23281602 derivative market india

7/24/2019 23281602 Derivative Market India

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G H A Z I A B A D

INSTITUTE OF TECHNOLOGY AND SCIENCE,

MOHAN NAGAR, GHAZIABAD

SUMMER INTERNSHIP PROJECT REPORT

ON TITLE

DERIVATIVE MARKET- INDIA

BY

MUKTA DHEER

Enrollment No : PG2K8 181E mail id muktadheer88@gmail!om

IL&FS INVESTSMARTSECURITIES LIMITED(A g!"# $!%#' !) HSBC*

1


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I INDIA"# $INAN%IA& '(&)IP&E* I

A +EP,+)

ON

DERIVATIVE MARKET+

A #!. /"0%1..2 1' $!%#3. )"3)133%'. !) .4 5"1%'./ !) PGDM #!g%

!) INSTITUTE OF TECHNOLOGY AND SCIENCE GHAZIABAD

SUBMITTED TO6

PROF7 PRIYA

FACULTY

I7T7S GHAZIABAD

RAHUL KUMAR AGAR8AL

ASMIL&FS INVESTSMART SECURITIES LIMITED

E MAIL RAHULAGAR8AL94/0$171'

2
http://www.investsmartindia.com/


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ACKNO8LEDGEMENT

)he -eatitude. -li// and eu0horia that a!!om0an the /u!!e//ul !om0letion o an ta/k

3ould not -e !om0lete 3ithout the e40re//ion o a00re!iation o /im0le 5irtue/ to the

0eo0le 3ho made it 0o//i-le

)he inal 0ro6e!t re0ort i/ /u-mitted to in/titute o te!hnolog and /!ien!e. Gha7ia-ad

or 0artial ulilment o di0loma. 0o/t graduate di0loma in management PGD'9

)hi/ 0ro6e!t i/ an attem0t to /tud DE+I;A)I;E 'A+KE)$# IN;E#)#'A+) #E%(+I)IE# &)DH#B% Grou09 I 3ould like to thank/ to the 'anagement o I&>$# IN;E#)#'A+) #E%(+I)IE#

&)D H#B% Grou09 or gi5ing me the o00ortunit to do m t3o


4/78

MUKTA DHEER

DECLARATION

I do here- de!lare that the 0ro6e!t re0ort i/ /u-mitted a/ 0artial ulilment o the

reCuirement o PGD' Program o IN#)I)()E ,$ )E%HN,&,G AND #%IEN%E.

GHAZIABAD

)he Pro6e!t ha/ -een done under the guidan!e o 'r +AH(& K('A+ AGA+A?A&.

in +a6 nagar -ran!h .Gha7ia-ad and P+,$ P+IA $a!ult guide. IN#)I)()E ,$

)E%HN,&,G AND #%IEN%E. Gha7ia-ad

No 0art o thi/ re0ort ha/ not -een 0u-li/hed or /u-mitted el/e3here or the ulilment o

an degree or di0loma or an in/titute or uni5er/it

MUKTA DHEER


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E:ECUTIVE SUMMARY

Ne3 idea/ and inno5ation/ ha5e al3a/ -een the hallmark o 0rogre// made - mankind

At e5er /tage o de5elo0ment. there ha5e -een t3o !ore a!tor/ that dri5e/ man to idea/

and inno5ation )he/e are in!rea/ing return/ and redu!ing ri/k. in all a!et/ o lie

)he inan!ial market/ are no dierent )he endea5our ha/ al3a/ -een to ma4imi7e

return/ and minimi7e ri/k A lot o inno5ation goe/ into de5elo0ing inan!ial 0rodu!t/

!entred on the/e t3o a!tor/ It ha/ /0a3ned a 3hole ne3 area !alled inan!ial

engineering

Deri5ati5e/ are among the oreront o the inno5ation/ in the inan!ial market/ and aim to

in!rea/e return/ and redu!e ri/k )he 0ro5ide an outlet or in5e/tor/ to 0rote!t

them/el5e/ rom the 5agarie/ o the inan!ial market/ )he/e in/trument/ ha5e -een 5er

0o0ular 3ith in5e/tor/ all o5er the 3orld

Indian inan!ial market/ ha5e -een on the a/!en/ion and !at!hing u0 3ith glo-al

/tandard/ in inan!ial market/ )he ad5ent o /!reen -a/ed trading. demateriali7ation.

rolling /ettlement ha5e 0ut our market/ on 0ar 3ith international market/

A/ a logi!al /te0 to the a-o5e 0rogre//. deri5ati5e trading 3a/ introdu!ed in the !ountr

in une 2 #tarting 3ith inde4 uture/. 3e ha5e made ra0id /tride/ and ha5e our t0e/

o deri5ati5e 0rodu!t/< Inde4 uture. inde4 o0tion. /to!k uture and /to!k o0tion/ )oda.

F


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there are /to!k/ on 3hi!h one !an ha5e uture/ and o0tion/. a0art rom the inde4

uture/ and o0tion/

)hi/ market 0re/ent/ a tremendou/ o00ortunit or indi5idual in5e/tor/ )he market/

ha5e 0erormed /moothl o5er the la/t t3o ear/ and ha/ /ta-ili7ed )he time i/ ri0e or

in5e/tor/ to make ull u/e o the ad5antage oered - thi/ market

?e ha5e tried to 0re/ent in a lu!id and /im0le manner. the deri5ati5e/ market. /o that the

indi5idual in5e/tor i/ edu!ated and eCui00ed to -e!ome a dominant 0laer in the market

CONTENTS

PAGE NO

INTRODUCTION TO PROJECT ;

COMPANY PROFILE

NATIONAL E:CHANGES

RESEARCH OBJECTIVE $# in5e/t/mart limited II&9 through it/ /u-/idiarie/ in India

and #inga0ore 0ro5ide a 3ide range o in5e/tment 0rodu!t/ to it/ retail and in/titutional

!lient in!luding eCuit -roking in5e/tment -anking. in/uran!e -roking and di/tri-ution.

