INTRODUCTION

BSE created history on June 9, 2000 by launching the first Exchange-traded Index Derivative Contract i.e. futures on the capital market benchmark index - the BSE Sensex. The inauguration of trading was done by Prof. J.R. Varma, member of SEBI and Chairman of the committee which formulated the risk containment measures for the derivatives market. The first historical trade of 5 contracts of June series was done that day between the Members Kaji & Maulik Securities Pvt. Ltd. and Emkay Share & Stock Brokers Ltd. at the rate of 4755.

In sequence of product innovation, BSE commenced trading in Index Options on Sensex on June 1, 2001, Stock Options were introduced on 31 stocks on July 9, 2001 and Single Stock Futures were launched on November 9, 2002.

September 13, 2004 marked another milestone in the history of the Indian capital market, when BSE launched Weekly Options, a unique product unparalleled worldwide in the derivatives markets. BSE permitted trading in weekly contracts in options in the shares of four leading companies namely Reliance Industries, Satyam, State Bank of India, and TISCO ( now Tata Steel) in addition to the flagship index-Sensex.

Top

Chhota (mini) SENSEX

Chhota SENSEX was launched on January 1, 2008. With a small or 'mini' market lot of 5, it allows for comparatively lower capital outlay, lower trading costs, more precise hedging and flexible trading. It is a step to encourage and enable small investors to mitigate risk and enable easy access to India's most popular index, SENSEX, through futures & options. The Security Symbol for SENSEX Mini Contracts is MSX. The contract is available for one, two and three months along with weekly options.

USD Sensex Future

The Chicago-based U.S. Futures Exchange (USFE) has joined hands with BSE for the launch of a US Dollar-denominated Sensex futures contract that will trade 23 hours a day from April 4, 2008. USFE's SENSEX contract will allow eligible U.S. investors to directly participate in India's equity markets for the first time, without requiring American Depository Receipt (ADR) authorization. The contract will have a notional value of around USD 40,000 and a tick size of $ 10.The detailed information on the contract is available at http://www.usfe.com/products-ei-sensex.html

Contract Specifications :

•  Contract Specification for Sensex® Futures contracts

Why SENSEX Futures:

There are many reasons why SENSEX® futures makes sense:

• SENSEX® as compared with other indices shows less volatility and at the same time gives returns equivalent to the returns given by the other indices.
• SENSEX® is widely used to describe the mood in the Indian stock market. Because of its long history and wide acceptance, no other index matches the BSE SENSEX® in reflecting market movements and sentiments and it makes an attractive underlying for index-based products like Index Funds, Futures & Options and Exchange Traded Funds.
• SENSEX® is truly investible as it is the only broad based index in India that is "free float market capitalization weighted", which reflects the market trends more rationally and takes into consideration only those shares that are available for trading in the market.

It may be noted that in addition to the SENSEX®, five sectoral indices belonging to the 90/FF series are also available for trading in the Futures and Options Segment of BSE Limited. The term '90 /FF' means that the indices cover 90% of the market capitalisation of the sector to which the index belongs and is thus well representative of that sector. Also, FF stands for free float - i.e. the indices are based on the globally followed standard of free float market capitalisiation methodology. The five sectoral indices that are presently available for F&O are BSE TECK, BSE FMCG, BSE Metal, BSE Bankex and BSE Oil & Gas.

Top

TYPES OF PRODUCTS

Index Futures

A futures contract is a standardized contract to buy or sell a specific security at a future date at an agreed price.
An index future, as the name suggests, is a future on the index i.e. the underlying is the index itself. There is no underlying security which is to be delivered to fulfill the obligations as index futures are cash settled. As other derivatives, the contract derives its value from the underlying index. The underlying indices are various eligible indices and as permitted by SEBI.

Click here for list of Index Futures Products

Top

Index Options

Options contract give its holder the right, but not the obligation, to buy or sell something on or before a specified date at a stated price. Generally, index options are European style, being those option contracts that can be exercised only on the expiration date. The underlying indices for index options are the various eligible indices as permitted by SEBI.

Click here for list of Index Options Products

Top

Stock Futures

A stock futures contract is a standardized contract to buy or sell a specific stock at a future date at an agreed price. A stock future, as the name suggests, is a future on a stock i.e. the underlying is a stock. The contract derives its value from the underlying stock. Single stock futures are cash settled.

