Securities and Exchange Board of India released the Development Research Group (DRG) Study titled, Impact of Increased Derivatives-Trading in India on the Price-Discovery Process. The study is co-authored by Prof. Banikanta Mishra, Dr. Sarat Malik, and Laltu Pore.
About the Study
The objective of the study on Impact of Increased Derivatives-Trading in India on the Price-Discovery Process is to examine whether the introduction of financial derivatives led to better price-discovery (PD) in India. Using synchronous daily spot, futures, and option price on Nifty and ten randomly selected stocks, it has been found that, while the spot-market is increasing its dominance over futures and options, the futures market™s dominance over option-market has drastically fallen following the increase in STT. Further, this study is the first one to analyze individual stock-options in India. While the derivatives and spot markets exhibit a long-term relation, the present study found the existence of long-term relationship between futures and options on individual stocks, something none had hitherto studied.
The main recommendations of the study are as follows:
- The study found that spot-market has been dominating the futures and option markets and that the dominance of futures market over options has diminished after the increase in STT (Securities Transaction Tax).
- The Study proposed that the STT on protective-put and hedged-call positions should be reduced to give boost to the option market.
October 17, 2013