18630183 summer training project report print out

8/8/2019 18630183 Summer Training Project Report Print Out

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SUMMER TRAINING PROJCT REPORT ONRESPONSIVENESSOFTHECLIENTSTOTHENEWESTSEGMENT OFCOMMODITY&CURRENCYTRADING

SHAREKHAN LTD.KOLKATA PREPARED BY SUMAN PAUL ENROLLMENT NO.- 08FC116 BATCH- 2008-10 UNDER THEGUIDENCE OF Prof. A.K. MISHRA (INTERNAL GUIDE) SUBHRAJEET MISHRA (EXTERNAL GUIDE)

As a Partial Fulfillment of PGPFC Programme of IMIS

Institute of Management & Information Science Bhubaneswar

TABLE OF CONTENTS2


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TITLE FLY PAGE. . . 2. TITLE PAGE.......... 3. TABLETUDY 1.2) SCOPE & LIMITATION OF STUDY..1.

9. CHAPTER-2: MAIN TEXT /BODY 2.1) ABOUT PROJECT. 2.2) ABOUT SHAREKHAN LTDCY..10.

CHAPTER-3: DERIVATIVE. 3.1) TYPES OF DERIVATIVES: FORWARDS FUTUATIVES MARKET 3.5) COMMODITY MARKET: A PERSPECTIVE. CHAPTER- 4: ELEMENTS OF COMMODITYMARKET.. 4.1) CASH MARKET.. 4.2) FORWARDS & FUTURES MARKET 4.3) FORWARD CRACT FORMAT: SOYABIN3

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CHAPTER-5: HISTORY/ BACKGROUND 5.1) GLOBAL SCENARIO 5.2) INDIAN SCENARIODITY MARKET IN INDIA CHAPTER-6: PROCESS/MECHANISM.... 13.1) How to earn?............................ CURRENCY FEATURES

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CHAPTER-7: HISTORY/BACKGROUND 7.1) THE EVOLUTION & MECHANICS IN CURRENCY FUTURES14. 15.

CHAPTER-8: TYPES OF FUTURES. 8.1) PARTICIPANTS 8.2) PRICINGHANISM 9.1) CONTRACT DESIGN.. 9.2) SIZE OF CONTRACT.. 9.3) TENORLEMENT CYCLE

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17. CHAPTER-10: 10.1) ELIGIBLE PERTICIPANTS 10.2) UNIQUE IDENTIFICTION NO.. 10.3)TIMINGS 10.4) MEMBERSHIP TYPES

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CHAPTER-11: 11.1) GOLD & USD RELATIONSHIP. 11.2) STOCK & GOLD RELATIONSHIP

19. CHAPTER-12: RESEARCH & METHODOLOGY. 12.1) PRIMARY DATA 12.2) SECONDANDINGS 21. CONCLUSIONS.22.

RECOMMENDATIONS.

23. REFERENCES.

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DECLARATION I, SUMAN PAUL student of PGPFC Programme (Batch: 2008-10) of Institute of Management and Information Science have happily declare that I have successfully completed my SUMMER TRAINING Programme form SHAREKHAN LTD. on the projectthat the company assigned me. The project which I was assigned is RESPONSIVNESSOF THE CLIENTS TO THE NEWEST SEGMENT OF COMMODITY & CURRENCY TRADING. This is completely a new segment in India and so it was a different challenge for me to assess & analysis customer reaction to this new concept. But I think I am successfu

lly done my project & write this project report. For the purpose of the projectI have taken few appointments of some customer of Sharekhan Ltd., some HNI (HighNet worth Individual) and some general customer who has regularly trade in share market. Prior to the election their reaction was very negative, even they werenot ready to listen about the share market also. But after the election the picture turn into 180 degree opposite direction. So I have prepared a questionnaireand did a survey on the basis of those questions about the awareness of the customer of commodity and currency. I have taken 200 sample sizes and to make it authentic and concrete I did that survey.

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ACKNOWLEDGEMENT Through out this project I have connected so many personalities,whose are unforgettable from my mind ever. It was great experience from my sideto work with them, work under them. With out their contribution & help it was almost impossible for me to do this project. First of all I thank my internal guide Prof. A.K.Mishra, who support me a lot and encourage me through mailing. Second I like to thank MR. NILESH SHAW, (ASSOCIATE VICE PRESIDENT) of SHAREKHAN LTD.who assess this project report & evaluate it and give me the certificate. Third

I must thank my external guide MR. SUBHRAJEET MISHRA (HEAD OF THE COMMODITY DEPARTMENT) of the company. Next I like to thank MR. LALIT KEDIA (Group Head, Eastern region), MR. ANKIT RUIA (RELATIONSHIP MANAGER, COMMODITY), MR. SUKUMAR BHARECH (REGIONAL HEAD, EQUITY DEPARTMENT). I like to thank two of my group members Mr. Debasish Das (08FC078) and Mr. Sumanto Chowdhury (08FC031) during the project.These guys also help me a lot. And finally I am thanking to all those customerwho help me to do the survey. Thank you.

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ABSTRACTThe project which I had done during the summer training programme is completelya marketing research based project. In this group project we introduce, identified and explore a dimension & direction of investment in commodity & currency derivatives. For assessing the reaction of the customer I have done a survey, by preparing a questionnaire. We have taken 200 sample sizes in the survey & conductthem in our project. As a result of that survey we have observed 95% of the samp

le (investors) not showing any sort of willingness to invest in the share market; they have no interest to at least listen about the commodity & currency derivative. As a reason for their this kind of unwillingness they have produced so many factors. One of those factors is lack of self confidence to reinvest their money after that shocking global turmoil. Rest of those 5% showed some kinds of courage to listen about the upcoming segments- commodity & currency derivatives. Wereally appreciate their thoughts. They are the true investors not speculators.

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CHAPTER - 1 INTRODUCTION

1.1.

OBJECTIVE OF STUDY:The basic reason or objectives behind this project are

1. To watch the market condition within these few months prior of election & post election period. 2. To watch customer responsiveness to the newest segment ofcommodity & currency trading. 3. Watch their behavior to invest in those new segments. 4. To study & learn from their motivation & sentiment about investment incommodities & currencies. 1.2.

SCOPE & LIMITATION OF STUDY:

This project has number of scope to study. The main scopes that I find out are:1. To learn about the reason behind the difference between their interest to invest in share market. 2. To study & sort out those factors which influence a lotto motivate them about invest in the market. 3. To know much more about the proc

ess that the company followed year after year how to invest, when & why to invest. 4. To know in which segment they prefer the customer to invest & the reason lying behind that. 5. How the customer react on the upcoming segments. This project has some limitations which I feel to explain. Those are: 1. Time that has been allowed to me is not enough to do the technical analysis over the market condition.9


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2. The survey what we did together result showed a one sided result. 3. Though the market was growing after election but investors were not agree to take initiative to invest in the market, while this the right time to invest. The reason behind this abstract decision has been completely unknown.

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CHAPTER - 2

MAINTEXT/BODY2.1)

ABOUTPROJECT:

The project on which I was assigned is simply marketing oriented project. It isabout the customer responsiveness to the newest segments i.e. commodity & currency. Their level of awareness and their confidence in this particular unknown section was my primary object of study of that survey. Commodity concept has came into the market in the year 2003-04. There 60 different types of commodities hasbeen traded in the market. According to the global demand and supply their pricehas been determined. It has been fluctuated through out the day. So customer response towards this variation is quiet different in the market. 2.2) ABOUTSHAREKHANLTD. Sharekhan Ltd. is one of the leading broking farm in India. They are beingin this field more than 80 years. They are one of the founder member of BSE & NSE index. They basically deals with stock market, commodities, mutual fund, PMS(Portfolio Management Services), IPO. They have a strong research team in Mumbai

. Sharekhan, Indias leading stockbroker is the retail arm of SSKI, an organizationwith over eight decades of stock market experience. With more than 220 share shops in 90 cities, and Indias premier portal, www.sharekhan.com, we reach out to customers like no one else. Sharekhan offers you trade execution facilities on the BSE and the NSE, for cash as well as derivatives, c, a ,depository services and most importantly, investment advice tempered by 80 years of research and broking experience. 2.3)

ABOUTCOMMODITY&CURRENCY:

Before starting about commodity I will say some words about DERIVATIVES. Becausecommodity & currency both itself is an important part of Derivative Segment. Which I will discussed in the next chapter. It is a vast chapter. All the Commodit

y & currency trading is a part of derivative market.11


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CHAPTER- 3 DERIVATIVE : Derivative is a product whose values, called underlying. The underlying could be equity, index, Forex, commodity, or any other asset. Derivatives are legal & valid only if such contracts are traded on a recognized stock exchange, therefore, precluding OTC derivatives. 3.1) Types of Derivatives:

FORWARDS: A FORWARD contract is a customized contract

between two entities, where settlement takes place on a specific date in the future at todays pre-agreed price.