Click here for list of Stock Futures Products

Top

Stock Options

Options on individual stocks are options contracts where the underlyings are individual stocks. Based on the eligibility criteria and subject to the approval from SEBI, stocks are selected on which options are introduced. These contracts are cash settled and are American style, being those option contracts that can be exercised on or before the expiration date.

Click here for list of Stock Options Products

Top

Weekly Options

Equity Futures & Options were introduced in India with a maximum life of 3 months. These options expire on the last Thursday of the expiring month. There was a need in the market for options of shorter maturity and accordingly BSE launched weekly options on September 13, 2004 on 4 stocks and on the BSE Sensex.

Weekly options have the same characteristics as that of the Monthly Stock Options (stocks and indices) except that these options settle on Friday of every week. These options are introduced on Monday of every week and have a maturity of 2 weeks, expiring on Friday of the expiring week.

Click here for the list of Weekly Stock and Index Option Contracts

Long Dated Options (LDO)

SEBI , vide its circular SEBI/DNPD/Cir-34/2008 dated January 11, 2008, had announced the introduction of Index Options with a longer tenure. BSE introduced 'Long Dated Options' on its flagship index - Sensex® -on February 29, 2008, whereby the Members can trade in Sensex (in the normal lot of 15 only and not 'mini' Sensex) Options contracts with an expiry of up to 3 years.

Features of Long Dated Options (LDO)

• Later expiration dates offer an opportunity for long term investors to take a view on prolonged price changes without requiring to use a combination of short term option contracts.
• Premia for long-term options tend to be higher than that of short term options because the increased expiration period means increased possibility of larger movement in the price of the underlying.
• Long-term high net worth investors and institutions need not be burdened with the cost of rolling over the options purchased to protect their portfolios from downside risks.
• LDOs offer a good alternative to a long-term trader to gain exposure to a prolonged period in a given security without having to roll several short term contracts

Top

CONTRACT SPECIFICATIONS

Contract Specification for Index Futures contracts

Security Symbol		Click here for details
Underlying
Contract Multiplier
Contract Period		1, 2, 3 months
Tick size		0.05 index points
Price Quotation		index points
Trading Hours		9:55 a.m. to 3:30 p.m.
Last Trading/Expiration Day		Last Thursday of the contract month. If it is holiday, the immediately preceding business day.Note: Business day is a day during which the underlying stock market is open for trading.
Final Settlement		Cash Settlement. On the last trading day, the closing value of the underlying index would be the final settlement price of the expiring futures contract.

Top

Contract Specification for Index Options contracts (Monthly,Weekly and Long Dated Options )

Security Symbol		Click here for details
Underlying
Contract Multiplier
Contract Period		1, 2 weeks and 1, 2, 3 months and also Long Dated Options on SENSEX*
Exercise Style		European
Settlement Style		Cash
Tick size		0.05 index points
Premium Quotation		In index points
Strike price Intervals		Shall have a minimum of 3 strikes (1 in-the-money, 1 near-the-money, 1 out-of-the-money).
Trading Hours		9:55 a.m. to 3:30 p.m.
Last Trading/Expiration Day		Last Thursday of the contract month in case of monthly & last Friday of contract maturity in case of weekly options. If it is a holiday, then the immediately preceding business day.Note: Business day is a day during which the underlying stock market is open for trading.

Top

Contract Specifications for Single Stock futures

Security Symbol		Click here for details
Underlying
Contract Multiplier
Contract Period		1, 2 & 3 months
Tick size		0.05 points i.e. 5 paisa
Price Quotation		Rupees per share.
Trading Hours		9:55 a.m. to 3:30 p.m.
Last Trading/Expiration Day		Last Thursday of the contract month. If it is holiday, then the immediately preceding business day.Note: Business day is a day during which the underlying stock market is open for trading.
Final Settlement		Cash Settlement. On the last trading day, the closing value of the underlying stock is the final settlement price of the expiring futures contract.

