FUTURES MARKET IN INDIA RECENT DEVELOPMENTS

Stock index futures were introduced in india in june 2000. A typical index futures contract specifies the asset, the contract size or the amount of asset or its value ,the daily price movement limits and the margins that have to be maintained. It also contains the month in which the contract is going to expire and the contracts is referred to by the delivery/expiring month (indexes cannot be delivered and thus are term-expiring).in the case of the BSE Sensex futures, the underlying instruments will be the BSE Sensex while inn the case of NSE it will be the nifty 50. Just like individual shares have a tick size of five paise, here the tick size will be 0.10 of a point. Index contrcts are valued at contracts multiplier times the index value. The multiplier plays a role similar to lot size in the normal market where the total value of shares bought or sold is computed after multiplying the value of each shares bought or sold is computed after multiplying the value of each shares by the lot size Since the underlying assets i.e the index cannot be purchased or delivered, the settlement is thus made in cash. SEBI has recommended a minimum contract value of Rs 200000. Just like shares have a minimum lot size of 10, 50 or 100, for BSE index futures, each contract would have a minimum lot of 50 while nifty futures will have a minimum lot of 100 MARGINS

Unlike cash markets, the margin money will to be compulsorily deposited by the investor with his broker or the exchange to mitigate default risk. The aim of margin money is to minimize the risk of default of either counter -party. The payment of margins of margin insures that the risk is limited to the previous days price movement on each outstanding position. However even this exposure will be offset by the initial margin holdings. Margin collection is the most important function of the clearing house. Margin money is like a security deposit or insurance against a future loss of vaue.