Trends in Global Derivative Market Content

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1 Trends in Global Derivative Market Content Chapter-VII S.No. Title Page No. 7.1 Introduction Global Exchange Traded Derivatives Major equity derivative exchange in the world Chicago mercantile exchange Eurex Elong Kong future exchange The London international financial futures and options 196 exchange Singapore exchange Sydney future exchange Other financial derivative exchange in the would Popular stock index future in the world NYSE composite S&P Value fine Dow Jones industrial averages Russel S & P midcap S&P 500 BARRA growth index and value index NASDAQ PSE technology Index ISDEX- internet stock Index

2 All ordinary Share Price Index (Australia) Hang Seng Index Nikkei 225 average Dow Jones Stoxx 50 and Dow Jones Euro Stoxx CAC DAX MIB IBEX OMX FTSE Status of India derivative market Vis-a vis global derivative market 190

3 Trends in Global Derivative Market Chapter-VII 7.1 Introduction The emergence and growth of the market for derivative instruments can be traced back to the willingness of risk averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. Derivatives are meant to facilitate the hedging of price risks of inventory holdings or a financial/commercial transaction aver a certain period. By locking in asset prices, derivative products minimize the impact of fluctuations in asset prices on the profitability and cash flow situation of risk-averse investors, and thereby, serve as instruments of risk management. By providing investors and issuers with a wider array of tools for managing risks and raising capital, derivatives improve the allocation of credit and the sharing of risk in the global economy, lowering the cost of capital formation and stimulating economic growth. Now that world markets for trade and finance have become more integrated, derivatives have strengthened these important linkages between global markets, increasing market liquidity and efficiency and have facilitated the flow of trade and finance. 7.2 Global Exchange Traded Derivatives The emergence of the market for derivative products, most notably forwards, futures and options can be traced back to the willingness of risk averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. By their very nature, the financial markets can be subject to a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking-in asset prices. As instruments of risk management, derivative products generally do not influence the fluctuations in the underlying asset prices. However, by locking-in asset prices, derivative products minimize the impact of fluctuations in asset prices on the profitability and cash flow situation of riskaverse investors. A number of trading strategies involving derivatives can be applied to minimize risk in the capital market, 191

4 Table- 7.1: Global Exchange - Traded Derivatives Volume by category GLOBAL Traded Jan-Dee % Jan-Dee % %Jan- % (%) Derivatives Dec 2010 Change Equity Index 6, , , % Individual Equity 5, , , % Interest Rate 3, , , % Agricultural , % Energy , % Currency , % Precious Metal % Non-precious metal % Other % Total Volume 17, , , % Source : Futures Industry Annual Volume Survey, March 2011 The table 7.1 shows that exchange after the credit crisis toll in the year 2009, the global futures and options industry returned to rapid growth in the year 2010 after leveling off in Looking at the global trends in derivatives volume by category, we find that the currency sector was the most powerful driver of in the volumes of exchange-traded derivative contracts in 2010, followed by trading in agricultural derivative products, which grew at The trading volume in non-precious metals, on the other hand, continued to gain in 2010 when compared to the volume in 2009, with an increase in volume by39.17 percent. 7.3 Major Equity Derivative Exchange in the World Tabie-7.2 : Important futures and options market around the world S. No. Exchange Contracts Traded 1. Chicago Board of Trade (USA) Com, Oats, Soybeans, Gold Silver and other commodities, Treasury notes, Major Market Index, etc. 2. Chicago Board of Options Exchange (USA) Equities, SEP 100 Stock Index, SEP 500 Stock Index, Interest rates, Treasury Bonds etc. 192