mutual und di/tri-ution and related inan!ial /er5i!e/

II&"/ 2 em0loee/ 0ro5ide a !om0lete range o in5e/tment /olution to o5er

18 !u/tomer/ in India through it/ 88 -ran!he/ and 1J ran!hi/ed outlet/ rom 1

!itie/ %om0an i/ ha5ing a market !a0itali7ation o a00ro4imatel (# 2 million

In5e/t/mart i/ li/ted on the national /to!k e4!hange N#E9 and the Bom-a /to!k

8


9/78

e4!hange B#E9 and it/ glo-al de0o/itor /hare are li/ted on the &(*E'B(+G #),%K

E*%HANGE

At II#&. 3e -elie5e in L+eali7ing our goal/ togetherL ou 3ill ind in u/ < a tru/ted

in5e/tment 0artner to hel0 ou 3ork to3ard/ a!hie5ing our inan!ial goal/ ,ur

in/titutional e40erti/e. !om-ined 3ith a thorough under/tanding o the inan!ial market/

re/ult/ in a00ro0riate in5e/tment /olution/ or ou

,ur /trong team o all our in5e/tment need/ through a oi!e near ou All ou need

to do i/ dro0 in at the neare/t -ran!h or !all u/ and 3e"ll -e ha00 to do the re/tM

In5e/t/mart re!ogni7ed a/ National +elation/hi0 'anager/. %u/tomer #er5i!e

E4e!uti5e/. Ad5i/or 'anager/ and +e/ear!h Anal/t/. oer/ ei!ient e4e!ution -a!ked

- in


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M1//1!'

)o e/ta-li/h a -a/e o 1 million /ati/ied !u/tomer - 21 ?e 3ill !reate thi/ -

-eing a re/0on/i-le tru/t3orth 0artner

C!#!. $.1!'

An a00roa!h to -u/ine// that rele!t/ re/0on/i-ilit. tran/0aren! and ethi!al

-eha5iour +e/0e!t or em0loee !lient and /take holder grou0

PROMOTER OF THE COMPANY

I&>$# In5e/t/mart /e!uritie/ &imited II#&9 i/ one o India"/ leading !om0anie/ in the

$inan!ial #er5i!e/ indu/tr It 3a/ 0romoted in 1JJ - Inra/tru!ture &ea/ing > $inan!ial

#er5i!e/ I&>$#9. one o India/ leading inra/tru!ture de5elo0ment and inan!e !om0anie/

)he !om0an i/ no3 held - H#B%. one o the 3orld"/ large/t -anking and inan!ial /er5i!e/

organi7ation/

In India. )he H#B% Grou0 oer/ a range o inan!ial /er5i!e/ in!luding !or0orate.

!ommer!ial. retail and 0ri5ate -anking. in/uran!e. a//et management. in5e/tment -anking.

eCuitie/ and !a0ital market/. in/titutional -rokerage. !u/todial /er5i!e/ It al/o 0ro5ide/ /ot3are

de5elo0ment e40erti/e and glo-al /er5i!e/ a!ilitie/ or the H#B% Grou0"/ o0eration/

3orld3ide

HSBC ACUIRED ?7


11/78

H#B% ha/ !om0leted the a!Cui/ition o J8 O o I&>$# in5e/t/mart limited

in5e/t/mart9 A leading retail -rokerage in India or a total !on/ideration o IN+ 111 !rore

a00ro4 (# 2J million9

#and lo!khart Grou0 managing dire!tor and %E, o H#B% A/ia 0a!ii! /aid in5e/t/mart

gi5e/ H#B% a!!e// to the 3orld"/ third$# and tho/e that tendered /hare/ through the o0en

oer re!ei5ed IN+2 0er /hare or their In5e/t/mart /hare/ In addition. I&>$# 3a/

0aid. a/ 0art o a three0er /hare to the 0u-li! /hareholder/ 3ho tendered their /hare/ )hi/ amounted to IN+1

!rore a00ro4imatel (#2 million9

Naina &al Kid3ai. Grou0 General 'anager and %hie E4e!uti5e ,i!er. H#B% in India.

added: LIn5e/t/mart i/ a great addition to our !urrent o0eration/. 3hi!h alread !on/titute

the /e!ond large/t oreign -anking net3ork in India ?e look or3ard to 3orking 3ith

In5e/t/mart/ management team and gro3ing thi/ -u/ine//L

H#B% 3a/ ad5i/ed on the a!Cui/ition - the in5e/tment -anking di5i/ion o H#B%

Glo-al Banking and 'arket/ )he H#B% Grou0 in India i/ re0re/ented - /e5eral entitie/

in!luding )he H!'g@!'g '2 S4'g41 B'@1'g C!#!.1!' L1%1.23hi!h oer/ a

11


12/78

ull range o -anking and inan!ial/er5i!e/ to it/ o5er 28 million !u/tomer/ in India

through it/ -ran!he/ and 1 A)'/a!ro// 2 !itie/ H#B% i/ one o India/ leading

inan!ial /er5i!e/ grou0/. 3ith o5er . em0loee/ in it/ -anking. in5e/tment -anking

and !a0ital market/. a//et management. in/uran!e -roking. t3o glo-al I) de5elo0ment

!entre/ and /i4 glo-al re/our!ing o0eration/ in the !ountr )he Bank i/ the ounding and

a 0rin!i0al mem-er o the H#B% Grou0 3hi!h. 3ith o5er J.F oi!e/ in 8F !ountrie/

and territorie/ and a//et/ o (#2.F -illion at une 28. i/ one o the 3orld/

large/t -anking and inan!ial /er5i!e/ organi7ation/

In #e0tem-er 28. H#B% #e!uritie/ > %a0ital 'arket/ H#%I9 and H#B% ;ioletIn5e/tment/ 'auritiu/9 had a!Cuired 2JFO and 8FO /take/ held - I&>$# and E

)rade in I&>$# In5e/t/mart Po/t the /take a!Cui/ition. H#%I"/ total holding in I&>$#

In5e/t/mart in!rea/ed to F1O. taking the total /take held - H#B% and H#%I together

in the !om0an to J8O

H#B% #e!uritie/ > !a0ital market/ India9 0ri5ate limited .J22.F1 F1 O

H#B% ;iolet in5e/tment 'auritiu/9 limited .2F.J2 8F O

,ther/ .28.8 1 O

T!.3


13/78

%urrentl H#B% grou0 i/ ha5ing J8O o /hare in I&>$# in5e/t/mart /e!uritie/ limited

