June 30, 2012

the climate change conundrum

Here is something on climate change mitigation effort I wrote in an editorial I contributed for the newspaper I work for:

Climate conundrum
The in-conclusive Rio summit proved yet again we have to think like Mother Earth would

Undeterred by man-made boundaries we call 'nations', but prompted in a large part by the activities of man in some of those nations, the climate of our planet has been getting worse in recent decades. 
The attempt to rein in the severity of the climate change for the entire globe, therefore, means all nations have to co-operate. But since many developing nations have only recently jumped on the bandwagon of heavily carbon-reliant model of development they will apply a big brake. The developed nations too will require to forego many of the low-cost pleasures enjoyed by a reckless consumption of natural resources but they have had their fun. 
The above, in a nutshell, describes the quandary every global summit on environment and development finds itself in. The latest one, 20-22 June United Nations' Rio+20 Conference on Sustainable Development, was also faced with the same dilemma. 
The result: a 283-points declaration that specifically went neither here or there but instead went everywhere. It was a fine rope walk not displeasing both the groups of nations and yet leaving enough scope for either to complain of being held hostage to the other. But even this was recognised -- the conference secretary-general in one of his daily read-outs admitted the declaration document was a compromise text but defended it saying that it is crucial if all countries are to be on board, take ownership and share a collective commitment. 
Be that as it may, it offers very little clarity on what is required of all of us, whether we are Indian citizens or citizens of other countries. Political heads of countries will continue to hanker based on their their perceptions of political fall-out for themselves and their respective political parties in their countries. 
So you will have India and China use the high population figure to arrive at a very low per-capital carbon footprint in order to claim exemptions from harsh carbon-emission norms. Greenpeace, environmental-activist organisation, had come out with a India-report five years ago which stated although the per-capita CO2 emission was just 1.7 ton a year based on the total population, Indians who earned more than Rs 30,000 per month were having a CO2 emission of 5 ton a year, which was not too far from the sixth-largest per-capita carbon emission of France which was 8.6 ton. 
Greenpeace did not give us a figure for Indians earning more than Rs 1 lakh a month but if one were to estimate it could match the per-capita figures of US, Russia, Germany, UK and Japan, having the largest per-capita emission figures. 
Equity stand taken by India, China, Brazil and a few others is also a paradox because their growing consumer markets are the most lucrative for companies from developed nations. Moreover, the biggest beneficiaries of the industrialisation-driven, environmentally-damaging exports from the developing countries are the developed countries themselves who get access to cheap products and services. We can, therefore, still put the ball back in their court.

June 29, 2012

reliable human genius?

There are some things which we are able to take for granted fairly easily. We are confident that our planet Earth will revolve around itself in 24 hours. We are sure that our planet Earth will complete one revolution around the Sun in 365 days. In the night sky, we see innumerable spots of light we call stars, galaxies and planets. We are certain they will not land on our heads and stay where they are or move in their respective orbits. The unique aspectin all these phenomena is they were not created by humans nor are humans able to control them. Yet, we have so much faith in them.

Can we claim to have the same confidence for all things created, designed and controlled by humans? Surely, there are many man-made things on which we are heavily reliant and undoubtedly the genius human mind is behind the technological and other advancements made so far. But this same genius mind is also unwittingly or deliberately ignorant of the devastating effects some or many of the man-made creation causes. These can play havoc.

Take, for instance, the field of medical science. Should we be taking every single thing that medical science tells us to be sacrosanct? I have never let myself get blinded by the tall claims of modern medicine and have, by and large, availed of pure nature-based remedies to take care of health-related issues.

I personally know of a couple who in September, last year, saw their little daughter, less than a year old,  struck with a severe bout of febrile convulsion. They were terribly shaken up by that incident and later on after they analysed in great detail everything related to the issue of convulsions they concluded the culprit was the vaccine they had given our daughter 2-3 weeks before that. Up until then, they were giving our daughter all the prescribed vaccines. They have not inflicted any vaccines on their daughter after that.

June 28, 2012

settlement guarantee fund of f&o segment of nse & bse

Below is an analytical report I contributed earlier this month for the newspaper I work for. It analyses the trend in the level of settlement guarantee fund of the equity derivatives segment of the two main stock exchanges in India. 

