BSE to start weekly options trading
By Pradeep Rane | 05 May 2004
The
Bombay Stock Exchange (BSE) is set to start weekly stock
and index option trading in its derivative segment from
May 17, 2004. At present, the bourse offers monthly stock
and index options. The exchange is now trying to cater
to a demand for shorter maturity options by launching
weekly series in addition to the existing monthly series.
BSE
had recently submitted a proposed to the Securities and
Exchange Board of India
(Sebi) to start weekly options and, which has been approved
by the regulator.
There
are several benefits for shorter maturity options for
investors. Due to shorter maturity, weekly options will
command lower premiums. These options will cost
less than the monthly options. It is expected that on
account of low cost, liquidity will improve as more participants
come in.
This, in turn, will lead to better price discovery and improve the depth of the market as market participants would be able to take a short-term trade since weekly stock and index options would provide market participants short term insurance for their short-term portfolio, say BSE officials.
BSE
has also asked its members to make necessary changes in
their back office
software for trading in this product. The weekly options
are part of its efforts
to revive its derivatives segment which has lost out to
its rival the National Stock Exchange (NSE). Almost 95
per cent of the Rs12,000 crore derivatives market
trading takes place on the NSE.
Under the plan, weekly series will always be available for trading every Monday for participants with short-term goals. If the expiry day of a weekly option falls on a trading holiday, then the expiry (as per SEBI guidelines) will be on the previous trading day.
Since
the introduction of weekly stock and index options is
just an addition of new series and not a new product as
such, the risk containment measures adopted for the weekly
options would be similar to those applied for index and
stock options.