Futures: A FUTURE contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of contracts in the sense that the former are standardized exchange -traded contracts, such as futures of nifty index.

OPTIONS: An OPTION is a contract, which gives the right, but not an obligation, to buy or sell the underlying at a stated date and a stated price. While buyers of a option pays premium and buy the right to exercise their option, The writer of an option receives the option premium. The writer is, therefore, obliged to sell or buy the asset if the buyer exercises it on the writer. Thetypes of options are Calls and Puts option.

Warrants: Options generally have lives up to one year. The

majority of options traded on exchanges have the maximum maturity of the nine mo

nths, longer dated options are called warrants and are generally traded OTC.12


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Last decade one of the most eventful decades in international markets. On one side, just a few derivatives disasters stories were enough to bring the entire business of derivatives under the limelight, make every one worry about unknown risks associated with derivatives, and elevate derivatives into mysterious something;while, on the other side, there were people who started to understand the derivatives and used the derivatives for hedging and mitigating risks while adding liquidity to the market.

3.2)TheS&PCNXNifty:The S&P CNX Nifty is an market capitalization index based upon solid economic research. It was designed not only as a barometer of market movement but also to be a foundation of the new world of financial products based on the index like index futures, index options and index funds. A trillion calculations were expended to evolve the rules inside the S&P CNX Nifty index. The results of this work are remarkably simple: (a) the correct size to use is 50, (b) stocks considered for the S&P CNX Nifty must be liquid by the impact cost criterion, (c) the largest50 stocks that meet the criterion go into the index. S&P CNX Nifty is a contrastto the ad hoc methods that have gone into index construction in the preceding years, where indexes were made out of intuition and lacked a scientific basis. Th

e research that led up to S&P CNX Nifty is well-respected internationally as a pioneering effort in better understanding how to make a stock market index. The Nifty is uniquely equipped as an index for the index derivatives market owing toits (a) low market impact cost and (b) high hedging effectiveness. The good diversification of Nifty generates low initial margin requirement. Finally, Nifty iscalculated using NSE prices, the most liquid exchange in India, thus making iteasier to do arbitrage for index derivatives.

3.3)COMMODITY:A commodity is a product that has commercial value, which can be produced, bought, sold, and consumed. Commodities are basically the products of the primary sector of an economy. The primary sector of an economy is concerned13


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with agriculture and extraction of raw materials such as metals, energy (crude oil, natural gas), etc., which serve as basic inputs for the secondary sector ofthe economy. FCRA Forward Contracts (Regulation) Act, 1952 defines goods are every kind of movable property other than actionable claims, money and securities.Future trading is organized in such goods or commodities that are permitted by central govt. At present, all goods and products of agricultural, including plantation, mineral, and fossil origin are allowed for futures trading under the ausp

ices of the commodity exchanges recognized under the FCRA. To qualify as a commodity for futures trading, an article or a product has to meet some basic characteristics: 1. The product must not have gone through any complicated manufacturing activity, except for certain basic processing such as mining, cropping, etc. In other words, the product must be in a basic, raw, unprocessed state. There areof course some exceptions to this rule. For example, metals, which are refinedfrom metal ores, and sugar, which is processed from sugarcane. 2. The product has to be fairly standardized, which means that there cannot be much differentiation in a product based on its quality. For example, there are different varietiesof crude oil. Though these different varieties of crude oil can be treated as different commodities and traded as separate contracts, there can be a standardization of the commodities for futures contract based on the largest traded variet

y of crude oil. This would ensure a fair representation of the commodity for futures trading. This would also ensure adequate liquidity for the commodity futures being traded, thus ensuring price discovery mechanism. 3. A major consideration while buying the product is its price. Fundamental forces of market demand andsupply for the commodity determine the commodity prices. 4. Usually, many competing sellers of the product will be there in the market. Their presence is required to ensure widespread trading activity in the physical commodity market. 5. The product should have adequate shelf life since the delivery of a commodity through a futures contract is usually deferred to a later date (also known as expiry of the futures contract).

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3.4)COMMODITYDERIVATIVES:a) COMMODITY EXCHANGE: A Commodity Exchange is an organization, such as stock exchange, organizing futures trading in commodities. The main commodity exchangesin India are the NCDEX and Multi Commodity Exchange of India Ltd. (MCX) both ofwhich online trading facility. b) COMMODITY DERIVATIVES MARKET: Commodity Derivatives market trade contracts for which the underlying asset is commodity. It canbe agriculture commodity such as wheat, soybeans, rapeseed, cotton or precious

metal like gold and silver.

3.5) Commodity Market: A PerspectiveA market where commodities are traded is referred to as a commodity market. These commodities include bullion (gold, silver), non-ferrous (base) metals such ascopper, zinc, nickel, lead, aluminum, tin, energy (crude oil, natural gas, etc.), agricultural commodities such as Soya oil, palm oil, coffee, pepper, cashew, etc. Existence of a vibrant, active, and liquid commodity market is normally considered as a healthy sign of development of a countrys economy. Growth of a transparent commodity market is a sign of development of an economy. It is therefore important to have active commodity markets functioning in a country. Markets haveexisted for centuries worldwide for selling and buying of goods and services. T

he concept of market started with agricultural products and hence it is as old as the agricultural products or the business of farming itself. Traditionally, farmers used to bring their products to a central marketplace (called mandi / bazaar) in a town/village where grain merchants/ traders would also come and buy theproducts and transport, distribute and sell them to other markets.

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In a traditional market, agricultural products would be brought and kept in themarket and the potential buyers would come and see the quality of the products and negotiate with the farmers directly on the price that they would be willing to pay and the quantity that they would like to buy. Deals were struck once mutual agreement was reached on the price and the quantity to be bought/ sold. In traditional markets, shortage of a commodity in a given season would lead to increase in price for the commodity. On the other hand, oversupply of a commodity on e

ven a single day could result in decline in pricesometimes below the cost of production. Neither farmers nor merchants were happy with this situation since theycould not predict what the prices would be on a given day or in a given season.As a result, farmers often returned from the market with their products since they failed to fetch their expected price and since there were no storage facilities available close to the marketplace. It was in this context that farmers and food grain merchants in Chicago started negotiating for future supplies of grainsin exchange of cash at a mutually agreeable price. This type of agreement was acceptable to both parties since the farmer would know how much he would be paidfor his products, and the dealer would know his cost of procurement in advance.This effectively started the system of commodity market forward contracts, whichsubsequently led to futures market too.

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CHAPTER- 4 ELEMENTS OF COMMODITY MARKET

4.1. Cash MarketCash transaction results in immediate delivery of a commodity for a particular consideration between the buyer and the seller. A marketplace that facilitates cash transaction is referred to as the cash market and the transaction price is usually referred to as the cash price. Buyers and sellers meet face to face and de

als are struck. These are traditional markets. Example of a cash market is a mandi where food grains are sold in bulk. Farmers would bring their products to this market and merchants/traders would immediately purchase the products, and theysettle the deal in cash and take or give delivery immediately. Cash markets thus call for immediate delivery of commodities against actual payment.

4.2 Forwards and Futures MarketsIn this case, the agreements are normally made to receive the commodities at a later date in future for a pre-determined consideration based on agreed upon terms and conditions. Forwards and Futures reduce the risks by allowing the trader to decide a price today for goods to be delivered on a particular future date. Forwards and Futures markets allow delivery at some time in the future, unlike cas

h markets that call for immediate delivery. These advance sales help both buyersand sellers with long-term planning. Forward contracts laid the groundwork forfutures contracts. The main difference between these two contracts is the way inwhich they are negotiated.

For forward contracts, terms like quantity, quality, delivery date, and price are

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discussed in person between the buyer and the seller. Each contract is thus unique and not standardized since it takes into account the needs of a particular seller and a particular buyer only. On the other hand, in futures contracts, all terms (quantity, quality, and delivery date) are standardized. The transaction price is discovered through the interaction of supply and demand in a centralizedmarketplace or exchange. Forward contracts help in arranging long-term transactions between buyers and sellers but could not deal with the financial (credit) ri

sk that occurred with unforeseen price changes resulting from crop failures, inadequate storage or bottlenecks in transportation, factors beyond human control (floods, natural calamities, etc.), or other economic factors that may result inunexpected changes, and hence counterparty default risks for parties involved. This in turn led to the development of futures market. As mentioned above, sincefutures are standardized contracts that are traded through an exchange, they canbe used to minimize price risk by means of hedging techniques. Since the exchange standardizes the quality and quantity parameters and offers complete transparency by using risk management techniques (such as margining system with mark-to-market settlement on a real-time basis with daily settlement), the counterpartydefault risk has been greatly minimized. There are many commodity exchanges worldwide. They deal in many commodities. In India, there are 24 commodity derivativ

es exchanges, including three at the national level. Together, these exchanges deal in commodity futures for approximately 80+ commodities. It is interesting and also necessary to know more about the historical evolution of commodity markets, commodity exchanges and their operations globally as well as in India.

