LEIPS: BSE's scheme for derivatives
Suparna / 16 Dec 2011
Aimed at creating lasting and self-sustaining liquidity in the bourse's Derivatives segment and incentivising investor and broker participation in the same, the LEIPS initiative by the BSE is certainly one of its kind in India.
Asia's first and among the world's largest stock exchanges, the BSE (formerly known as the Bombay Stock Exchange) is the heart of the financial capital of India, Mumbai. It is the world's numero uno exchange in terms of the number of listed companies (over 5000), and the 5th most active in terms of the number of transactions handled through its electronic trading system.
But the BSE is an institution that doesn’t sit on its laurels. In late Sept 2011, the country’s premier bourse initiated its first phase of Liquidity Enhancement Incentive Programmes (LEIPS), followed by LEIPS-II launched in October 2011. The first such attempt in India, the LEIPS initiative is creating lasting and self-sustaining liquidity in the bourse’s Derivatives segment. According to market watchers, the programme has received an overwhelming positive response, and has crossed a daily turnover of Rs 1600 cr in the Derivatives segment, with daily participation of over 150 members. BSE now has a sustainable and healthy order-book in SENSEX futures, with the best comparable spreads.
LEIPS-II will run uptil April 2012, and will see incentives to the tune of Rs 102 cr, i.e. Rs 17 cr every month, for all participating members. It is intended to help build a healthy Derivatives order book for the Sensex and its underlying 30 stocks. This is being done by incentivising both investor and market-maker participation across the board.
Some of the significant features that characterise LEIPS are as follows:
Please tell us about the Liquidity Enhancement Programme launched recently by the BSE.
The Liquidity Enhancement Incentive Programme (LEIPS) was launched by the BSE to strengthen the derivatives trading platform at BSE. The programme gives cash incentives to both market makers and general market participants for trading in the SENSEX, BANKEX and 30-SENSEX stocks futures and options contracts. It is designed within the formal guidelines laid down by the SEBI in this regard. LEIPS has had a tremendous response from the investor/broker community, and more than 350 members have traded in BSE's derivative segment after the launch of the programme.
How does the programme help investors and brokers?
Market making and similar liquidity incentive schemes are regularly deployed by leading global exchanges to build deep liquid markets. The SENSEX is tracked by millions of investors, both in India and globally. Thanks to the BSE LEIPS initiative, these investors now will be able to trade products – including futures and options – on the SENSEX in a liquid market with lower market impact cost. The incentive programme is designed to ensure that tradeable prices for these instruments are available all through the trading day. This will allow the exchange members to help their customers, i.e. individual investors, express their views on the market prices and hedge their portfolio risk in an efficient manner.
In response to a long-standing interest from the investor community, the BSE has recently launched delivery-based futures and options on single stocks. There are numerous benefits from this product. LEIPS will help in the successful development of an important set of products in our markets.
Has liquidity really been the root cause of lower volumes of a weaker takeoff of derivatives on the BSE?
As we mentioned earlier, the global best practice among successful exchanges is to deploy a range of such programmes, targeting both sides of the market to help build liquidity in new and illiquid products. The focus is on reducing the costs and risk involved in providing liquidity to and taking positions in a market with under-developed liquidity. Thanks to the recent guidelines from the SEBI that allow the exchanges to launch similar programmes, we are excited by the opportunity to work closely with our member firms and their customers in developing liquid markets for derivatives on the SENSEX and delivery-based single stocks.
How do you see this programme helping to maintain volumes perpetually on the derivatives segment on the BSE?
As with any new product, there is some inertia among market participants about trying a new product, especially when there might be so-called cheaper options – cheaper, in the sense of better liquidity. LEIPS is designed to address this inertia. As of date, over 350 member firms have already established connectivity with the BSE derivatives segment. With a quantum improvement in quoted prices on the screen, they have now started facilitating trades by their customers in the SENSEX and delivery-based single stock futures and options.
Liquidity comes from different sources. With an improvement in the prices posted on the screen, it will help attract order flow from a wider range of traders and arbitraguers looking to execute other trading strategies. Basically, our expectation is that this initial liquidity generated by LEIPS will attract additional liquidity and help us attain critical levels, wherein the liquidity becomes sticky or perpetual.
What should investors particularly look for in this programme introduced by the BSE?
(a) Investors track the markets using the SENSEX. They can now trade it.
(b) Investors can expect lower costs – both in terms of lower exchange fees, and the additional incentives paid by the Exchange. For example, the exchange fees for futures are Rs 50 per crore of turnover on active trades, and nil on passive ones. It is similar in the case of options too. This will help ensure that investors can make their money work harder for them.
If you look at the competing bourses, there seems to be a lot of ground to be covered by the BSE, despite being a premier exchange of the country. Your comment on how we intend to achieve this.
Differentiation, innovation and awareness are the ways by which we intend to achieve a viable derivatives segment at the BSE. The differentiated derivatives contracts at the BSE fulfil a key important economic need of the investor community, and LEIPS is one of the initiatives that we are complementing with our media and educational efforts in increasing awareness about the BSE derivatives segment.