5 3. Hong Kong Futures exchange (Hong Kong) Sugar, Soya Bean, Gold, Hang-Seng index etc. 4. Kuala Lumpur Commdity Exchange (Malaysia) Conoa, Rubber, Tin etc. Government bonds, Currencies. 5. London International Financial Us-treasury bonds, Ft-Es 100 index, etc. Future Exchange (UK) 6. Montreal Exchange (Canada) Government bonds, Gold, Platinum etc. 7. Sao Paulo Commodities Live Cattle, Cotton, Coffee, Com, Soya Exchange (Brazil) Beans, Gold in Dollar and other currencies. 8. Singapore International Gold, Fuel Oil, Currencies etc. Monetary Exchange (Singapore) 9. Sydney Futures Exchange (Australia) Live Cattle, Wool, Teasury Bonds, Share Index, etc. 10. Tokyo Commodities Exchange (Japan) Gold, Silver, Platinum, Rubber, Cotton Yam etc. 11. Tokyo Stock Exchange (Japan) Japanese Government bonds, Tokyo stock price index (TOPIX), treasury bonds etc. Source : NSE & BSE Chicago Mercantile Exchange (CME) Futures and Options on currencies, interest rates, stock index and agricultural commodities are traded on CME. International Monetary Market (1MM) was formed in 1972 and CME became division of 1MM in It began trading 7 foreign currencies in 1972, which were the first financial futures contracts ever to be traded. The Index and Options Market (IOM) was formed in 1982 and started trading a scale index future on the S&P500 stock price Index. An option on this contract began trading in S&P 500 Stock Price Index Futures - Based on S&.P 500 Stock Price index, USD 250 Contract Multiplier, for March. June, September and December. S &P 500/ BARRA Growth Index Futures Based on S&P 500/ BARRS Growth Index, USD 250 Contracts Multiplier for March June September and December. 193

6 S&P 500/BARRA Value Index Futures - based on S&P 500/ BARRA Value index, USD 250 Contracts Multiplier for March, June September and December. S&P Midcap 500 Stock Price index Futures based on S&P 500, USD 250 Contracts Multiplier for March, June, September and December. E-mini S&P 500 Stock Index Futures - Based on S&P 500 Stock Price Index, USD 250 Contract Multiplier, for March, June, September and December, Major Market index Futures - Based On Major Market Index, USD 500 Contract Multiplier, for 3 near mcnths and next 3 months of March, June, September and December. Nikkei 225 Stock Average Futures Based on Nikkei 225 Stock Average, USD 5 Contract Multiplier, for March, June, September and December. Russel 2000 Stock Price index Futures Based on Russel 2000 Stock Price Index, USD 500 Contract Multiplier, for March, June, September and December. FTSE 100 Share Index Futures - Based on FTSE 100 Share Index, USD 50 Contract Multiplier, for March June, September and December. NASDAQ 100 Index Futures-Based on NASDAQ 100 Index, USD 100 Contract Multiplier for March, June, September and December. IPC Stock Index Futures Based on IPC Index, USD 25 Contract Multiplier for March, June, September and December Eurex Eurex is owned jointly by Deutsche Borse AG and The Swiss Exchange, each of which hold 50% stake in the company. It was formed by merger of German Deutsche Terminborse (DTB) and Switzerland s SOFFEX. It has a fully electronic trading platform. Dow Jones STOXX 50 Futures Based on STOXX 50 Index, Euro 10 Multiplier for three nearest months within the cycle March, June, September and December. 194

7 Dow Jones Euro STOXX 50 Futures Based on the Dow Jones Euro STOXX 50 index, Euro 10 Multiplier for three nearest months within the cycle March, June, September and December. DAX Futures (Round Lot) Based on The Deutscher Akteindex (DAX), Euro 10 per DAX index point multiplier for three nearest months within the cycle March, June, September and December. MX Futures (Odd Lot) Based on The Deutscher Akteindex (DAX), EUR 1.13 per DAX index point contract multiplier for three nearest months within the cycle March, June, September and December. MDAX Futures (Round Lot) Based on the Midcap DAX (MDAX), EUR 5 per MDAX index point multiplier for three nearest months within the cycle March, June, September and December. MDAX Futures (Odd Lot) Based on the Midcap DAX (MDAX), EUR 0.11 per MDAX index point multiplier for three nearest months within the cycle March, June, September and December. SMI Futures Based on the Swiss Market Index (SMI), EUR 0.11 per SMI index point multiplier, for three nearest months within the cycle March, June, September and December Hong Kong Futures Exchange The Exchange operates futures and options markets on a board range of product including equity index, stock, interest rate and foreign exchange products. These products are traded either on the Exchange s trading floor via open outcry or through electronic screen. Hong Kong Futures Automated Trading System (HKF ATS), and its subsidiary, the HKFE Clearing Corporation Ltd. (HKCC). Hang Seng Index Futures Based on Hang Seng Index, HKD 50 contracts multiplier, for current and next calendar month plus the next two months from the quarterly cycle March, June, September and December. Hang Seng 100 Futures Based on Hang Seng 100, HKD 1000 contract multiplier for spot and next calendar month plus the next two-months from the quarterly cycle March, June, September and December. 195

