Friday, September 29, 2006

>Futures Trading Restrictions

Here are some ideas from a friend, Dinesh C Nagpal.
There are many open questions and if you have a view you are invited to leave a comment.

A great attraction for FII interest in INDIA is stock Futures. Developed markets like Japan, Europe, US have the focus on stock options and index futures and not stock futures.
While stock futures is heavily traded in INDIA.

Why would stock futures appear attractive to FIIS?
Why did stock options didnot catch the fancy of Indian markets as strongly as Stock Futures?

SEBI and some wise guys want this to change and that's why they plan to put a lid by disallowing stocks as security for F&O trades. This may lead to more trading in options in which a speculative position can come for much less margin.

Will this make the markets more VOLATILE since you earn in OPTIONS only is extreme movements. How will this effect intraday futures traders. Will they shift to trading options or resort to using more leverage in cash trading?

How will the income of
Brokers change due this? I think that if trading in options increase Brokers would earn more, since the same trading amount can purchase many more lots of call/put options when compared to futures and this generate more Brokerage.

SEBI is right now as confused as a naive trader/investor, first last December it banned 3rd party funding by brokers, then they increased span in f&o and then did a u-turn by reducing lot size in f&o and now wants to push option trading.

Futures is a carrot which attracts many traders to the market. What will happen if all the futures traders start chasing the cash market? Will this new money have a super inflating effect on cash scrips and lead to even wilder run ups in mid caps on huge volumes?

On a different note is this an arm twisting method to ask investors / traders to invest in MUTUAL FUNDS ? Who claim via several deceiving ways to give you a house in the moon. The funds nowadays come out with so many schemes with so many ads that an average investor does not trace an old scheme. Money keeps jumping from scheme to scheme, fund to fund by investors. Every time 2% of NAV which looks small but eats into the tiny profits you make.
Anyone who invested in the 90s' in GIC, LIC, PNB, BOB funds with 3-5 years lock took large hits.

We as a trader how can we make use of this opportunity?
How should we shift our thinking and focus in case the futures trading is stopped?

1 comment:

AB said...

This is in reply to Dinesh C Nagpal's views about F&O, The First and foremost thing is to understand is that: Our Capital Market is virtually controlled by a Group of Market Operators, with FULL support of Promoters of Listed Companies, plus very pro-active supports from FII, MFs and other HNI Participants, they HOLD MONOPOLY over real floating stocks i.e. Underlying security which much more important than its Derivatives i.e. F&O Securities, they have LONG LONG HANDS and can dictact the POLICY CHANGES OF Govt.needed to suit their ends, if SEBI is really interested in Reforming Stock Markets, SEBI MUST do following:
1 - Immediately remove the provisions of "Participatory Notes" (PNs) and investigate the "Who these Participants really are, uncover their identity with retrospective effect from 2001 till date.

2 - Completely restructure "Insider Trading Rules" in line with SEC and introduce STIFFEST PENALTY of Min. 20 years of Imprisonment for EACH Crime and forefeiting of all the movable, immovable properties of ALL INVOLVED, All legal cases must be Settled on a Monthly Rolling bases so that all cases are cleared Maximum within one month.

But I extremely regret that with extremely corrupt political System our above wishlist will only remain wishlist.

Regards to all
AB