Forward&futurescontracts FORWARDCONTRACTS: 4.3)

In the Commodity market, there are two types of contracts.

market, usually between two financial institutions and a client. One of the parties

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A Forward contract is traded in the over the counter (OTC)


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assumes a long positionand agrees to buy the underlying asset on certain specified future date for a certain specified price. The other party assumes a short position and agrees to sell the asset on the same date for the same price. The price in a Forward contract is known as the delivery price.

FUTURECONTRACTS: 4.4) Future contracts have evolved out of forward contracts and are exchange-traded v

ersions of forward contracts. The futures contract, there is an agreement to buyor sell a specified quantity of financial instrument/ commodity is a designatedfuture month at a agreed price determine by both buyer & seller. The contractshave certain standardized specifications with the date and time expiry of the contract. The following table shows an example of a future contract specificationat NCDEX. 4.5)Contract:SoyaBean Future Contract Trading Sysvalue Tick Size Delivery unit Quantity version Quality Specification Specification NCDEX trading system Monday to Friday 10.00 am to 4.00 pm 10 quintal = 1 megatonne (MT) Rupees per quintal Rs. 0.05 100 quintal = 10 MT +/- 2% Moisture : Maximum 10 percent Sand/ silica : Maximum 2 percent Damaged : Maximum 2 percent Green seed : Maximum 7 percent Indore Three concurrent months contracts. Trading in any month will open on the 21st day of the month, three months prior to the co

ntract month, for e.g. a19

Delivery Centre Number of active contracts Opening of contracts


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Due date Closing of contract Price band

Position limits

December 2006 contract opens on 21st September 2006. 20th day of the delivery month. If 20th day happens to be a holiday then the due date is the previous working day. All open positions will be settled according to general and product spec

ific regulations. Limit 10 percent or as specified by an exchange from time to time. Limits will not apply if the limit reached during final 30 minutes of trading. MEMBER-WISE: Maximum Rs. 40 crores, 15 % of open interest. CLIENT WISE : Maximum Rs. 20 crores, 10 % of open interest.

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HISTORY/ BACKGROUND 5.1)

Global Scenario

It is widely believed that the futures trade first started about approximately 6,000 years ago in China with rice as the commodity. Futures trade first startedin Japan in the 17th century. In ancient Greece, Aristotle described the use of

call options by Thales of Miletus on the capacity of olive oil presses. The first organized futures market was the Osaka Rice Exchange, in 1730. Historically, organized trading in futures began in the US in the mid-19th century with maize contracts at the Chicago Board of Trade (CBOT) and a bit later, cotton contractsin New York. In the first few years of CBOT, weeks could go by without any transaction taking place and even the provision of a daily free lunch did not enticeexchange members to actually come to the exchange! Trade took off only in 1856,when new management decided that the mere provision of a trading floor was not sufficient and invested in the establishment of grades and standards as well as anation-wide price information system. CBOT preceded futures exchanges in Europe. In the 1840s, Chicago had become a commercial centre since it had good railroad and telegraph lines connecting it with the East. Around this same time, good a

griculture technologies were developed in the area, which led to higher wheat production. Midwest farmers, therefore, used to come to Chicago to sell their wheat to dealers who, in turn, transported it all over the country. Farmers usuallybrought their wheat to Chicago hoping to sell it at a good price. The city had very limited storage facilities and hence, the farmers were often left at the mercy of the dealers. The situation changed for the better in 1848 when a central marketplace was opened where farmers and dealers could meet to deal in "cash" grainthat is, to exchange cash for immediate delivery of wheat. Farmers (sellers) and dealers (buyers) slowly started entering into contract for forward exchanges of grain for cash at some particular future date so that farmers could avoid taking the trouble of transporting and storing wheat (at21


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very high costs) if the price was not acceptable. This system was suitable to farmers as well as dealers. The farmer knew how much he would be paid for his wheat, and the dealer knew his costs of procurement well in advance. Such forward contracts became common and were even used subsequently as collateral for bank loans. The contracts slowly got standardized on quantity and quality of commodities being traded. They also began to change hands before the delivery date. If the dealer decided he didn

t want the wheat, he would sell the contract to someone who

needed it. Also, if the farmer didn

t want to deliver his wheat, he could passon his contractual obligation to another farmer. The price of the contract wouldgo up and down depending on what was happening in the wheat market. If the weather was bad, supply of wheat would be less and the people who had contracted tosell wheat would hold on to more valuable contracts expecting to fetch better price; if the harvest was bigger than expected, the seller

s contract would becomeless valuable since the supply of wheat would be more. Slowly, even those individuals who had no intention of ever buying or selling wheat began trading in these contracts expecting to make some profits based on their knowledge of the situation in the market for wheat. They were called speculators. They hoped to buy (long position) contracts at low price and sell them at high price or sell (shortposition) the contracts in advance for high price and buy later at a low price.

This is how the futures market in commodities developed in the US. The hedgersbegan to efficiently transfer their market risk of holding physical commodity tothese speculators by trading in futures exchanges. A comparison of the derivatives markets, over last few years among various countries given rise to an interesting pattern. The exchanges of the developed markets have shown robust growth and maintain their leadership position since last 5 years; at the same time developing/ emerging markets exchanges have gained a position of eminence of strong growth trends. It is an evident from the presented in the tables below that Indian market has emerged forth strongly along with markets in Korea, Spain & Israel.TABLE- 1 TOP FIVE EXCHANGES22


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(BY NUMBER OF STOCK INDEX FUTURE CONTRACT TRADED) EXCHANGES Eurex NSE-India Osaka-SE Euronext.liffe Singapore Exchange No. of contracts traded in 2008* 371,504,525 141,261,516 90,965,674 76,525,955 45,256,382 No. of contracts traded in 2003155,988,661 10,557,224 13,231,287 56,898,050 8,609,973 % change 138.16 % 1238.08 % 587.50 % 34.50 % 425.63%

Source: World Federation Organization. * January to October 2008. TABLE- 2 TOP 5

EXCHANGES (BY NUMBER OF STOCK INDEX OPTION CONTRACT TRADED) EXCHANGES Korea Exchange Chicago Board Options Exchanges Eurex NSE-India Taifex No. of contracts traded in 2008* 2,011,059,741 435,860,762 371,155,699 89,099,694 77,154,336 No. ofcontracts traded in 2003 3 110,822,096 108,504,304 1,332,417 21,720,084 % change # 293.30 % 242.07 % 6587.07 % 255.22 %

Source: World Federation Organization. # = very large due to very small base. *= January to October 2008. TABLE- 3 TOP 5 EXCHANGES23


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(BY NUMBER OF SINGLE STOCK FUTURE CONTRACT TRADED) EXCHANGES No. of contracts traded in 2008* JSE 307,836,600 NSE INDIA 165,706,741 EUREX 121,656,741 EURONEXT.LIFFE 94,223,989 BME Spanish 35,301,142 Exchange No. of contracts traded in 20034,585,919 25,572,505 7,004,235 N.A 12,492,568 % change 6,612.65 % 547.99 % 1636.90 % N.A 182.58 %

Note: The 2003 data pertains to that of Euronext. TABLE- 4 TOP 5 EXCHANGES (BY N

UMBER OF SINGLE STOCK OPTIONS CONTRACT TRADED) EXCHANGES International Securities Exchanges Chicago Board Options Exchange Philadelphia SE EUREX Sao Paulo SE NSE India No. of contracts traded in 2008* 767,805,138 463,710,159 409,010,094 276,165,919 260,696,612 8,009,365 No. of contracts traded in 2003 220,988,837 173,033,965 89,458,901 188,239,823 175,622,679 5,607,990 % change 247.44 % 167.99 % 357.20 % 46.71 % 48.44 % 42.82 %

5.2)

Indian Scenario

History of trading in commodities in India dates back to several centuries. But

organized futures market in India emerged in 1875 when the Bombay Cotton24


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potential in case of economies like India, where more than 65% of the populationare dependent on agriculture. There is a huge domestic market for commodities in India since India consumes a major portion of its agricultural produce locally. Indian commodities market has an excellent growth potential and has created good opportunities for market players. India is the worlds leading producer of morethan 15 agricultural commodities and is also the worlds largest consumer of edible oils and gold. It has major markets in regions of urban conglomeration (citie

s and towns) and nearly 7,500+ Agricultural Produce Marketing Cooperative (APMC)mandis. To add to this, there is a network of over 27,000+ haats (rural bazaars) that are seasonal marketplaces of various commodities. These marketplaces playhost to a variety of commodities everyday. The commodity trade segment employsnearly five million plus traders. The potential of the sector has been well identified by the Central government and the state governments and they have invested substantial sources to boost production of agricultural commodities. Many of these commodities would be traded on the futures markets as food-processing industry grows at a phenomenal pace. The government also has recognized three national level commodity exchanges, which are trading in more than 85 commodities at present, and the list continues to expand. According to the experts in the commodities markets, global trends indicate that the volume in futures trading tends to

be 5-7 times the size of commodities

spot trading in the country (Internationally, the multiple for physical versus derivatives is much higher at 15 to 20 times). Many nationalized and private sector banks have announced plans to disbursesubstantial amounts to finance commodity-trading business. The Government of India has initiated several measures to stimulate active trading interest in commodities. Steps like lifting the ban on futures trading in commodities, approvingnew exchanges, developing exchanges with modern infrastructure and systems suchas online trading, and removing legal hurdles to attract more participants haveincreased the scope of commodities derivatives trading in India. This has boosted both the spot market and the futures market in India. The trading volumes areincreasing as the list of commodities traded on national commodity exchanges also continues to expand. The volumes are likely to surge further as a result of the increased interest from the international

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participants in Indian commodity markets. If these international participants are allowed to participate in commodity markets (like in case of capital markets),the growth in commodity futures can be expected to be phenomenal. It is expected that foreign institutional investors (FIIs), mutual funds, and banks may be able to participate in commodity derivatives markets in the near future. The launch of options trading on commodity futures is also expected after the amendmentsto the Forward Contract Regulation Act (1952). Commodity trading and commodity f

inancing are going to be a rapidly growing business in the coming years in India. With the liberalization of the Indian economy in 1991, the Commodity prices (especially International commodities such as base metals and energy) have been subject to price volatility in international markets, since India is largely a netimporter of such commodities. Commodity derivatives exchanges have been established with a view to minimize risks associated with such price volatility. It iswell known fact that derivatives are well traded in Indian market, as private contracts, long before of introduction of exchange traded contract. Being private contracts these contracts faced the usual problems associated with such contracts.The pathway for exchange-traded, cleared and settled derivatives contracts waslaid out with removal of prohibition of options on securities vide Securities laws (Amendments) Ordinance, 1995. Subsequently, SEBI set up a committee under the

chairmanship of L.C.Gupta to recommend the appropriate regulatory framework forderivative trading in India. The committee submitted its reporting October 1998giving operational details of managing system, methodology for charging initialmargins, broker net worth, deposit requirement, and real time monitoring requirement. In December, 1999, amendment of SCR(A) was notified , making way for derivatives trading in INDIA. In June, 2000, future contracts on Nifty & Sensex werelaunched, followed by Options contracts on nifty and Sensex (European Style), Options contracts on stocks (American style) and Future contracts on stocks on June, July and November 2001, respectively. The number of underlying stocks and indexes has increased over 10 years.

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In the Indian market the index option contracts are cash settled European styleoptions. Stock options are also cash settled American style Contracts. Interestrate derivatives are based on national 10 year bond and 91days T-bill. All exchange-traded equity derivative contracts are cash settled contracts. TABLE- 5 F& OContracts traded in NSE & BSE Financial year NSE-stocks 2001-02 12002-03 2003-04 2004-05 2005-06 2006-07 2007-08 31 41 53 52 117 155 265 NSEIndex(es) 1 1 2 2 33 7 BSE-Stocks 31 38 42 46 76 89 126 BSE-Index(es) 1 1 1 1 7 7 7

Source : NSE & BSE. Turnover in the derivative segments since inception is presented in the table below. During 2001-02, turnover on NSE was Rs. 101,925 croresand during 2007-08 it was Rs. 13,090, 478 crores. Likewise the turnover on BSE was Rs. 1,917 crores & during 2007-08 it was 242,308 crores. Turnover on BSE increased till 2004-05 but there was a noticeable decrease in turnover. The turnoveron BSE has started increasing since 2006-07.

TABLE- 6 Total derivatives since inception (Rs. in Crores) # Period NSE BSE28

Total


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2001-02 101,925 2002-03 439,865 2003-04 2,130,447 2004-05 2,547,053 2005-06 4,824,245 2006-07 7,356,271 2007-08 13,090,478 04/2008 to 5,963,894 09/2008 # excluding currency derivatives Source = NSE & BSE.

1,917 2,475 12,074 16,112 9 59,007 242,307 11,491

103, 842 442,340 2,142,521 2,563,165 4,824,254 7,415,278 13,332,786 5,975,385

total derivatives since inception30,000,000 Rs. in Crores 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 02002-03 2003-04 2004-05 2005-06 2006-07 2007-08 04/2008 to 09/2008 year Total 103, 842 BSE 1,917 101,925

At NSE, during the period April 2001 to September 2008, turnover was highest forthe month of October 2007, i.e. Rs. 1,833,633 crores At BSE, practically no trading took place in the period May, 2005 to January, 2006. However since Novemberhas started increasing. Over the given time period, maximum turnover was in themonth of October, 2007 (Rs. 23,985 crore).INDEX FUTURE No. of value of contracts (in contracts cr.) 1641779 34322 10557024

296736 23354782 813026 47375214 1233364 70286227 2330311 INDEX OPTION No. of value of contracts (in contracts cr.) 314478 6633 1332417 34940 2812109 99488 10140239 264612 18702248 638077

Calendar Year 2002 2003 2004 2005 2006

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2007 01/2008 to 09/2008

138794235

3381599

52707150

1284499

2002 2003 2004 2005 2006 2007 01/2008 to 09/2008

141261516 3164560 STOCK OPTION No. of value of contracts (in contracts cr.) 2773524 77279 5607990 194296 4874958 175332 5224485 177484 5214191 201146 9048495 348409 8009365 186147

89099694 2051669 SINGLE STOCK FUTURE No. of value of contracts (in contracts cr.) 8557332 227207 25573756 904968 44051780 1498892 68911754 2251384 100285737 3877131 179324970 6925970 165706741 3735830

Source: NSE Future on Interest rate priced off at zero-coupon yield curve was introduced in June 2003. Futures and options contract on sectoral Indexes were introduced in Indian derivative market in August 2003. This was followed by permission for introduction of future contracts on a basket of GoI securities in January 2004. However, this segment has seen very little activity. The introduction ofnew products based on the interim recommendation of this committee has resultedin market activity. For example, mini contracts and longer dated options have shown their specific segments of markets have specific interest.

CHAPTER-6

PROCESS / MECHANISM

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The commodity part in Investment is one of the major important part. In Equity we invest in a number of shares such as 100 or 1000 no. of equities, but in commodity the investment has been done in a lot size. For every commodity there is alot size has been specified. Like in gold there is three different types have been classified according to their size i.e. GOLD GUIENE (8 grams), GOLD MINI (100grams) & PURE GOLD (1 K.g.). If anyone wants to invest his or her money he hasto invest that amount in either 1 K.G. or 100 grams or 8 grams lot size. Today t

he lot price has been around Rs. 14557/ 100 gram. So if a person wants to investhis money in 1 K.G. gold he has to pay Rs. 1, 45,570. Investors can invest their money also in Nickel, Coffey, Zinc, Crude oil, Copper, Aluminum, Lead, Silver,Tin, Palm oil, Cashew etc. they also been traded here. But maximum trade has been done on GOLD. Because of its trustworthiness and just like share market it doesnt fluctuate every time. It gives a steady return which is very important for the investors. For investment purpose the investor has to open a commodity accountalong with an equity account. And they have to maintain certain % amount as margin money just like in case of gold 5% margin money has to maintain in their ownaccount. For example, Mr. Roy purchase 1 k.g. gold today @ Rs. 14577 per 100 gram. So the total amount has been traded is Rs. 145770, of which Rs. 7288.5 amount he has to keep in his own account every time. The price of the gold goes up &

down every time. But it does not effect that margin money. Suppose the gold price has been goes down by Rs. 14500 per 100 gram. So for 1 k.g. lot the price willbe Rs. 145000, which means the margin money should be 5% of that Rs. 145000. i.e. Rs.7250. But Mr. Roy has to keep the amount of Rs. 7288.5 as per rule.

