InvestorQ : Can you tell me about the introduction of the derivative contracts on the Nifty Financial Services Index?
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Can you tell me about the introduction of the derivative contracts on the Nifty Financial Services Index?

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5 months ago
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On 10 December 2020, the NSE received approval from SEBI to launch derivative contracts on the Nifty Financial Services index. The launch of these new derivative contracts is effective 11 January 2021 and the NSE will offer futures and options on the Nifty Financial Services index. Here are some of the key highlights of the product.

· The exchange will offer 3 monthly F&O contracts for the near month, mid month and far month. In addition, there will be 7 weekly contracts permitted on the Financial Services index.

· This is the first time that weekly futures on an index are also being permitted. The Nifty and Bank Nifty only support options on the weekly trading settlement. That makes it relatively unique.

· Like all the index contracts, this options and futures on the Nifty Financial Services Index will also be cash settled only. There will be no assignment or vesting of delivery. All options will necessarily be European options only i.e. CE and PE.

· Nifty Financial Services Index assumes significance as it includes NBFCs, housing finance companies, MFIs, AMCs and insurance companies. Today 2 of the top-10 companies on the Nifty in terms of market cap are NBFCs i.e. Bajaj Finance and HDFC.

· The Nifty Financial Services Index has a weight of 35% on the NSE 500 index. In addition, this index has given CAGR returns of 15% in the last 5 years. The correlation of the index with Nifty is 0.94 and with Bank Nifty is 0.98.

· For institutional investors substantially exposed to financial services sector, this index offers a sharper hedge compared to Bank Nifty. The weekly options will offer the leeway to play short term cues on this sector in a more effective way.

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