8 Red-Chip Index Futures Based on Hang Seng China affiliated Corporation Index, HKD 50 contract multiplier, for spot and next calendar month plus the next two Months from the quarterly cycle march, June, September and December. HKFE Taiwan Index Futures Based on HKFE Taiwan Index, HKD 10 contracts multiplier for spot and next calendar month plus the next two-month from the quarterly cycle March, June, September and December, Stock Futures - On specified stocks with different contract prices, for spot and next calendar month plus the next two months from the quarterly cycle March, June, September mcl December The London International Financial Futures and Options Exchange (LIFFE) LIFFE offers the most extensive range of derivative products of any exchange in the world providing futures and options contracts across six different currencies and across four product line bonds, short term interest rates, equity indices & individual stocks and commodities. The London Clearing House (LCH) acts as central counterpart to all transactions on LIFFE and offers the world s most diverse range of margin offsets. FTSE Eurotop 100 Index Futures Based on FTSE Eurotop 100 index, EUR 20 per point index multiplier for March, June, September and December. FTSE Eurobloc 100 Index Futures Based on FTSE Eurobloc 100 Index, Eur 20 per point Index multiplier for March, June, September and December. FTSE Eurobloc 300 Index Futures Based on FTSE Euroloc 300 Index, Eur 20 per point Index multiplier for March, June, September and December. FTSE Eurotop 100 ex UK Index Futures Based on PTSE Eurobloc 300 index, EUR 20 per point Index multiplier For March, June, September and December. FTSE 100 index Futures Based on FTSE 100 Index, GBP 10 per point Index multiplier for March, June, September and December. 196

9 FTSE Mid 250 Futures Based on DTSE Mid 250 Index, GBP 10 per point index multiplier for March, June, September and December. MSCI Euro Index Futures Based on MSCI Euro index, Euro 20 per point index multiplier for March, June, September and December MSCI Pan-Euro Index Futures Based on MSCI Pan-Euro Index, Euro 20 per point index multiplier for March, June, September and December Singapore Exchange Singapore exchange is the first demutualised integrated securities and derivatives exchange in Asia Pacific. Inaugurated on 15th December 1999, it operates through several subsidiaries. Singapore Exchange Derivatives Trading Ltd. (formerly known as SIMEX) Singapore Exchange Derivatives Clearing Ltd. Singapore Exchange Securities Trading Ltd. (formerly known as SES) Singapore Exchange IT solutions PTE Ltd. The Central Depository (PTE) Ltd Nikkei 225 Stock Average Futures- Based on Nikkei 225 Stock Average Index, JPY 500 contracts multiplier for March, June September and December listed on 5 quarterly month cycle. Nikkei 300 Futures Based on Nikkei 300 Index, JPY 10,000 contract multiplier for March. June September and December listed on 5 quarterly month cycle. SIMEX MSCI Hong Kong + Stock Index Futures Based on MSCI Hong Kong + Stock Index, USD 5 contract multiplier for 2 serial months from March June, September and December listed on 4 quarterly month cycle. SIMEX MSCI Taiwan Stock Index Futures Based on MSCI Taiwan Stock Index, USD 100 contract multiplier for 2 serial months from March, June, September and December. 197