6.1.) How to get the profit? Suppose the price goes up by Rs. 200, so the Changes for every Re. 1 , the profit should be multiple of 100 grams or 1 k.g. whatever the lot size.31


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For 100 grams profit will be Rs. (200 * 100) i.e. Rs. 20000. This amount has been added to customer account after deducting the brokerage. In the same way if the value goes down the margin money will remain same but no profit will be addedwith it. For online trading the company provides the customer a software name TRADE TIGER through which he can directly trade in a terminal. He can trade in offline also. But for every commodity account there should be an equity account exist. This is the way that the company trade. Brokerage charge is minimum 5 paise

for intraday trading & 50 paise on delivery.

CHAPTER-7

CURRENCY FEATURE

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HISTORY/ BACKGROUND: 7.1) The Evolution and Mechanics of Currency Futures: 7.2)

TheOrigin

The origin of futures can be traced back to 1851 when the Chicago Board of Trade(CBOT) introduced standardized forward contracts which were being traded in nonstandard bilateral form for the preceding three years. In comparison, the birth

of currency futures is of a recent origin and was a sequel to the breakdown of the Bretton Woods system. The resultant currency volatility provided a business opportunity for launching futures contracts in foreign currencies. The Chicago Mercantile Exchange (CME) first conceived the idea of a currency futures exchangeand it launched the same in 1972 amidst considerable skepticism, since traditionally futures market had traded agricultural commodities and not financial instruments. The CME commissioned Professor Milton Friedman to write a paper on currency futures in order to gain credibility in the market. Prof. Milton Friedman stated: Changes in the international financial structure will create a great expansion in the demand for foreign cover. It is highly desirable that this demand be met by as broad, as deep, as resilient a futures market in foreign currencies aspossible in order to facilitate foreign trade and investment. Such a wider marke

t is almost certain to develop in response to the demand. The major open question is where. The U.S. is a natural place and it is very much in the interests ofthe U.S. that it should develop here. The CBOT saw this as a competitive challenge, as also an opportunity to launch other financial futures and proposed tradingoptions and futures on stocks.

7.3)

TheBasic

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A futures contract is a standardized contract, traded on an exchange, to buy orsell a certain underlying asset or an instrument at a certain date in the future, at a specified price. Where the underlying asset happens to be a commodity, the futures contract is termed as commodity futures whereas in cases where the underlying happens to be a financial asset or instrument, the resultant futures contract is referred to as financial futures. A currency futures contract, also calledan FX future, is a type of financial futures contract where the underlying is an

exchange rate. In other words, it is a futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) thatis fixed on the last trading date. The buyer or seller in a futures market locksinto an exchange rate for a specific value date or delivery date. In other words, currency futures are used primarily as a price setting mechanism rather thanfor physical exchange of currencies. The future date is called the delivery dateor final settlement date. The pre-set price is termed as future price, while the price of the underlying asset on the delivery date is termed as the settlementprice. The future price normally converges towards the spot price on the settlement date. The futures contract gives the holder the right to buy or sell, in contrast to the option contract which gives the holder the right, but not the obligation to buy or sell the underlying. Thus, both the parties of the futures cont

ract must fulfill their contractual obligations on the settlement date. However,such contracts do provide options to deliver the underlying asset or settle thedifference in cash. The holder of a contract could exit from his commitment prior to the settlement date by either selling a long position or buying back a short position (offset or reverse trade). The futures contracts are exchange tradedderivatives and the exchanges clearing house acts as counterparty to all contracts, sets margin requirements, etc.

CHAPTER- 834


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TypesofFuturesMany types of futures contracts, mirroring the underlying assets Forex, bonds, interest rates, index, stocks, commodities, etc are available in exchanges. Whiletrading in commodities began in the 18th century, the contracts on financial instruments were introduced in the 70s.

8.1)Participants

Traditionally, the futures market meets the needs of the three distinct sets ofmarket users - those who wish to discover price information, those who wish to speculate and those who wish to hedge. Though speculation may not be a socially useful activity, the three types of users contribute to price discovery and hedging as well as add to liquidity. A speculator is a trader who enters the futuresmarket, with no initial risk in pursuit of profit, thereby accepting an increasein risk. A hedger is a trader with a preexisting risk who enters the futures market to reduce or eliminate his currency exposure. There is a category of speculators called scalpers who have an extremely short horizon view ranging from a few seconds to a few minutes. Since they are not looking for huge profits, they manage to generate a large volume of trades and contribute to increase in liquidity. Day traders take a far sighted approach to the market attempting to profit fr

om the price movements that may take place over the course of a trading day. Position trader maintains positions overnight, weeks or months.

8.2)PricingIn the foreign exchange market, every price or exchange rate is a relative price. Fundamental factors influence the exchange rates between two currencies. Interest rate parity theorem explains how the forward/ futures exchange rate is essentially determined on the cost of carry model. In addition in the long run the exchange rates are expected to follow Purchasing Power Parity (PPP). In the futures market, there are situations where the price of a currency for future deliverymay be higher than the spot price, which is known as contango and where the future price is lower than the spot price, the phenomenon is known as backwardation.

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Theoretically, if risk neutral speculators are available in sufficient numbers,their profit seeking activity will drive the futures price toward equality withthe expected future spot price. The same process is expected to occur in the forward segment of Forex markets. The linkages among interest rates, exchange rates, expected inflation rates emphasize the fundamental relationship between futures and forward prices on one hand and the expected future currency value on the other. The efficiency of Forex futures markets has been researched and found to b

e generally poor. The same also applies to the forward market. The existence ofpremium in forward or futures market exist due to several possible reasons suchas non-stationary risk premia, bias in regression coefficients arising from systematic error components due to nonrational response, microstructure and behavioral issues. Ideally in the futures market, the difference between the spot and future prices reflect the covered interest rate arbitrage, which fosters interestrates in the two relevant countries. However, imperfections in the market, regulatory restrictions, capital controls, etc, may prevent the arbitrage activity from operating efficiently. In such a scenario, futures price may reflect more ofa consensus forecast of prospective exchange rates rather than classical arbitrage pricing theory.

8.3)ClearingHouseThe margin system functions through a hierarchy of market participants that links the clearing house with the individual trader. The members of an exchange maybe classified as clearing members or non clearing members. A clearing member isa member of the exchange and the clearing house. The clearing house deals with clearing members only. Any non clearing member has to clear his transactions through a clearing member. The clearing house collects margin deposits from clearingmembers to cover all futures positions that are on account of the particular member. For e.g., if a bank is a member of the clearing house, it has to maintainmargins on account of all the trades executed though it. In turn the clearing member would insist on receiving margins from all traders whose trade handles andthus the margin requirements travel down the chain to brokers hand actual traders.

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The clearing house does not take any active positions on the exchange, but interposes itself between two parties to a trade. The number of contracts bought in afutures market must therefore be exactly equal to the number of contracts sold.Without the clearing house, it would have been difficult for two totally unknown parties separated geographically to trust each other and trade. Because of theclearing house, the two parties to the trade are only concerned with the financial soundness of the clearing house. The clearing house is invariably a large we

ll capitalized financial institution. In the history of futures, there has neverbeen a known failure of the clearing house. There are four identifiable tiers in the futures market the broker, the exchange and clearing house, a self regulatory body and the government agency. The KYC of the customer is the brokers responsibility. He is also responsible to the clearing house for all accounts handledby him directly or indirectly. Any restrictions on specific types of trades or limits on positions etc laid down for smooth functioning and free determination of price have to be implemented through brokers. A broker has a duty to report any violation or attempt at price manipulation to the exchange. A code of conductfor brokers framed by the exchange, regulator or a self regulatory agency is generally put in place. The futures exchange and the clearing house are themselvesself regulated entities. They prescribe and enforce rules for trading and cleari

ng on the exchange. Exchange rules inter alia prohibit fictitious trading, rumour mongering, disclosure of customer positions, false declarations and statements, etc. by members. Any attempt at price manipulation by pre-arranged trades is strictly forbidden. Brokers are also forbidden from a practice called front running where a broker trades on his own account to the detriment of the customer. Futures exchanges can also set daily price limits, position limits and margin requirements. These will be within the framework of any limits set by the higher level regulator. Often the various futures exchanges in a market form a self regulatory association. This helps promote just and equitable principles of trade, remove impediments to free and open futures trading and generally protect public interest. Such associations undertake the tasks of screening and testing applicants for membership, prescribe record keeping and disclosure standards, etc. The ultimate regulator is the one with powers derived from statute, e.g. the

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Commodity Futures Trading Commission (CFTC) in USA. The ultimate regulator can lay down rules relating to trading, daily permitted price fluctuations, rules fordelivery process, etc. It has powers to intervene by suspending trading if warranted by price manipulation. It can also prescribe competency standards for brokers, members, etc.