H#B% /e!uritie/ and !a0ital market/ INDIA9 0ri5ate limited ha/ F1O H#B% 5iolet

in5e/tment maturitie/9 limited ha/ 8FO in in5e/t/mart No3 the !om0an i/ running under

the management o H#B% grou0

1


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?7 INTRODUCTION TO DERIVATIVESDERIVATIVES

)he origin o deri5ati5e/ !an -e tra!ed -a!k to the need o armer/ to 0rote!t them/el5e/

again/t lu!tuation/ in the 0ri!e o their !ro0 $rom the time it 3a/ /o3n to the time it

3a/ read or har5e/t. armer/ 3ould a!e 0ri!e un!ertaint )hrough the u/e o /im0le

deri5ati5e 0rodu!t/. it 3a/ 0o//i-le or the armer to 0artiall or ull tran/er 0ri!e ri/k/

- lo!king


15/78

)oda deri5ati5e/ !ontra!t/ e4i/t on 5ariet o !ommoditie/ /u!h a/ !orn. 0e00er.

!otton. 3heat. /il5er et! Be/ide/ !ommoditie/. deri5ati5e/ !ontra!t/ al/o e4i/t on a lot o

inan!ial underling like /to!k/. intere/t rate. e4!hange rate. et!

?7>DERIVATIVES DEFINED

A deri5ati5e i/ a 0rodu!t 3ho/e 5alue i/ deri5ed rom the 5alue o one or more

underling 5aria-le/ or a//et/ in a !ontra!tual manner )he underling a//et !an -e

eCuit. ore4. !ommodit or an other a//et In our earlier di/!u//ion. 3e /a3 that 3heat

armer/ ma 3i/h to /ell their har5e/t at a uture date to eliminate the ri/k o !hange in

0ri!e - that date #u!h a tran/a!tion i/ an e4am0le o a deri5ati5e )he 0ri!e o thi/

deri5ati5e i/ dri5en - the /0ot 0ri!e o 3heat 3hi!h i/ the underling= in thi/ !a/e

)he $or3ard/ %ontra!t/ +egulation9 A!t. 1JF2. regulate/ the or3ardRuture/

!ontra!t/ in !ommoditie/ all o5er India A/ 0er thi/ the $or3ard 'arket/ %ommi//ion

$'%9 !ontinue/ to ha5e 6uri/di!tion o5er !ommodit uture/ !ontra!t/ Ho3e5er 3hen

deri5ati5e/ trading in /e!uritie/ 3a/ introdu!ed in 21. the term /e!urit= in the

#e!uritie/ %ontra!t/ +egulation9 A!t. 1JF #%+A9. 3a/ amended to in!lude deri5ati5e

!ontra!t/ in /e!uritie/ %on/eCuentl. regulation o deri5ati5e/ !ame under the 0ur5ie3 o

#e!uritie/ E4!hange Board o India #EBI9 ?e thu/ ha5e /e0arate regulator authoritie/

or /e!uritie/ and !ommodit deri5ati5e market/

Deri5ati5e/ are /e!uritie/ under the #%+A and hen!e the trading o deri5ati5e/ i/

go5erned - the regulator rame3ork under the #%+A )he #e!uritie/ %ontra!t/

+egulation9 A!t. 1JF deine/ deri5ati5e= to in!lude Deri5ati5e/

?7 N2 )! 21=.1=/ 1' I'21 .!2

In le// than three de!ade/ o their !oming into 5ogue. deri5ati5e/ market/ ha5e -e!ome

the mo/t im0ortant market/ in the 3orld )oda. deri5ati5e/ ha5e -e!ome 0art and 0ar!el

o the da


32/78

84. .4/ %.4/ 041'2 21=.1=/

Deri5ati5e/ in!rea/e /0e!ulation and do not /er5e an e!onomi! 0ur0o/e

Indian 'arket i/ not read or deri5ati5e trading

Di/a/ter/ 0ro5e that deri5ati5e/ are 5er ri/k and highl le5eraged in/trument/

Deri5ati5e/ are !om0le4 and e4oti! in/trument/ that Indian in5e/tor/ 3ill ind

dii!ult in under/tanding

I/ the e4i/ting !a0ital market /aer than Deri5ati5e/X

D1=.1=/ 1'$/ /#$"3.1!' '2 2! '!. /= ' $!'!%1$ #"#!/

Numerou/ /tudie/ o deri5ati5e/ a!ti5it ha5e led to a -road !on/en/u/. -oth in the

0ri5ate and 0u-li! /e!tor/ that deri5ati5e/ 0ro5ide numerou/ and /u-/tantial -eneit/ to

the u/er/ Deri5ati5e/ are a lo3

their e40o/ure/ to intere/t rate/. !ommodit

Pri!e/ or e4!hange rate/ )he need or deri5ati5e/ a/ hedging tool 3a/ elt ir/t in

the !ommoditie/ market Agri!ultural uture/ and o0tion/ hel0ed armer/ and 0ro!e//or/

hedge again/t !ommodit 0ri!e ri/k Ater the allout o Bretton 3ood agreement. the

inan!ial market/ in the 3orld /tarted undergoing radi!al !hange/ )hi/ 0eriod i/ marked

- remarka-le inno5ation/ in the inan!ial market/ /u!h a/ introdu!tion o loating rate/

or the !urren!ie/. in!rea/ed trading in 5ariet o deri5ati5e/ in/trument/. on


33/78

B 0ro5iding in5e/tor/ and i//uer/ 3ith a 3ider arra o tool/ or managing ri/k/

and rai/ing !a0ital. deri5ati5e/ im0ro5e the allo!ation o !redit and the /haring o ri/k in

the glo-al e!onom. lo3ering the !o/t o !a0ital ormation and /timulating e!onomi!

gro3th No3 that 3orld market/ or trade and inan!e ha5e -e!ome more integrated.

deri5ati5e/ ha5e /trengthened the/e im0ortant linkage/ -et3een glo-al market/

in!rea/ing market liCuidit and ei!ien! and a!ilitating the lo3 o trade and inan!e


