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|
 


The beatitude, bliss and euphoria that accompany the successful completion of any
task would not be complete without the expression of appreciation of simple virtues to
the people who made it possible.

The final project report is submitted to KMM INSTITUTE OF P.G STUDIES, Tirupathi
for partial fulfilment of management. Master of business administration (MBA).

This project is an attempt to study ³DERIVATIVE MARKET-INDIA´

I would like to thanks to the Management of INDIABULLS for giving me the opportunity
to do my two-month project training in their esteemed organization. I am highly obliged
to Mr. AATISH GUPTA, vice president, INDIABULLS for granting me to undertake
my training at Rajbhavan Road Branch
I express my thanks to all relationship managers under whose guidance and
direction, I gave a good shape to my training. Their constant review and excellent
suggestions throughout the project are highly commendable. My heartfelt thanks go to
all the executives who helped me to gain knowledge about the actual working and the
processes involved in various departments. I would also like to sincerely thank my
faculty guide PROF.C. BHUPATHI whose guidance has helped me to Understand
and complete my project in a timely and proper manner



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



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



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· To understand the concept of the Derivatives and Derivative Trading.

· To know different types of Financial Derivatives.

· To know the role of derivatives trading in India.

· To analyse the performance of Derivatives Trading since 2001with special

reference to Futures & Options

· To know the investors perception towards investment in derivative market



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.  

 
The time available to conduct the study was only 2 months. It being a wide topic,
had a limited time..
.  
 
Limited resources are available to collect the information about the commodity
trading
. |
|

Share market is so much volatile and it is difficult to forecast anything about it
whether you trade through online or offline
. |
 |
Some of the aspects may not be covered in my study



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-
 


The origin of derivatives can be traced back to the need of farmers to protect
themselves against fluctuations in the price of their crop. From the time it was sown to
the time it was ready for harvest, farmers would face price uncertainty. Through the use
of simple derivative products, it was possible for the farmer to partially or fully transfer
price risks by locking-in asset prices. These were simple contracts developed to meet
the needs of farmers and were basically a means of reducing risk.

A farmer who sowed his crop in June faced uncertainty over the price he would
receive for his harvest in September. In years of scarcity, he would probably obtain
attractive prices. However, during times of oversupply, he would have to dispose off his
harvest at a very low price. Clearly this meant that the farmer and his family were
exposed to a high risk of price uncertainty.

On the other hand, a merchant with an ongoing requirement of grains too would
face a price risk that of having to pay exorbitant prices during dearth, although favorable
prices could be obtained during periods of oversupply. Under such circumstances, it
clearly made sense for the farmer and the merchant to come together and enter into
contract whereby the price of the grain to be delivered in September could be decided
earlier. What they would then negotiate happened to be futures-type contract, which
would enable both parties to eliminate the price risk.

In 1848, the Chicago Board Of Trade, or CBOT, was established to bring farmers
and merchants together. A group of traders got together and created the µto-arrive¶
contract that permitted farmers to lock into price upfront and deliver the grain later.
These to-arrive contracts proved useful as a device for hedging and speculation on
price charges. These were eventually standardized, and in 1925 the first futures
clearing house came into existence.



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Today derivatives contracts exist on variety of commodities such as corn,

pepper, cotton, wheat, silver etc. Besides commodities, derivatives contracts also exist
on a lot of financial underlying like stocks, interest rate, exchange rate, etc.

.|

A derivative is a product whose value is derived from the value of one or more
underlying variables or assets in a contractual manner. The underlying asset can be
equity, forex, commodity or any other asset. In our earlier discussion, we saw that
wheat farmers may wish to sell their harvest at a future date to eliminate the risk of
change in price by that date. Such a transaction is an example of a derivative. The price
of this derivative is driven by the spot price of wheat which is the ³underlying´ in this
case.

The Forwards Contracts (Regulation) Act, 1952, regulates the forward/futures

contracts in commodities all over India. As per this the Forward Markets Commission
(FMC) continues to have jurisdiction over commodity futures contracts. However when
derivatives trading in securities was introduced in 2001, the term ³security´ in the
Securities Contracts (Regulation) Act, 1956 (SCRA), was amended to include derivative
contracts in securities. Consequently, regulation of derivatives came under the purview
of Securities Exchange Board of India (SEBI). We thus have separate regulatory
authorities for securities and commodity derivative markets.

Derivatives are securities under the SCRA and hence the trading of derivatives is
governed by the regulatory framework under the SCRA. The Securities Contracts
(Regulation) Act, 1956 defines ³derivative´ to include-

A security derived from a debt instrument, share, loan whether secured or unsecured,
risk instrument or contract differences or any other form of security.



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A contract which derives its value from the prices, or index of prices, of underlying
securities




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 .
!" #$% &'(& # ') (

.
|
 |



*+,'- 
'. . &'(& # & 
,  $-(  &'(& #

'($-'/($+)*+,'- $01'!($+)*+,'-  '($-'/ $00$.(!2

 &'(&  *+,'- 

Index Future Index option Stock option Stock future Interest

rate Futures




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!" #$% &'(& #

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A forward contract is an agreement to buy or sell an asset on a specified date for a
specified price. One of the parties to the contract assumes a long position and
agrees to buy the underlying asset on a 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. Other contract details like delivery
date, price and quantity are negotiated bilaterally by the parties to the contract.
The forward contracts are n o r m a l l y traded outside the exchanges.

, #'/ -( % '( # $%%$3'. +$-('+(# ' :

‡ They are bilateral contracts and hence exposed to counter-party risk.

‡ Each contract is custom designed, and hence is unique in terms of contract

size, expiration date and the asset type and quality.

‡ The contract price is generally not available in public domain.



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‡ On the expiration date, the contract has to be settled by delivery of the asset.

‡ If the party wishes to reverse the contract, it has to compulsorily go to the same
counter-party, whi ch often results in high prices being charged.

However forward contracts in certain markets have become very

standardized, as in the case of foreign exchange, thereby reducing
transaction costs and increasing transactions volume. This process of
standardization reaches its limit in the organized futures market. Forward contracts
are often confused with futures contracts. The confusion is primarily b ecause both
serve essentially t h e same economic f u ncti o ns of allocating risk in the presence
of future price uncertainty. However futures are a significant improvement over
the forward contracts as they eliminate counterparty risk and offer more
liquidity.


 
|


In finance, a %( #+$-('+( is a standardized contract, traded on a futures exchange,

to buy or sell a certain underlying instrument at a certain date in the future, at a pre-set
price. The future date is called the . /& !.'( or %-'/# ((/ 0 -(.'( . The pre-set
price is called the %( #"+ . The price of the underlying asset on the delivery date
is called the # ((/ 0 -( "+ . The settlement price, normally, converges towards the
futures price on the delivery date.

