Isn’t it time to report options turnover based on the premium and not on the notional contract?
Futures and Options (F&O) segment in the stock exchange attracts huge volume of transactions. The turnover reported by the National Stock Exchange (NSE) on a daily basis is so high that it sounds too good to be true on any given day. Did you know that NSE reported a turnover of more than 2 lakh crore in its F&O segment on 20 June 2013? While it was one of the highest in recent times because of upheaval in the market yesterday, the fact is that the turnover did not happen for this amount in NSE in the F&O segment. Most of this turnover volume reported is notional. Let us look at the data to understand this.
As per NSE website, on 20 June 2013, the F&O segment of NSE reported following turnover:
The trade statistics clearly reflects that majority of the turnover was Index Option segment. In fact more than 80% of the transactions happened in the options segment including index and stock options. But this number has been reported as notional by the NSE. Now the question is—why is the word notional here? This needs to be understood as follows. Suppose you buy a single lot of call option on the Nifty with a strike price of 6,000 and pay a premium of Rs6 per lot size, the amount paid by you will be Rs300 only as the lot size of the NIFTY is 50, so the amount works out to be (Rs6 x lot size—fifty). So for a trader the amount is equal to premium* lot size*number of lots.
But the exchange will treat this transaction differently and report differently as far as turnover reporting is concerned. The turnover in this case will be treated as (Strike price plus premium) * lot size. This means that in the previous case the transaction value will be 6,006*50 i.e. Rs3,00,300. So for a Rs300 position that was taken by a trader, the turnover reported was more than 1,000 times. While it may not be thousand times always, it is indeed substantially higher than the position taken by trader in options transactions.
This method of recording turnover can be related to the Rs200 crore reported in case of Wing Commander CR Mohan Raj, who is fighting his case against Motilal Oswal Securities Ltd . The high turnover reported shows that that the investor needs to be filthy rich to transact for this kind of volume while the case is different practically. This is based on my assumption that Mr Raj took position in options transaction.
While it is true that the payoff position of an investor in the options contract depends on the difference in the spot and strike price and strike and spot price in respective cases of call option and put option at the time of expiry, it does not make sense to report this turnover. This can make sense to the exchange only if it levies charges from brokers based on the turnover. Inflated turnover means more revenue which is not the case now as NSE and SEBI (Securities and Exchange Board of India) both charge turnover fee based on the premium in options. Isn’t it time to report option’s turnover based on the premium and not on the notional contract?
(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)
Echoing a ProPublica investigation, a report finds hundreds of doctors with questionable and potentially dangerous prescribing patterns. In a response, Medicare says it will step up monitoring and review the list for fraud or abuse
More than 700 doctors nationwide wrote prescriptions for elderly and disabled patients in highly questionable and potentially harmful ways, according to a critical report of Medicare's drug program released today.
The review by the inspector general of the U.S. Department of Health and Human Services flags those doctors as "very extreme" in their prescribing – and says that Medicare should do more to investigate or stop them.
The study mirrors a ProPublica investigation last month that found Medicare had failed to protect patients from doctors and other health professionals who prescribed large quantities of potentially harmful, disorienting or addictive drugs.
Medicare's prescription drug program was launched in 2006 and now accounts for about one of every four drugs dispensed nationwide. Last year, the government spent $62 billion subsidizing the drugs of 32 million people.
"Strong oversight of the Medicare prescription drug program is critical for protecting patients from harm," Sen. Tom Carper, D-Del., said in an email.
Carper chairs the Senate Homeland Security and Governmental Affairs Committee, which has scheduled a hearing Monday about prescription abuse in the Medicare program, known as Part D.
The inspector general's report focused on the prescribing of nearly 87,000 general-care physicians, such as family practitioners and internists, in urban and suburban areas in 2009. These doctors accounted for about half of all the prescribing in the program that year.
The review found more than 2,200 doctors whose records stood out in one of several areas: prescriptions per patient, brand name drugs, painkillers and other addictive drugs or the number of pharmacies that dispensed their orders.
Of those, 736 were flagged as "extreme outliers." Their patterns, the report says, raised questions about whether the prescriptions were "legitimate or necessary."
For instance, 24 doctors wrote more than 400 prescriptions for at least one patient, including refills dispensed. One Ohio physician did so more than a dozen times, according to the report. The average doctor wrote 13 per patient.
In another case, an Illinois doctor had prescriptions filled by 872 pharmacies in 47 states and Guam. General-care doctors, on average, had prescriptions for all their Medicare patients filled by 52 pharmacies.
The cost to the government was enormous in some instances. Medicare paid $9.7 million for the prescriptions of one California doctor alone – that is 151 times more than the cost of an average doctor's tally, the report says.
Most of this physician's drugs were supplied by just two pharmacies, both of which had previously been identified by the inspector general as having questionable billing practices.
All told, the drugs ordered by the doctors labeled "extreme outliers" cost Medicare $352 million, the report says.
While some of this may have been appropriate, the report says, "prescribing high amounts on any of these measures may indicate that a physician is prescribing drugs which are not medically necessary or that he or she has an inappropriate incentive, such as a kickback, to order certain drugs."
Sen. Tom Coburn of Oklahoma, the ranking Republican on Carper's committee, said no one wants Medicare to tell doctors which drugs to prescribe. But the government does have a responsibility in preventing fraud and abuse, he said.
Medicare officials "should be using their data to make sure those practicing medicine are practicing medicine and not practicing a sham," said Coburn, who is also an obstetrician.
The inspector general's report calls on the Centers for Medicare and Medicaid Services (CMS), which oversees the program, to step up scrutiny of doctors with questionable prescribing patterns. It urged CMS to direct its fraud contractor to expand its analysis of prescribers and train the private insurers that administer Part D on how to spot problem prescribers.
Medicare also should send doctors report cards comparing their prescribing to their peers, the report says.
In a response to the inspector general, the Medicare agency wrote that it agreed with the recommendations, has been working to reduce overuse of narcotics and plans to expand its use of data to flag questionable prescribing.
"We must balance these efforts with ensuring that beneficiaries have access to the medicines they need," a CMS spokesman said Wednesday in a statement.
For ProPublica's investigation, reporters analyzed four years of Medicare prescription drug data and examined the prescriptions of all health professionals across specialties. It examined all prescribers – 1.7 million in 2010 alone – not just those in general-care specialties or mostly urban areas.
The new report from the inspector general is the latest to find oversight problems in Part D. Previous reports found that insurers have paid for prescriptions from doctors who were barred by Medicare or whose identities were unknown to insurers or Medicare.
Coburn said Medicare has had repeated warnings that it was failing to properly oversee the program.
"This is incompetency and lack of somebody being held accountable," he said. "It's fixable."
The rupee weakened further by 13 paise to trade at Rs59.70 against the US dollar in early trade on Friday, on unrelenting capital outflows and strong demand of the American currency from importers
Continuing its decline, the rupee weakened further by 13 paise to trade at Rs59.70 against the US dollar in early trade on Friday, on unrelenting capital outflows and strong demand of the American currency from importers.
However, the euro’s gain against the US dollar overseas, capped rupee’s loss.
The Indian unit had yesterday hit an all-time low of 59.93 intraday, before the Reserve Bank of India stepped in to help the local currency recover some ground. It had ended 87 paise down at 59.57 on huge outflows.