34/78

I'21' M@. 1/ '!. 2 )! 21=.1= .21'g

,ten the argument 0ut orth again/t deri5ati5e/ trading i/ that the Indian !a0ital market

i/ not read or deri5ati5e/ trading Here. 3e look into the 0re

!rore/

High &iCuidit in the

underling

)he dail a5erage traded 5olume in Indian !a0ital market

toda i/ around F !rore/ ?hi!h mean/ on an a5erage

e5er month 1O o the !ountr"/ 'arket !a0itali/ation

get/ traded )he/e are !lear indi!ator/ o high liCuidit in

the underling

)rade guarantee )he ir/t !learing !or0oration guaranteeing trade/ ha/

-e!ome ull un!tional rom ul 1JJ in the orm o

National #e!uritie/ %learing %or0oration N#%%&9

N#%%& i/ re/0on/i-le or guaranteeing all o0en 0o/ition/

on the National #to!k E4!hange N#E9 or 3hi!h it doe/

the !learing

A #trong De0o/itor National #e!uritie/ De0o/itorie/ &imited N#D&9 3hi!h

/tarted un!tioning in the ear 1JJ ha/ re5olutionali/ed

the /e!urit /ettlement in our !ountr

A Good legal guardian In the In/titution o #EBI #e!uritie/ and E4!hange Board

o India9 toda the Indian !a0ital market en6o/ a /trong.

inde0endent. and inno5ati5e legal guardian 3ho i/ hel0ing

the market to e5ol5e to a healthier 0la!e or trade 0ra!ti!e/


35/78

84. @1'2 !) #!#3 133 "/ 21=.1=/

Deri5ati5e/ 3ill ind u/e or the ollo3ing /et o 0eo0le:

S #0e!ulator/: Peo0le 3ho -u or /ell in the market to make 0roit/ $or e4am0le. i ou

3ill the /to!k 0ri!e o +elian!e i/ e40e!ted to go u0to +/ in 1 month. one !an -u a 1

month uture o +elian!e at +/ F and make 0roit/

S Hedger/: Peo0le 3ho -u or /ell to minimi7e their lo//e/ $or e4am0le. an im0orter ha/

to 0a (# to -u good/ and ru0ee i/ e40e!ted to all to +/ F R rom +/ 8R. then the

im0orter !an minimi7e hi/ lo//e/ - -uing a !urren! uture at +/ JR

S Ar-itrageur/: Peo0le 3ho -u or /ell to make mone on 0ri!e dierential/ in dierent

market/ $or e4am0le. a uture/ 0ri!e i/ /im0l the !urrent 0ri!e 0lu/ the intere/t !o/t I

there i/ an !hange in the intere/t. it 0re/ent/ an ar-itrage o00ortunit ?e 3ill e4amine

thi/ in detail 3hen 3e look at uture/ in a /e0arate !ha0ter Ba/i!all. e5er in5e/tor

a//ume/ one or more o the a-o5e role/ and deri5ati5e/ are a 5er good o0tion or him

?7< C!%#1/!' !) N S/.% 1.4 E1/.1'g S/.%

'an 0eo0le and -roker/ in India think that the ne3 //tem o $uture/ > ,0tion/ and

-anning o Badla i/ di/ad5antageou/ and introdu!ed earl. -ut I eel that thi/ ne3 //tem

i/ 5er u/eul e/0e!iall to retail in5e/tor/ It in!rea/e/ the no o o0tion/ in5e/tor/ or

in5e/tment In a!t it /hould ha5e -een introdu!ed mu!h -eore and N#E had a00ro5ed it

-ut 3a/ not a!ti5e -e!au/e o 0oliti!i7ation in #EBI

T4 )1g" ?7? ?7?2/ho3/ ho3 ad5antage/ o ne3 //tem im0lemented rom une

219 5R/ the old //tem ie -eore une 21

Ne3 #/tem ;/ E4i/ting #/tem or 'arket Plaer/

F


36/78

F1g" ?7?

#0e!ulator/

E4i/ting ##)E' Ne3

A00roa!h Peril >Pri7e A00roa!h Peril >Pri7e

19 Deli5er -a/ed 19 Both 0roit > 19Bu >#ell /to!k/ 19'a4imum

)rading. margin lo// to e4tent o on deli5er -a/i/ lo// 0o//i-le

trading> !arr 0ri!e !hange 29 Bu %all >Put to 0remium

or3ard tran/a!tion/ - 0aing 0aid

29 Bu Inde4 $uture/ 0remium

hold till e40ir


37/78

Ad5antage/

Greater &e5erage a/ to 0a onl the 0remium

Greater 5ariet o /trike 0ri!e o0tion/ at a gi5en time

F1g" ?7?0

Ar-itrageur/

E4i/ting ##)E' Ne3


19 Buing #to!k/ in 19 'ake mone 19 B Grou0 more 19 +i/k ree

one and /elling in 3hi!he5er 3a the 0romi/ing a/ /till game

another e4!hange 'arket mo5e/ in 3eekl /ettlement

or3ard tran/a!tion/ 29 %a/h >%arr

29 I $uture %ontra!t ar-itrage !ontinue/

more or le// than $air 0ri!e

$air Pri!e %a/h Pri!e T %o/t o %arr


38/78

F1g" ?7?$

Hedger/

E4i/ting ##)E' Ne3


19 Dii!ult to 19 No &e5erage 19$i4 0ri!e toda to -u 19 Additional

oload holding a5aila-le ri/k latter - 0aing 0remium !o/t i/ onl

during ad5er/e re3ard de0endant 29$or &ong. -u A)' Put 0remium

market !ondition/ on market 0ri!e/ ,0tion I market goe/ u0.

