BSE to take steps to mitigate options volatility
The BSE is taking steps to mitigate sudden spikes in options prices. The bourse had seen sudden spurts in two of its derivatives indices on February 2 and April 12, which has prompted the exchange to ramp up surveillance measures. It recently introduced what is called a “limit price protection”, which will place restrictions on the price range for orders in the derivatives market.
In an analyst call earlier this week, the bourse’s chief executive said such spikes were not unique to any particular product or any particular exchange and could not be blamed on system stability.
VOLATILITY SPURTS
“If the order book is not very deep and the stop loss orders get triggered because of the change in volatility profile, trades happen at whatever prices that are available in the order book. And so you find the graph (of options strike prices) showing a sudden spurt and then coming back to normal. In the last 6-7 months, this behaviour during intraday volatility spurts has been seen in every exchange,” MD and CEO S
Ramamurthy said. He said the exchange would continue in its eorts to ensure whatever best it could do to smoothen the volatile movements.
“Market movements are not in our hands. But the impact on the order books will reduce if we deepen and broaden the market. That’s what we are focussing on,” he said.
BSE has more than 400 members trading its derivative products, representing 36 lakh active clients. The aim is to increase this number to 600 in the coming months. Similarly, it wants to increase the number of foreign portfolio investors trading in its products to 250 from about 100 at present. It is in the process of allocating 100 co-location racks, which will be ramped up gradually as well.
The exchange also plans to make its foray into single stock futures from July 1.