Derivatives trading on the Indian stock market is only months old. While local investors are still coming to grips with the index futures that began trading in March, software company Financial Technologies has imported a futures and options settlement system to provide them with a means to monitor and manage their trading positions.
Financial Technologies already sells a range of software in India for equity, foreign exchange, commodities, treasury and depository management. When the Indian government lifted the ban on derivatives trading in March, the company had the choice of either developing its own futures and options solutions, or licensing one from overseas. It took the latter option and has therefore signed a distribution agreement with European firm Rolfe and Nolan for their CTMS21 Derivatives product.
"We seek to play a major role as a solutions provider in futures & options trading in the country," says Jignesh Shah, CEO of Financial Technologies. "Stock exchanges & clearing corporations in India are committed to following the world's best practices as far as trading in derivatives is concerned. Index-based options and options on stocks will follow index futures," he added.
But Raju Shukla, head of debt capital markets and liability risk management for India at Deutsche Bank, says that it will be at least six months before the government introduces any more equity derivative instruments. "They'll wait until some liquidity comes into the derivatives markets first," he says.
Trading volume is currently quite limited as market participants aren't really familiar with derivatives. But Shukla says the government is trying to educate local investors and it's expected that futures and options will be a large growth sector in the Indian market as locals gradually incorporate them into their investment strategies. Foreign investment funds might also find India more attractive now that it finally has hedging mechanisms.
CTMS21 is a Windows-based system consisting of integrated modules linked to a common database, driven by an SQL database engine. The modules operate in the middle and back office providing trade settlement and general ledger systems that allow the user to monitor their trading position.
Financial Technologies will be responsible for all necessary changes to the product to meet Indian regulatory requirements as well as integrating it with their current suite of applications.
The company will be offering two versions of CTMS21 to the Indian market - the full suite system that supports multi-stock exchanges, multi-users, multiple contracts and multi-currency functionality and the modular system with selective features for particular derivatives products.