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NATIONAL STOCK EXCHANGE
LifeAfterLehman
April 20, 2009Ravi Narain, MD&CEO, NSE, India
The year that was … 2008• Increased Volatility• Reduced liquidity • Many participants vanished• Counterparty credit risk enhanced• CCP a better option• Derivatives volume grew, but at a slower
pace• Difference in behavior
Futures and options Different asset classes
• Emerging markets different patterns?2
Increase in Volume; reduced growth
0
5
10
15
20
2004 2005 2006 2007 2008
5%
10%
15%
20%
25%
30%
35%
Volumes in billion contracts
% growth
Global Derivatives Volumes
Source: FIA
Growth by asset classes
Reduced growth; Negative growth rate for interest products
Agri products fared better
Equity and equity index – growth was good
4
Category YOY 07-08
YOY 06-07
YOY 05-06 YOY 04-05
Equity Index 18% 23% 9% 8%Individual Equity 25% 53% 22% 18%Interest Rates -14% 17% 26% 12%Agricultural 39% 31% 48% 10%Energy 17% 29% 40% 13%Currency 26% 92% 45% 57%Precious Metals 19% 48% 85% -9%Non-Precious Metals 65% -8% 19% -7%Other 74% 500% 161% 94%
Source: FIA
Option vs futures
5
Futures Options Futures Options2004 39% 61%2005 40% 60% 14% 10%2006 45% 55% 33% 11%2007 46% 54% 37% 26%2008 47% 53% 15% 13%
% contribution % growth rate
•Futures % have gone up while options came down•Growth rates have come down in 2008•Futures more drastically than options!
Increased volatility
0
10
20
30
40
50
60
70
80
Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08
S&P 500
Nifty
6
Annualised volatility
Developed markets- who pulled out?
• Hedge funds pulled out the most ? Redemption calls? Losing strategies? Reducing leverage?
• Traditional customers pulled out the least? Pension funds? Mutual funds, etc?
7
Emerging Markets different?
2007 Q1-07 Q2-07 Q3-07 Q4-07Foreigners 24% 23% 24% 23%Individuals 28% 26% 30% 31%Securities 29% 33% 29% 29%Others 19% 18% 16% 17%
2008 Q1-08 Q2-08 Q3-08 Q4-08Foreigners 23% 23% 24% 22%Individuals 30% 28% 28% 35%Securities 28% 33% 32% 29%Others* 18% 16% 16% 13%
Korea
2005-06 2006-07 2007-08Exchange Participants’ principal trading
47% 55% 61%
Local investor trading 29% 24% 21% - Retail 21% 18% 17% - institutional 8% 6% 4%Overseas investor trading 23% 21% 19% - Retail 2% 2% 2% - institutional 21% 19% 17%
Hong Kong Stock Exchange - Derivatives Segment - Period July - June
•No major change in
trading pattern
•Individuals/retail –
continue to be the
stronghold/same
•In HK, Principal trading
has increased
•% of Foreigners interest
in Korea almost same* Others include insurance cos., investment cos, and Banks
Who traded at NSE derivatives2008 Q1-08 Q2-08 Q3-08 Q4-08FII 11.41% 11.75% 8.77% 7.56%MF 1.22% 1.43% 1.34% 1.42%Proprietary 23.22% 29.01% 31.10% 32.76%Retail 64.15% 57.81% 58.79% 58.25%
2007 Q1-07 Q2-07 Q3-07 Q4-07FII 9.59% 9.62% 9.83% 8.14%MF 1.11% 1.16% 1.11% 0.88%Proprietary 24.04% 26.12% 25.47% 24.24%Retail 65.26% 63.10% 63.60% 66.74%
•Number of contracts traded has increased•FII activity has come down in terms of % not in terms of contracts•Domestic prop and institutional activity has increased•No variation in retail activity among the last three quarters
Top Emerging exchanges by growth %Rank Exchange J an- Dec
2008 J an- Dec 2007
% Change
13 Zhengzhou Commodity Exchange
222,557,134 93,052,714 139.20%
28 Turkish Derivatives Exchange 54,472,835 24,867,033 119.10%45 Thailand Futures Exchange 2,148,620 1,230,666 74.60%10 Dalian Commodity Exchange 313,217,957 185,614,913 68.70%
29 Mercado a Termino de Rosario 42,216,661 25,423,950 66.10%11 Russian Trading Systems Stock
Exchange 238,220,708 143,978,211 65.50%
16 Shanghai Futures Exchange 140,263,185 85,563,833 63.90%
24 Mercado Español de Opciones y Futuros Financieros
83,416,762 51,859,591 60.90%
9 J SE South Africa 513,584,004 329,642,403 55.80%
8 National Stock Exchange of India
590,151,288 379,874,850 55.40%
18 Moscow Interbank Currency Exchange
131,905,458 85,386,473 54.50%
15 Osaka Securities Exchange 163,689,348 108,916,811 50.30%
Emerging Market Exchanges with growth % >50 considered.Seven of them are from Asia and two from Russia.
Indian Scene – NSE equity derivatives
1.16
1.38
1.701.82 1.86
1.95
2.65
3.16
0
1
2
3
4
Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08
Average daily traded volume ( million contracts)
Index products
12%
23%
35%
38%
42%
39%
60%
0%
10%
20%
30%
40%
50%
60%
70%
2002 2003 2004 2005 2006 2007 2008
Index derivatives to Total
So, where do we look for future growth?
Future growth?
• No single solution• Depends on the market• Emerging markets have a good retail
base Retail base bolsters liquidity domestically Can reduce volatility in volumes Indian Experience
• India has good retail volumes and has tremendous scope
• Household savings to Capital Market
Future growth?
• Emerging markets do not have all asset classes for trading Introduce new asset classes Introduce new products Indian experience
THANKS
16