Page 37 - DCOM507_STOCK_MARKET_OPERATIONS

Stock Market Operations

Notes Mini Nifty and Long Dated Options

The year 2008 witnessed the launch of new products in the F&O Segment. The mini derivative
(futures and options) contracts on S&P CNX Nifty were introduced for trading on January 1,
2008. The mini contracts are a fraction of normal derivative contracts and extend greater
affordability to individual investors, helps the individual investor to hedge risks of a smaller
portfolio, offers low levels of risk in terms of smaller level of possible downside compared to a
big size contract and also increases overall market liquidity and participation. The long term
Options Contracts on NSEs S&P CNX Nifty were launched on March 3, 2008. The long-term
options are similar to short-term options, but the later expiration dates offer the opportunity for
long-term investors to take a view on prolonged price changes without needing to use a
combination of shorter term option contracts. The premiums for long-term options tend to be
higher than that of short-term option because the increased expiration period means increased
possibility of larger movement in the price of the underlying.

Short Selling

Pursuant to the recommendations of the Secondary Market Advisory Committee (SMAC) of
SEBI and the decision of the SEBI Board, it was decided to permit all classes of investors to short
sell.
Short selling is defined as selling a stock which the seller does not own at the time of trade.
It increases liquidity in the market, and makes price discovery more efficient. Besides, it curbs
manipulation of stocks as informed investors are able to go short on stocks they feel are higher
than fair value. This facility was available to non-institutional investors. Vide a circular in
February 2008; SEBI permitted all classes of investors, viz., retail and institutional investors to
short sell. It, however, does not permit naked short sales and accordingly, requires participants
to mandatorily honour their obligation of delivering the securities at the time of settlement.
It does not permit institutional investor to do day trading i.e., square-off their transactions
intra-day. In other words, all transactions are be grossed for institutional investors at the
custodians’ level and the institutions are required to fulfill their obligations on a gross basis.
The custodians, however, continue to settle their deliveries on a net basis with the stock exchanges.
It has put in a scheme for Securities Lending and Borrowing to provide the necessary impetus to
short sell. The facility of short sales is made available in respect of securities traded in derivatives
segment of exchanges.

Securities Lending and Borrowing

SEBI issued a SLB scheme on December 20, 2007. The salient features of the scheme are as under:
All Clearing members of NSCCL including Banks and Custodians referred to as
‘Participant’ are registered as Approved Intermediaries (AIs) under the SLS, 1997.
The SLB would take place on an automated, screen based, order-matching platform which
will be provided by the AIs. This platform would be independent of the other trading
platforms.
Currently, securities available for trading in F&O segment of National Stock Exchange of
India Ltd. (NSEIL) would be eligible for lending & borrowing under the scheme. Securities
lending and borrowing is permitted in dematerialized form only.

All categories of investors including retail, institutional etc. will be permitted to borrow
and lend securities. The borrowers and lenders would access the platform for lending/
borrowing set up by the AIs through the clearing members (CMs) who are authorized by
the AIs in this regard.

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