a/ !ir!uit ilter/ long 0o/ition -eneit el/e

limit to !urtail lo//e/ e4er!i/e the o0tion

9#ell dee0 ,)' !all o0tion

3ith underling /hare/. earn

0remium T 0roit 3ith in!rea/e 0r!ie

A2='.g/

A5aila-ilit o &e5erage

8


39/78

F1g" ?7?2

#mall In5e/tor/

E4i/ting ##)E' Ne3


19 I Bulli/h -u 19 Plain BuR#ell 19 Bu %allRPut o0tion/ 19 Do3n/ide

/to!k/ el/e /ell it im0lie/ unlimited -a/ed on market outlook remain/

0roitRlo// 29 Hedge 0o/ition i 0rote!ted >

holding underling u0/ide

/to!k unlimited

A2='.g/

&o//e/ Prote!ted

E$4'g-.22 =/7 OTC 21=.1=/ %@./

)he ,)% deri5ati5e/ market/ ha5e 3itne//ed rather /har0 gro3th o5er the la/t e3 ear/.3hi!h ha/ a!!om0anied the moderni7ation o !ommer!ial and in5e/tment -anking and

glo-ali/ation o inan!ial a!ti5itie/ )he re!ent de5elo0ment/ in inormation te!hnolog

ha5e !ontri-uted to a great e4tent to the/e de5elo0ment/ ?hile -oth e4!hange


40/78

,)% deri5ati5e 0o/ition/ 3ere the main !au/e o tur-ulen!e in inan!ial market/ in 1JJ8

)he/e e0i/ode/ o tur-ulen!e re5ealed the ri/k/ 0o/ed to market /ta-ilit originating in

eature/ o ,)% deri5ati5e in/trument/ and market/

)he ,)% deri5ati5e/ market/ ha5e the ollo3ing eature/ !om0ared to e4!hange


41/78

?hen a//et 0ri!e/ !hange ra0idl. the /i7e and !oniguration o !ounter


42/78

Pri!e/ are generall determined - market or!e/ In a market. !on/umer/ ha5e Qdemand"

and 0rodu!er/ or /u00lier/ ha5e Q/u00l". and the !olle!ti5e intera!tion o demand and

/u00l in the market determine/ the 0ri!e )he/e a!tor/ are !on/tantl intera!ting in the

market !au/ing !hange/ in the 0ri!e o5er a /hort 0eriod o time #u!h !hange/ in the 0ri!e

are kno3n a/ Q0ri!e 5olatilit" )hi/ ha/ three a!tor/: the /0eed o 0ri!e !hange/. the

reCuen! o 0ri!e !hange/ and the magnitude o 0ri!e !hange/

)he !hange/ in demand and /u00l inluen!ing a!tor/ !ulminate in market ad6u/tment/

through 0ri!e !hange/ )he/e 0ri!e !hange/ e40o/e indi5idual/. 0rodu!ing irm/ and

go5ernment/ to /ignii!ant ri/k/ )he -reak do3n o the BRETTON 8OODSagreement

-rought and end to the /ta-ili/ing role o i4ed e4!hange rate/ and the gold !on5erti-ilit

o the dollar/ )he glo-ali/ation o the market/ and ra0id indu/triali/ation o man

underde5elo0ed !ountrie/ -rought a ne3 /!ale and dimen/ion to the market/ Nation/ that

3ere 0oor /uddenl -e!ame a ma6or /our!e o /u00l o good/ )he 'e4i!an !ri/i/ in the

/outh ea/t


43/78

o-tain -etter Cualit good/ at a lo3er !o/t It ha/ al/o e40o/ed the modern -u/ine// to

/ignii!ant ri/k/ and. in man !a/e/. led to !ut 0roit margin/

In Indian !onte4t. /outh Ea/t A/ian !urren!ie/ !ri/i/ o 1JJ had ae!ted the

!om0etiti5ene// o our 0rodu!t/ 5i/


44/78

D7 ADVANCES IN FINANCIAL THEORIES

Ad5an!e/ in inan!ial theorie/ ga5e -irth to deri5ati5e/ Initiall or3ard !ontra!t/ in it/

traditional orm. 3a/ the onl hedging tool a5aila-le ,0tion 0ri!ing model/ de5elo0ed

- B3$@ '2 S$4!3/in 1J 3ere u/ed to determine 0ri!e/ o !all and 0ut o0tion/ In

late 1J"/. 3ork o &e3i/ Edeington e4tended the earl 3ork o ohn/on and /tarted the

hedging o inan!ial 0ri!e ri/k/ 3ith inan!ial uture/ )he 3ork o e!onomi! theori/t/

ga5e ri/e to ne3 0rodu!t/ or ri/k management 3hi!h led to the gro3th o deri5ati5e/ in

inan!ial market/

)he a-o5e a!tor/ in !om-ination o lot man a!tor/ led to gro3th o deri5ati5e/

in/trument/

?7> BENEFITS OF DERIVATIVES

Deri5ati5e market/ hel0 in5e/tor/ in man dierent 3a/:

>7 RISK MANAGEMENT

$uture/ and o0tion/ !ontra!t !an -e u/ed or altering the ri/k o in5e/ting in /0ot market

$or in/tan!e. !on/ider an in5e/tor 3ho o3n/ an a//et He 3ill al3a/ -e 3orried that the

0ri!e ma all -eore he !an /ell the a//et He !an 0rote!t him/el - /elling a uture/

!ontra!t. or - -uing a Put o0tion I the /0ot 0ri!e all/. the /hort hedger/ 3ill gain in

the uture/ market. a/ ou 3ill /ee later )hi/ 3ill hel0 o/et their lo//e/ in the /0ot

market #imilarl. i the /0ot 0ri!e all/ -elo3 the e4er!i/e 0ri!e. the 0ut o0tion !an

al3a/ -e e4er!i/ed

7 PRICE DISCOVERY

Pri!e di/!o5er reer/ to the market/ a-ilit to determine true eCuili-rium 0ri!e/ $uture/

0ri!e/ are -elie5ed to !ontain inormation a-out uture /0ot 0ri!e/ and hel0 in

di//eminating /u!h inormation A/ 3e ha5e /een. uture/ market/ 0ro5ide a lo3 !o/t

trading me!hani/m )hu/ inormation 0ertaining to /u00l and demand ea/il 0er!olate/

into /u!h market/ A!!urate 0ri!e/ are e//ential or en/uring the !orre!t allo!ation o

re/our!e/ in a ree market e!onom ,0tion/ market/ 0ro5ide inormation a-out the

5olatilit or ri/k o the underling a//et

?7 OPERATIONAL ADVANTAGES


45/78

A/ o00o/ed to /0ot market/. deri5ati5e/ market/ in5ol5e lo3er tran/a!tion !o/t/

#e!ondl. the oer greater liCuidit &arge /0ot tran/a!tion/ !an oten lead to /ignii!ant

0ri!e !hange/ Ho3e5er. uture/ market/ tend to -e more liCuid than /0ot market/.

