A look back at 2011 Turnover

Hi everyone,

We wanted to share some of our research on stock equity and derivative volumes for this past year with the rest of you. We hope you find this information useful. Let us know your views and thoughts in this forum. Hopefully you find this useful and we can keep adding more informational segments like this in the future.

Why Turnover Matters
Turnover done on a segment is extremely important for an exchange and it’s clients (brokers, investors, etc…). There is a positive correlation between the volume done on a security and its liquidity, so generally a security with a lot of volume, provides the investor with better prices (lower spreads). It is in the exchange’s interest to focus on promoting volume and turnover on its products through various ways.

Equity Segment
The equity markets saw a major drop in volumes on both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The NSE saw its daily overall equity traded turnover drop from Rs. 13,000 Cr to Rs. 6,500 Cr. - in other words, turnover dropped by 50% throughout the year. Not to be outdone, the BSE saw an even higher drop in percentage terms- an almost 60% drop- going from approximately Rs. 3,500 Cr to Rs. 1,500 Cr. That being said, SEBI allowed for Smart-Order-Routing (SOR) in August of 2010. SOR ensures that a trade gets routed to the best price across both exchanges for a cross-listed product, and thus should increase activity and turnover and bring down transaction costs. SEBI further issued a circular in December of 2010 that made it clear that both stock exchanges must allow routing for all order types. SOR was supposed to have been picked up and implemented widely. One would expect the volume and turnover gap between the two competing exchanges to close following the implementation, but as you can see, it doesn’t seem to make the case. Now, in an effort to boost equity liquidity and volume, SEBI is planning to allow investors overseas to buy and sell equities (previously they were only allowed to invest in Mutual Funds).

Derivatives Segment
Unlike the Equities segment, the Futures and Options segments did a decent job in overcoming the economic malaise of 2011. The NSE saw its Futures and Options volumes stay consistent throughout the year- with its overall Futures turnover (Stock Futures and Index Futures) averaging around Rs. 30,000 cr to Rs. 35,000 cr and its overall Options turnover (Stock Options and Index Options) averaging around Rs. 100,000 cr daily. One particular thing to note is that looking at the NSE F&O segment turnover on an annual basis, you can see that turnover spikes happen on the expiry dates (end of each) month. The surprise of the year was the significant increase done on the derivatives segment on the Bombay Stock Exchange. The BSE introduced the Liquidity Enhancement Incentive Program (LEIPS), a market-making scheme, in September of 2011. Before September, the average daily turnover on BSE's F&O segment was a little above Rs. 2 crore daily; after LEIPS was introduced, the turnover has increased to Rs. 1,300 cr. The intention was to help foster turnover and activity on the derivative books on the underlying stocks that make up the SENSEX. As evidenced by the increase in turnover, the program seems to be a success. In December, the exchange made a few amendments to the program, one of which included an increase in the daily volume cap per broker. It seems safe to say that turnover should keep rising through early 2012 for the BSE F&O segment and something to keep an eye on for the average investor.

We have attached the graphs and datasets for you to examine and explore. Take a look, leave your thoughts, and hopefully this helps you.


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