NSE Explores New Volatility Index, Pilot Testing Expected Soon

The National Stock Exchange (NSE) is exploring a new volatility index that would be different from India VIX, with several methodologies under consideration as part of an early-stage pilot, according to people familiar with the development.

The exchange has started preliminary discussions on the pilot and is expected to begin testing shortly, the people said. The exercise will evaluate how different methodologies perform before the exchange holds consultations with market participants, academics and other stakeholders.

People aware of the discussions said one objective behind developing a new volatility index could be to introduce derivative contracts linked to it.

Earlier Launch Of Futures Contracts

NSE had earlier launched futures contracts on India VIX in 2014. However, the exchange discontinued the product in 2017 after it failed to attract sufficient liquidity and market participation.

If the exchange decides to introduce derivatives based on the proposed index, it will need fresh approval from the Securities and Exchange Board of India (SEBI).

India VIX Tracks Near-Term Market Risk

India VIX is the benchmark measure of expected near-term market volatility in India. It tracks the expected rate and magnitude of price movements using Nifty options prices.

The volatility reading is calculated from the best bid and ask prices of Nifty options contracts. The "VIX" trademark belongs to the Chicago Board Options Exchange (CBOE) and Standard & Poor's, which have licensed its use to NSE for India VIX.

An industry expert said NSE already generates the data and research used for India VIX, making it logical for the exchange to explore a volatility index developed under its own methodology.

Part of Broader Derivatives Expansion

The move comes as NSE continues to expand its derivatives portfolio. The exchange currently offers derivatives on several benchmark indices, including:

• Nifty 50

• Nifty Bank

• Nifty Financial Services

• Nifty Next 50

• Nifty Midcap Select

Among these, only Nifty 50 derivatives have weekly expiry following SEBI's regulatory framework. NSE is also set to launch derivative contracts on the Nifty India FPI 150 index from 12 August, further widening its product basket.

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