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Futures & Options
Segment 6
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Futures & Options Segment 66
6
66
The derivatives trading on NSE commenced on June 12, 2000 with futures trading on S&P
CNX Nifty Index. Subsequently, the product base has been increased to include trading in
futures and options on S&P CNX Nifty Index, CNX IT Index, Bank Nifty Index and Single
securities (188 stocks as stipulated by SEBI) and futures on interest rate. Futures and options
contracts were introduced on CNX Nifty Junior and CNX 100 indices for trading in F&O
segment on June 1, 2007.The turnover in the derivatives segment has witnessed considerable
growth since inception. In the global market, NSE ranks first (1st) in the world in terms of
number of contracts traded in the Single Stock Futures, second (2nd) in Asia in terms of
number of contracts traded in equity derivatives instrument. Since inception, NSE established
itself as the sole market leader in this segment in the country with more than 98 % market
share.
Trading Mechanism
The derivatives trading system at NSE is called NEAT-F&O trading system. It provides a
fully automated screen-based trading for all kind of derivative products available on NSE on
a nationwide basis. It supports an anonymous order driven market, which operates on a
strict price/time priority. It provides tremendous flexibility to users in terms of kinds of
orders that can be placed on the system. Various time and price related conditions like
Immediate or Cancel, Limit/Market Price, Stop Loss, etc. can be built into an order. Trading
in derivatives is essentially similar to that of trading of securities in the CM segment.
The NEAT-F&O trading system distinctly identifies two groups of users. The trading user more
popularly known as trading member has access to functions such as, order entry, order matching
and order & trade management. The clearing user (clearing member) uses the trader workstation
for the purpose of monitoring the trading member(s) for whom he clears the trades. Additionally,
he can enter and set limits on positions, which a trading member can take.
Contract Specification
The contract specification for derivatives traded on NSE are summarised in Table 6-1.
The index futures and index options contracts traded on NSE are based on S&P CNX Nifty
Index, CNX IT Index, Bank Nifty, CNX Nifty Junior and CNX 100 while stock futures and
options are based on individual securities. Stock futures and options were available on 188
securities. Interest rate future contracts are available on Notional 91 day T-bill and Notional
10 year bonds (6% coupon bearing and zero coupon bond). While the index options are
European style, stock options are American style.
At any point of time there are only three contract months available for trading, with 1
month, 2 months and 3 months to expiry. These contracts expire on last Thursday of the
expiry month and have a maximum of 3-month expiration cycle. If the last Thursday is a
trading holiday, the contracts expire on previous trading day. A new contract is introduced
on the next trading day following the expiry of the near month contract. All the derivatives
contracts are presently cash settled.
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Introduction of strike prices for option contracts
NSE introduces option strikes on a daily basis based on the price of the underlying. With
regard to options on stocks the Exchange provides a minimum of seven stick prices for
every option type (i.e call & Put) during the trading month. At any time, there are at least
three strikes in-the-money (ITM), three strikes out-of-the-money (OTM) and one strike
at-the-money (ATM).
The number of strikes provided in options on Nifty, Nifty Junior, CNX 100, CNX IT and
Bank Nifty are related to the range in which previous day's closing value of the respective
indices falls as per the following table:
Nifty Index Level Strike Interval Scheme of strikes to be introduced
(ITM-ATM-OTM)
Upto 2000 25 4-1-4
>2001 upto 4000 50 4-1-4
>4001 upto 6000 50 5-1-5
>6000 50 6-1-6
Selection Criteria for Stocks and Indices
Eligibility Criteria of Stocks
The stock shall be chosen from amongst the top 500 stocks in terms of average daily
market capitalisation and average daily traded value in the previous six months on a
rolling basis.
The stock's median quarter-sigma order size over the last six months shall be not less
than Rs.1 lakh. 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. The
market wide position limit (number of shares) shall be valued taking the closing prices
of stocks in the underlying cash market on the date of expiry of contract in the month.
The market wide position limit of open position (in terms of the number of underlying
stock) on futures and option contracts on a particular underlying stock shall be 20% of
the number of shares held by non-promoters in the relevant underlying security i.e.
free-float holding.
Continued Eligibility
For an existing stock to become ineligible, the criteria for market wide position limit
shall be relaxed upto 10% of the criteria applicable for the stock to become eligible for
derivatives trading. To be dropped out of Derivatives segment, the stock will have to
fail the relaxed criteria for 3 consecutive months.
If an existing security fails to meet the eligibility criteria for three months consecutively,
then no fresh month contract shall be issued on that security.
Further, the members may also refer to circular no. NSCC/F&O/C&S/365 dated
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