Top

Contract Specification for Stock Options contracts (Monthly & Weekly Options)

Security Symbol		Click here for details
Underlying
Contract Multiplier
Contract Period		1, 2, 3 months & 1, 2 weeks
Exercise Style		American
Settlement Style		Cash
Tick size		0.05 i.e. 5 paisa
Premium Quotation		Rupees per share
Strike price Intervals		Shall have a minimum of 3 strikes (1 in-the-money, 1 near-the-money, 1 out-of-the-money).
Trading Hours		9:55 a.m. to 3:30 p.m.
Last Trading/Expiration Day		Last Thursday of the contract month in case of monthly & last Friday of contract maturity in case of weekly options. If it is a holiday, then the immediately preceding business day during which the underlying stock market is open for trading. -Note: Business day is a day during which the underlying stock market is open for trading.
Final Settlement		The final settlement of the expiring option contracts would be based on the closing price of the underlying stock. The following algorithm is used for calculating closing value of the individual stocks in the cash segment of BSE including the stocks constituting Sensex: -Weighted Average price of all the trades in the last thirty minutes of the continuous trading session. -If there are no trades during the last thirty minutes, then the last traded price in the continuous trading session would be taken as the official closing price.
Exercise Notice Time		It is a specified time (Exercise Session) everyday. All in-the-money options would be deemed to be exercised on the day of expiry unless the participant communicates otherwise in the manner specified by the Derivatives Segment.

Top

ELIGIBILITY CRITERIA

As prescribed by SEBI vide its circulars , the following revised eligibility criteria are being applied w.e.f. 22, September 2006 to determine the eligibility of stocks and indices on which Futures & Options contract could be introduced for trading in Derivatives.

Eligibility criteria for introducing Futures & Options Contracts on Stocks

• The stocks would be chosen from amongst the top 500 stocks in terms of average daily market capitalization and average daily traded value in the previous six-month period on a rolling basis.
• For a stock to be eligible, the median quarter-sigma order size over the last six months should not be less than Rs. 1 lakh (Rs 0.01 million). For this purpose, a stock's quarter sigma order size shall mean the order size (in value terms) required to cause a change in the stock price equal to one-quarter of a standard deviation.
• The Market Wide Position Limit in the stock shall not be less than Rs 50 crore (Rs 500 million). The Market Wide Position Limit is valued taking into consideration 20% of number of shares held by Non-Promoters (i.e. free-float holdings) in the relevant underlying stock and the closing prices of the stock in the underlying cash market on the date of expiry of contract in the month. Market Wide Position Limit is calculated at the end of every month.

The methodology used for calculating quarter sigma order size is as follows:

• Quarter sigma order size is calculated by taking four snapshots in a day from the order book of the stock in the past six months.
• The sigma (standard deviation) or volatility estimate is calculated in the manner specified by Prof. J. R. Varma Committee on Risk Containment Measures for Index Futures. This daily closing volatility estimate value is applied to the day's order book snapshots to compute the order size.
• The quarter sigma percentage is applied to the average of the best bid and offer price in the order book snapshot to compute the order size to move price of the stock by quarter sigma.
• The median order size to cause quarter sigma price movement is determined separately for the buy side and the sell side. The average of the median order size for the buy and the sell side is taken as the median quarter sigma order size.
• The quarter sigma order size in stock is calculated on the 15th of each month, on a rolling basis, considering the order book snapshots in the previous six months. Similarly, the average daily market capitalization and the average daily traded value is also be computed on the 15th of each month, on a rolling basis, to arrive at the list of top 500 stocks.

Eligibility criteria for unlisted companies coming out with an Initial Public Offering

For unlisted companies coming out with an Initial Public Offering, if the net public offer is Rs. 500 crore (Rs 5 billion) or more, BSE may consider introducing stock options and stock futures on such stocks at the time of their listing in the cash market.

Eligibility criteria for stocks on account of corporate restructuring

All of the following conditions should be met in the case of shares of a company undergoing restructuring through any means for eligibility to re-introduce derivative contracts on that company from the first day of listing of the post restructured company in the underlying market:

• The Futures and Options contracts on the stock of the original (pre-restructure) company were traded on any exchange prior to its restructuring.
• The pre restructured company had a market capitalization of at least Rs. 1000 crore (Rs 10 billion) prior to restructuring.
• The post restructure company would be treated like a new stock and if it is, in the opinion of the exchange, likely to be at least one third of the size of the pre structuring company in terms of revenues or assets or analyst valuations, and
• In the opinion of BSE, the scheme of restructuring does not suggest that the post restructured company would have any characteristic that would render the company ineligible for derivatives trading.
• If the post restructured company comes out with an Initial Public Offering , the same prescribed criteria as currently applicable for introduction of derivatives on a company coming out with an IPO will be applied for introduction of derivatives on stocks of the post restructured company from its first day of listing.