10 SIMEX MSCI Singapore Stock Index Futures Based on MSCI Singapore Free (SIMSCI) Stock Index, USD 200 contracts multiplier, for 2 serial months March, June, September and December SIMEX Dow Jones Thailand Stock Index Futures Based on Dow Jones Thailand Stock, USD 300 contracts multiplier, for 2 serial months March, June, September and December. SIMEX Dow Jones Malaysia Stock Index Futures Based on Dow Jones Malaysia Stock Index, USD 200 contracts multiplier, for 2 serial months and March, June, September and December, Sydney Futures Exchange The Sydney Futures Exchange (SEF). was established in 1960 for providing hedging facility for Merino Wool. SFE owns and operates the New Zealand Futures and Options Exchange (NZFOE) and clears and settles all SFE and NZFOE business through its wholly owned subsidiary, Sydney Futures Exchange Clearing House, SEF also has futures on individual stocks. All Ordinaries Share Price Index Futures Based on All Ordinaries Share Price Index, AUD 25 contract multiplier for March, June, September and December upto 6 quarters ahead. Broken Hill Proprietary (BHP) Share Futures Based on 1000 BHP shares for March, June September and December upto 4 quarters ahead, settled by physical delivery. News Corporation (NCP) Share Future- Based on 1000 NCP shares for February, May August and December upto 4 quarters ahead settled by physical delivery. National Australion Bank (NAB) Share Future- Based on 1000 NAB Shares for January, April, July and October upto 4 quarters ahead settled by physical delivery. MIM Holdings (MIM) Share Futures - Based on 1000 MIM shares for January, April, July and October upto 4 Quarters ahead, settled by physical delivery. 198

11 Western mining Corporation (WMC) Share Futures- Based on 1000 WMC shares for March, June, September and December upto 4 Quarters ahead, settled by physical delivery. Pacific Dunlop (PDP) Share Futures- Based on 1000 PDP shares for February, May, August and November upto 4 quarters ahead, settled by physical delivery. Westpac Banking Corporation (WBC) Share Futures- Based on 100 WBC shares for January, April, July and October upto 4 quarters ahead settled by physical delivery. ANZ Bank (ANZ) Share Futures- based on 1000 ANZ shares for January, April, July and October up to Quarters ahead settled by physical delivery. Rio Tinto (RIO) Share Futures - based on 100 RIO shares for March, June, September and December upto 4 Quarters ahead, settled by physical delivery. Telstra (TLS) Share Futures - Based on 1000 TLS Shares monthly upto 12 Months ahead. Fosters Brwing (FBG) Shares Futures - Based on 1000 FBG Shares for Junuary, April, July and October upto 4 quarters ahead, settled by physical delivery. 7.4 Other Financial Derivative Exchange in the World AEX-Option Exchange (Netherlands)- American Stock Exchange- Belgian futures & Option Exchange - Budapest stock Exchange- Chicago Board of Trade - Chicago Board Options Exchange Commodities and Futures Exchange (Brazil) Commodity and Monetary Exchange of Malaysia- 199

12 Copenhagen Stock Exchange Hong Kong Futures Exchange Helsinki Exchange - MATIF (France) MONEP (France) Hong Kong Futures Exchange Italian Derivatives Market (IDEM) Kansas City Board of Trade (USA) Korea Stock Exchange Kuala Lumpur Options and Financial Futures Exchange (KLOFFE)- MICEX (Russia)- Montreal Exchange - New York Board of Trade - New Zealand Futures & Options Exchange Ltd. OM London Exchange Oporto Derivatives Exchange (Portugal)- Osaka Securities Exchange (Japan) - Oslo Stock Exchange (Narway) - Pacific Exchange (USA) Philadelphia Stock Exchange Rio de Janeiro Stock Exchange Santiago Stock Exchange Sao Paulo Stock Exchange 200

13 South Africa Futures Exchange Spanish Financial Futures Market Spanish Options Exchange Taiwan International Mercantile Exchange Tokyo Stock Exchange- Toronto Futures Exchange Tel-Aviv Stock Exchange Vienna Stock Exchange Derivatives Market- Warsaw Stock Exchange (Poland) Popular Stock Index Futures in the World NYSE Composite: The NYSE composite was amongst the first stock index futures contracts to be listed on May 6, 1982 at the New York Futures Exchange (NYFE) a subsidiary of NYSE. It is broadest of the board stock indexes available representing every common stock traded on the NYSE. It also has three choices in terms of its contracts size depending on the multiplier the best suits to an investor. The regular contracts launched on May 6, 1982 have a multiplier of $500 times of the index. The NYSE Large Composite Index Contracts has multiplier at $ 1000 while the NYSE small Composite Index uses a $ 250 Multiplier NYSE large contract was aimed at institutional users who could reduce their commission costs. 201