A futures contract gives the holder the ,( '-. (,  $1/'($- to buy or sell, which
differs from an options contract, which gives the buyer the right, but not the obligation,
and the option writer (seller) the obligation, but not the right. To exit the commitment,
the holder of a futures position has to sell his long position or buy back his short
position, effectively closing out the futures position and its contract obligations. Futures
contracts are exchange traded derivatives. The exchange acts as counterparty on all
contracts, sets margin requirements, etc.



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| |

 
|


.('-.'.4'($-
Futures contracts ensure their liquidity by being highly standardized, usually by
specifying:

x The {
 . This can be anything from a barrel of sweet crude oil to a short
term interest rate.
x The type of settlement, either cash settlement or physical settlement.
x The 6
{  and units of the underlying asset per contract. This can be the
notional amount of bonds, a fixed number of barrels of oil, units of foreign
currency, the notional amount of the deposit over which the short term interest
rate is traded, etc.
x The currency in which the futures contract is quoted.
x The 6
 of the deliverable. In case of bonds, this specifies which bonds can be
delivered. In case of physical commodities, this specifies not only the quality of
the underlying goods but also the manner and location of delivery. The delivery
month.
x The last trading date.
x Other details such as the tick, the minimum permissible price fluctuation.

. '-
Although the value of a contract at time of trading should be zero, its price constantly
fluctuates. This renders the owner liable to adverse changes in value, and creates a
credit risk to the exchange, who always acts as counterparty. To minimize this risk, the
exchange demands that contract owners post a form of collateral, commonly known as
Margin requirements are waived or reduced in some cases for hedgers who have
physical ownership of the covered commodity or spread traders who have offsetting
contracts balancing the position.



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-('/0'-: is paid by both buyer and seller. It represents the loss on that contract,
as determined by historical price changes, which is not likely to be exceeded on a usual
day's trading. It may be 5% or 10% of total contract price.
')($0') ( '-: Because a series of adverse price changes may exhaust the
initial margin, a further margin, usually called variation or maintenance margin, is
required by the exchange. This is calculated by the futures contract, i.e. agreeing on a
price at the end of each day, called the "settlement" or mark-to-market price of the
contract.
To understand the original practice, consider that a futures trader, when taking a
position, deposits money with the exchange, called a "margin". This is intended to
protect the exchange against loss. At the end of every trading day, the contract is
marked to its present market value. If the trader is on the winning side of a deal, his
contract has increased in value that day, and the exchange pays this profit into his
account. On the other hand, if he is on the losing side, the exchange will debit his
account. If he cannot pay, then the margin is used as the collateral from which the loss
is paid.

. ((/ 0 -(
Settlement is the act of consummating the contract, and can be done in one of two
ways, as specified per type of futures contract:
x ,!#+'/. /& ! - the amount specified of the underlying asset of the contract
is delivered by the seller of the contract to the exchange, and by the exchange to
the buyers of the contract. In practice, it occurs only on a minority of contracts.
Most are cancelled out by purchasing a covering position - that is, buying a
contract to cancel out an earlier sale (covering a short), or selling a contract to
liquidate an earlier purchase (covering a long).
x '#,# ((/ 0 -( - a cash payment is made based on the underlying reference
rate, such as a short term interest rate index such as Euribor, or the closing value
of a stock market index. A futures contract might also opt to settle against an
index based on trade in a related spot market.



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*"!is the time when the final prices of the future are determined. For many equity
index and interest rate futures contracts, this happens on the Last Thursday of certain
trading month. On this day the t+2 futures contract becomes the t forward contract.

+-$%%( +$-('+(

In a futures contract, for no arbitrage to be possible, the price paid on delivery (the
forward price) must be the same as the cost (including interest) of buying and storing
the asset. In other words, the rational forward price represents the expected future
value of the underlying discounted at the risk free rate. Thus, for a simple, non-dividend

paying asset, the value of the future/forward, , will be found by discounting the

present value at time to maturity by the rate of risk-free return .

This relationship may be modified for storage costs, dividends, dividend yields, and
convenience yields. Any deviation from this equality allows for arbitrage as follows.
-(, +'# 3,  (, %$3'."+ #,, 
1. The arbitrageur sells the futures contract and buys the underlying today (on the
spot market) with borrowed money.
2. On the delivery date, the arbitrageur hands over the underlying, and receives the
agreed forward price.
3. He then repays the lender the borrowed amount plus interest.
4. The difference between the two amounts is the arbitrage profit.
-(, +'# 3,  (, %$3'."+ #/$3 
1. The arbitrageur buys the futures contract and sells the underlying today (on the
spot market); he invests the proceeds.
2. On the delivery date, he cashes in the matured investment, which has
appreciated at the risk free rate.
3. He then receives the underlying and pays the agreed forward price using the
matured investment. [If he was short the underlying, he returns it now.]
4. The difference between the two amounts is the arbitrage profit.



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|5




|| 
|


FEATURES FORWARD CONTRACT FUTURE CONTRACT

Operational Traded directly between Traded on the exchanges.

Mechanism two parties (not traded on
the exchanges).

Contract Differ from trade to trade. Contracts are standardized contracts.

Specifications

Counter-party Exists. Exists. However, assumed by the

risk clearing corp., which becomes the
counter party to all the trades or
unconditionally guarantees their
settlement.

Liquidation Low, as contracts are High, as contracts are standardized

Profile tailor made contracts exchange traded contracts.
catering to the needs of
the needs of the parties.

Price discovery Not efficient, as markets Efficient, as markets are centralized

are scattered. and all buyers and sellers come to a
common platform to discover the
price.
Examples Currency market in India. Commodities, futures, Index Futures
and Individual stock Futures in India.



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5
A derivative transaction that gives the option holder the right but not the obligation to
buy or sell the underlying asset at a price, called the strike price, during a period or on a
specific date in exchange for payment of a premium is known as 6$"($-7. Underlying
asset refers to any asset that is traded. The price at which the underlying is traded is
called the 6#() "+ 7.

There are two types of options i.e., |

|

.

|


A contract that gives its owner the right but not the obligation to buy an underlying
asset-stock or any financial asset, at a specified price on or before a specified date is
known as a 6 '// $"($-7. The owner makes a profit provided he sells at a higher
current price and buys at a lower future price.

1.



A contract that gives its owner the right but not the obligation to sell an underlying asset-
stock or any financial asset, at a specified price on or before a specified date is known
as a µ($"($-7. The owner makes a profit provided he buys at a lower current price
and sells at a higher future price. Hence, no option will be exercised if the future price
does not increase.

Put and calls are almost always written on equities, although occasionally preference
shares, bonds and warrants become the subject of options.



