NATIONAL STOCK EXCHANGE OF INDIA LIMITED

FUTURES & OPTIONS SEGMENT

CIRCULAR

Date: June 10, 2005

Circular No. NSE/F&O/120/2005                                          

Download No: NSE/F&O/6245

 

Dear Members,

 

Introduction of futures and options contracts on BANKNIFTY

 

In continuation to our circular no. NSE/F&O/119/2005 dated June 9, 2005, members are requested to note that the market lot for the futures and options contracts of BANKNIFTY (based on CNX BANK index) will be 100.

 

The operating parameters of the BANKNIFTY are given at Annexure 1. The statistics and basic details of the BANKNIFTY are given at Annexure 2.

 

The closing price of the index in the underlying market on June 10, 2005 shall be rounded off by the applicable strike interval multiplier to derive the at-the-money strike price. Three in-the-money and three out-of-the-money strike prices shall be introduced based on the at-the-money strike for both put and call options.

 

The new contracts will be available for trading from June 13, 2005. Members are requested to take the latest contract.zip, security.zip and fo_participant.zip files from NSE EXTRANET, directory:/faoftp/faocommon on June 10, 2005, after market hours. A detailed list of new contracts being introduced for trading (file name: contracts130605.xls) will be available on the path faoftp/faocommon/contracts on June 10, 2005 after market hours.

 

This circular will be effective from June 13, 2005.

     

 

For National Stock Exchange of India Ltd.

 

 

 

Latika S Kundu

Manager (F&O Trade)

Annexure -1

 

 

a)      Name of the Index: BANKNIFTY (based on CNX BANK Index)

b)      Base Year: January 01, 2000

c)      Base Value: 1000

d)      Number of Securities in Index: 12

e)      Index Construction: Market capitalisation weighted method

f)        Composition of the Index:

 

Sr No.

Company

Symbol

Mcap as on May 26, 2005        (Rs. crs.)

Weightages (%)

1

Andhra Bank Ltd

ANDHRABANK

4016.00

2.96

2

Bank of Baroda

BANKBARODA

5911.12

4.35

3

Bank of India

BANKINDIA

4822.81

3.55

4

Canara Bank Ltd.

CANBK

7980.65

5.88

5

Corporation Bank

CORPBANK

4840.38

3.57

6

HDFC Bank Ltd.

HDFCBANK

16743.88

12.33

7

ICICI Bank Ltd.

ICICIBANK

29508.96

21.73

8

Oriental Bank of Commerce

ORIENTBANK

6576.67

4.84

9

Punjab National Bank Ltd.

PNB

12071.36

8.89

10

State Bank of India

SBIN

35980.42

26.50

11

Syndicate Bank Ltd.

SYNDIBANK

2529.75

1.86

12

Union Bank of India Ltd.

UNIONBANK

4792.13

3.53

 

a)      Index P/E: 13.95 (as on May 26, 2005)

b)      Market Coverage (i.e. market capitalisation of the index as percentage of total market capitalization of banking stocks): 79% as on March 31, 2005.

c)      Market capitalization (May 26, 2005) : Rs. 135774.13 crs.

d)      Calculation frequency: 6 Seconds

e)      Index Provider: India Index Services and Products Limited (IISL)

f)        52 week high/low of the index:  3931.55 / 2162.15

g)      Current index value: (close index value as on June 10, 2005) : 3593.55

h)      Annual dividend yield of the index: 1.98 (as on May 26, 2005)

i)        Historical price data of index movements: The same is provided on NSE’s website at http://www.nseindia.com

j)        Types of product available on the index: Futures and Options

k)      Price limits: There will be no day minimum/maximum price ranges applicable for the contracts. However, in order to prevent / take care of erroneous order entry, the operating ranges for future contracts shall be kept at +/- 10% of the base price and for options contracts +/- 99% of the base price.

l)        Lot Size: 100

m)    Tick Size: Re.0.05

n)      Quantity Freeze: 14000

o)      Contract Cycle: BANKNIFTY futures & options contract shall have a maximum 3-month expiration cycle. A new contract shall be introduced every month for three-month duration. All contracts will expire on the last Thursday of the respective months.  If the last Thursday of the month is a holiday the contract shall expire on the previous trading day.

p)      Contract Specifications :

Futures:

Market Type

:

N

Instrument

:

FUTIDX

Symbol

:

BANKNIFTY

Options:

Market Type

:

N

Instrument

:

OPTIDX

Symbol

:

BANKNIFTY

Option Type

:

CE / PE (Call European / Put European)

Strike Price intervals

:

Rs. 10

Number of available strikes

:

The Exchange shall provide a minimum of seven strike prices for every option type i.e. CE and PE during the month. There will be three in-the-money (ITM) contracts, three out-of-money (OTM) and one at-the-money (ATM) contract.