14 7.5.2 S & P 500 It is a market-cap index representing 500 leading companies in leading industries in U.S. in large cap blue chip stocks. It is most often used as the benchmark by fund managers for judging their performance in US markets. S&P 500 futures contracts dominates stock index trading in the US. The contracts was launched at CME in April 1982 when the STP 500 Index was 117 having originally a contract multiples of $500. Fifteen years later share rise in index value and consequently contract size led to reduction in contract multiplies to $ Value Line Value line stock index is a broad based index of approximately 1600 large, mid and small cap stock traded on the NASDAQ- AMEX and in Canada, The price movement of each stock is given equal weightage. Value line Index futures were the first index futures in the world, starting on February 1982 at the KCBT. However, it could not capitalize on its early lead. It currently has a contract multiplies of $ 250 which was reduced from.$ 500 on June Dow Jones Industrial Average It is the oldest and most well known stock measure in the world. Dow Jones & Company started it in May 26, The next index in US came only 60 years later. The longevity accounts for its continued popularity today as a preferred measure on the market. It is a price-weighted index of 30 of the largest most liquid blue chip US stocks, a number that has held steady since When the index was first introduced it contained 12 stocks, a figure that was expanded to 20 in It is traded at Chicago board of trade with a contract multiplies of $ Russel 1000 This is sub set of the broader Russel 3000 index which tracks only US companies. NYBOT (New York Board of Trade) started futures and options based on Russel 1000 in March 99, offering two contracts size one with $500 multiplier and another with a $1000 multiplier. Russel 1000 is a market capitalization index, but each ones weighting in the index is based on available market capitalization. The available shares exclude those 202

15 held by other listed companies, private investor holdings of 10% or more and the company s ESOP that amount to more than 10% of shares outstanding. Thus it is the stocks with the most tradable outstanding shares at the highest price that will hold the most influence on the index movement S & P Midcap 400 It is a capitalization weighted index of400 U.S. stocks representing companies whose capitalization is in the middle range of all firms. None of the stocks in S & P 500 can be in S & P Midcap 400 and vice versa. Futures & Options on this index are traded at CME with a Contract multiplier of $ S & P 500 Barra Growth Index and Value Index The above two index are constituted by splitting the S & P 500 Index into either growth or value issue. There is no clear definition of growth versus value stock. These are determined solely on the stock s book- to- price ratio. The two indexes are designed to be equal in market capitalization. As a result, more stocks are in the value index because these companies tend to have lower market capitalization & higher book to price ratios than the growth stocks. Futures & Options on these indices are traded on CME with a contract multiplier of $ NASDAQ 100 It composes of ten 100 non-financial stocks, domestic as well as foreign, listed on NASDAQ. It trades on CME with two different contract multipliers $ 100 and $20. It is a market cap index with modified capitalization to reduce the overwhelming influence of its top stocks PSE Technology Index It represents the technology sector with 15 industries traded on NYSE, NASDAQ AMEX. It is price weighted index. Futures & Options on the index are traded on NYBOT with a contract multiplier of $ ISDEX Internet Stock Index It consists of publicity traded internet companies defined as those that exist because of the internet and derive at least 51% of revenues from the internet. It trades on the KCBY with a contract multiplier of $100. It is calculated as a modified 203