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.|5
Swaps are transactions which obligates the two parties to the contract to exchange a
series of cash flows at specified intervals known as payment or settlement dates. They
can be regarded as portfolios of forward's contracts. A contract whereby two parties
agree to exchange (swap) payments, based on some notional principle amount is called
as a 6|7. In case of swap, only the payment flows are exchanged and not the
principle amount. The two commonly used swaps are:



|
|
Interest rate swaps is an arrangement by which one party agrees to exchange his series
of fixed rate interest payments to a party in exchange for his variable rate interest
payments. The fixed rate payer takes a short position in the forward contract whereas
the floating rate payer takes a long position in the forward contract.

 |
Currency swaps is an arrangement in which both the principle amount and the interest
on loan in one currency are swapped for the principle and the interest payments on loan
in another currency. The parties to the swap contract of currency generally hail from two
different countries. This arrangement allows the counter parties to borrow easily and
cheaply in their home currencies. Under a currency swap, cash flows to be exchanged
are determined at the spot rate at a time when swap is done. Such cash flows are
supposed to remain unaffected by subsequent changes in the exchange rates.

| ||

Financial swaps constitute a funding technique which permit a borrower to access one
market and then exchange the liability for another type of liability. It also allows the
investors to exchange one type of asset for another type of asset with a preferred
income stream.



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, $(, )-.$%. &'(& #83,+,' -$(80+,"$"/'' '#%$//$3#

9.|

5

Baskets options are option on portfolio of underlying asset. Equity Index Options are
most popular form of baskets.

:.|5

Normally option contracts are for a period of 1 to 12 months. However,
exchange may introduce option contracts with a maturity period of 2-3 years. These
long-term option contracts are popularly known as Leaps or Long term Equity
Anticipation Securities.

;.||
5

Options generally have lives of up to one year, the majority of options traded on options
exchanges having a maximum maturity of nine months. Longer-dated options are called
warrants and are generally traded over-the-counter.

<.|
5

Swaptions are options to buy or sell a swap that will become operative at the expiry of
the options. Thus a swaption is an option on a forward swap. Rather than have calls
and puts, the swaptions market has receiver swaptions and payer swaptions. A receiver
swaption is an option to receive fixed and pay floating. A payer swaption is an option to
pay fixed and receive floating.



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[






Indiabulls Group is one of India¶s top business houses with businesses spread over
Real Estate, Infrastructure, Financial Services, Securities, Retail, Multiplex and Power
sectors. The group companies are listed on important Indian and Overseas markets.
Indiabulls has been conferred the status of a ³Business Super brand´ by The Brand
Council, Super brands India.

To be the largest and most profitable financial services

organization in Indian retail market and become one stop shop for all non banking
financial products and services for the retail customers.

Rapidly increase the number of client relationships by

providing a broad array of product offering to emerge as a clear market leader.

Indiabulls Group has five separately listed companies with

subsidiaries which contributed in enhancing scope and profile of the business.



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Top Indiabulls Financial Services Limited

Indiabulls Financial Services Limited was incorporated on January 10, 2000 as M/s
Orbis Infotech Private Limited at New Delhi under the Companies Act, 1956. The name
of company was changed to M/s. Indiabulls Financial Services Private Limited on March
16, 2001. In the year 2004, Indiabulls came up with it own public issue & became a
public limited company on February 27, 2004. The name of company was changed to
M/s. Indiabulls Financial Services Limited.

The company was promoted by three engineers from IIT Delhi, and has attracted more
than Rs.700 million as investments from venture capital, private equity and institutional




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investors and has developed significant relationships with large commercial banks such
as Citibank, HDFC Bank, Union Bank, ICICI Bank, ABN Amro Bank, Standard
Chartered Bank and IL&FS.

Mr. Rajiv Rattan

Mr. Sameer Gelhaut Mr. Saurabh K Mittal
$5$-. 2
,'0'-  +($
+  ,'0'-
=-.'1//#$"> =-.'1//#$">
=-.'1//#$">

The company headquarters are co-located in Mumbai and Delhi, allowing it to access
the two most important regions for Indian financial markets, The marketing and sales
efforts are headquartered out of Mumbai, with a regional headquarter in Delhi. Back
office, risk management, internal finances etc. are headquartered out of Delhi/NCR
allowing the company to scale these processes efficiently for the nationwide network.

$0"'-!#/#( .$-

x National Stock Exchange

x Bombay Stock Exchange
x Luxemburg Stock Exchange

') (+'"('/4'($-

x Over 7 Billion USD

 (3$(,

x Over 2.5 Billion USD

 , #('(-#%$0 CRISIL is India's leading ratings, research, risk and
policy advisory company



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$'.''!$%"$.+($%% -

1. Consumer Finance
2. Housing Finance
3. Commercial Loans
4. Life Insurance
5. Asset Management
6. Advisory Services

Top ('( +".'( #

x Indiabulls Financial Services Limited (IBFSL) completed the de-merger of its real
estate business into a separate publicly traded company, (IBREL) unlocked over
Rs. 10000 crore of shareholder wealth.

x  50  : De-merger of Indiabulls Securities Limited from Indiabulls Financial

Services Limited. Each shareholder of Indiabulls Financial Services Limited
received a share of Indiabulls Securities Limited.

x |||+($(%+'($-Indiabulls Housing Finance Limited, a wholly

owned subsidiary of Indiabulls Financial Services Limited has been notified as a
µFinancial Institution¶ for the purpose of SARFAESI Act, 2002. This notification is
being effectively used by the company to yield positive results in speedy
recoveries of delinquent mortgage loans.

 3#- ## -( ".'( #

x % -#'-+  -( Indiabulls Financial Services Limited (IBFSL) has

entered into an MOU with Sogecap, the insurance arm of Societe Generale
(SocGen) for its upcoming life insurance joint venture. Sogecap will invest Rs
150 crore to subscribe to 26% of the paid up capital in the joint venture.

x $00$.( #*+,'- = ?> a screen based on-line derivatives exchange

for commodities and has established a reliable, time tested, and a transparent
 

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trading platform. It is also in the process of putting in place robust assaying and
warehousing facilities in order to facilitate deliveries. ICEX is promoted by
Indiabulls Financial Services and MMTC.

x |## ( '-' 0 -(#- ##Indiabulls Financial Services Limited proposes

to set up an asset management company to manage mutual funds and has
applied to SEBI for its approval and the same is awaited.

-.'1//# '/#('( 0( .

Indiabulls stepped into the real estate market as Indiabulls Real Estate Limited (IREL) in
2005. A joint venture between Indiabulls and a US based investment major Farallon
Capital Management LLC resulted in bringing FDI (Foreign Direct Investment) for the
first time in the Indian real estate market. Another joint venture amongst Indiabulls and
DLF, Kenneth Builders and Developers (KBD), has brought up projects for development
of residential apartments.

