Is it true that NSE has emerged as the largest derivatives exchange in the world?
Answer
Answer
OK, NSE is the largest in terms of number of transactions and not in terms of value. NSE is still much smaller than the other global derivative exchanges in terms of value of trades done. I am sure you must read the big headlines in newspapers a day ago that, “NSE beats CME to be world’s top derivatives exchange”. That is correct technically but these pertain to volumes and not value. For example, the NSE’s derivatives volumes grew 57% to 5.96 billion contracts in 2019, while CME Group’s volumes stood at 4.83 billion contracts.
However, you need to remember that the value of contracts on Indian exchanges is a fraction of the value traded in the US and other developed markets. In value terms, NSE is still way behind its US counterparts such as CME and Intercontinental Exchange (ICE). One approach can be to measure the relative size of the NSE versus its US counterparts in terms of revenues. For example, NSE’s total revenues stood at $123 million for the quarter ended September 2019, while for the same period, revenues of CME and ICE was about ten times higher at around $1.3 billion; excluding investment income.
Even NASDAQ reported revenues of about $1.1 billion, while EUREX reported revenues of $800 million for the September quarter. In Asia, the SGX reported revenues of $248 million while Hong Kong Exchange revenues stood at around $390 million. These include revenues from cash equities trading, listing and data services and hence may not be a proxy for derivatives activity. Even contract sizes are largely disparate. For example, the average size of contracts traded on NSE stood at about $9500 as against $175,000 at CME. One interesting measure of speculative activity is the OI / volumes ratio. For example, at the CME; OI in equity index options stood at 3.47 million contracts (5.2 times average daily volumes). In NSE’s case, open interest in the equity index options segment was merely 0.1 times its average daily volumes; showing the huge speculative overhang on NSE.