest Rate Futures (YTM based) –Interest Rate Options –Swaps –More sectoral indices Cross Margining across Physical settlement in derivatives Securities lending T+1 settlement in Cash Market Awareness campaign for Options

23. www.nseindia.com Foreign Institutional Investors More than USD 7 Billion inflow into equity markets since Jan, 03. Contribution to volumes : 2.50% Contribution to Open Interest : 20% Need to be registered with Regulator (SEBI) before participating in Indian Market CFTC No action letter recd (Nifty Futures Contract).

24. www.nseindia.com Foreign Institutional Investors (Contd) Position limits for FIIs: –For index derivatives, 15% of open interest in contracts in any one underlying or US$ 20 mill., whichever is higher. –For securities with market wide position limit less than or equal to US$ 55 mill., limit is 20% of the market wide position limit. –For securities, with market wide position limit greater that US$ 55 mill., limit is US$ 10 mill.

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