$@ +(#

Indiabulls is currently evaluating many large-scale projects worth several hundred

million dollars.
1. One Indiabulls Centre
2. Indiabulls Central Park
3. Central Park Madurai
4. Central Park Hyderabad
5. Castlewood
6. Indiabulls Finance Center
7. HighStreet Vadodara
8. Central Park Vadodara
9. Indiabulls Greens
10. Centrum Park
11. Indiabulls Riverside
12. Gurgoan Housing
13. Sonepat Township
14. Chennai Township
15. Indiabulls Greens Panvel
16. Mumbai Township
17. Nashik SEZ
18. Raigarh SEZ
19. Goa Luxury Resort



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-.'1//#$3 0( .

Indiabulls Power Limited was established in 2007 to capitalize on emerging

opportunities in the Indian power sector. It develops and intends to operate and
maintain power projects in India. Indiabulls is currently developing five thermal power
projects with an aggregate capacity of approximately 6600 MW. These projects include:

- Amravati Phase-I (1320 MW)

- Amravati Phase-II (1320 MW)

- Nasik (1335 MW) in Maharashtra

- Bhaiyathan Thermal Power Project (1320 MW)

- Chhattisgarh Power Project (1320 MW)

In addition to the above Indiabulls is also developing four medium size Hydro Power
Projects in Arunachal Pradesh aggregating to 167 MW.



-.'1//# +( #0( .

-.'1//# +( #0( .#(, @ 3 /-(, +$3-$%-.'1//#$".

Indiabulls Securities Limited is India¶s leading capital markets company with All-India
presence and an extensive client base. Indiabulls Securities is the first and only



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brokerage house in India to be assigned the highest rating BQ ± 1 by CRISIL. Indiabulls
Securities Limited is listed on NSE, BSE & Luxembourg stock exchange.

Indiabulls also provide commodity brokerage services under Indiabulls Commodities

Limited (ICL). It deals in research work and formation of reports on agri-commodites
and metals. ICL has one of the largest retail branch networks in the country.

$.+(#$%%  . A( #'-. &'(& #

x Offers purchase and sale of securities (stock, bonds, debentures etc.)

x Broker assisted trade execution

x Automated online investing

x Access to all IPO's


A(!|-'/!##

x Helps to build ideal portfolio

x Satisfies need by rating stocks based on facts-based measures

x Free of cost for all securities clients

 "$#($! &+ #

x Depository participant with NSDL and CDSL

x Helps in trading and settlement of dematerialized shares

x Performs clearing services for all securities transactions

x Offers platform to execute trade and settle transactions

Top '/ #
'0(+(

Sales force in Indiabulls Securities Limited is divided into two groups. i.e. Online &
Offline



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Mentioned below are the names of EVP's managing respective regions

B#'0 
@'!'11' |0( #,3' ,'.,'! '# -@ ( ), @ 
=-/- >
Managing Mahrashtra and
Managing NCR and UP, Managing West Bengal,
Goa, Kerala, Karnataka,
 $- Punjab,Haryana,Uttranchal, Orissa, Bihar and
Andhra Pradesh
Rajasthan and Gujarat Jharkhand
and Tamil Nadu

B#'0  0'-#, |-1'- '-$@

.$#,'
=%%/- > 
'0.' ,'(('+,'!' &'#('&'
Managing NCR Managing Bengal,
and Haryana Andhra Pradesh Managing
Managing Mumbai,
, Punjab, Uttar ,Tamil Nadu, Rajasthan,
 $- Pune and other
Pradesh and Karnataka and part part of Gujarat
surrounding regions
Madhya of Mumbai and and Mumbai
Pradesh Gujarat
Top #($0  '  "'(0 -(Providing solution to the queries of customers as
well as branches from a centralized location based out of gurgaon

/ -(#
/ -( /"/- 01  0124 - 4572444
39407777
(Local dialing from 25 cities)
 +( #+/ -(+'-50'/'( helpdesk@indiabulls.com

|&'/'1/ %$09+( #: Ahmedabad, Bangalore, Bhopal, Chandigarh, Chennai,

Coimbatore, Delhi, Ernakulam, Hyderabad, Jaipur, Jalandhar, Kolkata, Kozhikode,
Ludhiana, Lucknow, Mumbai, Mangalore, Nashik,Pune, Salem, Surat, Vadodra,
Vadodra - Alkapuri, Vishakhapatnam.

'-+,
'-+, /"/- 01  0124-3989444
C  # 50'/'(
Funds related funds@indiabulls.com
Reallocation related reallocate@indiabulls.com
Documents related documents@indiabulls.com
Other queries except above help@indiabulls.com



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/ #($- #|+, & .

x Developed one of the first internet trading platforms in India

x Amongst the first to develop in-house real-time CTCL (computer to computer

link) with NSE

x Introduction of integrated accounts with automatic gateways to client bank

accounts

x Development of products such as Power Indiabulls for high volume traders

x Indiabulls Signature Account for self-directed investors

x Indiabulls Group Professional Network for information and trading service



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[ 





The history of derivatives is quite colourful and surprisingly a lot longer than most
people think. Forward delivery contracts, stating what is to be delivered for a fixed price
at a specified place on a specified date, existed in ancient Greece and Rome. Roman
emperors entered forward contracts to provide the masses with their supply of Egyptian
grain. These contracts were also undertaken between farmers and merchants to
eliminate risk arising out of uncertain future prices of grains. Thus, forward contracts
have existed for centuries for hedging price risk.
The first organized commodity exchange came into existence in the
early 1700¶s in Japan. The first formal commodities exchange, the ,+'$ $'. $%

'.  = 
>, was formed in 1848 in the US to deal with the problem of µcredit risk¶
and to provide centralised location to negotiate forward contracts. From µforward¶ trading
in commodities emerged the commodity µfutures¶. The first type of futures contract was
called µto arrive at¶. Trading in futures began on the CBOT in the 1860¶s. In 1865, CBOT
listed the first µexchange traded¶ derivatives contract, known as the futures contracts.
Futures trading grew out of the need for hedging the price risk involved in many
commercial operations. The ,+'$ +'-(/  *+,'-  = >, a spin-off of
CBOT, was formed in 1919, though it did exist before in 1874 under the names of
6 ,+'$$.+ *+,'- 7= >and 6 ,+'$'-.(( $'.7= >.
The first financial futures to emerge were the currency in 1972 in the US. The first
foreign currency futures were traded on May 16, 1972, on -( -'($-'/ $- ('!
') ( = >8 a division of CME. The currency futures traded on the IMM are the
British Pound, the Canadian Dollar, the Japanese Yen, the Swiss Franc, the German
Mark, the Australian Dollar, and the Euro dollar. Currency futures were followed soon by
interest rate futures. Interest rate futures contracts were traded for the first time on the
CBOT on October 20, 1975. Stock index futures and options emerged in 1982. The first
stock index futures contracts were traded on Kansas City Board of Trade on February
24, 1982.The first of the several networks, which offered a trading link between two



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exchanges, was formed between the -'"$  -( -'($-'/ $- ('! *+,'- 
= ?> and the CME on September 7, 1984.

