NSE launches VIX futures as election jitters grow

MUMBAI Wed Feb 26, 2014 1:39pm IST

A broker monitors indices during trading hours at a brokerage firm in Mumbai September 8, 2005. REUTERS/Punit Paranjpe/Files

A broker monitors indices during trading hours at a brokerage firm in Mumbai September 8, 2005.

Credit: Reuters/Punit Paranjpe/Files

Related Topics

MUMBAI (Reuters) - The National Stock Exchange on Wednesday launched trading of futures tied to its VIX volatility index, known as the "fear gauge," providing a key hedging tool against uncertainty ahead of general elections and weaker global market sentiment.

Trading was active with 1.2 billion rupees worth of contracts trading at 12:00 p.m.

The futures are tied to VIX, which is modelled on the Chicago Board Options Exchange's popular index and measures expected near-term volatility for shares based on prices of options.

Traders expect strong demand for VIX futures, including for speculative trading, even though recent launches by India's largest exchange of other products, such as a listing platform for small and medium-sized companies, failed to gain much traction.

Regionally, trading interest in such a hedging tool has been mixed, with subdued activity for the S&P/ASX 200 VIX futures in Australia launched last October, and the Nikkei Volatility Index in the Osaka Stock Exchange launched in February 2012.

"I think NVIX (NSE VIX) futures are a good instrument for option traders since it allows them to hedge volatility," said Anant Shirgaonkar, head of India Equities for UBS Securities in India.

"It is also a positive development from the point of view that it increases the portfolio of products available to international and domestic investors. This is more in line with having products which are available in the global markets traded in the Indian market as well."

India's broader VIX index, which was launched in April 2008 under license, has become a popular barometer of sentiment for domestic investors.

The launch of VIX futures comes as the broader fear gauge on Wednesday hit its lowest since March 2013. However, traders widely expect volatility to pick up as the continued wind down in monetary stimulus by the Federal Reserve and concerns about China's economy are keeping global shares volatile.

More importantly, investors are bracing for volatility ahead of and possibly after general elections due by May.

"VIX futures should pick up because it's a new asset class that fits into an investor's trading needs. The timing for a volatility product is also good because it comes as we are staring at elections," said Tushar Mahajan, head of India futures and options for Nomura in Mumbai.

The Nifty has fallen 1.7 percent so far this year as of Tuesday's close, compared to a 2 percent fall in the MSCI index for Asia-Pacific excluding Japan.

VIX futures comes as the NSE's recent products have failed to gain much traction. For example, NSE's SME platform has seen only four listings since launching in March 2012.

(Editing by Kim Coghill)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

Reliance Projects

Reliance Projects

Exclusive: Reliance plans $13 billion projects including new refinery.  Full Article 

Pharma Sector

Pharma Sector

In race for bigger margins, drug makers willing to lose the India "advantage".  Full Article 

Low Stocks

Low Stocks

Indian power station coal stocks lowest since 2012 blackouts.  Full Article 

Markets This Month

Markets This Month

Tata Motors, M&M top Sensex gainers  Full Article 

Google Drones

Google Drones

Google is testing unmanned drones to deliver anything from dog food to medicine.  Video 

#RiceBucketChallenge

#RiceBucketChallenge

In India, rice replaces ice in bucket challenge.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage