Executive Summary

The Summer Inplant Project at Hindustan Financial Services has given an

exposure into the investment scenario in India. The project while working at Hindustan
Financial Services includes advisory services i.e. educating the existing and potential
investors about stock market as an alternative source to investment. This involves catering to
the queries of the investors about the concept of stock market, the various options that an
investor can invest his money into, funds management of investors.

Analyzing the investors behavior includes understanding the concerns a person has
towards Stock Market, his stages in life and wealth cycle, the effect of the investments
made by the peer groups, effect of the profession he/she is in, education qualification,
importance of tax benefits, the most preferred saving tool etc. and this all is analyzed with
the help of a schedule prepared.

Understanding the significance of Derivatives market, types of instruments present in

the Indian Stock Market such as Futures, Options and Forwards. The various techniques used
to identify the trend of the market and analysing the scrip before investing.

Through the systematic investment plan invest a specific amount for a continuous
period, at regular intervals. By doing this, the investor get the advantage of rupee cost
averaging which means that by investing the same amount at regular intervals, the average
cost per unit remains lower than the average market price.

TABLE OF CONTENTS

1
 SL.No Topic Pg.No
5
1 Title Name

2 Objective and Limitation 6

1 Industry Profile 7-14

2 Company Profile 15-17

3 Introduction to Derivatives 18 40

8 Research Methodology 44-45

9 Analysis 46-59

10 Statistical Tests 60 62

11 Charts & Tables 63 65

12 Findings 66

13 Recommendations 67

14 Questionnaire 68-70

15 Bibliography 71

TITLE OF THE PROJECT

A Study of Derivatives Market in India

2
PURPOSE OF THE STUDY
The study has been done to know the different types of derivatives and also to know
the derivative market in India. This study also covers the recent developments in the
derivative market taking into account the trading in past years. Through this study I came to
know the trading done in derivatives and their use in the stock markets.

IMPORTANCE OF STUDY
The project covers the derivatives market and its instruments. For better
understanding various strategies with different situations and actions have been given. It
includes the data collected in the recent years and also the market in the derivatives in the
recent years. This study extends to the trading of derivatives done in the National Stock
Markets.

OBJECTIVES OF THE STUDY

To know the investors perception towards investment in Derivative Market
To know different types of Derivatives instruments
To analyse the performance of Derivatives Trading since 2001with special reference
to Futures & Options
(a) In terms of Turnover
(b) In terms of Traded Quantity
(c) In terms of No of Contracts Traded

LIMITATIONS OF THE STUDY

The time available to conduct the study was only 2 months. Being a wide topic I had a
limited time.
Limited resources were available to collect the information about commodity trading
The primary data has been collected through a structured questionnaire to a sample of
100 investors, which may not reflect the opinion of the entire population.

HYPOTHESIS OF THE STUDY

3
H0: Income and investment in different type of derivative instruments are not related.
H1: Income and investment in different type of derivative instruments are related.

H0: Age and purpose of Investing in Derivative market are not related.
H1: Age and purpose of Investing in Derivative market are related.

H0: Income per annum and monthly income available for investment are related

H1: Income per annum and monthly income available for investment are related

H0: Maturity period of investment and results of investment are no related.

H1: Maturity period of investment and results of investment are related.

4
 Industry Profile
Financial services
Financial services are the economic services provided by the finance industry, which
encompasses a broad range of organizations that manage money, including credit unions,
banks, credit card companies, insurance companies, consumer finance companies, stock
brokerages, investment funds and some government sponsored enterprises.
History of Indian Stock Market
The Indian broking industry is one of the oldest trading industries that have been
around even before the establishment of BSE in 1875. BSE is the oldest stock market in
India. The history of India stock trading starts with 318 persons taking membership in Native
share and Stock Brokers Association, which we know by the name Bombay Stock Exchange
or BSE in short. In 1965, BSE got permanent recognition from the Government of India. BSE
and NSE represent themselves as synonyms of India stock market. The history of India stock
market is almost the same as the history of BSE.
The regulations and reforms been laid down in the equity market has resulted in rapid
growth and development .Basically the growth in the equity market is largely due to the
effective intermediaries. The broking houses not only act as an intermediate link for the
equity market but also for the commodity market, the foreign currency exchange market and
many more. The broking houses have also made an impact on foreign investors to invest in
India to certain extent. In the last decade, the Indian brokerage industry has undergone a
dramatic transformation. Large and fixed commissions have been replaced by wafer thin
margins, with competition driving down the brokerage fees, in some cases to a few basis
points. There have also been major changes in the way the business is conducted. The scope
of services have enhanced from being equity products to a wide range of financial services.
Financial Products
The survey also revealed that in the past couple of years, apart from trading, the firms
have started various investment value services. The sustained growth of the economy in past

5
couple of years has resulted in broking firms offering many diversified services related to
IPOs, mutual funds, company research etc.
However, the core trading activity is still the predominant form of business, forming
90% of the firms in the sample. 67% firms are engaged in offering IPO related services. The
broking industry seems to have capitalized on the growth of the mutual fund industry, which
pegged at 40% in 2006. More than 50% of the sample broking houses deal in mutual fund
investment services. The average growth in assets under management in last two years is
almost 48% company research services. Additionally, a host of other value added services
such as fundamental and technical analysis, investment banking, arbitrage etc are offered by
the firms at different levels.
Capital Market
Capital market is a market for securities (debt or equity), where business enterprises
(companies) and governments can raise long-term funds. Capital market may be classified as
primary markets and secondary markets. In primary market new stock or bond issues are sold
to investor via a mechanism known as underwriting. In secondary markets, existing securities
are sold and brought among investors or traders, usually on a security exchange, over the
counter or elsewhere. The capital market includes e stock market (equity securities) and Bond
market (debt).
Primary and Secondary Capital Markets
A company cannot easily attract investors to invest in their securities if the investors
cannot subsequently trade these securities at will. In other words, securities cannot have a
good primary market unless it is ensured of an active secondary market.
Primary Market
Securities generally have two stages in their lifespan. The first stage is when the
company initially issues the security directly from its treasury at a predetermined offering
price. Primary market is the market for issue of new securities. It therefore essentially consist
of the companies issuing securities, the public subscribing to these securities, the regulatory
agencies like SEBI and the Government, and the intermediaries such as brokers, merchant
bankers and banks who underwrite the issues and help in collecting subscription money from
the public. It is referred to as Initial Public offer (IPO). Investment dealers frequently buy
initial offering on the primary market and the securities on the secondary market.
Secondary Market

6
 The second stage is when an investor or dealer makes the shares, bought from a
company treasury, available for sale to other investors on the secondary market. Secondary
market is the market for trading in existing securities, after they have been created in the
primary market. It essentially consists of the public who are buyers and sellers of securities,
brokers, mutual funds, and most importantly, the stock exchanges where the trading takes
place, such as the BSE (Bombay Stock Exchange) or NSE (National Stock Exchange)

Indian Stock Exchange

Stock Market
A stock market or equity market is a public entity (a loose network of economic
transaction, not a physical facility or discrete entity) for the trading of company stock (shares)
and derivatives at an agreed price; these are securities listed on a stock exchange as well as
those only traded privately.
Stock exchange
A stock exchange provides services for stock brokers and traders to trade stocks,
bonds and other securities. Stock exchanges also provide facilities for issue and redemption
of securities and other financial instruments and capital events including the payment of
income and dividends. Securities traded on stock exchange include shares issued by
companies, unit trusts, derivatives, pooled investment products and bonds.
Equity/Share
Total equity capital of a company is divided into equal units of small denominations,
each called a share. For example, in a company the total equity capital of Rs. 2,00,00,000 is
divided into 20,00,000 units of Rs 10 each. Each such unit of Rs. 10 is called a share. Thus,
the company then is said to have 20, 00,000 equity share of Rs 10 each. The holders of such
shares are members of the company and have voting rights. There are now stock markets in
virtually every developed and most developing economy, with the worlds biggest being in
the United States, UK, Germany, France, India and Japan.
Market participants
Market participants include individual retail investors, institutional investors such as
mutual funds, banks, insurance companies and hedge funds, and also publically traded
corporations trading in their own shares.
Trading

7
 Participants in the stock market range from small individual stock investors to large
hedge fund traders, who can be based anywhere.
Listing
Listing means admission of securities of an issuer to trading privileges on a stock
exchange through a formal agreement. The prime objective of admission to dealing on the
Exchange is to provide liquidity and marketability to securities.

Securities
A Security gives the holder an ownership interest in the assets of a company. For
example, when a company issues security in the form of stock, they give the purchaser an
interest in the companys assets in exchange for money. There are a number of reasons why a
company issues securities: meeting a short term cash crunch or obtaining money for an
expansion are just two.
WHAT IS SEBI AND WHAT IS ITS ROLE?
In 1988 the Securities and Exchange Board of India (SEBI) was established by the
Government of India through an executive resolution, and was subsequently upgraded as a
fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities
and Exchange Board of India Act (SEBI Act) on 30th January 1992. In place of Government
Control, a statutory and autonomous regulatory board with defined responsibilities, to cover
both development & regulation of the market, and independent powers have been set up.
Paradoxically this is a positive outcome of the Securities Scam of 1990-91.
OBJECTIVES OF SEBI
The promulgation of the SEBI ordinance in the parliament gave status to SEBI in
1992. According to the preamble of the SEBI, the three main objectives are:
To protect the interests of the investors in securities
To promote the development of securities market
To regulate the securities market
FUNCTIONS OF SEBI
The main functions entrusted with SEBI are:
Regulating the business in stock exchange and any other securities market
Registering and regulating the working of stock brokers, share transfer agents,
bankers to the issue, trustees of trust deed, registrars to an issue, merchant bankers,

8
 underwriters, portfolio managers, investment advisers and such other intermediaries
who may be associated with securities market in any manner.
Registering and regulating the working of collective investment schemes including
mutual funds
Promoting and regulating self-regulatory organizations
Prohibiting fraudulent and unfair trade practices in the securities market
Promoting investors education and training of intermediaries in securities market
Prohibiting insiders trading in securities
Regulating substantial acquisition of shares and takeover of companies
Calling for information, undertaking inspection, conducting enquiries and audits of
the stock exchanges, intermediaries and self-regulatory organizations in the securities
market.
Since its inception SEBI has been working targeting the securities and is attending to the
fulfillment of its objectives with commendable zeal and dexterity. The improvements in the
securities markets like capitalization requirements, margining, establishment of clearing
corporations etc. reduced the risk of credit and also reduced the market.
SEBI has introduced the comprehensive regulatory measures, prescribed registration
norms, the eligibility criteria, the code of obligations and the code of conduct for different
intermediaries like, bankers to issue, merchant bankers, brokers and sub-brokers, registrars,
portfolio managers, credit rating agencies, underwriters and others. It has framed by-laws,
risk identification and risk management systems for Clearing houses of stock exchanges,
surveillance system etc. which has made dealing in securities both safe and transparent to the
end investor.
Another significant event is the approval of trading in stock indices (like S&P CNX Nifty
& Sensex) in 2000. A market Index is a convenient and effective product because of the
following reasons:
It acts as a barometer for market behavior;
It is used to benchmark portfolio performance;
It is used in derivative instruments like index futures and index options;
It can be used for passive fund management as in case of Index Funds.
Two broad approaches of SEBI is to integrate the securities market at the national level, and
also to diversify the trading products, so that there is an increase in number of traders
including banks, financial institutions, insurance companies, mutual funds, primary dealers

9
etc. to transact through the Exchanges. In this context the introduction of derivatives trading
through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark.

SEBI appointed the L. C. Gupta Committee in 1998 to recommend the regulatory

framework for derivatives trading and suggest bye-laws for Regulation and Control of
Trading and Settlement of Derivatives Contracts. The Board of SEBI in its meeting held on
May 11, 1998 accepted the recommendations of the committee and approved the phased
introduction of derivatives trading in India beginning with Stock Index Futures. The Board
also approved the "Suggestive Bye-laws" as recommended by the Dr. LC Gupta Committee
for Regulation and Control of Trading and Settlement of Derivatives Contracts. SEBI then
appointed the J. R. Verma Committee to recommend Risk Containment Measures (RCM) in
the Indian Stock Index Futures Market. The report was submitted in November1998.

However the Securities Contracts (Regulation) Act, 1956 (SCRA) required amendment to
include "derivatives" in the definition of securities to enable SEBI to introduce trading in
derivatives. The necessary amendment was then carried out by the Government in 1999. The
Securities Laws (Amendment) Bill, 1999 was introduced. In December 1999 the new
framework was approved. Derivatives have been accorded the status of `Securities'. The ban
imposed on trading in derivatives in 1969 under a notification issued by the Central
Government was revoked. Thereafter SEBI formulated the necessary regulations/bye-laws
and intimated the Stock Exchanges in the year 2000. The derivative trading started in India at
NSE in 2000 and BSE started trading in the year 2001.
Bombay Stock Exchange (BSE)
Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage,
now spanning three centuries in its 133 years of existence. What is now popularly known as
BSE was established as "The Native Share & Stock Brokers' Association" in 1875. BSE is the
first stock exchange in the country which obtained permanent recognition (in 1956) from the
Government of India under the Securities Contracts (Regulation) Act 1956. BSE's pivotal and
pre-eminent role in the development of the Indian capital market is widely recognized. It
migrated from the open outcry system to an online screen-based order driven trading system
in 1995. Earlier an Association of Persons (AOP), BSE is now a corporatized and
demutualised entity incorporated under the provisions of the Companies Act, 1956, pursuant
to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities
and Exchange Board of India (SEBI). With demutualization, BSE has two of world's best
exchanges, Deutsche Brse and Singapore Exchange, as its strategic partners.
Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector
by providing it with an efficient access to resources. There is perhaps no major corporate in

10
India which has not sourced BSE's services in raising resources from the capital market.
Today, BSE is the world's number 1 exchange in terms of the number of listed companies and
the world's 5th in transaction numbers. The market capitalization as on December 31, 2007
stood at USD 1.79 trillion. An investor can choose from more than 4,700 listed companies,
which for easy reference, are classified into A, B, S, T and Z groups.
The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic
stature, and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors.
The SENSEX is constructed on a 'free-float' methodology, and is sensitive to market
sentiments and market realities. Apart from the SENSEX, BSE offers 21 indices, including 12
sect oral indices.
BSE has entered into an index cooperation agreement with Deutsche Brse. This agreement
has made SENSEX and other BSE indices available to investors in Europe and America.
Moreover, Barclays Global Investors (BGI), the global leader in ETFs through its iShares
brand, has created the 'iShares BSE SENSEX India Tracker' which tracks the SENSEX.
The ETF enables investors in Hong Kong to take an exposure to the Indian equity market.
The first Exchange Traded Fund (ETF) on SENSEX, called "SPICE" is listed on BSE. It
brings to the investors a trading tool that can be easily used for the purposes of investment,
trading, hedging and arbitrage. SPICE allows small investors to take a long-term view of the
market.
BSE provides an efficient and transparent market for trading in equity, debt
instruments and derivatives. It has a nation-wide reach with a presence in more than 359
cities and towns of India. BSE has always been at par with the international standards. The
systems and processes are designed to safeguard market integrity and enhance transparency
in operations.
BSE is the first exchange in India and the second in the world to obtain an ISO
9001:2000 certification. It is also the first exchange in the country and second in the world to
receive Information Security Management System Standard BS 7799-2-2002 certification for
its BSE On-line Trading System (BOLT). BSE continues to innovate. In recent times, it has
become the first national level stock exchange to launch its website in Gujarati and Hindi to
reach out to a larger number of investors. It has successfully launched a reporting platform
for corporate bonds in India christened the ICDM or Indian Corporate Debt Market and a
unique ticker-cum-screen aptly named 'BSE Broadcast' which enables information
dissemination to the common man on the street. In 2006, BSE launched the Directors

11
Database and ICERS (Indian Corporate Electronic Reporting System) to facilitate
information flow and increase transparency in the Indian capital market.
While the Directors Database provides a single-point access to information on the
boards of directors of listed companies, the ICERS facilitates the corporate in sharing with
BSE their corporate announcements. BSE also has a wide range of services to empower
investors and facilitate smooth transactions: Investor Services: The Department of Investor
Services redresses grievances of investors.
BSE was the first exchange in the country to provide an amount of Rs.1 million
towards the investor protection fund; it is an amount higher than that of any exchange in the
country. BSE launched a nationwide investor awareness programme- 'Safe Investing in the
Stock Market' under which 264 programmes were held in more than 200 cities. The BSE On-
line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-line screen based trading in
securities. BOLT is currently operating in 25,000 Trader Workstations located across
over 359 cities in India. BSEWEBX.com: In February 2001, BSE introduced the world's first
centralized exchange-based Internet trading system, BSEWEBX.com. This initiative enables
investors anywhere in the world to trade on the BSE platform.
Surveillance: BSE's On-Line Surveillance System (BOSS) monitors on a real-time
basis the price movements, volume positions and members' positions and real-time
measurement of default risk, market reconstruction and generation of cross market alerts.
BSE Training Institute: BTI imparts capital market training and certification, in collaboration
with reputed management institutes and universities.
It offers over 40 courses on various aspects of the capital market and financial sector.
More than 20,000 people have attended the BTI programmes Awards The World Council of
Corporate Governance has awarded the Golden Peacock Global CSR Award for BSE's
initiatives in Corporate Social Responsibility (CSR). The Annual Reports and Accounts of
BSE for the year ended March 31, 2006 and March 31 2007 have been awarded the ICAI
awards for excellence in financial reporting. The Human Resource Management at BSE has
won the Asia - Pacific HRM awards for its efforts in employer branding through talent
management at work, health management at work and excellence in HR through technology
drawing from its rich past and its equally robust performance in the recent times, BSE will
continue to remain an icon in the Indian capital.

