NATIONAL STOCK EXCHANGE

LifeAfterLehman

April 20, 2009Ravi Narain, MD&CEO, NSE, India

The year that was … 2008• Increased Volatility• Reduced liquidity • Many participants vanished• Counterparty credit risk enhanced• CCP a better option• Derivatives volume grew, but at a slower

pace• Difference in behavior

Futures and options Different asset classes

• Emerging markets different patterns?2

Increase in Volume; reduced growth

0

5

10

15

20

2004 2005 2006 2007 2008

5%

10%

15%

20%

25%

30%

35%

Volumes in billion contracts

% growth

Global Derivatives Volumes

Source: FIA

Growth by asset classes

Reduced growth; Negative growth rate for interest products

Agri products fared better

Equity and equity index – growth was good

4

Category YOY 07-08

YOY 06-07

YOY 05-06 YOY 04-05

Equity Index 18% 23% 9% 8%Individual Equity 25% 53% 22% 18%Interest Rates -14% 17% 26% 12%Agricultural 39% 31% 48% 10%Energy 17% 29% 40% 13%Currency 26% 92% 45% 57%Precious Metals 19% 48% 85% -9%Non-Precious Metals 65% -8% 19% -7%Other 74% 500% 161% 94%

Source: FIA

Option vs futures

5

Futures Options Futures Options2004 39% 61%2005 40% 60% 14% 10%2006 45% 55% 33% 11%2007 46% 54% 37% 26%2008 47% 53% 15% 13%

% contribution % growth rate

•Futures % have gone up while options came down•Growth rates have come down in 2008•Futures more drastically than options!

Increased volatility

0

10

20

30

40

50

60

70

80

Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08

S&P 500

Nifty

6

Annualised volatility

Developed markets- who pulled out?

• Hedge funds pulled out the most ? Redemption calls? Losing strategies? Reducing leverage?

• Traditional customers pulled out the least? Pension funds? Mutual funds, etc?

7

Emerging Markets different?

2007 Q1-07 Q2-07 Q3-07 Q4-07Foreigners 24% 23% 24% 23%Individuals 28% 26% 30% 31%Securities 29% 33% 29% 29%Others 19% 18% 16% 17%

2008 Q1-08 Q2-08 Q3-08 Q4-08Foreigners 23% 23% 24% 22%Individuals 30% 28% 28% 35%Securities 28% 33% 32% 29%Others* 18% 16% 16% 13%

Korea

2005-06 2006-07 2007-08Exchange Participants’ principal trading

47% 55% 61%

Local investor trading 29% 24% 21% - Retail 21% 18% 17% - institutional 8% 6% 4%Overseas investor trading 23% 21% 19% - Retail 2% 2% 2% - institutional 21% 19% 17%

Hong Kong Stock Exchange - Derivatives Segment - Period July - June

•No major change in

trading pattern

•Individuals/retail –

continue to be the

stronghold/same

•In HK, Principal trading

has increased

•% of Foreigners interest

in Korea almost same* Others include insurance cos., investment cos, and Banks

Who traded at NSE derivatives2008 Q1-08 Q2-08 Q3-08 Q4-08FII 11.41% 11.75% 8.77% 7.56%MF 1.22% 1.43% 1.34% 1.42%Proprietary 23.22% 29.01% 31.10% 32.76%Retail 64.15% 57.81% 58.79% 58.25%

2007 Q1-07 Q2-07 Q3-07 Q4-07FII 9.59% 9.62% 9.83% 8.14%MF 1.11% 1.16% 1.11% 0.88%Proprietary 24.04% 26.12% 25.47% 24.24%Retail 65.26% 63.10% 63.60% 66.74%

•Number of contracts traded has increased•FII activity has come down in terms of % not in terms of contracts•Domestic prop and institutional activity has increased•No variation in retail activity among the last three quarters

Top Emerging exchanges by growth %Rank   Exchange J an- Dec

2008 J an- Dec 2007 

% Change

13 Zhengzhou Commodity Exchange   

222,557,134 93,052,714 139.20%

28 Turkish Derivatives Exchange  54,472,835  24,867,033  119.10%45 Thailand Futures Exchange  2,148,620  1,230,666  74.60%10 Dalian Commodity Exchange  313,217,957  185,614,913  68.70%

29 Mercado a Termino de Rosario  42,216,661  25,423,950  66.10%11 Russian Trading Systems Stock

Exchange 238,220,708  143,978,211  65.50%

16 Shanghai Futures Exchange  140,263,185  85,563,833  63.90%

24 Mercado Español de Opciones y Futuros Financieros 

83,416,762  51,859,591  60.90%

9 J SE South Africa  513,584,004  329,642,403  55.80%

8 National Stock Exchange of India  

590,151,288  379,874,850 55.40%

18 Moscow Interbank Currency Exchange 

131,905,458  85,386,473  54.50%

15 Osaka Securities Exchange  163,689,348  108,916,811  50.30%

Emerging Market Exchanges with growth % >50 considered.Seven of them are from Asia and two from Russia.

Indian Scene – NSE equity derivatives

1.16

1.38

1.701.82 1.86

1.95

2.65

3.16

0

1

2

3

4

Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08

Average daily traded volume ( million contracts)

Index products

12%

23%

35%

38%

42%

39%

60%

0%

10%

20%

30%

40%

50%

60%

70%

2002 2003 2004 2005 2006 2007 2008

Index derivatives to Total

So, where do we look for future growth?

Future growth?

• No single solution• Depends on the market• Emerging markets have a good retail

base Retail base bolsters liquidity domestically Can reduce volatility in volumes Indian Experience

• India has good retail volumes and has tremendous scope

• Household savings to Capital Market

Future growth?

• Emerging markets do not have all asset classes for trading Introduce new asset classes Introduce new products Indian experience

THANKS

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