Discontinuance / Exit of Futures & Options Contracts on stocks No fresh month contracts shall be issued on the stocks under the following instances:

• If a stock does not conform to the above eligibility criteria for a consecutive period of 3 months, no fresh month contracts shall be issued on the same.
• o If the stock remains in the banned position in the manner stated in SEBI Circular No. SEBI/DNPD/Cir-26/2004/07/16 dated July 16, 2004 as per para 4 (i) (a), (b) (c) for a significant part of the month consistently for 3 months, no fresh month contracts shall be issued on those scrips.
• o The exit criteria shall be more flexible as compared to entry criteria in order to prevent frequent entry and exit of stocks in the derivatives segment. As such, for a stock to become ineligible, the criteria for market wide position limit shall be relaxed up to 10% of the criteria applicable for the stock to become eligible for derivatives trading. The other eligibility conditions would be applicable mutas mutandis for the stock to become ineligible.

  If a stock fails to meet the aforesaid eligibility criteria for 3 months consecutively, then no fresh month contract shall be issued on that stock

  However, the existing unexpired contracts may be permitted to trade till expiry and new strikes may also be introduced in the existing contract months.

  BSE may compulsorily close out all derivative contract positions in a particular underlying when that underlying has ceased to satisfy the eligibility criteria or BSE is of the view that the continuance of derivative contracts on such underlying is detrimental to the interest of the market keeping in view the market integrity and safety. The decision of such forced closure of derivative contracts shall be taken in consultation with other exchanges where such derivative contracts and are also traded shall be applied uniformly across all exchanges.

• Re-Introduction of Stocks Discontinued from Futures & Options Trading
  A stock, which is dropped from derivatives trading, may become eligible once again. In such instances, the stock is required to fulfill the eligibility criteria for 3 consecutive months (instead of one month as specified earlier) to be re-introduced for derivatives trading. Derivative contracts on such stocks may be re-introduced by BSE itself. However, introduction of futures and option contracts on a stock for the first time would continue to be subject to SEBI approval.

Eligibility criteria for introducing Futures & Options Contracts on Index

The Futures Options Contracts on an index can be issued only if 80% of the index constituents are individually eligible for derivatives trading. However, no single ineligible stock in the index should have a weightage of more than 5% in the index. The index on which Futures and Options contracts are introduced shall be required to comply with the eligibility criteria on a monthly basis.

SEBI has subsequently clarified that "The Exchange may consider introducing derivative contracts on an index if the stocks contributing to 80% weightage of the index are individually eligible for derivative trading. However, no single ineligible stock in the index shall have a weightage of more than 5% in the index."

Discontinuance of Futures & Options Contracts on Index

If an index fails to meet the above eligibility criteria for 3 months consecutively, no fresh month contract shall be issued on that Index. However, the existing unexpired contracts shall be permitted to trade till expiry and new strike prices will continue to be introduced in the existing contracts.

The above requirements as prescribed by SEBI need to be necessarily met for introduction of F&O contracts on underlying stocks of the cash market. However, once the criteria are met, it is at the discretion of BSE to apply to SEBI for permission to launch F&O contract on the eligible stocks. Once SEBI approval in respect of those stocks is obtained, BSE shall issue a suitable notice to the market, in advance and then introduce F&O contracts on the respective stocks.

To obtain a list of the scrips which have become eligible for trading in the Derivatives Segment of BSE, click here (http://www.bseindia.com/about/ordersize.asp)

Top

TRADING SYSTEM

The Derivatives Trading at BSE takes place through a fully automated screen-based trading platform called DTSS (Derivatives Trading and Settlement System). The DTSS is designed to allow trading on a real-time basis. In addition to generating trades by matching opposite orders, the DTSS also generates various reports for the member participants.

Top

Order Matching Rules

Order Matching takes place after order acceptance wherein the system searches for an opposite matching order. If a match is found, a trade is generated. The order against which the trade has been generated is removed from the system. In case the order is not exhausted further matching orders are searched for and trades generated till the order gets exhausted or no more match-able orders are found. If the order is not entirely exhausted, the system retains the order in the pending order book. Matching of the orders is in the priority of price and timestamp. A unique trade-id is generated for each trade and the entire information of the trade is sent to the relevant Members.

Top

Order Conditions

The derivatives market is order driven i.e. the traders can place only orders in the system. Following are the order types allowed for the derivative products. These order types have characteristics similar to the ones in the cash market.

• Limit Order: An order for buying or selling at a limit price or better, if possible. Any unexecuted portion of the order remains as a pending order till it is matched or its duration expires.