-e!au/e herein ou !an take large 0o/ition/ - de0o/iting relati5el /mall margin/

%on/eCuentl. a large 0o/ition in deri5ati5e/ market/ i/ relati5el ea/ier to take and ha/

le// o a 0ri!e im0a!t a/ o00o/ed to a tran/a!tion o the /ame magnitude in the /0ot

market $inall. it i/ ea/ier to take a /hort 0o/ition in deri5ati5e/ market/ than it i/ to /ell

/hort in /0ot market/

7 MARKET EFFICIENCY

)he a5aila-ilit o deri5ati5e/ make/ market/ more ei!ientU /0ot. uture/ and o0tion/

market/ are ine4tri!a-l linked #in!e it i/ ea/ier and !hea0er to trade in deri5ati5e/. it i/

0o//i-le to e40loit ar-itrage o00ortunitie/ Cui!kl and to kee0 0ri!e/ in alignment Hen!e

the/e market/ hel0 to en/ure that 0ri!e/ rele!t true 5alue/

7 EASE OF SPECULATION

Deri5ati5e market/ 0ro5ide /0e!ulator/ 3ith a !hea0er alternati5e to engaging in /0ot

tran/a!tion/ Al/o. the amount o !a0ital reCuired to take a !om0ara-le 0o/ition i/ le// in

thi/ !a/e )hi/ i/ im0ortant -e!au/e a!ilitation o /0e!ulation i/ !riti!al or en/uring reeand air market/ #0e!ulator/ al3a/ take !al!ulated ri/k/ A /0e!ulator 3ill a!!e0t a

le5el o ri/k onl i he i/ !on5in!ed that the a//o!iated e40e!ted return i/ !ommen/urate

3ith the ri/k that he i/ taking

T4 21=.1= %@. #)!%/ '"%0 !) $!'!%1$ )"'$.1!'/

)he 0ri!e/ o deri5ati5e/ !on5erge 3ith the 0ri!e/ o the underling at the

e40iration o deri5ati5e !ontra!t )hu/ deri5ati5e/ hel0 in di/!o5er o uture a/

3ell a/ !urrent 0ri!e/

An im0ortant in!idental -eneit that lo3/ rom deri5ati5e/ trading i/ that it a!t/

a/ a !atal/t or ne3 entre0reneurial a!ti5it

F


46/78

Deri5ati5e/ market/ hel0 in!rea/e /a5ing/ and in5e/tment in the long run

)ran/er o ri/k ena-le/ market 0arti!i0ant/ to e40and their 5olume o a!ti5it


47/78

7> DEVELOPMENT OF DERIVATIVES MARKET IN INDIA

)he ir/t /te0 to3ard/ introdu!tion o deri5ati5e/ trading in India 3a/ the 0romulgation o

the #e!uritie/ &a3/ Amendment9 ,rdinan!e. 1JJF. 3hi!h 3ithdre3 the 0rohi-ition on

o0tion/ in /e!uritie/ )he market or deri5ati5e/. ho3e5er. did not take o. a/ there 3a/

no regulator rame3ork to go5ern trading o deri5ati5e/ #EBI /et u0 a 2mem-er

!ommittee under the %hairman/hi0 o Dr&%Gu0ta on No5em-er 18. 1JJ to de5elo0

a00ro0riate regulator rame3ork or deri5ati5e/ trading in India )he !ommittee

/u-mitted it/ re0ort on 'ar!h 1. 1JJ8 0re/!ri-ing ne!e//ar 0re!ondition/ or

introdu!tion o deri5ati5e/ trading in India )he !ommittee re!ommended that deri5ati5e/

/hould -e de!lared a/ Q/e!uritie/" /o that regulator rame3ork a00li!a-le to trading o

Q/e!uritie/" !ould al/o go5ern trading o /e!uritie/ #EBI al/o /et u0 a grou0 in une 1JJ8

under the %hairman/hi0 o Pro+;arma. to re!ommend mea/ure/ or ri/k !ontainment

in deri5ati5e/ market in India )he re0ort. 3hi!h 3a/ /u-mitted in ,!to-er 1JJ8. 3orked

out the o0erational detail/ o margining //tem. methodolog or !harging initial

margin/. -roker net 3orth. de0o/it reCuirement and realtime monitoring reCuirement/

)he #e!uritie/ %ontra!t +egulation A!t SCRA9 3a/ amended in De!em-er 1JJJ toin!lude deri5ati5e/ 3ithin the am-it o Q/e!uritie/" and the regulator rame3ork 3ere

de5elo0ed or go5erning deri5ati5e/ trading )he a!t al/o made it !lear that deri5ati5e/

/hall -e legal and 5alid onl i /u!h !ontra!t/ are traded on a re!ogni7ed /to!k e4!hange.

thu/ 0re!luding ,)% deri5ati5e/ )he go5ernment al/o re/!inded in 'ar!h 2. the

three de!ade old notii!ation. 3hi!h 0rohi-ited or3ard trading in /e!uritie/ Deri5ati5e/

trading !ommen!ed in India in une 2 ater #EBI granted the inal a00ro5al to thi/

ee!t in 'a 21 #EBI 0ermitted the deri5ati5e /egment/ o t3o /to!k e4!hange/.