16 capitalization index that limits the percent weight of any single stock to 10% of the total capitalization of all 50-component stocks All Ordinary Share Price index (Australia) It is the benchmark index in Australia. A market cap index it comprises of the stocks listed on the Australia stock exchange. Futures index are traded on Sydney Futures Exchange with a contract multiplier of AU $ Hang Seng Index This index is market capitalization weighted index of 33 stocks, representing about 70% of the stock market s total capitalization. Futures on Hang Seng Index are traded on Hong Kong futures Exchange with a contract multiplier of H.K. $ Nikkei 225 Average It is Japans longest running stock index. It is a price weighted stock index. Future contracts on NIKKEI 225 trade on three exchange. CME, OSE (Osaka) and Simex with contract multiplies of $5, Yen 1000 & Yen 500 respectively Dow Jones Stoxx 50 and Dow Jones Euro Stoxx 50 To be included in either the Stoxx 50 or the Euro Stoxx 50, a stock must first be part of its respective broader index, the Dow Jones. Stoxx or the Dow Jones Euro Stoxx. Futures & cash options are traded on MONEP & Eurex CAC 40 This benchmark index of France consists of 40 blue chip stocks amongst France s largest companies & are weighted in the index by market capitalization. Futures & Option on CAC 40 are traded on MONEP & MATIF DAX It is Germany s blue chip index of 30 leading stock, It is calculated on total returns basis and not just on price basis. Income from dividends and rights issues are reinvested in the index portfolio and are reflected in the index value. It is traded on Eurex with a contract multiplier of Euro 25, 204

17 MIB 30 The MIB-30 is a capitalization-weighted index of 30 blue chip stocks listed in the Italian exchange, Future & Options are traded in Italian derivatives market with a contract multiples of Euro 5. The index typically accounts for more than 70% of the market s total capitalization IBEX-35 It tracks Spain s 35 most liquid stocks. It is capitalization weighted and equals about 80% of the market s total value. Derivatives on the index are traded on MEFF- RV with contract multiplier of E uro OMX The Swedish Equity Index (OMX) is a capital weighted index of the 30 stocks with the market trading volumes at the Stockholm Stock exchange. They account for about 66% of the total market capitalization futures on the index are traded on OM Stockholm and OM London FTSE loo The FTSE 100 represents the value of the 100 largest companies listed on the LSE. These blue chip stocks typically equal 2/3rd of the market s total capitalization. FTSE 100 is maintained by International Ltd. a company formed in 1995 and jointly owned by LSE and the Financial times. It is a market capitalization index. Futures & options on the index are traded on LIFFE with a contract multiplier of Pound 10. A comparison of the derivatives markets, over last few years, among various countries give rise to an interesting pattern. The exchanges of the developed markets have shows robust growth and maintained their leadership position tran the year 2003 to At the same time, developing/ emerging market exchanges have gained a position of eminence with strong growth trends. It is evident from the data presented in the tables below that Indian market has emerged forth strongly along with markets in Korea, Spain, and Israel, in between the year and in between the position of NSC imposed and hold the second partition in overall derivative trading. 205

18 Table :7.3 Top Five Exchanges by Number of Stock Index futures contracts traded S.No. Exchange Number of contracts traded in 2008 Number of contracts traded in 2003 % change 1. EUREX 371,504, ,988, % 2. National Stock Exchange India 141,261,516 10,557, ,08% 3. Osaka SE 90,365,674 13,231, % 4. Euronext. LIFFE 76,525,955 56,898, % 5. Singapore Exchange 45,256,382 8,609, % Source: World Federation of Exchange Table : 7.4 Top Five Exchanges by number of Stock Index Options contracts traded S.No. Exchange Number of contracts traded in 2008 Number of contracts traded in Korea Exchange 2,011,059,741 3 # % change 2. Chicago Board Options Exchange 435,860, ,822, % 3. EUREX 371,155, ,504, % 4. National Stock Exchange India 89,099,694 1,332, % 5. TAIFEX 77,154,336 21,720, % Source: World Federation of Exchange, # Very Large Figure Due To Very Small Base 206

19 Table :7.5 Top Five Exchanges by number of Single Stock Futures Contracts Traded S.No. Exchange Number of contracts traded in 2008 Number of contracts traded in 2003 % change 1. JSE 307,836,600 4,5585,919 6,612.65% 2. National Stock Exchange India 165,706,741 25,572, % 3. EUREX 121,656,741 7,004,235 1,636.90% 4. Euronext, LIFFE 94,223,989 N.A. N.A. 5. BME Spanish Exchange 35,301,142 12,492, % Source: World Federation of Exchange Table :7.6 Top Five Exchanges by Number of Single Stock Option Contracts Traded S.No. Exchange Number of contracts traded in 2008 Number of contracts traded in 2003 % change 1. International Securities Exchange 2. Chicago board Options Exchange 767,805, ,988, % 463,710, ,033, % 3. Philadelphia SE 4.9,010,094 89,458, % 4. EUREX 276,165, ,239, % 5. Sao Paulo SE 260,696, ,622, % 6. National Stock 8, ,607, Exchange India Source : World Federation of Exchange 207