Options are as old as futures. Their history also dates back to ancient Greece and
Rome. Options are very popular with speculators in the tulip craze of seventeenth
century Holland. Tulips, the brightly coloured flowers, were a symbol of affluence; owing
to a high demand, tulip bulb prices shot up. Dutch growers and dealers traded in tulip
bulb options. There was so much speculation that people even mortgaged their homes
and businesses. These speculators were wiped out when the tulip craze collapsed in
1637 as there was no mechanism to guarantee the performance of the option terms.
The first call and put options were invented by an American financier,
Russell Sage, in 1872. These options were traded over the counter. Agricultural
commodities options were traded in the nineteenth century in England and the US.
Options on shares were available in the US on the over the counter (OTC) market only
until 1973 without much knowledge of valuation. A group of firms known as Put and Call
brokers and Dealer¶s Association was set up in early 1900¶s to provide a mechanism for
bringing buyers and sellers together.
On April 26, 1973, the Chicago Board options Exchange (CBOE) was
set up at CBOT for the purpose of trading stock options. It was in 1973 again that black,
Merton, and Scholes invented the famous /'+)5+,$/ #"($-$0/'. This model
helped in assessing the fair price of an option which led to an increased interest in
trading of options. With the options markets becoming increasingly popular, the
American Stock Exchange (AMEX) and the Philadelphia Stock Exchange (PHLX) began
trading in options in 1975.

The market for futures and options grew at a rapid pace in the eighties and nineties.
The collapse of the Bretton Woods regime of fixed parties and the introduction of
floating rates for currencies in the international financial markets paved the way for
development of a number of financial derivatives which served as effective risk
management tools to cope with market uncertainties.



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The CBOT and the CME are two largest financial exchanges in the world on which
futures contracts are traded. The CBOT now offers 48 futures and option contracts (with
the annual volume at more than 211 million in 2001).The CBOE is the largest exchange
for trading stock options. The CBOE trades options on the S&P 100 and the S&P 500
stock indices. The Philadelphia Stock Exchange is the premier exchange for trading
foreign options.
The most traded stock indices include S&P 500, the Dow Jones Industrial
Average, the Nasdaq 100, and the Nikkei 225. The US indices and the Nikkei 225 trade
almost round the clock. The N225 is also traded on the Chicago Mercantile Exchange.
.9 ||
 |


Starting from a controlled economy, India has moved towards a world where prices
fluctuate every day. The introduction of risk management instruments in India gained
momentum in the last few years due to liberalisation process and Reserve Bank of
India¶s (RBI) efforts in creating currency forward market. Derivatives are an integral part
of liberalisation process to manage risk. NSE gauging the market requirements initiated
the process of setting up derivative markets in India. In July 1999, derivatives trading
commenced in India

'1/ Chronology of instruments

1991 Liberalisation process initiated

14 December NSE asked SEBI for permission to trade index futures.

1995
18 November SEBI setup L.C.Gupta Committee to draft a policy framework
1996 for index futures.
11 May 1998 L.C.Gupta Committee submitted report.
7 July 1999 RBI gave permission for OTC forward rate agreements
(FRAs) and interest rate swaps.
24 May 2000 SIMEX chose Nifty for trading futures and options on an
Indian index.
25 May 2000 SEBI gave permission to NSE and BSE to do index futures



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trading.
9 June 2000 Trading of BSE Sensex futures commenced at BSE.
12 June 2000 Trading of Nifty futures commenced at NSE.
25 September Nifty futures trading commenced at SGX.
2000
2 June 2001 Individual Stock Options & Derivatives

.: .%$. &'(& #--.'($.'!
In less than three decades of their coming into vogue, derivatives markets have become
the most important markets in the world. Today, derivatives have become part and
parcel of the day-to-day life for ordinary people in major part of the world.
Until the advent of NSE, the Indian capital market had no access to the latest trading
methods and was using traditional out-dated methods of trading. There was a huge gap
between the investors¶ aspirations of the markets and the available means of trading.
The opening of Indian economy has precipitated the process of integration of India¶s
financial markets with the international financial markets. Introduction of risk
management instruments in India has gained momentum in last few years thanks to
Reserve Bank of India¶s efforts in allowing forward contracts, cross currency options etc.
which have developed into a very large market.

.; !(,#'-. '/( #'1$(. &'(& #

In less than three decades of their coming into vogue, derivatives markets have become
the most important markets in the world. Financial derivatives came into the spotlight
along with the rise in uncertainty of post-1970, when US announced an end to the
Bretton Woods System of fixed exchange rates leading to introduction of currency
derivatives followed by other innovations including stock index futures. Today,
derivatives have become part and parcel of the day-to-day life for ordinary people in
major parts of the world. While this is true for many countries, there are still
apprehensions about the introduction of derivatives. There are many myths about
derivatives but the realities that are different especially for Exchange traded derivatives,
which are well regulated with all the safety mechanisms in place.
,'(' (, # 0!(,#1 ,-.. &'(& #D



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x Derivatives increase speculation and do not serve any economic purpose
x Indian Market is not ready for derivative trading
x Disasters prove that derivatives are very risky and highly leveraged instruments
x Derivatives are complex and exotic instruments that Indian investors will find
difficulty in understanding
x Is the existing capital market safer than Derivatives?
 &'(& #-+ '# #" +/'($-'-..$-$(# & '-! +$-$0+""$# 

Numerous studies of derivatives activity have led to a broad consensus, both in the
private and public sectors that derivatives provide numerous and substantial benefits to
the users. Derivatives are a low-cost, effective method for users to hedge and manage
their exposures to interest rates, commodity
Prices or exchange rates. The need for derivatives as hedging tool was felt first
in the commodities market. Agricultural futures and options helped farmers and
processors hedge against commodity price risk. After the fallout of Bretton wood
agreement, the financial markets in the world started undergoing radical changes. This
period is marked by remarkable innovations in the financial markets such as
introduction of floating rates for the currencies, increased trading in variety of derivatives
instruments, on-line trading in the capital markets, etc. As the complexity of instruments
increased many folds, the accompanying risk factors grew in gigantic proportions. This
situation led to development derivatives as effective risk management tools for the
market participants.
Looking at the equity market, derivatives allow corporations and institutional
investors to effectively manage their portfolios of assets and liabilities through
instruments like stock index futures and options. An equity fund, for example, can
reduce its exposure to the stock market quickly and at a relatively low cost without
selling off part of its equity assets by using stock index futures or index options.