National Stock Exchange (NSE)

The National Stock Exchange of India is a stock Exchange that is located in Mumbai,
Maharashtra. The National Stock Exchange basically function in three market sections, that
is, (CM) the Capital Market Section); F&Q (The Future and Options Market Sections) and

12
WDM (Wholesale Debt Market Segment). It is important place where the trading of shares,
debt etc takes place.
It was in year 1992 that the National stock Exchange was for the first time
incorporated in India. It was not regarded as a stock exchange at once. Rather, the national
Stock exchange was incorporated as a tax paying company and had got the recognition of a
stock exchange only in year 1993 the recognition was given under the provisions of the
Securities Contracts (Regulation) Act, 1956.
The National Stock exchange is highly active in the field of market capitalization and
thus aiming it the ninth largest stock exchange in the said field. Similarly, the trading of the
stock exchange in equities and derivatives is so high that it has resulted in high turnovers and
thus making it the largest stock exchange in India.
It is the stock exchange wherein there is the facility of electronic exchange offering
investors. This facility is available in almost types of equitable transactions such as equities,
debentures, etc. it is also the largest stock exchange if calculated in the terms of traded values.
Origin and History of the National Stock Exchange
The National Stock exchange was incorporated for the first time in November, 1992.
The national stock exchange was not incorporated as the national stock exchange; rather, it
had got the recognition of the recognized stock exchange in April, 1993. The National stock
Exchange has increased its trading facilities in June 1994 when the WDM (Wholesale Debt
Market Segment) was gone live. It is basically one of the three market segments in which the
national stock Exchange works. In the same year, 1994 November, the Capital Market (CM)
segment of the stock exchange goes live through VSAT.
The National Stock Exchange has become the first Clearing Corporation in India by
the introduction of NSCCL in April 1995. In the same year, 1995 July, it has introduced the
Investor protection fund which is a very important function introduced by the national Stock
Exchange.
The National stock Exchange had grown with leaps and bounds and had shown
tremendous growth mainly in all the fields and thus making it the largest stock exchange of
India by October, 1995.
The concept of NSCCL was extended by the introduction of clearing and settlement
with the help of NSCCL in year 1996. The National stock Exchange has introduced its Index
for the first time in year April 1996. The index was known as the S&P CNXNifty Index. In
year June 1996, it has introduced the Settlement Guarantee Fund. The National Securities

13
Depositor Fund was launched by the National Stock exchange in year 1996, November, and
thus making it the first stock exchange who becomes the first depository in India.
Because of the efforts and introduction of new concept in the field of trading, the
National stock Exchange has received the BEST IT USAGE award by the computer Society
of India in the year November, 1996. It has also received an award for the TOP IT USER in
the name of Dataquest award in year December, 1996.
The National stock exchange has also introduced another index in year December
1996 in the name of CNX Nifty Junior in year 1996. It had again received an award for the
BEST IT USAGE award by the computer Society of India in the year December, 1996. In
May, 1998 it had launched its first website. Further in October 1999, it had launched the
NSE.IT LTD. Further in year October, 2002, it had launched the Government securities
index.
The growth of the National Stock Exchange has been tremendous in every field. It
had introduced several programmes and has achieved various achievements and awards while
working best in the field in which it is working. The efforts and hard work that is contributed
by the National Stock exchange has been tremendous and thus making an important and
unique stock exchange in India.
Over the Counter Exchange of India (OTCEI)
OTCEI (Over the Counter Exchange of India) was incorporated in 1990 as a Section
25 company under the Companies Act 1956 and is recognized as a stock exchange under
Section 4 of the Securities Contracts Regulation Act, 1956. The Exchange was set up to aid
enterprising promoters in raising finance for new projects in a cost effective manner and to
provide investors with a transparent & efficient mode of trading. Modeled along the lines of
the NASDAQ market of USA, OTCEI introduced many novel concepts to the Indian capital
markets such as screen-based nationwide trading, sponsorship of companies, market making
and scrip less trading. As a measure of success of these efforts, the Exchange today has 115
listings and has assisted in providing capital for enterprises that have gone on to build
successful brands for themselves like VIP Advanta, Sonora Tiles & Brilliant mineral water,
etc.
Trading at OTCEI is done over the centers spread across the country. Securities traded
on the OTCEI are classified into:

14
Listed Securities - The shares and debentures of the companies listed on the OTC can be
bought or sold at any OTC counter all over the country and they should not be listed
anywhere else Permitted
Securities - Certain shares and debentures listed on other exchanges and units of mutual
funds are allowed to be traded.
Initiated debentures - Any equity holding at least one lakh debentures of a particular scrip
can offer them for trading on the OTC.

OTCEI
Is the first screen based nationwide stock exchange in India.
Is the first exchange to introduce Market Making in India.
Is the first exchange to introduce Sponsorship of companies in India.
Is the only exchange to allow listing of companies with paid-up below Rs.3 crores.
Is the only exchange to allow companies with less than 3 year track record to tap
capital market.
Has shifted trading from counter receipts to share certificates.
Has introduced Weekly Settlement Cycle.
Allows short selling.
DETAILS OF STOCK EXCHANGES

Sr. Name of the Exchange Valid Upto

N
o.

1 Ahmedabad Stock Exchange Ltd. PERMANENT

2 Bangalore Stock Exchange Ltd. PERMANENT

3 Bhubaneswar Stock Exchange Ltd. June 04, 2012

4 Bombay Stock Exchange Ltd. PERMANENT

5 Calcutta Stock Exchange Ltd. PERMANENT

6 Cochin Stock Exchange Ltd. November 07, 2011

7 Delhi Stock Exchange Ltd. PERMANENT

8 Gauhati Stock Exchange Ltd. April 30, 2012

15
 10 Interconnected Stock Exchange of India Ltd. November 17, 2011

11 Jaipur Stock Exchange Ltd. January 08, 2012

12 Ludhiana Stock Exchange Ltd. April 27, 2012

13 Madhya Pradesh Stock Exchange Ltd PERMANENT

14 Madras Stock Exchange Ltd. PERMANENT

15 MCX Stock Exchange Ltd September 15, 2011

16 National Stock Exchange of India Ltd. PERMANENT

17 OTC Exchange of India August 22, 2012

18 Pune Stock Exchange Ltd. September 01, 2012

19 U.P. Stock Exchange Limited June 02, 2012

20 United Stock Exchange of India Limited March 21, 2012

21 The Vadodara Stock Exchange Ltd. January 03, 2012

Definition of Derivatives
One of the most significant events in the securities markets has been the development and
expansion of financial derivatives. The term derivatives is used to refer to financial
instruments which derive their value from some underlying assets.
The underlying assets could be equities (shares), debt (bonds, T-bills, and notes),
currencies, and even indices of these various assets, such as the Nifty 50 Index.
Derivatives derive their names from their respective underlying asset. Thus if a
derivatives underlying asset is equity, it is called equity derivative and so on. Derivatives can
be traded either on a regulated exchange, such as the NSE or off the exchanges, i.e., directly
between the different parties, which is called over-the-counter (OTC) trading. (In India
only exchange traded equity derivatives are permitted under the law.)
The basic purpose of derivatives is to transfer the price risk (inherent in fluctuations
of the asset prices) from one party to another; they facilitate the allocation of risk to those
who are willing to take it. In so doing, derivatives help mitigate the risk arising from the
future uncertainty of prices.

16
 For example, on November 1, 2009 a rice farmer may wish to sell his harvest at a
future date (say January 1, 2010) for a pre-determined fixed price to eliminate the risk of
change in prices by that date. Such a transaction is an example of a derivatives contract. The
price of this derivative is driven by the spot price of rice which is the "underlying".
Origin of Derivative
While trading in derivatives products has grown tremendously in recent times, the
earliest evidence of these types of instruments can be traced back to ancient Greece. Even
though derivatives have been in existence in some form or the other since ancient times, the
advent of modern day derivatives contracts is attributed to farmers need to protect
themselves against a decline in crop prices due to various economic and environmental
factors.
Thus, derivatives contracts initially developed in commodities. The first futures
contracts can be traced to the Yodoya rice market in Osaka, Japan around 1650. The farmers
were afraid of rice prices falling in the future at the time of harvesting. To lock in a price (that
is, to sell the rice at a predetermined fixed price in the future), the farmers entered into
contracts with the buyers.
These were evidently standardized contracts, much like todays futures contracts.
In 1848, the Chicago Board of Trade (CBOT) was established to facilitate trading of forward
contracts on various commodities. From then on, futures contracts on commodities have
remained more or less in the same form, as we know them today.
While the basics of derivatives are the same for all assets such as equities, bonds,
currencies, and commodities, we will focus on derivatives in the equity markets and all
examples that we discuss will use stocks and index (basket of stocks).
Derivatives in India
In India, derivatives markets have been functioning since the nineteenth century, with
organized trading in cotton through the establishment of the Cotton Trade Association in
1875.Derivatives, as exchange traded financial instruments were introduced in India in June
2000.The National Stock Exchange (NSE) is the largest exchange in India in derivatives,
trading in various derivatives contracts. The first contract to be launched on NSE was the
Nifty 50 index futures contract. In a span of one and a half years after the introduction of
index futures, index options, stock options and stock futures were also introduced in the
derivatives segment for trading. NSEs equity derivatives segment is called the Futures &

17
Options Segment or F&O Segment. NSE also trades in Currency and Interest Rate Futures
contracts under a separate segment.
A series of reforms in the financial markets paved way for the development of
exchange-traded equity derivatives markets in India. In 1993, the NSE was established as an
electronic, national exchange and it started operations in 1994. It improved the efficiency and
transparency of the stock markets by offering a fully automated screen-based trading system
with real-time price dissemination. A report on exchange traded derivatives, by the L.C.
Gupta Committee, set up by the Securities and Exchange Board of India (SEBI),
recommended a phased introduction of derivatives instruments with bi-level regulation (i.e.,
self-regulation by exchanges, with SEBI providing the overall regulatory and supervisory
role). Another report, by the J.R. Varma Committee in 1998, worked out the various
operational details such as margining and risk management systems for these instruments. In
1999, the Securities Contracts (Regulation) Act of 1956, or SC(R)A, was amended so that
derivatives could be declared as securities. This allowed the regulatory framework for
trading securities, to be extended to derivatives. The Act considers derivatives on equities to
be legal and valid, but only if they are traded on exchanges.

