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Journal of Exclusive Management Science – October 2016 - Vol 5 Issue 10 – ISSN 2277-5684

“Emerging Trends in Derivative Market Trading in India- A Study on BSE”
*Md Asif ur Rahman
** Dr. Khyser Mohd
*Research Scholar, Telengana University, Nizamabad, T.S
**Associate Professor and Chair person of BOS, Dept of Business Management, (Telengana University,
Nizamabad, T.S)
Abstract,
Derivatives Market is usually an essential part of Capital Markets in developed as well as in emerging
market economies (especially in India). These instruments help business growth by disseminating
effective price signals relating to exchange rates, indices and reference rates or other assets and thereby
render both Cash as well as Derivatives Markets are more efficient. Derivative Instruments also offer
protection of possible adverse market movements and can be used to manage or offset exposures by
hedging or shifting risks mainly during periods of volatility thus reducing costs. By allowing for the
transfer of unwanted risk, derivatives can promote more efficient allocation of capital across the
economy. Though the commodity features trading has been in existence since 1953 and certain OTC
derivatives such as Forward Rate Agreements (FRAs) and Interest Rate Swaps (IRSs) were permitted by
RBI through its guidelines, the trading in "Securities" based derivatives on stock exchanges was
permitted only in June 2000. The discussion that follows is mainly focused on Trends in BSE Derivative
Market.
Key Words: Derivatives Market, Capital Markets, hedging, OTC, FRA, IRS, Securities, BSE.
1. Introduction: The term “Derivative” is an instrument whose value drives from the value of
underlying assets, which may be commodity, foreign exchange, bonds, stock indices etc. The most
commonly found the derivatives are forwards, futures, and options. The price of derivatives moves along
with the price of the underlying assets. The most important use of derivative is transferring the risk i.e.
hedging which is the protecting of business against expected losses resulting from unforeseen changes
in price. Thus, derivatives are very important tool for management. Derivatives have assumed a
significant in the field of finance.
2. Objective of the study: Financial sector reform measures, which were initiated in 1991, have
provided some degree of maturity and integration of different segments of India's financial markets. This
paper is prepared by taking one of the objectives of Research on “Performance of Derivative Market in
India – An Analytical study.”
 The purpose of this paper is to study the Trends if Derivatives Segment and its growth in Financial
Markets in India w.r.t BSE.
3. Research Methodology: This study is totally based on secondary data collected from books and BSE
website.
4. Derivative exchanges in India:
There are two sorts of derivative markets in India. These are:
(i) Over The Counter (OTC) markets.
(ii) Exchange Traded Markets.
SEBI and RBI are the regulatory authority to permit the following stock exchanges of equity, Debt and
Forex related derivatives.
i)
ii)
iii)
iv)

National Stock Exchange
Bombay Stock Exchange
United Stock Exchange
MCX-SX

5. Factors Driving The Growth Of Financial Derivatives: Factors contributing to the growth of
derivatives are:


Price volatility,
Global-local openness and regulatory support,
Technological advancement,

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www.aeph.in

e.in . The exchange-traded derivatives market in India has witnessed tremendous growth in terms of trading value and number of trading contracts since 2000.. 2 www. GROWTH OF “EXCHANGE – TRADED” DERIVATIVE MARKETS IN INDIA: India is one of the most successful developing countries in terms of a vibrant market for exchange-traded derivatives.aeph.Journal of Exclusive Management Science – October 2016 . i. Computer  Software  Brain ware  Know-how Risk Manage Price Volatility Derivatives and Technology 6. Derivative products Technical Assets Derivative     Market Forwards Futures Options Swaps  Hardware.Vol 5 Issue 10 – ISSN 2277-5684   Development of more sophisticated risk management tools and Innovations in the derivative market. Evolution of Derivatives: Exotic Exotic Derivatives -------Swaps Options Futures Forward 7.