20 Table : 7.7 Top 5 Exchange in Various Derivative contracts Top 5 exchanges by number of single stock futures contracts % change 1 NYSE Liffe Europe % 2 National Stock Exchange of India % 3 Eurex % 4 Johannesburg Stock Exchange % 5 Korea Exchange % Source : World Federation of Exchange Table 7.8 Top 5 Exchanges by Number of Single Stock Index Options contracts % change 1 Chicago Board Options Exchange (CBOE) % 2 BM&FBOVESPA % 3 International Securities Exchange (ISE) % 4 NASDAQ OMX PHLX % 5 Eurex % Source : World Federation of Exchange Table 7.9 Top 5 Exchanges by Number of Stock Index Option contracts % change 1 Korea Exchange 3, , % 2 National Stock Exchange of India % 3 Eurex % 4 Chicago Board Options Exchange (CBOE) % 5 Taifex % 208

21 Table : 7.10 Top 5 Exchanges by Number of Stock Index Futures contracts % change 1 CME Group % 2 Eurex % 3 National Stock Exchange of India % 4 Osaka Securities Exchange % 5 NYSE Liffe Europe % Source : WFE Market Highlights 2010 Many exchanges in the world now offer futures contracts. CBOT, Eurex, the German-Swiss derivatives exchange, and Korea exchange the worlds biggest financial futures exchange at the end of 2010, Eurex traded more than million contracts during 2010, 33% more than in 2009 This is expected to be well above the comparable figure for the JSE where officials are expecting a fall of about 11.38% from the 2009 total, when a record million contracts were traded. LIFFE, the London market, is also expecting a sharp fall in volumes to some 120 million contracts, compared with million in The Korea derivatives market traded million contracts in 2009, more than double its 2009 total. LIFFE lost its European lead when trading in the futures contracts on 10-year has been taken in to consideration. The above tables shows the top 5 exchange including NSE. The performance of NSE in terms of the number of single stock futures contracts traded in 2010, the NSE held the second position, It was second in terms of the number of stock index option contracts traded and third in terms of the number of stock index futures contracts traded in These rankings are based on the World Federation of Exchanges (WFE) Market Highlights

22 Table-7.11: Global Futures and Options Volume Traded in Global Exchange Rank Volume (in million) Exchange Jan-Dec 2010 Jan-Dec 2009 Jan-Dec Korea Exchange Eurex (includes ISE) CME Group (Includes CBOT and Nymex) NYSE Euronext (Includes all EU and US Markets) Chicago Board Options Exchange BM&F Bovespa National Stock Exchnage of India NASDAQ OMX Group Russian Trading Systems Stock Exchange Shanghai Futures Exchange Talian Commodity Exchange Multi Commodity Exchange of India (includes MCX-SX) Intercontinental Exchange (includes US,UK and Canada Markets) Zhengzhou Commodity Exchange JSE Securities Exchange, South Africa Osaka Securities Exchange Boston Options Exchange Taiwan Futures Exchange

23 19 19 London Metal Exchange Hong Kong Exchanges & Clearing Mercado Espanol de Opcionesy Futuros Financieros Tokyo Finanaeial Exchange Turkish Derivatives Exchange Tel-Aviv Stock Exchange Singapore Exchange Mercado a Termino de Roasario Mexican Derivatives Exchange Mosco Interbank Currency Exchange Tokyo Commodity Exchange Bourse de Montreal Tokyo Stock Exchange National Commodity & Derivatives Exchange (India) Oslo Stock Exchange Budapest Stock Exchange Warsaw Stock Exchange Tokyo Grain Exchange 2, Athens Derivatives Exchange One Chicago Kansas City Board of Trade ELX Central Japan Commodity Exchanges