Milestones in the development of Indian Derivative Market

November 18, L.C. Gupta Committee set up to draft a policy framework for introducing
1996 derivatives

May 11, 1998 L.C. Gupta committee submits its report on the policy Framework

May 25, 2000 SEBI allows exchanges to trade in index futures

June 12, 2000 Trading on Nifty futures commences on the NSE

June 4, 2001 Trading for Nifty options commences on the NSE

July 2, 2001 Trading on Stock options commences on the NSE

August 29, Currency derivatives trading commences on the NSE

2008

18
August 31, Interest rate derivatives trading commences on the NSE
2009

February Launch of Currency Futures on additional currency pairs

2010

October 28, Introduction of European style Stock Options

2010

October 29, Introduction of Currency Options

2010

Two important terms

Before discussing derivatives, it would be useful to be familiar with two
terminologies relating to the underlying markets. These are as follows:
Spot Market
In the context of securities, the spot market or cash market is a securities market in
which securities are sold for cash and delivered immediately. The delivery happens after the
settlement period. Let us describe this in the context of India. The NSEs cash market
segment is known as the Capital Market (CM) Segment. In this market, shares of SBI,
Reliance, Infosys, ICICI Bank, and other public listed companies are traded.
The settlement period in this market is on a T+2 basis i.e., the buyer of the shares
receives the shares two working days after trade date and the seller of the shares receives the
money two working days after the trade date.
Index
Stock prices fluctuate continuously during any given period. Prices of some stocks
might move up while that of others may move down. In such a situation, what can we say
about the stock market as a whole? Has the market moved up or has it moved down during a
given period? Similarly, have stocks of a particular sector moved up or down?
To identify the general trend in the market (or any given sector of the market such as
banking), it is important to have a reference barometer which can be monitored. Market
participants use various indices for this purpose. An index is a basket of identified stocks, and

19
its value is computed by taking the weighted average of the prices of the constituent stocks of
the index.
A market index for example consists of a group of top stocks traded in the market and
its value changes as the prices of its constituent stocks change. In India, Nifty Index is the
most popular stock index and it is based on the top 50 stocks traded in the market. Just as
derivatives on stocks are called stock derivatives, derivatives on indices such as Nifty are
called index derivatives.
Definitions of Basic Derivatives
There are various types of derivatives traded on exchanges across the world. They
range from the very simple to the most complex products. The following are the three basic
forms of derivatives, which are the building blocks for many complex derivatives instruments
(the latter are beyond the scope of this book):
Forwards
Futures
Options
Knowledge of these instruments is necessary in order to understand the basics of
derivatives. We shall now discuss each of them in detail.
Forwards
A forward contract or simply aforward is a contract between two parties to buy or sell
an asset at a certain future date for a certain price that is pre-decided on the date of the
contract. The future date is referred to as expiry date and the pre-decided price is referred to
as Forward Price. It may be noted that Forwards are private contracts and their terms are
determined by the parties involved.
A forward is thus an agreement between two parties in which one party, the buyer,
enters into an agreement with the other party, the seller that he would buy from the seller an
underlying asset on the expiry date at the forward price. Therefore, it is a commitment by
both the parties to engage in a transaction at a later date with the price set in advance. This is
different from a spot market contract, which involves immediate payment and immediate
transfer of asset. The party that agrees to buy the asset on a future date is referred to as a long
investor and is said to have a long position. Similarly the party that agrees to sell the asset in
a future date is referred to as a short investor and is said to have a short position. The price
agreed upon is called the delivery price or the Forward Price.
Forward contracts are traded only in Over the Counter (OTC) market and not in stock

20
exchanges. OTC market is a private market where individuals/institutions can trade through
negotiations on a one to one basis.
Futures
Like a forward contract, a futures contract is an agreement between two parties in
which the buyer agrees to buy an underlying asset from the seller, at a future date at a price
that is agreed upon today. However, unlike a forward contract, a futures contract is not a
private transaction but gets traded on a recognized stock exchange. In addition, a futures
contract is standardized by the exchange. All the terms, other than the price, are set by the
stock exchange (rather than by individual parties as in the case of a forward contract). Als o,
both buyer and seller of the futures contracts are protected against the counter party risk by an
entity called the Clearing Corporation. The Clearing Corporation provides this guarantee to
ensure that the buyer or the seller of a futures contract does not suffer as a result of the
counter party defaulting on its obligation. In case one of the parties defaults, the Clearing
Corporation steps in to fulfill the obligation of this party, so that the other party does not
suffer due to non-fulfillment of the contract. To be able to guarantee the fulfillment of the
obligations under the contract, the Clearing Corporation holds an amount as a security from
both the parties. This amount is called the Margin money and can be in the form of cash or
other financial assets. Also, since the futures contracts are traded on the stock exchanges, the
parties have the flexibility of closing out the contract prior to the maturity by squaring off the
transactions in the market.
The basic flow of a transaction between three parties, namely Buyer, Seller and
Clearing Corporation is depicted in the diagram below:

21
Options
Like forwards and futures, options are derivative instruments that provide the
opportunity to buy or sell an underlying asset on a future date.
An option is a derivative contract between a buyer and a seller, where one party (say
First Party) gives to the other (say Second Party) the right, but not the obligation, to buy from
(or sell to) the First Party the underlying asset on or before a specific day at an agreed-upon
price. In return for granting the option, the party granting the option collects a payment from
the other party. This payment collected is called the premium or price of the option.
The right to buy or sell is held by the option buyer (also called the option holder);
the party granting the right is the option seller or option writer. Unlike forwards and
futures contracts, options require a cash payment (called the premium) upfront from the
option buyer to the option seller. This payment is called option premium or option price.
Options can be traded either on the stock exchange or in over the counter (OTC) markets.
Options traded on the exchanges are backed by the Clearing Corporation thereby minimizing
the risk arising due to default by the counter parties involved. Options traded in the OTC
market however are not backed by the Clearing Corporation.
There are two types of optionscall options and put optionswhich are explained
below.

22
Call option
A call option is an option granting the right to the buyer of the option to buy the
underlying asset on a specific day at an agreed upon price, but not the obligation to do so. It
is the seller who grants this right to the buyer of the option. It may be noted that the person
who has the right to buy the underlying asset is known as the buyer of the call option.
The price at which the buyer has the right to buy the asset is agreed upon at the time
of entering the contract. This price is known as the strike price of the contract (call option
strike price in this case).
Since the buyer of the call option has the right (but no obligation) to buy the
underlying asset, he will exercise his right to buy the underlying asset if and only if the price
of the underlying asset in the market is more than the strike price on or before the expiry date
of the contract. The buyer of the call option does not have an obligation to buy if he does not
want to.
Put option
A put option is a contract granting the right to the buyer of the option to sell the
underlying asset on or before a specific day at an agreed upon price, but not the obligation to
do so. It is the seller who grants this right to the buyer of the option.
The person who has the right to sell the underlying asset is known as the buyer of the
put option. The price at which the buyer has the right to sell the asset is agreed upon at the
time of entering the contract. This price is known as the strike price of the contract (put
option strike price in this case).
Since the buyer of the put option has the right (but not the obligation) to sell the
underlying asset, he will exercise his right to sell the underlying asset if and only if the price
of the underlying asset in the market is less than the strike price on or before the expiry date
of the contract. The buyer of the put option does not have the obligation to sell if he does not
want to.
Terminology of Derivatives
In this section we explain the general terms and concepts related to derivatives.
Spot price (ST)
Spot price of an underlying asset is the price that is quoted for immediate delivery of
the asset. For example, at the NSE, the spot price of Reliance Ltd. at any given time is the
price at which Reliance Ltd. shares are being traded at that time in the Cash Market Segment
of the NSE. Spot price is also referred to as cash price sometimes.

23
Forward price or futures price (F)
Forward price or futures price is the price that is agreed upon at the date of the
contract for the delivery of an asset at a specific future date. These prices are dependent on
the spot price, the prevailing interest rate and the expiry date of the contract.
Strike price (K)
The price at which t he buyer of an option can buy the stock (in the case of a call
option) or sell the stock (in the case of a put option) on or before the expiry date of option
contracts is called strike price. It is the price at which the stock will be bought or sold when
the option is exercised. Strike price is used in the case of options only; it is not used for
futures or forwards.
Expiration date (T)
In the case of Futures, Forwards, Index and Stock Options, Expiration Date is the date
on which settlement takes place. It is also called the final settlement date.
Types of Options
Options can be divided into two different categories depending upon the primary
exercise styles associated with options. These categories are:
European Options: European options are options that can be exercised only on the
expiration date.
American options: American options are options that can be exercised on any day on
or before the expiry date. They can be exercised by the buyer on any day on or before the
final settlement date or the expiry date.
Contract size
As futures and options are standardized contracts traded on an exchange, they have a
fixed contract size. One contract of a derivatives instrument represents a certain number of
shares of the underlying asset. For example, if one contract of BHEL consists of 300 shares
of BHEL, then if one buys one futures contract of BHEL, then for every Re 1 increase in
BHELs futures price, the buyer will make a profit of 300 X 1 = Rs 300 and for every Re 1
fall in BHELs futures price, he will lose Rs 300.
Contract Value
Contract value is notional value of the transaction in case one contract is bought or
sold. It is the contract size multiplied but the price of the futures. Contract value is used to

24
calculate margins etc. for contracts. In the example above if BHEL futures are trading at Rs.
2000 the contract value would be Rs. 2000 x 300 = Rs. 6 lacs.