Here goes:

Low levels of BSE's SGF haunts F&O investors
The settlement guarantee fund levels of the two stocks reveal a mixed picture of the safety net on offer

The recent surge in trading turnover of futures and options (F&O) trades on the BSE has come on the back of low levels of safety net provided by the settlement guarantee fund (SGF), a FCRB analysis reveals. The SGF used by the National Stock Exchange of India (NSE) for settling its F&O trades is seen to be maintaining its high quantum levels although the last financial year has seen some erratic movement in its quantum.

Ever since the late 1990s when NSE's clearing corporation, National Securities Clearing Corporation, started offering investors the financial guarantee of the settlements on the NSE, there has been an underlying assumption in all investors' minds that all trades in the stock market system which are settled are fully safe. When you buy or sell and the counter-party to your trade (determined through an inbuilt alogirithm by the clearing corporation) defaults resulting in a default by that counter-party's broker, you will be protected because the clearing corporation will first settle the trade and afterwards take action against the defaulter broker.

Since it is the settlement guarantee fund (SGF) maintained by clearing corporations which is used to settle a trade, concerned investors continuously monitor the level of SGF on the stock exchanges.

In the past few months, the BSE has given the NSE a run for its money as far as the trading turnover on its F&O segment is concerned. In the four months from February to May this year, the average daily turnover on BSE's F&O segment was Rs 19,745 crore, 11.6 times more than what it was in the previous four months (October 2011 to January 2012). Meanwhile, NSE's F&O segment clocked average daily turnover of Rs 1,25,374 crore in the last four months, three per cent more than that in the previous four months. Therefore, from being 72 times that of BSE in October-January, NSE's turnover is now just 6.3 times (February-May).

But the SGF of BSE has not risen to match the rise in turnover. Securities and Exchange Board of India data, available till March this year, reveals BSE's SGF for its F&O segment rose to just Rs 297 crore at the end of March from Rs 71 crore at the end of March last year. As a proportion of average daily turnover, BSE's SGF was a fraction to what the corresponding proportion of NSE in financial year 2011-12 (see table).

In the last quarter of FY12, when F&O trading volume was shooting up rapidly on the BSE, its average of the SGF at the end of three months in that quarter was Rs 247 crore which made up for just 2.1 per cent of the average daily turnover in that quarter. This level was one-tenth of that seen on the NSE in that quarter. NSE's average month-end SGF was Rs 25,870 crore, or 21 per cent of the average daily turnover of Rs 1,23,283 crore.

But since BSE's F&O was seeing a very low level of daily open interest position due to large-scale intra-day squaring off, its average SGF as a proportion of the average daily open interest value in the last quarter of FY12 was at a decent level of 20.7 per cen

Level of guarantee comfort

This is how the two exchanges fared in FY12 in terms of SGF, turnover & OI in their equity derivatives segment

NSE Equity F&O

BSE Equity F&O

Month-end SGF
Avg dly turnover SGF to turnover (%) Avg dly OI SGF to OI (%)
Month-end SGF
Avg dly turnover
SGF to turnover (%) Avg dly OI SGF to OI (%)
Apr-11 29601
130628 22.7 137558 21.5
852.5 17 418.1
May-11 28534
118415 24.1 137203 20.8
536.7 0.1 101200.0
Jun-11 29223
110826 26.4 135471 21.6
2082.4 0.5 13788.6
Jul-11 28528
122141 23.4 130154 21.9
3888.5 0.8 8095.5
Aug-11 29264
141131 20.7 130724 22.4
3285.8 0.2 33734.9
Sep-11 28767
135013 21.3 133122 21.6
245.1 2 4706.2
Oct-11 28152
117538 24.0 120804 23.3
50.7 38 343.1
Nov-11 27201
135828 20.0 127254 21.4
16.9 490 39.8
Dec-11 25234
131851 19.1 126753 19.9
8.8 876 22.4
Jan-12 25373
102340 24.8 115963 21.9
6.8 1396 15.3
Feb-12 26859
132089 20.3 132355 20.3
1.1 1231 18.8
Mar-12 25377
135420 18.7 135817 18.7
2.9 955 31.1

Figures in Rs crore unless specified otherwise

SGF: Settlement Guarantee Fund      OI: Open Interest

Source: Sebi, BSE, NSE, Bloomberg. Analysed by FC Research Bureau