8.4)Margins

The credit risk in futures market is assumed by the exchange. In order to minimize the credit risk to the exchange, traders are required to post margins, typically in the range of 5 per cent 15 per cent of the contracts value. In some jurisdictions, different margin regimes are followed for hedgers and speculators. There are three types of margins initial margin, maintenance margin and the variation margin. The initial deposit called the initial margin is the amount a trader (buyer and seller), must deposit before trading in any futures. This normally isapproximately taken as the maximum daily price fluctuation permitted for the contract being traded. The initial margin can be kept so small because of the safeguard built into the system of daily mark to market. Whenever the position held on the exchange shows a loss on mark to market, the same is deducted from the margin deposited. When this drops below a threshold level called the maintenance ma

rgin, established by the exchange, a margin call is made on the trader to replenish the margin and the additional amount deposited is called the variation margin.

8.5)SettlementSettlement of futures contract can take place through physical delivery or cashSettlement. Under physical delivery, the amount specified of the underlying is delivered by the seller to the buyer. Physical delivery is common in commoditiesand bonds. Under the cash settlement system, a cash payment is made based on theunderlying reference rate at the time of expiry.

8.6)TheContractformatThe contract specifications are summarized below in tabular form:

Category Underlying 38 Description

Rate of exchange between one US


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Contract Size Contract Months Expiration Date and time Minimum Price fluctuationSettlement

Margins

dollar and INR USD 1000 12 near calendar months Last business day of the month 0.25 paisa or INR 0.0025 Cash settled in INR based on Reserve Bank reference rate

of expiry date As specified by the clearing corporation

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CHAPTER- 9

PROCESS/MECHANISMJust like commodities the calculation has been done in currency trading. The difference is lying between them is in commodity the trade has been done in cash orby using future option but in currency trading the trade has taken place in exc

hange of Euro, Dollar, Yen etc. The margin in currency trading is 5-5.2%. Todaydollar value is around equal to Rs. 47-48. This means if tomorrow this value goes up, FII will come in, dollar value automatically goes up, the GDP will grow up.

9.1)ContractdesignThe Group pondered as to whether the contract design should be left to the exchanges or the regulator should pre-specify the availability of uniform contracts across various exchanges. It was concluded that while attracting liquidity through product innovation is a feature of the competitive markets, in the initial phase, a standardized product across various exchanges (in terms of contract size,final settlement dates, settlement procedure of contracts, tenors of contracts,

etc) would invite greater participation and add to the liquidity of futures markets.

9.2)SizeofthecontractThe Group acknowledged that since the currency futures segment is meant to provide non-institutional market participants a means to hedge their currency exposures in a transparent and price-efficient manner, the size of the currency futurescontract may not be unduly large. Large institutional and corporate customers are able to manage beneficial rates even in the OTC segment. The price discoveryfunction of the exchanges is significant for the individuals and SMEs. Further,price discovery should be such that the individuals and SMEs40


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are able to trade on the same prices as are available to the large customers. Ifthe price discovery is done for a large size lot, the individuals and SMEs maynot be able to capture the fineness of that rate for their small-sized lots. This is the bane of the OTC markets. Hence, it is important that the contract sizebe kept at such a level that it facilitates price discovery as well as trading,particularly for retail segment of the market. The retail focus of the contractshould not in any manner disenchant the institutional clients since in the era o

f electronic trading, the cost efficiency is not compromised at all even if multiple contracts have to be purchased. A single contract would also ensure that market frictions are avoided, which could occur in case of multiple contracts. Hence, the Group recommends that a single contract of notional value USD 1,000 maybe introduced.

9.3)TenorsofcontractsThere is likely to be adequate interest in currency futures contracts beyond thefirst three months as is the case with the OTC forwards contract. Moreover, certain segments of the market expressed a desire for introduction of contracts with maturity of two years and beyond as currently such currency exposures cannot be hedged in the OTC market. The Group debated extensively on the issue and felt

that while certain segments of the market may stand to benefit through introduction of long tenor currency futures contract, the liquidity in such contracts inthe absence of an underlying OTC market of corresponding tenor is by no means assured. The Group recommends that, initially, the tenors of the contract may largely replicate the tenors of the currency forwards and to this end, the currencyfutures maturing in the first 12 calendar months may be offered.

9.4)SettlementofcontractsAs has been argued, a section of the participants in the currency futures segment may not have underlying currency exposures at all while a few participants mayhave economic exposures to exchange rate movements. In the absence of underlying flows, settlement based on delivery may impede participation from such segments of the market. While delivery based settlement provide tight cash derivatives

linkage, given the complications that delivery based settlement entail, and thefact that Indian Rupee is not fully convertible on capital account, the Group recommends that in the initial phase,41


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settlement only on cash basis, based on spot Reserve Bank reference rate on theexpiry date, may be permitted. Cash settlement would also ensure convergence between regulations in respect of OTC markets and currency futures market, since cancellation of a forward contract on the date of maturity is akin to cash settlement.

9.5)SettlementCycle

Certain sections of the market participants felt that the settlement cycle of the currency futures contract should be co-terminus with the settlement of month end forward contracts. They argued that settlement at the month-end would enableSMEs and individuals to benchmark the prices available in the futures market with the OTC prices. The experiences of the equity markets also suggest that settlement cycle of similar underlying across various exchanges eventually converge. However, FEDAI and some large banks opined that separating the maturity of forward contracts and currency futures contracts may be better for effective management of liquidity. The Group felt that the futures contracts settling in the mid month may allow the banks to transfer/ seek exposure on the futures segment. Aftertaking into account the market feedback on the draft proposals, and the expertviews of the TAC, the Group recommends that the futures settlement cycle may be

co-terminus with the settlement of month end forward contracts.

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CHAPTER-10

10.1)EligibleParticipantsThe Group agreed that the requirement of an underlying exposure to trade in OTCforeign exchange market is very difficult to implement in an exchangetraded regime. The international experience in this regard also supports the Group

s views.Currently, resident individuals are allowed to hedge their underlying or antici

pated exposures up to USD 100,000 in the OTC market without going through complex documentation formalities. Similarly, the SMEs which have direct and indirectexposure to foreign exchange have also been provided flexibility in hedging their exposures without going through the rigors of complex documentation formalities. All other categories of residents in India are permitted to access the OTC markets only if they have an underlying exposure or under the past performance window. As to whether any exposure limit need to be placed on the residents, the participation of residents in currency futures even in countries with capital controls, as is the case with India, has been generally unconstrained. Moreover, residents in the Indian context represent an amorphous group day traders with limited capital and virtually no underlying exposure to foreign exchange to multinational corporate, relatively unconstrained by margin requirements and with fairly s

izeable balance sheet foreign exchange exposures. We may also take note of the fact that in major markets and increasingly in certain emerging markets, management of foreign exchange rate risk in respect of cash flow, balance sheet and economic exposures through forwards and futures involve a dynamic combination of hedging, unhedged and speculative positions with a motive to either reduce hedgingcost or gain from exchange rate movements, within a proper risk management framework. This approach needs to be adopted/facilitated in India as well, if the real sector in India are to be able to face competition both at home and abroad vis--vis their competitors overseas. In view of the foregoing, the Group recommendsthat no quantitative restrictions may be imposed on residents to trade in currency futures. This is likely to ensure greater liquidity and wider participation and43


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would be in line with usual policy where liberalization is done first for residents. As regards non residents, the participation may be permitted in a gradual and phased manner. The Group is of the view that at the inception, the participation in the futures market may be restricted to residents alone in the interest of financial stability. This is suggested purely from the perspective of evaluating the robustness of various systems such as surveillance, monitoring, reporting, etc. Once it is established that the systems are working properly, the partici

pation of Foreign Institutional Investors (FIIs) and Non Resident Indians (NRIs), as hedgers, may be considered. Currently, in the OTC market, FIIs have been permitted to hedge their underlying exposures with flexibility for canceling and rebooking only up to 2 per cent of the underlying exposure. This stipulation cannot be replicated in the exchange format. However, it may be noted that allowingthe FIIs, without any limits, in the futures market would mark a quantum leap for FIIs since effectively they would be able to dynamically hedge (freely canceland rebook contracts) their entire portfolios, something that they are not permitted to do in OTC segment. This could possibly result in increase in volatilityin the foreign exchange market but at the same time enhance liquidity in the currency futures market. Keeping in mind the current stipulation of participation of FIIs in OTC markets, the Group recommends that once the currency futures marke

t systems established, including execution procedures, risk management frameworkand surveillance mechanism, FIIs may be allowed as hedgers with suitable position limits on their exposures in the futures market. In order to ensure adherenceto the limits stipulated, the FII trades in currency futures may only be routedthrough the designated Authorized Dealers. Currently, the NRIs are allowed to hedge their exposures to the extent of their underlying exposures. Further, balances in the NRO account are repatriable up to USD 1 million per financial year. The Group, therefore, proposes that in line with the stipulation for FIIs, afterestablishing the effective functioning of all systems, the NRIs may be allowed to hedge their exposures in the futures market with suitable position limits. Thetransactions by the NRIs may also be routed through the designated AD banks. Given the current regulations in the OTC market, the categories excluded from thefutures market, in the initial stages, are not being disadvantaged.