N#E and B#E. and their !learing hou/eR!or0oration to !ommen!e trading and /ettlement

in a00ro5ed deri5ati5e/ !ontra!t/ )o -egin 3ith. #EBI a00ro5ed trading in inde4 uture/

!ontra!t/ -a/ed on #>P %N* Nit and B#E #en/e9 inde4 )hi/ 3a/ ollo3ed -

a00ro5al or trading in o0tion/ -a/ed on the/e t3o inde4e/ and o0tion/ on indi5idual

/e!uritie/


48/78

)he trading in B#E #en/e4 o0tion/ !ommen!ed on une . 21 and the trading in

o0tion/ on indi5idual /e!uritie/ !ommen!ed in ul 21 $uture/ !ontra!t/ on indi5idual

/to!k/ 3ere laun!hed in No5em-er 21 )he deri5ati5e/ trading on N#E !ommen!ed

3ith #>P %N* Nit Inde4 uture/ on une 12. 2 )he trading in inde4 o0tion/

!ommen!ed on une . 21 and trading in o0tion/ on indi5idual /e!uritie/ !ommen!ed

on ul 2. 21 #ingle /to!k uture/ 3ere laun!hed on No5em-er J. 21 )he inde4

uture/ and o0tion/ !ontra!t on N#E are -a/ed on #>P %N* )rading and /ettlement in

deri5ati5e !ontra!t/ i/ done in a!!ordan!e 3ith the rule/. -ela3/. and regulation/ o the

re/0e!ti5e e4!hange/ and their !learing hou/eR!or0oration dul a00ro5ed - #EBI and

notiied in the oi!ial ga7ette $oreign In/titutional In5e/tor/ $II/9 are 0ermitted to trade

in all E4!hange traded deri5ati5e 0rodu!t/

)he ollo3ing are /ome o-/er5ation/ -a/ed on the trading /tati/ti!/ 0ro5ided in the N#E

re0ort on the uture/ and o0tion/ $>,9:

S #ingle,/egment It !on/tituted 0er !ent o the total turno5er during une 22 A 0rimar

rea/on attri-uted to thi/ 0henomenon i/ that trader/ are !omorta-le 3ith /ingle


49/78

22 to 12 in une )he all in !all


50/78

)hi/ 0eriod ha/ al/o 3itne//ed /e5eral rela4ation/ in regulation/ relating to ore4

market/ and al/o greater li-erali/ation in !a0ital a!!ount regulation/ leading to

greater integration 3ith the glo-al e!onom

%a/h /ettled e4!hange traded !urren! uture/ ha5e made oreign !urren! a

/e0arate a//et !la// that !an -e traded 3ithout an underling need or e40o/ure a n d

on a le5eraged -a/i/ on the re!ogni7ed /to!k e4!hange/ 3ith !redit ri/k/ -eing

a//umed - the !entral !ounter0art

#in!e the !ommen!ement o trading o !urren! uture/ in all the three e4!hange/.

the 5alue o the trade/ ha/ gone u0 /teadil rom +/ 1. 2J !rore/ in ,!to-er 28

to +/ F. 8 !rore/ in De!em-er 28 )he a5erage dail turno5er in all the

e4!hange/ ha/ al/o in!rea/ed rom +/81 !rore/ to +/ 2.181 !rore/ during the /ame

0eriod )he turno5er in the !urren! uture/ market i/ in line 3ith the international

/!enario. 3here I under/tand the /hare o uture/ market range/ -et3een 2 0er

!ent

T03 7 >[email protected]$.1=1.(

A#13-

M

A#13-

M;

A#13;-

M holding a//et/ 1

2


63/78

Y ou 0arti!i0ate in deri5ati5e market a/

P.1$1#.1!' / N!7 !) R/"3.

in5e/tor 2

#0e!ulator 2

BrokerRDealer 8

Hedger 1


64/78

Y $rom 3here ou 0reer to take ad5i!e -eore in5e/ting in deri5ati5e marketX

A2=1$ F!% N!7 !) R/"3.

Brokerage hou/e/ 1F

+e/ear!h anal/t

?e-/ite/ 2

Ne3/ Net3ork/ 2

,ther/

Y In 3hi!h o the ollo3ing 3ould ou like to 0arti!i0ateX

P.1$1#. 1' N!7 !) R/"3.

#to!k inde4 uture/ 19

#to!k inde4 ,0tion/ 13


65/78

$uture on indi5idual /to!k 6

%urren! uture/ 9

,0tion/ on indi5idual /to!k 3

Y ?hat !ontra!t maturit 0eriod 3ould intere/t ou or trading inX

F


66/78

Y Ho3 oten do ou in5e/t in deri5ati5e marketX

Y ?hat 3a/ the re/ult o our in5e/tmentX


67/78

Result of

investment

No.of

result

Great results 4Moderate but

acceptable 24

Disappointed 22

Y ?hat i/ -e/t de/!ri-e/ the o5erall a00roa!h to in5e/t a/ a mean o a!hie5ing in5e/tor/goal/

OPTIONS NO7 !) R/"3.

+elati5e le5el o /ta-ilit in o5erall in5e/tment

0ortolio 1in!rea/ing in5e/tment 5alue 3hile minimi7ing0otential or lo// o 0rin!i0al 1J

In5e/tment gro3th 3ith moderate high le5el/ ori/k

'a4imum long term return/ 3ith high ri/k 1


68/78

INTERPRETATION

'o/t o the in5e/tor/ 3ho in5e/t in deri5ati5e/ market are 0o/t graduate

In5e/tor/ 3ho in5e/t in deri5ati5e market ha5e a in!ome o a-o5e F..

In5e/tor/ generall 0er!ei5e /lum0 in /to!k market kind o ri/k 3hile in5e/ting in

deri5ati5e market

8


69/78

Peo0le are generall not in5e/ting in deri5ati5e market due to la!k o kno3ledge

and dii!ult in under/tanding and it i/ 5er ri/k al/o

'o/t o in5e/tor 0ur0o/e o in5e/ting in deri5ati5e market i/ to hedge their und

Peo0le generall 0arti!i0ate in deri5ati5e market a/ a in5e/tor or hedger

Peo0le generall 0reer to take ad5i!e rom ne3/ net3ork -eore in5e/ting in

deri5ati5e market

'o/t o in5e/tor/ 0arti!i0ate in /to!k inde4 uture/

$rom thi/ /ur5e 3e !ome to kno3 that mo/t o in5e/tor/ make a !ontra!t o

month maturit 0eriod

In5e/tor/ in5e/t regularl in deri5ati5e market

)he re/ult o in5e/tment in deri5ati5e market i/ generall moderate -ut

a!!e0ta-le

RECOMMENDATIONS & SUGGESTIONS

J


70/78

A kno3ledge need to -e /0read !on!erning the ri/k and return o the deri5ati5e

market

'ore 5ariation in /to!k inde4 uture need to -e made looking a demand /ide o

in5e/tor/

+BI /hould 0la a greater role in /u00orting deri5ati5e/

)here mu/t -e more deri5ati5e in/trument/ aimed at indi5idual in5e/tor/

#EBI /hould !ondu!t /eminar/ regarding the u/e o deri5ati5e/ to edu!ate

indi5idual in5e/tor/

LIMITAITONS OF STUDY

>7 LIMITED TIME6

)he time a5aila-le to !ondu!t the /tud 3a/ onl 2 month/ It -eing a 3ide to0i!. had