Vol 5 Issue 10 – ISSN 2277-5684 The growth trend is outlined below: Due to the limitation on length of Research paper.290.694.458 4.85 1.32 0.942 1.64 19 4-Dec 1.33 176.8 11. The total T/o was also reached 3.32 0. Daily Turnover Avg.01 234.40 4.947.9 633.81 20 4-Sep 39.788 1.212 1.146 38. Daily Premium Turnover Trading Days 4-Mar 17.22 164.892 84.24 4.95 3. It shows the development and growth was started in initial period only.573 3. reached to over the one lackh contract size.070 242.711.786.79 4.787 from beginning of its 505 turn over.22 7.439 504.504.95 18.77 1. Daily Turnover Avg. Year: 2003-2004:- Month Total Contracts Total Turnover (T/o) Premium Turnover Avg.03.24 20 3 www.65 20 4-Oct 1.17 49.82 4.79 84.37 22 4-Aug - - - - - 22 4-Jul 10 0.298 3.71 38.776.54.77 20 5-Jan 43.63 180.74 39. Daily Turnover 0 Avg.96 417.03.114.439. i.63 22.98 22 4-Feb 22.in .094.29 866.18 74.212 729.573 4-Mar 4-Feb 4-Jan Trading Days Interpretation: In the initial time the total contracts were 17.74 21 4000 3000 Total Turnover 2000 Premium Turnover 1000 Avg.74 210. Daily Premium Turnover Trading Days 5-Mar 7. ii.45 15.35 19 4-Jan 1.414.01 22 4-Jun - - - - - 22 4-May 1. beginning and current data tables are represented and middle period data is ignored but considered in conclusion.80 215.67 22 5-Feb 9.902 4.Journal of Exclusive Management Science – October 2016 . Year : 2004-2005:Month Total Contracts Total Turnover Premium Turnover Avg.57 58.57.45 58.439 22.aeph.213 304.36 2.03 2.15.01 0.1 195.77 38. Daily Premium Turnover 17.42 33.86 23 4-Nov 1.213.85 21 4-Apr 2.58 1.42 155.52 138.

121.39 20 15-Apr 93.12 28.49.000 25.53 1.51 22 15-May 97.30.08 1. Daily Turnover 01-Dec 01-Nov 01-Oct 01-Sep 01-Aug 01-Jul 01-Jun 01-May 01-Apr 01-Mar 01-Feb 01-Jan Avg.000 20.276.846.645.06 20 15-Aug 1.11 5.30.71 2. iii.97 19 4 www.02 2.946. than after wards the market showed bullish throughout the 2004 year.583 75.30 961.000 10.61 29.95 39.aeph.000 15.23 20 15-Sep 59.200.05.629.Vol 5 Issue 10 – ISSN 2277-5684 45.11.991 3.8 21 15-Jul 3.709.908.53 1.66. Daily Premium Turnover Trading Days Interpretation: from the above table it can be observed that.383.27.30 520.000 40.25 56.771.53 3.35 23 15-Jun 1.46 104.9 29.507 3.26.124 3.665.923.40.18 124.08.64 2.53 21 16-Jan 26.4 6.41 56.197 1.467.925.98.403 2.23.88 44.487.460 6.51 891. Daily Turnover Avg.12 57.640 1.79 5.32.52 643.54.204.26 22 15-Nov 20.27.83 60.432.215.775.859 1. there were huge fluctuations in Derivatives Market.29.88.06 5.19.201.84.89 830.Journal of Exclusive Management Science – October 2016 .72 19.28.41 153. Market was in bearish trend.590.70.296.117 13.554.65 16.676 6.704.000 35.000 5.287. Daily Premium Turnover Trading Days 16-Mar 15.299.44 45.000 0 Total Contracts Total Turnover Premium Turnover Avg.28 11.21 19 15-Oct 81.09. From the April-04 till the end of August-04. Year 2015-16:Month Total Contracts Total Turnover Premium Turnover Avg.000 30.47 20.22. The beginning of 2005 year also followed by bearish trend.51 26.05.113.02 20 15-Dec 23.02 34.29 650.17.837 1.526.20.437.in .58 20 16-Feb 24.