By providing investors and issuers with a wider array of tools for managing risks
and raising capital, derivatives improve the allocation of credit and the sharing of risk in
the global economy, lowering the cost of capital formation and stimulating economic
growth. Now that world markets for trade and finance have become more integrated,



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derivatives have strengthened these important linkages between global markets
increasing market liquidity and efficiency and facilitating the flow of trade and finance.

-.'- ') (#-$( '.!%$. &'(& ('.-
Often the argument put forth against derivatives trading is that the Indian capital market
is not ready for derivatives trading. Here, we look into the pre-requisites, which are
needed for the introduction of derivatives, and how Indian market fares:

PRE-REQUISITES INDIAN SCENARIO
Large market Capitalisation India is one of the largest market-capitalised countries in
Asia with a market capitalisation of more than Rs.765000
crores.

High Liquidity in the The daily average traded volume in Indian capital market
underlying today is around 7500 crores. Which means on an average
every month 14% of the country¶s Market capitalisation
gets traded. These are clear indicators of high liquidity in
the underlying.
Trade guarantee The first clearing corporation guaranteeing trades has
become fully functional from July 1996 in the form of
National Securities Clearing Corporation (NSCCL).
NSCCL is responsible for guaranteeing all open positions
on the National Stock Exchange (NSE) for which it does
the clearing.
A Strong Depository National Securities Depositories Limited (NSDL) which
started functioning in the year 1997 has revolutionalised
the security settlement in our country.
A Good legal guardian In the Institution of SEBI (Securities and Exchange Board
of India) today the Indian capital market enjoys a strong,
independent, and innovative legal guardian who is helping



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the market to evolve to a healthier place for trade
practices.




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,'()-.$%" $"/ 3//# . &'(& #D

Derivatives will find use for the following set of people:

‡ Speculators: People who buy or sell in the market to make profits. For example, if you
will the stock price of Reliance is expected to go upto Rs.400 in 1 month, one can buy a
1 month future of Reliance at Rs 350 and make profits
‡ Hedgers: People who buy or sell to minimize their losses. For example, an importer
has to pay US $ to buy goods and rupee is expected to fall to Rs 50 /$ from Rs 48/$,
then the importer can minimize his losses by buying a currency future at Rs 49/$
‡ Arbitrageurs: People who buy or sell to make money on price differentials in different
markets. For example, a futures price is simply the current price plus the interest cost. If
there is any change in the interest, it presents an arbitrage opportunity. We will examine
this in detail when we look at futures in a separate chapter. Basically, every investor
assumes one or more of the above roles and derivatives are a very good option for him.

.< $0"'#$-$% 3!#( 03(,*#(-!#( 0
Many people and brokers in India think that the new system of Futures & Options and
banning of Badla is disadvantageous and introduced early, but I feel that this new
system is very useful especially to retail investors. It increases the no of options
investors for investment. In fact it should have been introduced much before and NSE
had approved it but was not active because of politicization in SEBI.

, % .'E.. shows how advantages of new system (implemented from June
20001) v/s the old system i.e. before June 2001
New System Vs Existing System for Market Players



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 .'
Speculators

Existing SYSTEM New

Approach Peril &Prize Approach Peril &Prize

1) Deliver based 1) Both profit & 1)Buy &Sell stocks 1)Maximum

Trading, margin loss to extent of on delivery basis loss possible
trading& carry price change. 2) Buy Call &Put to premium
forward transactions. by paying paid
2) Buy Index Futures premium
hold till expiry.

Advantages
x Greater Leverage as to pay only the premium.
x Greater variety of strike price options at a given time.



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 .1

Arbitrageurs

Existing SYSTEM New

Approach Peril &Prize Approach Peril &Prize

1) Buying Stocks in 1) Make money 1) B Group more 1) Risk free

one and selling in
another exchange.
forward transactions.
2) If Future Contract
more or less than Fair price
whichever way the promising as still game.
Market moves. in weekly settlement
2) Cash &Carry
arbitrage continues

x Fair Price = Cash Price + Cost of Carry.

 



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 .+

Hedgers

Existing SYSTEM New

Approach Peril &Prize Approach Peril &Prize

1) Difficult to 1) No Leverage 1)Fix price today to buy 1) Additional
offload holding available risk latter by paying premium. cost is only
during adverse reward dependant 2)For Long, buy ATM Put premium.
market conditions on market prices Option. If market goes up,
as circuit filters long position benefit else
limit to curtail losses. exercise the option.
3)Sell deep OTM call option
with underlying shares, earn
premium + profit with increase prcie




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|.&'-(' #
x Availability of Leverage

 ..
Small Investors

Existing SYSTEM New

Approach Peril &Prize Approach Peril &Prize

1) If Bullish buy 1) Plain Buy/Sell 1) Buy Call/Put options 1) Downside

stocks else sell it. implies unlimited based on market outlook remains
profit/loss. 2) Hedge position if protected &
holding underlying upside
stock unlimited.

|.&'-(' #
x Losses Protected.








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*+,'- 5('. .&#.
. &'(& #0') (#

The OTC derivatives markets have witnessed rather sharp growth over the last few
years, which has accompanied the modernization of commercial and investment
banking and globalisation of financial activities. The recent developments in information
technology have contributed to a great extent to these developments. While both
exchange-traded and OTC derivative contracts offer many benefits, the former have
rigid structures compared to the latter. It has been widely discussed that the highly
leveraged institutions and their OTC derivative positions were the main cause of
turbulence in financial markets in 1998. These episodes of turbulence revealed the risks
posed to market stability originating in features of OTC derivative instruments and
markets.

The OTC derivatives markets have the following features compared to exchange-traded
derivatives:
1. The management of counter-party (credit) risk is decentralized and located within
individual institutions,
2. There are no formal centralized limits on individual positions, leverage, or
margining,
3. There are no formal rules for risk and burden-sharing,
4. There are no formal rules or mechanisms for ensuring market stability and
integrity, and for safeguarding the collective interests of market participants, and
5. The OTC contracts are generally not regulated by a regulatory authority and the
exchange¶s self-regulatory organization, although they are affected indirectly by
national legal systems, banking supervision and market surveillance.

Some of the features of OTC derivatives markets embody risks to financial market
stability.