a limited time

7 LIMITED RESOURCES6

&imited re/our!e/ are a5aila-le to !olle!t the inormation a-out the !ommodit

trading

?7 VOLATALITY6

#hare market i/ /o mu!h 5olatile and it i/ dii!ult to ore!a/t anthing a-out it

3hether ou trade through online or oline

7 ASPECTS COVERAGE6

#ome o the a/0e!t/ ma not -e !o5ered in m /tud


71/78

BIBLIOGRAPHY

B!!@/ )26

,0tion/ $uture/. and other Deri5ati5e/ - ohn % Hull

Deri5ati5e/ $AY - A6a #hah

N#E"/ %ertii!ation in $inan!ial 'arket/: < Deri5ati5e/ %ore module

$inan!ial 'arket/ > #er5i!e/ - Gordon > Natara6an

R#!./6

+e0ort o the +BI


72/78

ANNE:URE

#(+;E Y(E#)I,NNAI+E ,$ IN;E#),+#

$,+

PE+%EP)I,N ),?A+D# IN;E#)'EN) IN DE+I;A)I;E 'A+KE)

#irR'a"am.

)hi/ Cue/tionnaire i/ meant or edu!ational 0ur0o/e/ onl

)he inormation 0ro5ided - ou 3ill -e ke0t /e!ure and !onidential

NA'E< \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\

%,N)A%)< \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\

GENDE+


73/78

]INP() )PE^ Bet3een FO to 1O ]INP() )PE^ Bet3een

11O to 1FO

]INP() )PE^ Bet3een 1O to 2O ]INP() )PE^ Bet3een

21O to 2FO

]INP() )PE^ 'ore than 2FO

?hat i/ our 0rimar in5e/tment 0ur0o/eX

]INP() )PE^ +etirement Planning

]INP() )PE^ Building u0 a !or0u/ or !harit donation/

]INP() )PE^ #u00orting uture edu!ation o our !hildren

]INP() )PE^ ,ther #0e!i9 \\\\\\\\\\\\\\\\\\\\\

F ?hat kind o ri/k do ou 0er!ei5e 3hile in5e/ting in the /to!k marketX

]INP() )PE^ (n!ertaint o return/ ]INP() )PE^ #lum0 in

/to!k market

]INP() )PE^ $ear o -eing 3indu0 o !om0an ]INP() )PE^ ,ther

#0e!i9 \\\\\\\\\\\\\\\\\

?h 0eo0le do not in5e/t in deri5ati5e marketX +ank our 0reeren!e 1


74/78

?hat i/ the 0ur0o/e o in5e/ting in deri5ati5e marketX

]INP() )PE^ )o hedge their und

]INP() )PE^ +i/k !ontrol

]INP() )PE^ 'ore /ta-le

]INP() )PE^ Dire!t in5e/tment 3ithout -uing and holding a//et/

8 ou 0arti!i0ate in deri5ati5e market a/:

]INP() )PE^ In5e/tor ]INP() )PE^ #0e!ulator

]INP() )PE^ BrokerRDealer ]INP() )PE^ Hedger

J $rom 3here ou 0reer to take ad5i!e -eore in5e/ting in deri5ati5e marketX

]INP() )PE^ Brokerage hou/e/ ]INP() )PE^ +e/ear!h

anal/t

]INP() )PE^ ?e-/ite/ ]INP() )PE^ Ne3/

Net3ork/

]INP() )PE^ ,ther #0e!i9 \\\\\\\\\\\\\\\\\

1 In 3hi!h o the ollo3ing 3ould ou like to 0arti!i0ateX

]INP() )PE^ #to!k Inde4 $uture/ ]INP() )PE^ #to!k Inde4

,0tion/

]INP() )PE^ $uture on indi5idual /to!k ]INP() )PE^ ,0tion/ on

indi5idual /to!k

]INP() )PE^ %urren! uture/

11 ?hat !ontra!t maturit 0eriod 3ould intere/t ou or trading inX

]INP() )PE^ 1 month ]INP() )PE^ 2 month

]INP() )PE^ month ]INP() )PE^ month

]INP() )PE^ J month ]INP() )PE^ 12 month


75/78

12 Ho3 oten do ou in5e/t in deri5ati5e marketX

]INP() )PE^ 1


76/78

ABBREVATIONS

A

A'E*< Ameri!a #to!k E4!hange

B

B#E< Bom-a #to!k E4!hange

B#I< Briti/h #tandard In/titute

C

%B,E < %hi!ago Board o0tion/ E4!hange

%B,) < %hi!ago Board o )rade

%EBB < %hi!ago Egg and Butter Board

%'E < %hi!ago 'er!antile E4!hange

%N*< %ri/il N/e F Inde4

%PE < %hi!ago Produ!e E4!hange

%?%< %entral ?arehou/ing %or0oration

D


77/78

D)##< Deri5ati5e )rading #ettlement #/tem

F

$II/< $oreign In/titutional In5e/tor/

$ > , $uture and ,0tion/

$'%< $or3ard 'arket/ %ommi//ion

$+A/< $or3ard +ate Agreement/

G

GAI%& #0i!e )rade A//o!iation

M

'%* 'ulti %ommodit E4!hange

N

NA$ED-National Agri!ultural %o


78/78

PNB< Pun6a- National Bank

R

+BI< +e/er5e Bank , India

S

#%+9 A < #e!uritie/ %ontra!t/ +egulation9 A!t. 1JF

#EBI< #e!uritie/ E4!hange Board , India

#G*< #inga0ore #to!k E4!hange

#I'E* < #inga0ore International 'onetar E4!hange

V

;PN< ;irtual Pri5ate Net3ork

23281602 derivative market india

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