24 45 44 Thailand Futures Exchanges New Zealand Futures Exchange Minneapolis Grain Exchange Wiener Boerse Dubai Mercantile Exchange Kansai Commodities Exchange Mercado a Termino de Buenos Aires Sources : Future Industry. Annual Volume survey, March 2011 Table 7.11 provides ranking of the various exchanges in terms of the number of futures and options traded and/or cleared in 2009 and The NSE improved its ranking in 2010 in terms of traded volumes in futures and options taken together, improving its worldwide ranking from seventh in 2009, and fifth in The traded volumes in the derivatives segment of the NSE saw an increase of percent in as 2010, compared to the volumes in Status of Indian Derivatives Market vis-a vis Global Derivatives Market: The derivatives segment has expanded in the recent years in a substantial way both globally as well as in the Indian capital market. The figures revealed by Futures Industry Association (FIA) Annual Volume Survey and reported here out the fact that more than 15 billion futures and options contracts were traded during 2007 on the 54 important exchanges that report to the FIA, reflecting a remarkable increase of 28% from the previous year. Looking back at the last four years, it can be worked out that these figures reflect that the growth rate in US Exchange was 26 % in 2007, 19% in 2006,15% in % in 2004, and 9% in Compared to non US exchange the turnover growth rate was 13.73% in 2003, 13.91% in 2004, 14.78% in 2005, 16.61% in 2006 and 20.74% in 2007 from the same table it also follows that of the total volume traded globally over the period , the US exchanges alone constituted as much as 35 percent share, and other contributed 65%. 212

25 Table : Top Global Trend in Turnover of Derivatives Trading Year US Exchange % Non-US % Global % Exchange (35.48) (64.52) (100) Source : FI Futures Industry, March/April Asia shows rapid growth in 2010, with growth rates of 42.8 percent, accounting for 39.8 percent of the global volume compared to 32.2 percent for North America and 19.8 percent for Europe. Most of the increase in volume came from exchanges in China, India, and Korea. In India, the growth story was driven mainly by financial contracts, foreign exchange contracts in particular. In 2010, the dollar-rupee control traded on the MCX-SX had a volume of million contracts, making it the second most actively traded contract across all derivatives exchanges in the world, One of the most interesting stories in the Asia-pacific region in the growth of equity index futures and option. These products are traded all cross the regions, with some being relatively new to the market and others being very well-established. The newest of the group in the CSI 300 stock index futures, which began trading in April 2010 in the China financial futures exchange in shanghai, and the Kospi 200 index option in the region s most actively traded equity index contract for many years. The Kospi option was responsible for most of the trading volume of the Korea Exchange, which is no longer the case. The total number of futures and option contracts traded on the 70 exchanges worldwide tracked by the Futures Industry Association went up from 17.7 billion in 2009 to 22.3 billion in 2010, a growth of about 25.9 percent. Looking at global trends in derivative volume by category, it is found that equity futures and options path index and single stock and commodity products were the most powerful 213

26 driver of increase in volumes of exchange traded derivative contract in (ISMR: Derivative market published by NSC) The break down of derivatives volume by region and it is clearly evident that after North America with a share of about 40 percent, Asia-Pacific occupies the second slot with a share of 28 percent and Europe falls at the third place with its contribution of 24 percent. If we compare the turnover-wise performance of the derivatives segments over the last five years, it may be noticed from inspections of the relevant columns of table that the Indian segment has expanded phenomenally as compared to the global segment. The turnover of the NSE derivatives segment in stood at Rs crores. It grew to an astonishing level of Rs crores during the year , displaying a more than six-time increase over the five year period. In marked contrast, at the global level the increase was less than even two-fold: the turnover was $ 8163 million in 2003 and $ million in There are no sure things in global markets. Deals that looked good six months ago can quickly turn sour if unforeseen economic and political developments trigger fluctuations in exchange rates or commodity prices. It also represents the interest of its members by lobbying regulatory body and exchange. Economic entities in India currently have a menu of OTC products, such as forwards, swaps and options, for hedging their currency risk and the markets for the same are fairly deep and liquid as reflected in the volumes and value. By providing investors and issuers with a wider arras of tools for managing risks and raising capital, Derivatives improve the allocation of credit and the sharing of risk in the global economy. All this becomes possible only after the introduction of SEBI that the derivative segment has expanded in the recent years in a substantial way both globally as well as in the Indian Derivative market. 214