The following features of OTC derivatives markets can give rise to instability in
institutions, markets, and the international financial system: (i) the dynamic nature of



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gross credit exposures; (ii) information asymmetries; (iii) the effects of OTC derivative
activities on available aggregate credit; (iv) the high concentration of OTC derivative
activities in major institutions; and (v) the central role of OTC derivatives markets in the
global financial system. Instability arises when shocks, such as counter-party credit
events and sharp movements in asset prices that underlie derivative contracts, occur
which significantly alter the perceptions of current and potential future credit exposures.
When asset prices change rapidly, the size and configuration of counter-party
exposures can become unsustainably large and provoke a rapid unwinding of positions.

There has been some progress in addressing these risks and perceptions. However,
the progress has been limited in implementing reforms in risk management, including
counter-party, liquidity and operational risks, and OTC derivatives markets continue to
pose a threat to international financial stability. The problem is more acute as heavy
reliance on OTC derivatives creates the possibility of systemic financial events, which
fall outside the more formal clearing house structures. Moreover, those who provide
OTC derivative products, hedge their risks through the use of exchange traded
derivatives. In view of the inherent risks associated with OTC derivatives, and their
dependence on exchange traded derivatives, Indian law considers them illegal.

.9|
 




|


Factors contributing to the explosive growth of derivatives are price volatility,

globalisation of the markets, technological developments and advances in the financial
theories.

|.} |


E

A price is what one pays to acquire or use something of value. The objects having value
maybe commodities, local currency or foreign currencies. The concept of price is clear
to almost everybody when we discuss commodities. There is a price to be paid for the
purchase of food grain, oil, petrol, metal, etc. the price one pays for use of a unit of

 

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another persons money is called interest rate. And the price one pays in one¶s own
currency for a unit of another currency is called as an exchange rate.

Prices are generally determined by market forces. In a market, consumers have

µdemand¶ and producers or suppliers have µsupply¶, and the collective interaction of
demand and supply in the market determines the price. These factors are constantly
interacting in the market causing changes in the price over a short period of time. Such
changes in the price are known as µprice volatility¶. This has three factors: the speed of
price changes, the frequency of price changes and the magnitude of price changes.

The changes in demand and supply influencing factors culminate in market adjustments
through price changes. These price changes expose individuals, producing firms and
governments to significant risks. The break down of the 

 agreement
brought and end to the stabilising role of fixed exchange rates and the gold convertibility
of the dollars. The globalisation of the markets and rapid industrialisation of many
underdeveloped countries brought a new scale and dimension to the markets. Nations
that were poor suddenly became a major source of supply of goods. The Mexican crisis
in the south east-Asian currency crisis of 1990¶s has also brought the price volatility
factor on the surface. The advent of telecommunication and data processing bought
information very quickly to the markets. Information which would have taken months to
impact the market earlier can now be obtained in matter of moments. Even equity
holders are exposed to price risk of corporate share fluctuates rapidly.

These price volatility risks pushed the use of derivatives like futures and options
increasingly as these instruments can be used as hedge to protect against adverse
price changes in commodity, foreign exchange, equity shares and bonds.

.}||
 |

E

Earlier, managers had to deal with domestic economic concerns; what happened in
other part of the world was mostly irrelevant. Now globalisation has increased the size



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of markets and as greatly enhanced competition .it has benefited consumers who
cannot obtain better quality goods at a lower cost. It has also exposed the modern
business to significant risks and, in many cases, led to cut profit margins

In Indian context, south East Asian currencies crisis of 1997 had affected the
competitiveness of our products vis-à-vis depreciated currencies. Export of certain
goods from India declined because of this crisis. Steel industry in 1998 suffered its
worst set back due to cheap import of steel from south East Asian countries. Suddenly
blue chip companies had turned in to red. The fear of china devaluing its currency
created instability in Indian exports. Thus, it is evident that globalisation of industrial and
financial activities necessitates use of derivatives to guard against future losses. This
factor alone has contributed to the growth of derivatives to a significant extent.

.}
  ||| E
A significant growth of derivative instruments has been driven by technological break
through. Advances in this area include the development of high speed processors,
network systems and enhanced method of data entry. Closely related to advances in
computer technology are advances in telecommunications. Improvement in
communications allow for instantaneous world wide conferencing, Data transmission by
satellite. At the same time there were significant advances in software programmes
without which computer and telecommunication advances would be meaningless.
These facilitated the more rapid movement of information and consequently its
instantaneous impact on market price.
Although price sensitivity to market forces is beneficial to the economy as a whole
resources are rapidly relocated to more productive use and better rationed overtime the
greater price volatility exposes producers and consumers to greater price risk. The
effect of this risk can easily destroy a business which is otherwise well managed.
Derivatives can help a firm manage the price risk inherent in a market economy. To the
extent the technological developments increase volatility, derivatives and risk
management products become that much more important.



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.}|| | |
E
Advances in financial theories gave birth to derivatives. Initially forward contracts in its
traditional form, was the only hedging tool available. Option pricing models developed
by /'+)'-.+,$/ # in 1973 were used to determine prices of call and put options. In
late 1970¶s, work of Lewis Edeington extended the early work of Johnson and started
the hedging of financial price risks with financial futures. The work of economic theorists
gave rise to new products for risk management which led to the growth of derivatives in
financial markets.
The above factors in combination of lot many factors led to growth of derivatives
instruments
.F
|

Derivative markets help investors in many different ways:
.]
 || 
E
Futures and options contract can be used for altering the risk of investing in spot
market. For instance, consider an investor who owns an asset. He will always be
worried that the price may fall before he can sell the asset. He can protect himself by
selling a futures contract, or by buying a Put option. If the spot price falls, the short
hedgers will gain in the futures market, as you will see later. This will help offset their
losses in the spot market. Similarly, if the spot price falls below the exercise price, the
put option can always be exercised.
.]   E
Price discovery refers to the markets ability to determine true equilibrium prices. Futures
prices are believed to contain information about future spot prices and help in
disseminating such information. As we have seen, futures markets provide a low cost
trading mechanism. Thus information pertaining to supply and demand easily percolates
into such markets. Accurate prices are essential for ensuring the correct allocation of
resources in a free market economy. Options markets provide information about the
volatility or risk of the underlying asset.
.] |
|||
|E
As opposed to spot markets, derivatives markets involve lower transaction costs.
Secondly, they offer greater liquidity. Large spot transactions can often lead to



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significant price changes. However, futures markets tend to be more liquid than spot
markets, because herein you can take large positions by depositing relatively small
margins. Consequently, a large position in derivatives markets is relatively easier to
take and has less of a price impact as opposed to a transaction of the same magnitude
in the spot market. Finally, it is easier to take a short position in derivatives markets than
it is to sell short in spot markets.
.] |

  E
The availability of derivatives makes markets more efficient; spot, futures and options
markets are inextricably linked. Since it is easier and cheaper to trade in derivatives, it is
possible to exploit arbitrage opportunities quickly and to keep prices in alignment.
Hence these markets help to ensure that prices reflect true values.
9.] | |
E
Derivative markets provide speculators with a cheaper alternative to engaging in spot
transactions. Also, the amount of capital required to take a comparable position is less
in this case. This is important because facilitation of speculation is critical for ensuring
free and fair markets. Speculators always take calculated risks. A speculator will accept
a level of risk only if he is convinced that the associated expected return is
commensurate with the risk that he is taking.