But the BSE is an institution that doesn’t sit on its laurels. In late Sept 2011, the country’s premier bourse initiated its first phase of Liquidity Enhancement Incentive Programmes (LEIPS), followed by LEIPS-II launched in October 2011. The first such attempt in India, the LEIPS initiative is creating lasting and self-sustaining liquidity in the bourse’s Derivatives segment. According to market watchers, the programme has received an overwhelming positive response, and has crossed a daily turnover of Rs 1600 cr in the Derivatives segment, with daily participation of over 150 members. BSE now has a sustainable and healthy order-book in SENSEX futures, with the best comparable spreads.
LEIPS-II will run uptil April 2012, and will see incentives to the tune of Rs 102 cr, i.e. Rs 17 cr every month, for all participating members. It is intended to help build a healthy Derivatives order book for the Sensex and its underlying 30 stocks. This is being done by incentivising both investor and market-maker participation across the board.
Some of the significant features that characterise LEIPS are as follows:
- It is the first of its kind liquidity-enhancement programme in the country
- It is a transparent and all-inclusive programme
- It offers incentives for trading and open incentives
- It has the lowest transaction fees in the country
Please tell us about the Liquidity Enhancement Programme launched recently by the BSE.
The Liquidity Enhancement Incentive Programme (LEIPS) was launched by the BSE to strengthen the derivatives trading platform at BSE. The programme gives cash incentives to both market makers and general market participants for trading in the SENSEX, BANKEX and 30-SENSEX stocks futures and options contracts. It is designed within the formal guidelines laid down by the SEBI in this regard. LEIPS has had a tremendous response from the investor/broker community, and more than 350 members have traded in BSE's derivative segment after the launch of the programme.
How does the programme help investors and brokers?
Market making and similar liquidity incentive schemes are regularly deployed by leading global exchanges to build deep liquid markets. The SENSEX is tracked by millions of investors, both in India and globally. Thanks to the BSE LEIPS initiative, these investors now will be able to trade products – including futures and options – on the SENSEX in a liquid market with lower market impact cost. The incentive programme is designed to ensure that tradeable prices for these instruments are available all through the trading day. This will allow the exchange members to help their customers, i.e. individual investors, express their views on the market prices and hedge their portfolio risk in an efficient manner.
In response to a long-standing interest from the investor community, the BSE has recently launched delivery-based futures and options on single stocks. There are numerous benefits from this product. LEIPS will help in the successful development of an important set of products in our markets.
Has liquidity really been the root cause of lower volumes of a weaker takeoff of derivatives on the BSE?
As we mentioned earlier, the global best practice among successful exchanges is to deploy a range of such programmes, targeting both sides of the market to help build liquidity in new and illiquid products. The focus is on reducing the costs and risk involved in providing liquidity to and taking positions in a market with under-developed liquidity. Thanks to the recent guidelines from the SEBI that allow the exchanges to launch similar programmes, we are excited by the opportunity to work closely with our member firms and their customers in developing liquid markets for derivatives on the SENSEX and delivery-based single stocks.
How do you see this programme helping to maintain volumes perpetually on the derivatives segment on the BSE?
As with any new product, there is some inertia among market participants about trying a new product, especially when there might be so-called cheaper options – cheaper, in the sense of better liquidity. LEIPS is designed to address this inertia. As of date, over 350 member firms have already established connectivity with the BSE derivatives segment. With a quantum improvement in quoted prices on the screen, they have now started facilitating trades by their customers in the SENSEX and delivery-based single stock futures and options.
Liquidity comes from different sources. With an improvement in the prices posted on the screen, it will help attract order flow from a wider range of traders and arbitraguers looking to execute other trading strategies. Basically, our expectation is that this initial liquidity generated by LEIPS will attract additional liquidity and help us attain critical levels, wherein the liquidity becomes sticky or perpetual.
What should investors particularly look for in this programme introduced by the BSE?
(a) Investors track the markets using the SENSEX. They can now trade it.
(b) Investors can expect lower costs – both in terms of lower exchange fees, and the additional incentives paid by the Exchange. For example, the exchange fees for futures are Rs 50 per crore of turnover on active trades, and nil on passive ones. It is similar in the case of options too. This will help ensure that investors can make their money work harder for them.
If you look at the competing bourses, there seems to be a lot of ground to be covered by the BSE, despite being a premier exchange of the country. Your comment on how we intend to achieve this.
Differentiation, innovation and awareness are the ways by which we intend to achieve a viable derivatives segment at the BSE. The differentiated derivatives contracts at the BSE fulfil a key important economic need of the investor community, and LEIPS is one of the initiatives that we are complementing with our media and educational efforts in increasing awareness about the BSE derivatives segment.
If you want to stay updated with the share market news today, keep a close watch on the indian stock market today with real time movements like sensex today live and overall stock market today trends. Investors tracking ipo allotment status, ipo news today, or the latest ipo india can also follow daily updates along with bse share price live data. Whether you are learning how to invest in stock market in india, preparing for a market crash today, or searching for the best stocks to buy in india, insights on top gainers today india, top losers today india, trending stocks india and long term stocks india help in making informed investment decisions.