10.2)UniqueIdentificationNumber44


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dollar.19 At this point investors at that point are starting to look to alternatives to dollar based stock, bond, and mutual funds markets. Gold has long been regarded by investors as good protection against depreciation in a currency

s value, both internally (i.e. against inflation) and externally (against other currencies). In the latter case, gold is widely considered to be a particularly effective hedge against fluctuations in the US dollar, the world

s main trading currency.20 Historically the correlation between US dollar and gold has been moderate.2

1 This means that gold is an effective regarding USD risks. Since the dissolution of the Bretton Woods system, the value of the US dollar has fluctuated againstthe price of gold. The reason why dollar couldnt be tied to gold any longer wassimply due to the U.S. dollars overvaluation against the fixed price of gold. U.S. president Nixon had no other choice but to abandon the Bretton Woodss system.The dollar was now free. The cost of the Vietnamese War, increased inflation andled to the overvaluation of U.S. dollar as a base currency. This is also indicated in the following graph, which shows a declining dollar until the early 1980sas gold moves in the opposite direction.

During the mid 1980s the US economy had overcome high inflation and dollar against gold was strong. On Black Monday in 1987 the dollar fell and gold prices gain

ed momentum. The price of gold stayed strong against the dollar with small ups and downs till 1998 Asian stock crisis, whereas South-Korea sells 300 tons of gold against dollar in order to mitigate a foreign exchange rate crisis.23 The value of the dollar then strengthened against the price of gold. In 2003, the priceof gold started to move up in respect to the dollar. The confidence in the US economy floundered after the announcement regarding a record high trade deficit. Since then the dollar has been in constant decline against gold. Gold is not onlya potent hedge against risk attached to the US dollar compared with other commodities, but also provides protection when46


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most needed i.e. when the dollar is losing value, with relatively little loss upside during periods of USD appreciation.

StockandgoldrelationshipInvestors like to have different kinds of comparisons. One of this is the relationship between stock price and gold price. As the graph Long Term Dow/ Gold Ratio shows gold price and stock price have historically had a solid inverse price c

orrelation. The first peak for Dow Jones to gold price 18.4 ensued in a ratio before the Great Depression in 1929 in the USA. Although the price of gold was fixed to $20.67 per ounce at that time, the analysis of the graph shows that uncertainty and crisis situations tend to appreciate the value of gold against stock values. The ratio dropped in 3 years to a low of 2.0, while stocks were still recovering from the Great Depression. Shortly after, the fixed gold price was pegged to $35 per Oz. The cyclical ratio climbs upwards to the peak of Dow in 1966 with a ratio of 27.9 and starts to fall after the re-opening of the London Gold Market in 1968, which meant that gold prices were no more fixed. The ratio drops to a long time low of 3.1 as a result of the stock marker crisis between 1973 and1974 and gold prices jump from the 1973 average of $97 to the 1974 average of $158, which was due to increasing oil prices, world -wide double digit inflation

and the stock crisis. By 1976, gold is making price corrections and stocks adjust to their usual path. The largest gap between stock and gold prices occur in 1980, when gold hits its record price of 875 against the US dollar. After gold price outbursts and after inflation is under control people start believing in stocks again. The ratio did a short upset in 1987, during Black Monday on the stockmarket. The ratio is 3.6 at that moment. From 1987 till 2000 and 2001, the ratioclimbed up till its peak of 43.2, when the dot-com bubble burst and the 2001 events of September 11th. The ratio then started its downfall pattern again

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. To conclude, according to the relationship between gold prices and stocks as presented in this thesis, during the times of uncertainty in the stock market, gold prices rise, the reason being that investors start to look for alternatives.

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CHAPTER-11 Research&methodoloThe research has been developed on the basis of the survey. Research is something which gives at the end of the day the analyzed and a concrete result of the report. Concrete means some research which is supported by some authentic proof. In this report we produce a survey which is a questionnaire prepared by the company itself, developed on the basis of responsiveness of the clients towards the commodity & currency segments. Basically a research consists with primary data &

secondary data. In this report survey was the primary data, while the encryptedformat of those primary data to the excel sheets was the secondary data. To determine the positive/negative responsiveness of the customer we did a survey in combine. We had been provided a questionnaire format which includes various segment or option where the customer has an opportunity to invest where he had alreadyinvest their money or looking for investment.

PRIMARYDATA:A Primary data usually been collected on the basis of conducted survey. It is the raw form of the research. As it is a research oriented survey, so the primarydata should be mentioned while the report is writing. On the basis of those primary data we will get a collective result, that could be analyzed. In the questio

nnaire format we set up some reasonable queries about customer responsiveness towards the newest segment of commodity. 1. 2. 3. 4. 5. 6. If he/she is a Sharekhan customer or not? If yes, is it online or offline account? In which segment does he trade with Sharekhan? Is he/she is aware about the trading product offer bySharekhan or not? Is he /she interested about commodity & currency? what is thetime that they prefer to take the appointments?49


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So, the customer response to this survey we saw that they were not aware about these upcoming segments. Their general awareness about Equity cash or Equity Future & Option is very high while about commodity & currency their knowledge base is very poor. It came in figure when we put them into numerical. The questionnaire which was provided to us for survey purpose, is given below:Questionnaireforastudyon Responsivenessofclientstothenewestsegment Commodity&rading

a)AreyouaClientofSharekhan? Ans.1)Yes Willthinklater 2)No 3)ThinkingAbo

b)Ifyes,thenOnlineorOfflinewithCustomerID/ClientCode? Ans. c)InwhichSegmentyAns. 1)EquityCash Commodity 4)Currency 2)EquityF&O 3)

d)Areyouawareaboutthefollowingtradingproductsofferedby Sharekhan? Ans. 1)Equit 2)EquityF&O 3)Commodity

e)Whichofthesegmentsyouknoworawareof? Ans. 1)EquityCash Commodity 4)Currenc

f)Whichofthesegmentsyouwouldliketoknowabout?

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Ans. 1)EquityCash Commodity 4)Currency

2)EquityF&O

3)

g)AreyouinterestedtotradeinCommodityorCurrencyFutures? Ans. 1)Yes 2)No 4)WgAboutit

h)Whatwillbeyourconvenienttimetomeet? Ans. 1)Morning(1012AM) 2)Afternoon

3)Evening(0406PM)

SEONDARYDATA:Secondary data means when those primary data has been put in a encrypted format

so that those data can be framed in Excel sheet. In excel sheet we can do some graphical presentation to obtain the percentage of population aware about EquityCash or Equity Future & Option or commodity or currency. We put them in Excel sheet from word document. The secondary data has been provided in a table format given below.Name : Affiliation : Email ID : Tel/Mobile No : Location of Training : Branch :Sl. No. Name Clien t/No n Clien t On lin e/ Off lin e Client Code Existin g Segmen t Aware ness of Tradin g Produ cts Aware ness of segme nts Furthe r segme ntinteres t Interest on Commo dity/Cur rency Futures Appoi ntment Given Remar ks

1 2 3

Purabi Chakraborty Ms. Anjum Ara Anindita Majumdar

no yes no

no On lin e no

n.a. IN300513 17212876 na

Equity Cash Equity cash n.a.

Equity Cash Equity cash n.a.

Equity cash Equity cash Equity cash

curren cy Equity cash Equity cash

no no no

After 6 p.m. After 6 p.m. After 6 p.m.

n.i n.i n.i

51


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4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Tridib kumar Bala A. Alam Sumita Kedia Ajay kr. Agarwal Joydeep Ghosh Sankar Pramanik Mithali Roy Chowdhury Jollybasu Ghosh Indra Deo Garg Runa Roychoudhury Amit Kumar Sampa Baruah Achintya Bain Subrata Mukherjee Atanu Paul Shivtosh Nath Saket Agarwal Monoj Kr. Sharma Santanu Chatterjee Kunal Basu Samir kr. Basu

yes yes yes yes yes yes yes yes no yes yes yes yes no yes yes yes yes no no no

yes 297998 yes n.a yes 45135 yes 505530 yes n.a yes n.a no no no n.a n.a n.a

Equity cash Equity cash commo dity Equity cash Equity cash Equity cash Equity cash Equity cash n.a. Equity cash Equity cash Equity cash Equity cash n.a Equity F&O Equity cash Equity cash commo dity n.a n.a n.a

Equity Cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash n.a Equity cash Equity cash Equity cash Equity cash n.a Equity F&O Equity cash Equity cash comm odity Equity cash Equity cash Equity cash

Equity cash Equity cash comm odity Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity F&O Equity cash Equity cash comm odity Equity cash Equity cash Equity cash

comm odity Equity cash Equity cash comm odity comm odity comm odity Comm odity comm odity curren cy comm odity comm odity comm odity Equity cash Equity cash Equity F&O comm odity Equity F&O comm odity comm odity Equity cash Equity F&O

no no no no no no no no no no no yes no no no no no yes no no no

yes n.a yes 51617 yes 185466 yes 365333 no n.a

yes n.a yes n.a yes 141223 yes n.a no no no n.a. n.a. n.a.

