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June 11, 2001
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Money > Business Headlines > Report June 11, 2001 |
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BSE losing out to NSE in derivatives gameJanaki Krishnan The Bombay Stock Exchange is caught in a bind as most of the larger participants prefer to trade on the derivatives segment of the National Stock Exchange due to lower impact costs. As a result, major derivatives players have shifted away from the BSE to the NSE. Impact costs are a direct function of liquidity so that the greater the liquidity, the lower are the costs. Basically, impact costs can also be defined as the spread obtained on a buy-sell trade. Sources say the BSE cannot possibly match the NSE's lower costs unless it delivers the same level of trading volumes (liquidity). Without volumes, the costs at BSE are higher, making it unattractive to newer participants. Pointing to the perceived lack of liquidity on the BSE, market sources said there were 899 contracts in near month futures (the June series) on the NSE and only 139 on the BSE last week. Among the two larger players in index futures which have shifted to the NSE are ICICI Securities and Daulat Capital. I-Sec officials say: "We have not shifted. Good economics suggest that we trade on an exchange, which offers greater liquidity and where the impact costs are lower. Both are available on the NSE and that is why we prefer to trade in the Nifty futures rather than Sensex Futures." According to estimates made by participants, the impact costs on the NSE are significantly lower, making a considerable difference to the participants. Both Nifty and Sensex Futures were launched at almost the same time, with BSE piping NSE to the post by a day. While initial volumes on both the exchanges were more or less the same, the advantages at the NSE-lower impact costs and better pricing-eventually led to more transactions there than on the BSE. Moreover, FIIs prefer to trade in the S&P CNX Nifty-based products which are also available on the Singapore Exchange Derivatives Trading. Arbitrage opportunities between the two markets make it a better proposition, sources said. Powered by YOU MAY ALSO WANT TO READ:
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