502 11. Year wise Derivatives Turnover in BSE:Total Contracts Total Turnover Premium Turnover Avg.654. Daily Premium Turnover 30000 20000 10000 3.41 - 965.82 18.05.44 247 2014-2015 50.32 5.31.774.246.75.719 16.441 92.29 243 2013-2014 30.308.825 8.797.008.73 56.71 3.200.54.30.576.24.42 - 83.Journal of Exclusive Management Science – October 2016 .66 - 28.112. Daily Turnover 40000 Avg.869 2.32.728 6.09.42 2.62 - 236.e.16.30 2.98. Daily Turnover Trading Days 2016-2017 1.88.03.923.42.08 3.730.69 253 2003-2004 1.Vol 5 Issue 10 – ISSN 2277-5684 60000 Premium Turnover 50000 Avg.40.78.26.in .775.691 71. i.276.27.19.02 13. iv. beginning of year following bearish and ending year with bullish trend.201.30 1.81.32 - 63.64 6.22.03 251 2004-2005 5.224 5.19.96 244 2008-2009 4.475.22.89 249 2010-2011 5.97 249 2005-2006 203 8.665.20.62.53 1.006.590.61 255 2009-2010 9.19.99 - 3.526.42. It may be found that.117.06 - 0.46 243 2007-2008 74.31 250 2011-2012 3.021.623 154.29 1.81 251 2012-2013 26.33 - 0.08.77 254 Year 5 www. there are some external factors affecting the Market volatility.89 75.09 115 2015-2016 10.028 234.aeph.96.27.861.908.450.78 - 0.62.22.53 6.014.52 1.37 251 2006-2007 17.741.32 - 36.81 - 19.287.371 2.53.437.43.63.215.434.394 44.83 - 48.220 59.51 0 Interpretation: The above table and graph it can be observed that the Derivatives Market is following the same bearish and bullish trend like previous years.

728 10.08.19.e.2013.308.83 2.31. The turnover during this period was reached from 8.450 (approx).43.2014.7191.Vol 5 Issue 10 – ISSN 2277-5684 90000 80000 Avg.82 2.774.220 203 5.42.576.691 3.75.63. it is clear that.42 44.014.09. 2016).224 2016.32 2.99 154.41 59.22. it might be due to financial crisis in international market.Journal of Exclusive Management Science – October 2016 .112.2011.8255.62.42. 6 www. Daily Turnover 70000 Trading Days 60000 50000 40000 30000 20000 10000 - - - - - - - - - - - - 5.9 lack (approx) to 2crore and 3 lack (approx) in the year 2014-15.623 9.2006.32 71.475. But the market has changed its trend from the year 2011 and has performed well for the next half decade.434.021.2012.371 17.54.81.2015.42 92.16.53. the market was not in good condition.78.03.24.19.40.66 8.aeph.2007.2008.62 8.33 234.75 lach in the next year (i.78 16.22.96.450.32 5.2009. Whereas it started falling down and reached to 44.in .741. In the year 2008 to 2010-11.0611.441 26.2004.006. Till the month of September 2016 the total turnover was 6.869 30.008.2005.861. Every year it is starting journey with bearish and ending with bullish trend.62.2010.73 0 6.502 74.81 1.200317 16 15 14 13 12 11 10 09 08 07 06 05 04 Interpretation: From the above table and graph.394 50.028 4. the Derivative Market has vast bullish and bearish trends in the one and half decade.

9 th edition. S. first edtion-2012. concepts and problems). BM-2012 Osmania University. the study related to the trends in Derivative Market (w.com  www.aeph.bseindia. the Derivative Market has many ups and downs in every year.Rajkumar.Journal of Exclusive Management Science – October 2016 .r. still it is performing very well which result in attraction of customers (market player) to invest into this segment to hedge the risk associate with Cash Market. No 401.Vol 5 Issue 10 – ISSN 2277-5684 Findings & Conclusion: This paper consists. Prafullah Kumar Swain. Th.L Gupta. Where it is observed that.com  www. References:  Financial Derivatives (Theory.  Derivative Market in India. Himalaya Publishing House.  Fundamentals of Financial Derivatives. This is the reason for the growth of Derivative Market compare to any other option for investment.  www.com 7 www. PHI Learinng private Limited. Derivative products as used as a tool to avoid the risk of investment and is used to forecast the future prices of particular asset or investment. B.2010.moneycontrol.t BSE India) for the past one and half decade.in . Practice problems and Prospect.businessdictionary. Hyderabad.