Margins
In the spot market, the buyer of a stock has to pay the entire transaction amount (for
purchasing the stock) to the seller. For example, if Infosys is trading at Rs. 2000 a share and
an investor wants to buy 100 Infosys shares, then he has to pay Rs. 2000 X 100 = Rs.
2,00,000 to the seller. The settlement will take place on T+2 basis; that is, two days after the
transaction date. In a derivatives contract, a person enters into a trade today (buy or sell) but
the settlement happens on a future date. Because of this, there is a high possibility of default
by any of the parties.
Futures and option contracts are traded through exchanges and the counter party risk
is taken care of by the clearing corporation. In order to prevent any of the parties from
defaulting on his trade commitment, the clearing corporation levies a margin on the buyer as
well as seller of the futures and option contracts. This margin is a percentage (approximately
20%) of the total contract value. Thus, for the aforementioned example, if a person wants to
buy 100 Infosys futures, then he will have to pay 20% of the contract value of Rs 2,00,000 =
Rs 40,000 as a margin to the clearing corporation. This margin is applicable to both, the
buyer and the seller of a futures contract.
Moneyness of an Option
Moneyness of an option indicates whether an option is worth exercising or not i.e. if
the option is exercised by the buyer of the option whether he will receive money or not.
Moneyness of an option at any given time depends on where the spot price of the
underlying is at that point of time relative to the strike price. The premium paid is not taken
into consideration while calculating moneyness of an Option, since the premium once paid is
a sunk cost and the profitability from exercising the option does not depend on the size of the
Premium. Therefore, the decision (of the buyer of the option) whether to exercise the option
or not is not affected by the size of the premium. The following three terms are used to define
the moneyness of an option.
In-the-money option
An option is said to be in-the-money if on exercising the option, it would produce a
cash inflow for the buyer. Thus, Call Options are in-the-money when the value of spot price
of the underlying exceeds the strike price. On the other hand, Put Options are in-the- money

25
when the spot price of the underlying is lower than the strike price. Moneyness of an option
should not be confused with the profit and loss arising from holding an option contract. It
should be noted that while moneyness of an option does not depend on the premium paid,
profit/loss do. Thus a holder of an in-the-money option need not always make profit as the
profitability also depends on the premium paid.
Out-of-the-money option
An out-of-the-money option is an opposite of an in-the-money option. An option-
holder will not exercise the option when it is out-of-the-money. A Call option is out-of-the-
money when its strike price is greater than the spot price of the underlying and a Put option is
out-of-the money when the spot price of the underlying is greater than the options strike
price.
At-the-money option
An at-the-money-option is one in which the spot price of the underlying is equal to
the strike price. It is at the stage where with any movement in the spot price of the
underlying, the option will either become in-the-money or out-of-the-money.
Applications of Derivatives
In this chapter, we look at the participants in the derivatives markets and how they use
Derivatives contracts.
Participants in the Derivatives Market
As equity markets developed, different categories of investors started participating in
the market. In India, equity market participants currently include retail investors, corporate
investors, mutual funds, banks, foreign institutional investors etc. Each of these investor
categories uses the derivatives market to as a part of risk management, investment strategy or
speculation. Based on the applications that derivatives are put to, these investors can be
broadly classified into three groups:
Hedgers
Speculators, and
Arbitrageurs
Hedgers
These investors have a position (i.e., have bought stocks) in the underlying market but
are worried about a potential loss arising out of a change in the asset price in the future.
Hedgers participate in the derivatives market to lock the prices at which they will be able to
transact in the future. Thus, they try to avoid price risk through holding a position in the

26
derivatives market. Different hedgers take different positions in the derivatives market based
on their exposure in the underlying market. A hedger normally takes an opposite position in
the derivatives market to what he has in the underlying market.

Speculators
A Speculator is one who bets on the derivatives market based on his views on the
potential movement of the underlying stock price. Speculators take large, calculated risks as
they trade based on anticipated future price movements. They hope to make quick, large
gains; but may not always be successful. They normally have shorter holding time for their
positions as compared to hedgers. If the price of the underlying moves as per their
expectation they can make large profits. However, if the price moves in the opposite direction
of their assessment, the losses can also be enormous.
Arbitrageurs
Arbitrageurs attempt to profit from pricing inefficiencies in the market by making
simultaneous trades that offset each other and capture a risk-free profit. An arbitrageur may
also seek to make profit in case there is price discrepancy between the stock price in the cash
and the derivatives markets.

Uses of Derivatives
Risk management
The most important purpose of the derivatives market is risk management. Risk
management for an investor comprises of the following three processes:
Identifying the desired level of risk that the investor is willing to take on his
investments;
Identifying and measuring the actual level of risk that the investor is carrying; and
Making arrangements which may include trading (buying/selling) of derivatives
contracts that allow him to match the actual and desired levels of risk.
Market efficiency
Efficient markets are fair and competitive and do not allow an investor to make risk
free profits. Derivatives assist in improving the efficiency of the markets, by providing a self-
correcting mechanism. Arbitrageurs are one section of market participants who trade
whenever there is an opportunity to make risk free profits till the opportunity ceases to exist.
Risk free profits are not easy to make in more efficient markets. When trading occurs, there is

27
a possibility that some amount of mispricing might occur in the markets. The arbitrageurs
step in to take advantage of this mispricing by buying from the cheaper market and selling in
the higher market. Their actions quickly narrow the prices and thereby reducing the
inefficiencies.
Price discovery
One of the primary functions of derivatives markets is price discovery. They provide
valuable information about the prices and expected price fluctuations of the underlying assets
in two ways:
First, many of these assets are traded in markets in different geographical locations.
Because of this, assets may be traded at different prices in different markets. In derivatives
markets, the price of the contract often serves as a proxy for the price of the underlying asset.
For example, gold may trade at different prices in Mumbai and Delhi but a derivatives
contract on gold would have one value and so traders in Mumbai and Delhi can validate the
prices of spot markets in their respective location to see if it is cheap or expensive and trade
accordingly.
Second, the prices of the futures contracts serve as prices that can be used to get a
sense of the market expectation of future prices. For example, say there is a company that
produces sugar and expects that the production of sugar will take two months from today. As
sugar prices fluctuate daily, the company does not know if after two months the price of sugar
will be higher or lower than it is today. How does it predict where the price of sugar will be in
future? It can do this by monitoring prices of derivatives contract on sugar (say a Sugar
Forward contract). If the forward price of sugar is trading higher than the spot price that
means that the market is expecting the sugar spot price to go up in future. If there were no
derivatives price, it would have to wait for two months before knowing the market price of
sugar on that day. Based on derivatives price the management of the sugar company can
make strategic and tactical decisions of how much sugar to produce and when.
What is Open Interest (OI) and Contract in the enclosed
charts?
Open interest is the total number of options and/or futures contracts that are not closed
out on a particular day, that is contracts that have been purchased and are still outstanding and
not been sold and vice versa. A common misconception is that open interest is the same thing
as volume of options and futures trades. This is not correct since there could be huge volumes
but if the volumes are just because of participants squaring off their positions then the open

28
interest would not be large. On the other hand, if the volumes are large because of fresh
positions being created then the open interest would also be large.
The Contract column tells us about the strike price of the call or put and the date of
their settlement. For example, the first entry in the Active Calls section (4500.00-August)
means it is a Nifty call with Rs 4500 strike price, that would expire in August. It is interesting
to note from the newspaper extract given above is that it is possible to have a number of
options at different strike prices but all of them have the same expiry date.
There are different tables explaining different sections of the F&O markets.
1. Positive trend: It gives information about the top gainers in the futures market.
2. Negative trend: It gives information about the top losers in the futures market.
3. Future OI gainers: It lists those futures whose % increases in open interest are among the
highest on that day.
4. Future OI losers: It lists those futures whose % decreases in open interest are among the
highest on that day.
5. Active Calls: Calls with high trading volumes on that particular day.
6. Active Puts: Puts with high trading volumes on that particular day.

Settlement of Derivatives
Settlement refers to the process through which trades are cleared by the
payment/receipt of currency, securities or cash flows on periodic payment dates and on the
date of the final settlement. The settlement process is somewhat elaborate for derivatives
instruments which are exchange traded. (They have been very briefly outlined here. For a
more detailed explanation, please refer to NCFM Derivatives Markets (Dealers) Module).
The settlement process for exchange traded derivatives is standardized and a certain set of
procedures exist which take care of the counterparty risk posed by these instruments. At the
NSE, the National Securities Clearing Corporation Limited (NSCCL) undertakes the clearing
and settlement of all trades executed on the F&O segment of NSE. It also acts as a legal
counterparty to all trades on the F&O segment and guarantees their financial settlement.
There are two clearing entities in the settlement process: Clearing Members and Clearing
Banks.
Clearing members

29
A Clearing member (CM) is the member of the clearing corporation i.e., NSCCL. These are
the members who have the authority to clear the trades executed in the F&O segment in the
exchange. There are three types of clearing members with different set of functions:
1) Self-clearing Members: Members who clear and settle trades executed by them only on
their own accounts or on account of their clients.
2) Trading cum Clearing Members: They clear and settle their own trades as well as trades
of other trading members (TM).
3) Professional Clearing Members (PCM): They only clear and settle trades of others but
do not trade themselves. PCMs are typically Financial Institutions or Banks who are admitted
by the Clearing Corporation as members.
Clearing banks
Some commercial banks have been designated by the NSCCL as Clearing Banks.
Financial settlement can take place only through Clearing Banks. All the clearing members
are required to open a separate bank account with an NSCCL designated clearing bank for the
F&O segment. The clearing members keep a margin amount in these bank accounts.
Settlement of Futures
When two parties trade a futures contract, both have to deposit margin money which
is called the initial margin. Futures contracts have two types of settlement: (i) the mark-to-
market (MTM) settlement which happens on a continuous basis at the end of each day, and
(ii) the final settlement which happens on the last trading day of the futures contract i.e., the
last Thursday of the expiry month.
Mark to market settlement
To cover for the risk of default by the counterparty for the clearing corporation, the
futures contracts are marked-to-market on a daily basis by the exchange. Mark to market
settlement is the process of adjusting the margin balance in a futures account each day for the
change in the value of the contract from the previous day, based on the daily settlement price
of the futures contracts (Please refer to the Tables given below.). This process helps the
clearing corporation in managing the counterparty risk of the future contracts by requiring the
party incurring a loss due to adverse price movements to part with the loss amount on a daily
basis. Simply put, the party in the loss position pays the clearing corporation the margin
money to cover for the shortfall in cash. In extraordinary times, the Exchange can require a
mark to market more frequently (than daily). To ensure a fair mark-to-market process, the
clearing corporation computes and declares the official price for determining daily gains and

