Cash derivatives trading volume on the National Stock Exchange (NSE) stood at 421 times as of the end of July, significantly higher than all other markets and a huge jump from last year’s 237 times.
For Germany’s Deutsche Börse, which has the closest indicator, the ratio is 36 times. A report by ICICI Securities said Israel’s Tel Aviv Stock Exchange and South Korea’s Korea Exchange followed closely with ratios of 16.6 times and 12 times respectively.
The surge in derivatives trading volumes is a result of increasing penetration in tier-2 and tier-3 cities, rise of digital brokers, increased participation of retail investors and weekly contract expiry.
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Notably, a recent study by the Securities and Exchange Board of India revealed that the number of individual traders in the equity F&O space increased by 500% from 710,000 in FY19 to 4.5 million by the end of FY22. What’s more, 90% of individual traders in this space suffered net losses.
In absolute terms, the NSE’s average daily trading volume (ADTV) in July and August was over Rs 3 trillion. Options ADTV on the NSE remained flat at Rs 3.02 trillion in August, according to an ICICI Securities report.
BSE options trading volume, which was non-existent between January and May this year, rose above Rs 10 lakh crore (notional ADTV) for the first time in August, following changes such as lower note size and introduction of Friday expiry.
“BSE has made good progress in derivatives; August index options ADTV is 3.5% of NSE. Future triggers will be the addition of brokers and gradual increase in interest rates,” the report said.
Options trading has become a cash cow for the NSE. Equity derivatives accounted for 88% of NSE’s trading revenue by the end of fiscal 2023, while index options contributed 73%. The revenue share of index options in fiscal 2018 was 21%. On the other hand, cash revenue share declined from 26% in FY2018 to 9% in FY2023.
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The NSE index option premium turnover ratio portfolio for Nifty FY2023 is 34%, Bank Nifty is 63% and FIN Nifty is 3%. “By this measure, the index options income mix will also be the same, highlighting the high contribution from Bank Nifty, which is likely driven by the high volatility of the index,” the report said.
In August, NSE’s cash ADTV rose 32.1% year-on-year to Rs 766 billion. BSE’s cash ADTV grew 47.9% year-on-year to Rs 6,900 crore.
NSE announced changes in the expiry dates of futures and options contracts on Bank Nifty and Nifty Midcap Select. Bank Nifty weekly contract will expire on Wednesday from September 4. The weekly and monthly F&O contract expiry date for Nifty Midcap Select has been shifted from Wednesday to Monday. BSE has moved the expiry date of Sensex and Bankex F&O contracts to Friday. Currently, the Bankex contract expiry date has been pushed back from October 16 to Monday.