 

 

Annexure - 2

1. CNX BANK:

CNX BANK is an index comprised of the most liquid and large capitalization banking stocks traded on the NSE. CNX BANK provides investors and market intermediaries with an appropriate benchmark that captures the performance of the Bank segment of the market. Companies selected in the index are essentially ranking high in terms of market value represented by their market capitalization and liquidity.

 

The index is managed by India Index Services and Products Limited (IISL), a joint venture between NSE and CRISIL.

 

 

2. Methodology of calculating the CNX BANK index :

Methodology :

 

The CNX BANK index is calculated using the market capitalisation weighted aggregate method.

Selection Criteria :

 

Selection of the index set is based on the following criteria:

  1. Company's market capitalization rank in the universe should be less than 500
  2. Company's turnover rank in the universe should be less than 500
  3. Company's trading frequency should be at least 90% in the last six months.
  4. Company should have a positive networth.
  5. A company which comes out with a IPO will be eligible for inclusion in the index, if it fulfills the normal eligibility criteria for the index for a 3 month period instead of a 6 month period.

 

 

a.         Market Capitalisation

The influence of each company on the index is directly proportional to its market value. Therefore, a company’s rank based on the average market capitalisation over a 6 month period is an important consideration for its selection in the CNX BANK Index.

b.         Trading Interest

The companies considered for inclusion must rank among the highest in the Banking sector in terms of annual trading turnover and must have demonstrated a high level of trading frequency in the previous 6 month period.

 

 

 

 

 

 

 

 

 

3. CNX BANK index comparison with S&P CNX Nifty:

Some statistics related to the CNX BANK index are given below:-

(As on May 26, 2005)

S&P CNX Nifty

BANK Nifty

Average Market Cap (in Rs. crs.)

(May 2004 –April 2005)

793481

107560

P/E Ratio

13.95

10.70

Price to Book Value

3.89

2.29

Dividend Yield

1.98

1.80

Volatility (of Avg. Daily Returns)

(May 2004 –April 2005)

1.61

2.30

 

Beta Analysis

Beta is a measure of volatility of a security in comparison to the market (S&P CNX Nifty) as a whole. The Beta values of the securities in the CNX BANK index are enclosed:

 

S. No.

Company Name

Beta

1

Andhra Bank Ltd

1.53

2

Bank of Baroda

1.81

3

Bank of India

1.50

4

Canara Bank Ltd.

1.17

5

Corporation Bank

1.00

6

HDFC Bank Ltd.

1.16

7

ICICI Bank Ltd.

0.98

8

Oriental Bank of Commerce

1.69

9

Punjab National Bank Ltd.

1.44

10

State Bank of India

1.31

11

Syndicate Bank Ltd.

1.69

12

Union Bank of India Ltd.

1.29

For period May 2004 to April 2005

 

Correlation between CNX BANK index securities and S&P CNX Nifty

S. No.

Company Name

Correlation

1

Andhra Bank Ltd

0.71

2

Bank of Baroda

0.76

3

Bank of India

0.66

4

Canara Bank Ltd.

0.60

5

Corporation Bank

0.52

6

HDFC Bank Ltd.

0.69

7

ICICI Bank Ltd.

0.69

8

Oriental Bank of Commerce

0.76

9

Punjab National Bank Ltd.

0.70

10

State Bank of India

0.82

11

Syndicate Bank Ltd.

0.74

12

Union Bank of India Ltd.

0.59

For period May 2004 to April 2005

 

Correlation between CNX BANK Index and S&P CNX Nifty 

Period

BANKNIFTY

Jan 2001 – Dec 2001

0.71

Jan 2002 – Dec 2002

0.62

Jan 2003 – Dec 2003

0.64

Jan 2004 – Dec 2004

0.89

Jan 2005 – Apr 2005

0.86

 

Beta value of CNX BANK in comparison to S&P CNX Nifty

S. No.

Index

Beta

1

CNX BANK

1.27

 For period May 2004 to April 2005

 

Volatility of CNX BANK vis-ŕ-vis S&P CNX Nifty    

Period

Nifty

BANKNIFTY

Jan 2001 – Dec 2001

1.62

1.88

Jan 2002 – Dec 2002

1.06

1.37

Jan 2003 – Dec 2003

1.23

1.76

Jan 2004 – Dec 2004

1.74

2.41

Jan 2005 – Apr 2005

1.21

1.84

 

Returns of CNX BANK vis-ŕ-vis S&P CNX Nifty  

Period

Nifty

BANKNIFTY

Jan 2001 – Dec 2001

-15.57%

-11.18%

Jan 2002 – Dec 2002

3.62%

40.94%

Jan 2003 – Dec 2003

70.86%

111.96%

Jan 2004 – Dec 2004

8.80%

31.23%

Jan 2005 – Apr 2005

-8.56%

-9.58%