30
losses. This price is called the settlement price and represents the closing price of the
futures contract. The closing price for any contract of any given day is the weighted average
trading price of the contract in the last half hour of trading.
Final settlement for futures
After the close of trading hours on the expiry day of the futures contracts, NSCCL
marks all positions of clearing members to the final settlement price and the resulting
profit/loss is settled in cash. Final settlement loss is debited and final settlement profit is
credited to the relevant clearing bank accounts on the day following the expiry date of the
contract. Suppose the above contract closes on day 6 (that is, it expires) at a price of Rs.
1040, then on the day of expiry, Rs. 100 would be debited from the seller (short position
holder) and would be transferred to the buyer (long position holder).
Settlement of Options
In an options trade, the buyer of the option pays the option price or the option
premium. The options seller has to deposit an initial margin with the clearing member as he is
exposed to unlimited losses. There are basically two types of settlement in stock option
contracts: daily premium settlement and final exercise settlement. Options being European
style, they cannot be exercised before expiry.
Daily premium settlement
Buyer of an option is obligated to pay the premium towards the options purchased by
him. Similarly, the seller of an option is entitled to receive the premium for the options sold
by him. The same person may sell some contracts and buy some contracts as well. The
premium payable and the premium receivable are netted to compute the net premium payable
or receivable for each client for each options contract at the time of settlement.

Exercise settlement
Normally most option buyers and sellers close out their option positions by an
offsetting closing transaction but a better understanding of the exercise settlement process can
help in making better judgment in this regard. Stock and index options can be exercised only
at the end of the contract.
Final Exercise Settlement
On the day of expiry, all in the money options are exercised by default. An investor
who has a long position in an in-the-money option on the expiry date will receive the exercise
settlement value which is the difference between the settlement price and the strike price.

31
Similarly, an investor who has a short position in an in-the-money option will have to pay the
exercise settlement value.
Accounting and Taxation of Derivatives
The Institute of Chartered Accountants of India (ICAI) has issued guidance notes on
accounting of index future contracts from the view point of parties who enter into such future
contracts as buyers or sellers. For other parties involved in the trading process, like brokers,
trading members, clearing members and clearing corporations a trade in equity index futures
is similar to a trade in, say shares, and accounting remains similar as in the case of buying or
selling of shares.
Taxation of Derivative Instruments
Prior to the year 2005, the Income Tax Act did not have any specific provision
regarding taxability of derivatives. The only tax provisions which had indirect bearing on
derivatives transactions were sections 73(1) and 43(5). Under these sections, trade in
derivatives was considered speculative transactions for the purpose of determining tax
liability. All profits and losses were taxed under the speculative income category. Therefore,
loss on derivatives transactions could be set off only against other speculative income and the
same could not be set off against any other income. This resulted in high tax liability.
Finance Act, 2005 has amended section 43(5) so as to exclude transactions in
derivatives carried out in a recognized stock exchange from speculative transaction. This
implies that derivatives transactions that take place in a recognized stock exchange are not
taxed as speculative income or loss. They are treated under the business income head of the
Income tax Act. Any losses on these activities can be set off against any business income in
the year and the losses can be carried forward and set off against any other business income
for the next eight years.

MCX
MCX (Multi Commodity Exchange of India Ltd.) an independent and de-
mutualised multi commodity exchange has permanent recognition from Government of India
for facilitating online trading, clearing and settlement operations for commodity futures
markets across the country.
Key shareholders of MCX are Financial Technologies (India) Ltd., State Bank of India,
HDFC Bank, State Bank of Indore, State Bank of Hyderabad, State Bank of Saurashtra, SBI
Life Insurance Co. Ltd., Union Bank of India, Bank of India, Bank of Baroda, Canera Bank,

32
Corporation Bank Headquartered in Mumbai, MCX is led by an expert management team
with deep domain knowledge of the commodity futures markets.

Today MCX is offering spectacular growth opportunities and advantages to a large cross
section of the participants including Producers / Processors, Traders, Corporate, Regional
Trading Canters, Importers, Exporters, Cooperatives, Industry Associations, amongst others
MCX being nation-wide commodity exchange, offering multiple commodities for trading
with wide reach and penetration and robust infrastructure.

MCX, having a permanent recognition from the Government of India, is an

independent and demutualized multi commodity Exchange. MCX, a state-of-the-art
nationwide, digital Exchange, facilitates online trading, clearing and settlement operations for
a commodities futures tradin.

NCDEX
National Commodity and Derivatives Exchange Ltd (NCDEX) is a technology driven
commodity exchange. It is a public limited company registered under the Companies Act,
1956 with the Registrar of Companies, Maharashtra in Mumbai on April 23,2003.
It has an independent Board of Directors and professionals not having any vested
interest in commodity markets.
It has been launched to provide a world-class commodity exchange platform for
market participants to trade in a wide spectrum of commodity derivatives driven by best
global practices, professionalism and transparency.
Forward Markets Commission regulates NCDEX in respect of futures trading in
commodities. Besides, NCDEX is subjected to various laws of the land like the Companies
Act, Stamp Act, Contracts Act, Forward Commission (Regulation) Act and various other
legislations, which impinge on its working.
It is located in Mumbai and offers facilities to its members in more than 390 centres
throughout India. The reach will gradually be expanded to more centres.
NCDEX currently facilitates trading of thirty six commodities - Cashew, Castor Seed,
Chana, Chilli, Coffee, Cotton, Cotton Seed Oilcake, Crude Palm Oil, Expeller Mustard Oil,
Gold, Guar gum, Guar Seeds, Gur, Jeera, Jute sacking bags, Mild Steel Ingot, Mulberry
Green Cocoons, Pepper, Rapeseed - Mustard Seed ,Raw Jute, RBD Palmolein, Refined Soy
Oil, Rice, Rubber, Sesame Seeds, Silk, Silver, Soy Bean, Sugar, Tur, Turmeric, Urad (Black
Matpe), Wheat, Yellow Peas, Yellow Red Maize & Yellow soyabean meal.
NMCE

33
 National Multi Commodity Exchange of India Ltd. (NMCE) was promoted by Central
Warehousing Corporation (CWC), National Agricultural Cooperative Marketing Federation
of India (NAFED), Gujarat Agro-Industries Corporation Limited (GAICL), Gujarat State
Agricultural Marketing Board (GSAMB), National Institute of Agricultural Marketing
(NIAM), and Neptune Overseas Limited (NOL).
While various integral aspects of commodity economy, viz., warehousing,
cooperatives, private and public sector marketing of agricultural commodities, research and
training were adequately addressed in structuring the Exchange, finance was still a vital
missing link. Punjab National Bank (PNB) took equity of the Exchange to establish that
linkage. Even today, NMCE is the only Exchange in India to have such investment and
technical support from the commodity relevant institutions.
NMCE facilitates electronic derivatives trading through robust and tested trading
platform, Derivative Trading Settlement System (DTSS), provided by CMC. It has robust
delivery mechanism making it the most suitable for the participants in the physical
commodity markets.
It has also established fair and transparent rule-based procedures and demonstrated
total commitment towards eliminating any conflicts of interest. It is the only Commodity
Exchange in the world to have received ISO 9001:2000 certification from British Standard
Institutions (BSI). NMCE was the first commodity exchange to provide trading facility
through internet, through Virtual Private Network (VPN). NMCE follows best international
risk management practices. The contracts are marked to market on daily basis. The system of
upfront margining based on Value at Risk is followed to ensure financial security of the
market.
In the event of high volatility in the prices, special intra-day clearing and settlement is
held. NMCE was the first to initiate process of dematerialization and electronic transfer of
warehoused commodity stocks.
The unique strength of NMCE is its settlements via a Delivery Backed System, an
imperative in the commodity trading business. These deliveries are executed through a sound
and reliable Warehouse Receipt System, leading to guaranteed clearing and settlement.

34
RESEARCH METHODOLOGY

Descriptive Research
Data Collection Method

Primary Data
Secondary Data

35
Primary Data
Primary data was collected through a structured questionnaire. The Questionnaire was
distributed through online platform by E-mail.

Secondary Data
Under Secondary sources, information was collected from internal & external
sources. I made use of Internet and miscellaneous sources (such as brochures, pamphlets)
under external sources.

Sampling Design

Sampling Unit: pune

Sampling Size: 100
Sampling Method: Convenience Sampling

Measurement Techniques Used

Software Package for Social Science (SPSS) has been used for the purpose of this
analysis.
CHI SQUARE test was used for testing the Hypothesis

More specifically the process was organized. The research questionnaire was pre-tested
through pilot survey. In its draft form it went under a pre test with Channel Partner of two
different companies. The second pre-test was conducted after discussion with the experts in
the field.

ANALYSIS OF THE RESULTS

1. Gender of the respondents

Table 1: What is your Gender?

