Chief General Manager

Derivatives and New Products Department

SEBI/DNPD/Cir-3 5/2007

January 15, 2008

To

The Managing Director / Executive Directorof Derivative Segment of NSE & BSE and their Clearing House / Corporation.

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Dear Sir,

Sub: Introduction of Volatility Index

The SEBI appointed Derivatives Market Review Committee (DMRC), headed by Professor M. Rammohan Rao, recommended the introduction of Volatility Index and Futures and Options on this Index.

Accordingly, it has been decided that, to begin with, Exchanges shall construct a Volatility Index and disseminate the same. The Exchanges are free to decide whether they want to adopt any of the Volatility Index computation models available globally or may like to develop their own model for computation of Volatility Index. The detailed methodology for computing the Volatility Index shall be disseminated by the Exchange for the benefit of the market participants and investors.

Based on experience gained and awareness generated, derivatives on Volatility Index shall be considered for introduction in due course of time.

This circular is being issued in exercise of powers conferred by sub-section (1) of Section 11 of the Securities and Exchange Board of India Act, 1992, to promote the development of the securities market.

This circular is available on SEBI website at www.sebi.gov.in, under the category “Derivatives – Circulars”. The Circular shall come into force from the date of the circular.

Yours faithfully,

Dr. Sanjeevan Kapshe

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