, . &'(& 0') (" %$0#'-01 $% +$-$0+%-+($-#.

x The prices of derivatives converge with the prices of the underlying at the
expiration of derivative contract. Thus derivatives help in discovery of future as
well as current prices.
x An important incidental benefit that flows from derivatives trading is that it acts as
a catalyst for new entrepreneurial activity.
x Derivatives markets help increase savings and investment in the long run.
Transfer of risk enables market participants to expand their volume of activity.




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*

 



Q. Education qualification of investors who investing in derivative market.

.+'($- $.$% #/(

Under graduate 6
Graduate 10
Post graduate 23
Professional 11

g
 

0







 

Above diagram dipicts that most of the investors are post graduates having 23 members
among 50 members. We came to know that the investors who invest their money in
derivatives market are well educated people



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Q. Income range of investors who investing in derivative market.

Income range No. of Result

below 1,50,000 1
1,50,000-3,00,000 9
3,00,000-5,00,000 14
above 5,00,000 26

g


 

 ÎÎÎÎÎ

ÎÎÎÎÎÎÎÎÎÎ

g  0
ÎÎÎÎÎÎÎÎÎ

   ÎÎÎÎ

Î Î
Î Î

Above diagram dipicts that most of the investors are having the income level above
500000 . We came to know that the investors are ready to invest their money in
derivatives market having more than 300000 income per annum.



c
 
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Q. Normally what percentage of your monthly household income could be available for
investment
$.$%
-& #(0 -(  #/(
Between 5% to 10% 2
Between 11% to 15% 6
Between 16% to 20% 13
Between 21% to 25% 18
More than 25% 11

g
 

Œ    Î
Π   
Π 

Î
Π 






The house hold income available for invest in derivatives market are more than 25%. And
between 21 to 25% are at average.



c
 
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Q. What is your primary investment purpose?


 










 




The primary invest purpose of the investors in for retirement planning and future education of
their children¶s,




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Q. What kind of risk do you perceive while investing in the stock market?

$.$%
#)-#($+)0') (  #/(
Uncertainty of returns 19
Slump in stock market 22
Fear of windup of company 6
Others 3

g
 



Î

Î
g


Î
0
 
  
 



 
  




The slump in stock market is risk mostly faced by the investors in

derivaives market. 25% of the investors are facing the risk in slump in
sock market



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Q. Why people do not invest in derivative market?

$.$%
 '#$-#  #/(
Lack of knowledge & understanding 27
Increase speculation 2
Risky & highly leveraged 17
Counter party risk 4

   




 


 
 







Mostly The people who are not investing in derivatives market are due
to lack of knowledge only and also it is very risky and highly leveraged
one in stock market

 

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Q. What is the purpose of investing in derivative market?

$.$%
"$# $%-& #(0 -(  #/(
Hedge their fund 27
Risk control 9
More stable 1
Direct investment without buying & holding
assets 13

g
 

Î



Î

Î

Î g 
   


 c

   



 

The main purpose of investors investing their money in derivatives market is to hedge
their fund and they want to put direct investment without buying and holding assets.



c
 
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Q. From where you prefer to take advice before investing in derivative market?

$.$%
|.&+ $0  #/(
Brokerage houses 15
Research analyst 7
Websites 2
News Networks 23
Others 3

g
 




g g  
 Œ

  

  

!  
!  
  
 g g  



Œ

  

Î  Î 
Î


Through the news networks only i mostly prefer to take advice before investing in
derivative market and brokerage houses.



c
 
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Q. In which of the following would you like to participate?

$.$%
'(+"'( -  #/(
Stock index futures 19
Stock index Options 13
Future on individual
stock 6
Currency futures 9
Options on individual
stock 3

g
 
 "


 "













After considering the above diagram I would like to participate in stock index futures,
stock index options and in currency futures.



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?

Q. What contract maturity period would interest you for trading in?

25

20

15

Series1
10

0
1 month 2 month 3 month 6 month 9 month 12
month

3 months is the contract maturity period i would like to invest in the derivatives market



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Q. How often do you invest in derivative market?

 



Î   Î  

Î 

Î  
Î 

 


 Î  

Î  Î 
Î


I would prefer to invest my money in derivatives market at regular intervals



c
 
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Q. What was the result of your investment?
$.$%
 #/($%-& #(0 -(  #/(
Great results 4
Moderate but acceptable 24
Disappointed 22

g
 





 

c

 


I got the moderate results rather than getting great results due to am newer to the
derivatives market



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Q. What is best describes the overall approach to invest as a mean of achieving
investors goals.



 .$% #/(
Relative level of stability in overall investment
portfolio 17
increasing investment value while minimizing
potential for loss of principal 19
Investment growth with moderate high levels of
risk 4
Maximum long term returns with high risk 10

g
  
    

  





  

   #

 





  
  

   




Relative level of stability in overall investment portfolio and increasing investment value
while minimizing potential for loss of principal is best describes the overall approach to
invest as a mean of achieving investors goals  



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?


;.
· Most of the investors who invest in derivatives market are post graduate.
· Investors who invest in derivative market have a income of above 5,00,000
· Investors generally perceive slump in stock market kind of risk while investing in
derivative market.
· People are generally not investing in derivative market due to lack of knowledge
and difficulty in understanding and it is very risky also.
· Most of investor purpose of investing in derivative market is to hedge their fund.
· People generally participate in derivative market as a investor or hedger.
· People generally prefer to take advice from news network before investing in
derivative market.
· Most of investors participate in stock index futures.
· From this survey we come to know that most of investors make a contract of 3
month maturity period.
· Investors invest regularly in derivative market.
· The result of investment in derivative market is generally moderate but
acceptable.




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| 



$$)# %  .
X Options Futures, and other Derivatives by John C Hull
X Derivatives FAQ by Ajay Shah
X NSE¶s Certification in Financial Markets: - Derivatives Core module
X Financial Markets & Services by Gordon & Natarajan


 "$(#
X Report of the RBI-SEBI standard technical committee on exchange traded
Currency Futures
X Regulatory Framework for Financial Derivatives in India by Dr.L.C.GUPTA

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