• Market Order: An order for buying or selling at the best price prevailing in the market at the time of submission of the order. There are two types of Market Orders:


1. Partial Fill Rest Kill (PF): execute the available quantity and kill any unexecuted portion.


2. Partial Fill Rest Convert (PC): execute the available quantity and convert any unexecuted portion into a limit order at the traded price.


• Stop Loss: An order that becomes a limit order only when the market trades at a specified price.


All orders have the following attributes:
• Order Type (Limit / Market PF/Market PC/ Stop Loss)


• Asset Code, Product Type, Maturity, Call/Put and Strike Price


• Buy/Sell Indicator


• Order Quantity


• Price


• Client Type (Properitory/ Institutional / Normal)


• Client Code


• Order Retention Type (GFD / GTD / GTC)

Good For Day (GFD) - The lifetime of the order is that trading session.
Good Till Date (GTD) - The life of the order is till the number of days as specified by the Order Retention Period.
Good Till Cancelled (GTC) - The order if not traded will remain in the system till it is cancelled or the series expires, whichever is earlier.

• Order Retention Period (in calendar days) Order Retention Period (in calendar days) : This field is enabled only if the value of the previous attribute is GTD. It specifies the number of days the order is to be retained.


• Protection Points Protection Points : This is a field relevant in Market Orders and Stop Loss orders. The value enterable will be in absolute underlying points and specifies the band from the touchline price or the trigger price within which the market order or the stop loss order respectively can be traded.


• Risk Reducing Orders (Y/N): When a Member's collateral falls below 50 lacs, he will be allowed to put only risk reducing orders and will not be allowed to take any fresh positions. It is not essentially a type of order but a mode into which the Member is put into when he violates his collateral limit. A Member who has entered the risk-reducing mode will be allowed to put only one risk reducing order at a time.

Top

TRADING HOLIDAYS

	Holidays	Date	Day
1	Mahashivratri	6th March 2008	Thursday
2	Id-E-Milad	20th March 2008	Thursday
3	Good Friday / Holi (1 st Day)	21st March 2008	Friday
4	Ambedkar Jayanti	14th April 2008	Monday
5	Mahavir Jayanti	18th April 2008	Friday
6	Maharashtra Day	1st May 2008	Thursday
7	Buddha Purnima	19th May 2008	Monday
8	Independence Day	15th August 2008	Friday
9	Ganesh Chathurthi	3rd September 2008	Wednesday
10	Ramzan Id / Gandhi Jayanti	2nd October 2008	Thursday
11	Dasera	9th October 2008	Thursday
12	Diwali (Laxmi Pujan)	28th October 2008	Tuesday
13	Diwali ( Bhaubeez)	30th October 2008	Thursday
14	Gurunanak Jayanti	13th November 2008	Thursday
15	Bakri-Id	9th December 2008	Tuesday
16	Christmas	25th December 2008	Thursday

• Muhurat Trading will be held on Tuesday, 28th October 2008 (Diwali Amavasya - Laxmi Puja)



• BSE may alter / change any of the above Holidays, for which a separate circular will be issued in advance.

Top

SESSION TIMINGS

SESSION NAME	FROM	TO
Login Session	8:30	9:55
Trading Session	9:55	15:30
Position Transfer Session	15:30	15:50
Closing Session	15:50	16:10
Option Exercise Session	16:10	16:40
Margin Session	16:40	16:55
Query Session	16:55	17:40

Top

PRICE BANDS

Top

LIMITED TRADING MEMBERSHIP FOR BSE DERIVATIVES SEGMENT

A Limited Trading Member (LTM) is a non-clearing trading participant having full trading rights and access to the Derivatives Trading System of BSE.

• A LTM is provided with derivatives trading terminals for execution of trades either on his own account or on account of his clients.


• A LTM can issue contract notes to his clients in his own name.


• A LTM can exercise and perform trade and position management functions online and also check his payment obligations that may result from his trading activities.


• A LTM, however, cannot clear and settle trades executed by him directly with the Clearing House of BSE. For this purpose, LTM would need to enter into an arrangement with an existing Clearing Member of the Derivatives Segment of BSE. (A list of Clearing Members can be obtained from BSE.)

• Access to the on-line Derivatives Trading & Settlement System(DTSS) of BSE


• Trading in Option and Futures on Sensex,Sectoral Indices,Single Stock Futures and Options in eligible scrips.


• Access to new products as and when they are introduced

• Minimum networth of Rs. 25 lakhs


• A registration with SEBI

Top