Frequenc Perce Valid Cumulativ
y nt Percent e Percent
Male 84 84.0 84.0 84.0
Femal
16 16.0 16.0 100.0
e
Total 100 100.0 100.0
36
 Interpretation: From the questionnaire it is observed that 84% of the respondents are
Male and 16% of them are Female.

2. Age of the respondents

Table 2: What is your Age?

Frequenc Percent Valid Cumulative
y Percent Percent
Between 18 23 23.0 23.0 23.0
- 24

37
 Between 25 -
22 22.0 22.0 45.0
34
Between 35 -
46 46.0 46.0 91.0
44
Between 45
9 9.0 9.0 100.0
-54
Total 100 100.0 100.0

Interpretation: 46% of the respondents fall under the age category of 35 44 years,
23% of them fall under 18 -24 years were as 22% of the respondents are between the age
category of 25 -34 years and 9% of the respondents are Between the age group of 45 54
years.

3. Occupation of the respondents

Table 3: Which of the following best describes your

current Occupation?

38
 Frequenc Percent Valid Cumulativ
y Percent e Percent
Employee 37 37.0 37.0 37.0

Businessma 34 34.0 34.0 71.0

n
Student 10 10.0 10.0 81.0
Professional 19 19.0 19.0 100.0
Total 100 100.0 100.0

Interpretation: From the above chart it is clear that majority of the respondents are
employee with a weightage of 37% , Next are Businessman with a total of 34% and
Professionals being 19% and Students 10%.

4. Educational Qualification of the respondents

39
 Table 4: What is your Educational Qualification?
Frequenc Percen Valid Cumulativ
y t Percent e Percent
Undergradua
33 33.0 33.0 33.0
te
Graduate 35 35.0 35.0 68.0
Post
21 21.0 21.0 89.0
Graduate
Professional
11 11.0 11.0 100.0
Degree
Total 100 100.0 100.0

Interpretation: Majority of the respondents are Graduate being 35% were are
Undergraduate are closely followed with 33%, Post graduates consist of 21% and
Professional Degree Holders are 11%.

5. Income per Annum of the respondents

40
 Table 5: What is your approximate Income per Annum?
Frequenc Percent Valid Cumulativ
y Percent e Percent
Below 1,50,000/- 15 15.0 15.0 15.0
Between 1,50,001 -
39 39.0 39.0 54.0
3,00,000/-
Between 3,00,001 -
14 14.0 14.0 68.0
4,50,000
4,50,000/- and Above 32 32.0 32.0 100.0
Total 100 100.0 100.0

Interpretation: 39% of the respondents have annual income between 1,50,001

3,00,000/- were as respondents having income above 4,50,000/- are 32%, between 3,00,001/-
- 4,50,000/- are 14% and below 1,50,000/- are 15%.

41
6. Percentage of monthly income available for investment in
Derivatives

Table 6: What percentage of your monthly household

income would you invest in Derivatives?
Frequenc Percent Valid Cumulativ
y Percent e Percent
Between 5 -
27 27.0 27.0 27.0
10%
Between 11 -
41 41.0 41.0 68.0
15%
Between 16 -
32 32.0 32.0 100.0
20%
Total 100 100.0 100.0

42
 Interpretation: 41% of the respondents invest between 11 15% of the monthly
household income in Derivatives, were as 32% of the respondents would invest between 16-
20% and 27% of the respondents invest between 5 10% in Derivatives Market.

7. Kind of risk perceive while investing in Derivatives

Table 7: What kind of risk do you perceive while investing?

Frequenc Percen Valid Cumulativ
y t Percent e Percent
Uncertainty of
43 43.0 43.0 43.0
Returns
Slump in Market 34 34.0 34.0 77.0
Fear of Company
9 9.0 9.0 86.0
Windup
Others 14 14.0 14.0 100.0
Total 100 100.0 100.0

43
 Interpretation: 43% of the respondents feel that Uncertainty of Returns is the major
risk they perceive while investing in Derivative Market, were as 34% of the respondents feel
Slump in Market and 9% of the respondents feel that fear of company windup is the risk they
perceive while investing in Derivatives.
8. Purpose of Investing in Derivatives Market

Table 8: What is the purpose of investing in

Derivative Market?
Frequenc Percen Valid Cumulativ
y t Percent e Percent
To Hedge
33 33.0 33.0 33.0
Funds
Risk Control 29 29.0 29.0 62.0
Stable 21 21.0 21.0 83.0
Income

44
 Direct
17 17.0 17.0 100.0
Investment
Total 100 100.0 100.0

Interpretation: 33% of the respondents invest in Derivatives to hedge funds, 29% of

them invest for risk control, 21% of the respondents for stable income and 17% invest as a
direct investment.

9. Participation in different type of Derivative instrument

Table 9: In which of the following would you like to participate?

Frequen Percen Valid Cumulativ
cy t Percent e Percent
Index Futures 16 16.0 16.0 16.0
Index Options 29 29.0 29.0 45.0
Stock Futures 19 19.0 19.0 64.0

45
 Stock Options 24 24.0 24.0 88.0
Currency
12 12.0 12.0 100.0
Futures/Options
Total 100 100.0 100.0

Interpretation: From the above chart we find that 29% of the respondent would like to
participate in Index Options were as 24% of the respondents would like to invest in Stock
Options, Stock Futures and Index Futures attract 19 and 16% respectively and respondents
liking to invest in Currency Futures and Options are 12%.
10. Interest of investment in terms of time frame

Table 10: Which contract maturity period would

interest you for trading in?
Frequenc Percen Valid Cumulativ
y t Percent e Percent
1 34 34.0 34.0 34.0
Month

46
 2
9 9.0 9.0 43.0
Months
3
27 27.0 27.0 70.0
Months
6
22 22.0 22.0 92.0
Months
1 Year 8 8.0 8.0 100.0
Total 100 100.0 100.0

Interpretation: 34% of the respondents would like to invest their money for 1 Month,
27% of them for 3 months, 22% of the respondents for 6 months, 9% of the respondents for 2
months and 8% of the respondents for 1 Year.

11. Investment in Derivatives market

Table 11: How often do you invest in Derivative Market?

47
 Frequenc Percen Valid Cumulativ
y t Percent e Percent
Between 1 - 10
62 62.0 62.0 62.0
times
Between 11 - 25
14 14.0 14.0 76.0
times
26 - 50 times 15 15.0 15.0 91.0
Regularly 9 9.0 9.0 100.0
Total 100 100.0 100.0

Interpretation: Majority of the respondents 60% of them invest between 1 10 times a

year in Derivatives, were as respondents investing between 11 25 times, 26 50 times and
regularly are 14%, 15% and 9% respectively.
12. Result of Investment

48
 Table 12: What was the result of your Investment?

Frequenc Percen Valid Cumulativ

y t Percent e Percent
Great Results 17 17.0 17.0 17.0
Moderate but
50 50.0 50.0 67.0
acceptable
Disappointed 33 33.0 33.0 100.0
Total 100 100.0 100.0

Interpretation: 50% of the respondents are moderate about their results in investing in
Derivatives market, 17% of the respondents have great results and 33% of the respondents
are disappointed with their investment in Derivatives Market.

49
H0: Income and investment in different type of derivative
instruments are not related.

What is your approximate Income per Annum? * In which of the following would you
like to participate?

Cross Tab

In which of the following would you like to

Count participate?
Index Index Stock Stock Currency Total
Futures Options Futures Options Futures/Options
Below
3 4 2 0 6 15
1,50,000/-
Between
1,50,001 - 3 14 11 11 0 39
What is your
3,00,000/-
approximate
Between
Income per
3,00,001 - 3 3 0 5 3 14
Annum?
4,50,000
4,50,000/-
and 7 8 6 8 3 32
Above
Total 16 29 19 24 12 100
H1: Income and investment in different type of derivative
instruments are related.

50
 Chi-Square Tests

Value df Asymp. Sig. (2-sided)

Pearson Chi-Square 28.958a 12 .004

Likelihood Ratio 35.930 12 .000

Linear-by-Linear Association .315 1 .575

N of Valid Cases 100

a. 12 cells (60.0%) have expected count less than 5. The minimum expected count is 1.68.

The value of chi-squared statistic is 28.958. The chi-squared statistic has 12 degree of
freedom. The p value (.004) is less than 0.05. Hence there is significant relationship between
income and investment in different type of derivative instruments.

H0: Age and purpose of Investing in Derivative market are not

related.
H1: Age and purpose of Investing in Derivative market are
related.

What is your Age? * What is the purpose of investing in

Derivative market?

Cross Tab

What is the purpose of investing in Derivative

Count market?
To Hedge Risk Stable Direct Total
Funds Control Income Investment
What is your Between 18
10 0 8 5 23
Age? 24
Between 25 3 14 2 3 22
34

51
 Between 35
17 12 8 9 46
44
Between 45
3 3 3 0 9
-54
Total 33 29 21 17 100

Chi-Square Tests

Value df Asymp. Sig. (2-sided)

a
Pearson Chi-Square 26.109 9 .002
Likelihood Ratio 32.568 9 .000
Linear-by-Linear Association .616 1 .432
N of Valid Cases 100
a. 8 cells (50.0%) have expected count less than 5. The minimum expected count is 1.53.

The value of chi-squared statistic is 26.109. The chi-squared statistic has 9 degree of
freedom. The p value (.002) is less than 0.05. Hence there is significant relationship between
age and purpose of Investing in Derivative market.

H0: Income per annum and monthly income available for

investment are related

H1: Income per annum and monthly income available for

investment are related

What is your approximate Income per Annum? * What

percentage of your monthly household income would you
invest in Derivatives?