After 6 p.m After 12-04 p.m. After 6 p.m. After 12-04 p.m. After 6 p.m. After 12-04 p.m. After 6 p.m. After 6 p.m. After 12-04 p.m. After 6 p.m. After 12-04 p.mAfter 6 p.m. After 12-04 p.m. After 6 p.m. After 6 p.m. After 12-04 p.m. After6 p.m. After 6 p.m. After 12-04 p.m. After 12-04 p.m. After 12-04

n.i n.i n.i n.i n.i n.i. n.i n.i n.i. n.i n.i. n.i n.i n.i n.i n.i n.i i n.i n.in.i.

52


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25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46

Rama Batra Kantra Tewari Amit Sengupta J. Mitra Satadal Saha Mahendra ChowdhuryAnimesh Nashkar Gopi Krishna Rathi Sanjib Kr. Singh Sudipta Mitra N.K. Nandi Kalyan kr. Ghosh Om Prakash Chamaria Ajit kr. Singh Debasish Mallick Debasish Chatterjee Harendra nath Sarkar Vinod Saha Ajit Pandey Swarup Biswas Manindranath BagDebdas Khanna

no no no no no no no no no yes no no no yes yes yes no no no no no No

no no no no no no no no no no no no no no no no no no no no no No

na n.a. n.a. na na na n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a n.a. n.a. n.a. n.a.n.a. n.a. n.a Na

n.a n.a n.a n.a n.a n.a Equity cash n.a n.a Equity cash n.a. n.a n.a Equity cashEquity cash Equity cash n.a n.a n.a. n.a n.a n.a 53

Equity cash Equity F&O Equity cash Equity cash Equity cash Equity cash Equity ca

sh Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity

Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity F&O Equity cash Equity

Equity F&O Equity F&O Equity F&O Equity cash Equity F&O Equity F&O Equity F&O Equity F&O comm odity comm odity comm odity comm odity Equity cash comm odity commodity comm odity Equity F&O Equity F&O comm odity comm odity Equity F&O Comm

no no no no no no no no yes yes no no no no no no no no no no no No

p.m. After 6 p.m. After 6 p.m After 6 p.m. After 6 p.m. After 6 p.m. After 12-04p.m. After 6 p.m. After 6 p.m. After 6 p.m. After 6 p.m. After 6 p.m. After 6 p.m. After 12-04 p.m. After 6 p.m. After 6 p.m. After 12-04 p.m. After 12-04 p.m.After 6 p.m. After 12-04 p.m. After 12-04 p.m. After 04-06 p.m. 4-6

n.i n.i n.i n.i n.i n.i. n.i n.i. I I n.i n.i n.i n.i n.i n.i n.i n.i n.i n.i n.i NI


54/71

47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71

Nasiruddin Ansari Aniruddha Bhattacharya Ramesh Ch. Sharma Tapan kr. Banerjee Kalyani Panda Uma shankar Agarwal Puspa Agarwal Mira Beriwal Rabi Kiran Bala Ram Chandra singh Goutam Biswas Dipak Mukherjee Goutam Mukherjee Bhaskar Sengupta Asit Baran Chatterjee Sanjay Sarkar Tapan Bhattacharya Tapan Chatterjee Sadhan Patra Maitri Sen Naba kr Shaw Tapti Mondal Gopi kishan Rathi Surendra Das Sagarmal A

garwal

Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na




cash Equtiy cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash

Na Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash 54

cash Equity cash Equity cash Equity cash Equity cash Equity F&O Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cashEquity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash

odity Equity F&O Comm odity Equity F&O Equity F&O Comm odtiy Equity cash Equitycash Equity cash Comm odity Equity F&O Comm odity Curren cy Comm odity Equity cash Equity F&o Equity cash Equity F&O Equity F&O Equity F&O Equity F&O Comm odityEquity cash Equity cash Comm odity Comm odity

No No No No No No No No No No No No No No No No No No No No No No No No No

12-4 12-4 10-12 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 12-4 4-6 4-6 4-6 4-6 4-64-6 4-6 4-6 4-6 4-6 4-6

NI NI NI NI NI Ni NI NI Ni NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI


55/71

72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97

Surjit Chandra Deb kr Mukherjee R.L. Das Aparna Bhattacharya Asit Samanta Subhasis Chatterjee Barunava choudhury Kalyan Dutta Roy Basudeb Adak Amitabh Guha Bijoy dutta Ray Pranab Mukherjee Mohindra singh Subhabrata dutta Uma kant sharma Radha shyam Agarwal Jyoti ranjan Banik Ram kishor Gupta Deori nandan Agarwal Subhojit Roychudhury Kamal Sarkar Kripa nath Das Mrityunjoy Das Sushil kanti Paul Subh

asis Paul Swapan kr. Das

Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na



Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na 55

Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equi

ty cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cashEquity cash Equity cash Equity cash Equity cash Equity cash Equity

Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cashEquity cash Equity cash Equity cash Equity cash Equity cash Equity

Equity F&O Comm odtiy Equity F&O Equity F&O Comm odity Equity F&O Comm odity Comm odity Comm odity Equity F&O Equity F&O Equity F&O Comm odity Equity F&O Comm odity Equity F&O Curren cy Comm odity Comm odity Equity F&O Comm odity Equity F&OEquity F&O Comm odity Equity F&O Comm

No No No No No No No No No No No NO No No NO No No No No NO No No No No No No

4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-64-6 4-6 4-6 4-6 4-6 4-6

NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI


56/71

98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122

Mrityunjoy Ghosh Sahadeb Majhi Debabarata Bhattacharya Chanchal Sarkar Vinod Shah Bharat Jaiswal Pradip Kapoor Sriram Bajoria M.K. Markand Swapan Biswas DinkarBetai Chandan Bhattacharya Ashok Chakraborty Prosit Ghosh Ajit Pandey Subhas Mukherjee Tapan Kr. Basu

Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na


Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na Na na Na Na

Na Na Na Na Na Na Na Na Na NA Na Na Na Na Na Na Na Na Na Na Na Na Equity cash Equity cash Na

Subhas Agarwal Na Pravin Agarwal Ram niwas Agarwal Asadullah Sisir kr. BanerjeeAnita saha Chandrajit Saha Pankaj Tebriwala Na Na Na Na Yes Yes Na

cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cashEquity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equitycash Equity cash Equity cash Equity cash Equity cash Equity cash

cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity F&O Equity cash Equity cash Equity cash Equity cashEquity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity F&O

odity Equity F&O Comm odity Equity F&O Comm odity Curren cy Equity F&O Comm odity Comm odity Comm odity Comm odity Equity F&O Comm odity Equity cash Comm odity

Equity F&O Comm odity Equity F&O Comm odity Equity F&O Comm odity Comm odity Comm odity Equity F&O Equity F&O Comm odity

No No No No No No No No No No No No No No No Na Na No No No No No No No No

4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-6 4-64-6 4-6 10-12 4-6 10-12

NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI NI

56


57/71

123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142143 145 146 147 148 149

Kanika Dutta Sahana Ali Manju Devi Singhania Mina Guha Arobindo Sen Sant KaskarVikas Prasad Parasramka Hansha Goenka Rina Chakraborty Suman Jana Surinder KumarBabu Paul Sangita Chaudhury Mukesh Damani Montu Dutta Soumya Shankar Mitra Prodyot Ranjan

Yes Yes Na Na Na Na Na Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes



Equity cash Equity cash Na Na Na Na Na Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Na Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equitycash Na 57

Equity cash Equity cash Equity cash Equity cash Equity cash Na Na Equity cash Equity F&O Equity cash Equity cash Equity cash Equity cash Equity F&O Equity F&O Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity cash Equity F&O Equity

Srotaswati Na Panda Kusum Agarwal Yes Shiv shankar Agarwal Rupak Roy Ashraful Islam Aditi Barh Tapas Banerjee Yes Yes Yes Yes Yes

Ramprit

18630183 summer training project report print out

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