Cross Tab

What percentage of your monthly

Count household income would you
invest in Derivatives? Total

52
 Between Between 11 Between
5 - 10% - 15% 16 - 20%
Below 1,50,000/- 3 3 9 15

What is your Between 1,50,001 -

5 17 17 39
approximate 3,00,000/-
Income per
Annum?
Between 3,00,001 -
2 6 6 14
4,50,000
4,50,000/- and Above 17 15 0 32
Total 27 41 32 100

Chi-Square Tests

Value df Asymp. Sig. (2-

sided)
Pearson Chi-Square 30.130a 6 .000
Likelihood Ratio 38.871 6 .000
Linear-by-Linear Association 22.017 1 .000
N of Valid Cases 100
a. 4 cells (33.3%) have expected count less than 5. The minimum expected count is 3.78.

The value of chi-squared statistic is 30.130. The chi-squared statistic has 6 degree of
freedom. The p value (.000) is less than 0.05. Hence there is significant relationship between
income per annum and monthly income available for investment.
H0: Maturity period of investment and results of investment
are no related.
H1: Maturity period of investment and results of investment
are related.

What contract maturity period would interest you for

trading in? * What was the result of your investment?

Cross Tab

53
 Derivatives Turnover in BSE & NSE
BSE NSE
What was the result of your investment? Total
Year No of Contracts
Count Turnover (Cr)
Great No of ContractsDisappointed
Moderate Turnover (Cr)
2006-07 1781220 59006
Results but216883573 7356270
2007-08 7453371 242308 acceptable425013200 13090477
2008-09
What contract 496502
1 Month 117759 657390497
16 11010482
9 34
2009-10
maturity period would 29026Months 2340 677293922
3 17663655
6 9
2010-11
interest you for 5623 154 1034212062 29248221
3 Months 0 19 8 27
2011-12
trading in? 32222825 808476 1205045464 31349732
6 Months 5 9 8 22
2012-13 262440691 7163576.66 1131467418 31533003.96
2013-14 1 Year
301942441 9219434.323 3
1284424321 2
38211408.05 8
2014-15 Total505478869 20362741.4217 50
1837041131 33 100
55606453.39
2015-16 106209394 4475008.32 2098610395 64825834.30
2016-17 120229 6702.44 122716529 81354626.19

Chi-Square Tests

Value df Asymp. Sig. (2-

sided)
Pearson Chi-Square 17.583a 8 .025
Likelihood Ratio 22.085 8 .005
Linear-by-Linear Association .010 1 .921
N of Valid Cases 100
a. 8 cells (53.3%) have expected count less than 5. The minimum expected count is 1.36.

The value of chi-squared statistic is 17.583. The chi-squared statistic has 8

degree of freedom. The p value (.025) is more than 0.05. Hence there is no significant
relationship between maturity period of investment and results of investment.

Count

Comparison of Derivatives Turnover with Equity turnover on

BSE & NSE

54
 Equity Turnover in BSE & NSE
BSE NSE
Year Traded Quantity Turnover (Cr) Traded Quantity Turnover (Cr)
2001-02 182196 307292 278408 513167
2002-03 221401 314073 364065 617989
2003-04 390441 505053 713301 1099534
2004-05 477171 518715 797685 1140072
2005-06 664455 816074 844486 1569558
2006-07 560777 956185 855456 1945287
2007-08 653010 1578857 1498469 3551038
2008-09 739600 1100074 1426355 2752023
2009-10 1136513 1378809 2215530 4138023
2010-11 990777 1105027 1824515 3577410
2011-12 654137 667498 1616978 2810893

Table showing comparison of Derivatives Turnover and Equity

Turnover in BSE

Turnover of Derivatives in
BSE (Cr)
Turnover of Equity in BSE(Cr)

(source: sebi.gov.in)

55
 Derivatives was introduced first time in India in 2001. There after Derivatives market
has seen a huge growth in terms traded contracts and turnover. From the above chart we can
see that derivatives turnover in the year 2001 02 was 1,926 crores compared to equity
turnover of 3,07,292. In BSE the equity turnover is superior compared to derivatives turnover
but after the financial year 2011- 12 the momentum has shifted from equity to derivatives and
in the financial year 2011 2012 the derivatives turnover overtook the equity turnover for the
1st time ever, the derivatives turnover stood at 8,08,476 crores compared to equity turnover of
6,67,498 which is 21% more of equity turnover clearly showing the emergence of derivatives
market on BSE.

Table showing comparison of Derivatives Turnover and Equity

Turnover in NSE

Turnover of Derivatives in
NSE(Cr)
Turnover of Equity in NSE(Cr)

(source: sebi.gov.in)

56
 Derivatives was introduced first time in India in 2001. There after Derivatives
market has seen a huge growth in terms traded contracts and turnover. From the above chart
we can see that derivatives turnover in the year 2001 02 was 1,01,925 crores compared to
equity turnover of 5,13,167 but after the financial year 2003 -04 derivatives has seen a huge
up growth, It has outperformed equity segment both in volumes and turnover. In the financial
year 2011 2012 the derivatives turnover stood at 3,13,49,732 crores compared to equity
turnover of 28,10,893 which is 1015% more of equity turnover clearly showing the
emergence of derivatives market on NSE.

Findings

57
 84% of the respondents are Male and 16% of them are Female.

Most of the investors who invest in derivatives market are graduate.

Majority of the investors who invest in derivative market have a income of above
1,50,001 3,00,00/-

46% of the respondents fall under the age category of 35 44 years

Investors generally perceive uncertainty of returns type of risk while investing in

derivative market.

Most of investors purpose of investing in derivative market is to hedge their funds.

Most of investors participate in Index Options.

From this survey we come to know that most of investors make a contract of 1 month
maturity period.

Investors invest 1 -10 times a year in Derivatives Market.

The result of investment in derivative market is generally moderate but acceptable.

Hypothesis test shown that there is relationship between Income and investment in
different type of derivative instruments, Age and purpose of Investing in Derivative
market , Income per annum and monthly income available for investment

Derivatives turnover compared to Equity turnover is superior on NSE.

58
Recommendations

Knowledge needs to be spread concerning the risk and return of derivative market.

Investors should have knowledge of technical analysis, especially 5 Day moving

averages as derivatives trading is for a short period of time Investors should analysis
their script with the help of 5 Day moving average before making their trades.

Investors portfolio should only consist of 15 20% Derivatives contracts or scripts.

As derivatives trading is very risky investors should have only a small portion of their
portfolio consisting of derivatives.

SEBI should conduct seminars regarding the use of derivatives to educate individual
investors.

As FII play a prominent role in Derivatives trading, an individual investor should

keep himself updated with various economic trends, government policies, company
and industry announcements.

59
 ANNEXURE

SURVEY QUESTIONNAIRE FOR INVESTORS

Dear Sir/Mam,

This questionnaire is meant for educational purposes only.

The information provided by you will be kept secure and confidential.

1. Name: ___________________________________________

2. Gender
a) Male b) Female

3. Age
a. Below 18 Years
b. Between 18 24 Years
c. Between 25- 34 Years
d. Between 45 -54 Years
e. Above 55 Years

4. Occupation
a. Employee
b. Business
c. Student
d. Professional

5. Educational Qualification
a. Undergraduate
b. Graduate
c. Post Graduate
d. Professional Degree Holder

6. Income per Annum

60
 a. Below 1,50,000
b. 1,50,000 3,00,000
c. 3,00,000 5,00,000
d. Above 5,00,000

7. Normally what percentage of your monthly household

income could be available for investment?
a. Between 5% to 10%
b. Between 11% to 15%
c. Between 16% to 20%
d. Between 21% to 25%
e. More than 25%

8. What kind of risk do you perceive while investing in the

stock market?
a. Uncertainty of returns
b. Slump in stock market
c. Fear of being windup of company
d. Other

9. What is the purpose of investing in Derivative market?

a. To hedge funds
b. Risk control
c. More stable
d. Direct investment
10. In which of the following would you like to participate?
a. Index Futures
b. Index Options
c. Stock Futures
d. Stock Options
e. Currency Futures / Options

11. What contract maturity period would interest you for

trading in?
a. 1 month
b. 2 months
c. 3 months
d. 6 months
e. 9 months
f. 12 months

12. How often do you invest in Derivative market?

a. 1-10 times in a year
b. 11-50 times
c. More than 50 times

61
 d. Regularly

13. What was the result of your Investment?

a. Great results
b. Moderate but acceptable
c. Disappointed

Bibliography

nseindia.com

bseindia.com

sebi.gov.in

Ashutosh Vashishtha and Satish Kumar Development of Financial Derivatives

Market in India- A Case Study

Dr. Premalata Shenbagaraman Do Futures and Options trading increase stock

market volatility?

Golaka C Nath Behaviour of Stock Market Volatility after Derivatives

O.P. Gupta Effect Of Introduction Of Index Futures On Stock Market Volatility:The

Indian Evidence

Rajendra P. Chitale Use of Derivatives by Indias Institutional Investors:Issues and

Impediments

Sandeep Srivastava Informational Content Of Trading Volume And Open Interest

An Empirical Study Of Stock Option Market In India

Ajay Shah and Susan Thomas The evolution of the securities markets in India in the
1990s

Snehal Bandivadekar and Saurabh Ghosh Derivatives and Volatility on Indian Stock
Markets

62
 Sumon Bhaumik and Suchismita Bose Impact of Derivatives Trading on Emerging
Capital Markets: A Note on Expiration Day Effects in India

Susan Thomas and Ajay Shah Equity derivatives in India: The state of the art

63