study on derivatives

8/10/2019 Study on Derivatives

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KARNATAKAUNIVERSITY DHARWAD

GEN Societys

GLOBAL BUSINESS SCHOOL BHAIRIDEVARAKOPPA

HUBLI.

(A!i"te# to K"$%"t"&" U%i'e$sity D)"$*"# + Reco,%i-e# y AICTE

Ne* De!)i/

PROJECT REPORT ON

SUB0ITTED BY

H"$#ee1 Si%,) H2%#"!

0BA33445467

UNDER THE GUIDANCE O8

I%stit2te G2i#e9

O$,"%i-"tio% G2i#e9

Global Business School | A Study of Derivatives Market in India 1

A Study of Derivatives Market in India


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D$. R":"&"%t K2!&"$%i 0$. S)"%&"$

H"i

G.E.N.Societys

GLOBAL BUSINESS SCHOOL

BHAIRIDEVARKOPPA, HUBLI 58!5

(Reco,%i-e# y AICTE Ne* De!)i + A!i"te# to K"$%"t"& U%i'e$sity

D)"$*"#/

CERTIFICATE

This is to certify that 0$. H"$#ee1 Si%,)

H2%#"! of MBA IV Semester E;":

No.0BA33445467has successfully com!leted

her "ro#ect $ork titled %A Study of Derivatives

Market& "t Hi%#2st"% 8i%"%ci"! Se$'ices5 of the sam!le brokin) houses deal in mutual fund

investment services -he avera)e )ro'th in assets under mana)ement in last t'o years is

almost C2 com!any research services Additionally, a host of other value added services

such as fundamental and technical analysis, investment bankin), arbitra)e etc are offered by

the firms at different levels

C"1it"! 0"$&et

a!ital market is a market for securities *debt or e(uity+, 'here business enter!rises

*com!anies+ and )overnments can raise lon)Eterm funds a!ital market may be classified as

!rimary markets and secondary markets In !rimary market ne' stock or bond issues are sold

to investor via a mechanism kno'n as under'ritin) In secondary markets, e7istin) securities

are sold and brou)ht amon) investors or traders, usually on a security e7chan)e, over the

counter or else'here -he ca!ital market includes e stock market *e(uity securities+ and Bond

market *debt+

P$i:"$y "%# Seco%#"$y C"1it"! 0"$&ets

A com!any cannot easily attract investors to invest in their securities if the investors

cannot subse(uently trade these securities at 'ill In other 'ords, securities cannot have a

)ood !rimary market unless it is ensured of an active secondary market

P$i:"$y 0"$&et

Securities )enerally have t'o sta)es in their lifes!an -he first sta)e is 'hen the

com!any initially issues the security directly from its treasury at a !redetermined offerin)

!rice /rimary market is the market for issue of ne' securities It therefore essentially consist

of the com!anies issuin) securities, the !ublic subscribin) to these securities, the re)ulatory

a)encies like S


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-he second sta)e is 'hen an investor or dealer makes the shares, bou)ht from a

com!any treasury, available for sale to other investors on the secondary market Secondary

market is the market for tradin) in e7istin) securities, after they have been created in the

!rimary market It essentially consists of the !ublic 'ho are buyers and sellers of securities,

brokers, mutual funds, and most im!ortantly, the stock e7chan)es 'here the tradin) takes

!lace, such as the BS< *Bombay Stock


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Market !artici!ants include individual retail investors, institutional investors such as

mutual funds, banks, insurance com!anies and hed)e funds, and also !ublically traded

cor!orations tradin) in their o'n shares

T$"#i%,

/artici!ants in the stock market ran)e from small individual stock investors to lar)e

hed)e fund traders, 'ho can be based any'here

Listi%,

istin) means admission of securities of an issuer to tradin) !rivile)es on a stocke7chan)e throu)h a formal a)reement -he !rime ob"ective of admission to dealin) on the


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1??4 Accordin) to the !reamble of the S


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S


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o'ever the Securities ontracts *.e)ulation+ Act, 1?>@ *S.A+ re(uired amendment to

include JderivativesJ in the definition of securities to enable S@+ from the

Government of India under the Securities ontracts *.e)ulation+ Act 1?>@ BS@, !ursuant

to the BS< *or!orati9ation and Demutuali9ation+ Scheme, 455> notified by the Securities

and


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-he S


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investors and facilitate smooth transactions0 Investor Services0 -he De!artment of Investor

Services redresses )rievances of investors

BS< 'as the first e7chan)e in the country to !rovide an amount of .s1 million

to'ards the investor !rotection fundF it is an amount hi)her than that of any e7chan)e in the

country BS< launched a nation'ide investor a'areness !ro)rammeE LSafe Investin) in the

Stock MarketL under 'hich 4@C !ro)rammes 'ere held in more than 455 cities -he BS< ;nE

line -radin) *B;-+0 BS< ;nEline -radin) *B;-+ facilitates onEline screen based tradin) in

securities B;- is currently o!eratin) in 4>,555 -rader orkstations located across

over 6>? cities in India BS


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-he8ational Stock @

-he 8ational Stock e7chan)e is hi)hly active in the field ofmarket ca!itali9ationand

thus aimin) it the ninth lar)est stock e7chan)e in the said field Similarly, the tradin) of the

stock e7chan)e in e(uities and derivativesis so hi)h that it has resulted in hi)h turnovers and

thus makin) it the lar)est stock e7chan)e in India

It is the stock e7chan)e 'herein there is the facility of electronic e7chan)e offerin)

investors -his facility is available in almost ty!es of e(uitable transactions such as e(uities,

debentures, etc it is also the lar)est stock e7chan)e if calculated in the terms of traded values

O$i,i% "%# Histo$y o= t)e N"tio%"! Stoc& E;c)"%,e

-he 8ational Stock e7chan)e 'as incor!orated for the first time in 8ovember, 1??4

-he national stock e7chan)e 'as not incor!orated as the national stock e7chan)eF rather, it

had )ot the reco)nition of the reco)ni9ed stock e7chan)e in A!ril, 1??6 -he 8ational stock

3uly, it has introduced the

http://www.sharegyan.com/nse/national-stock-exchange/http://www.sharegyan.com/share-market/what-is-market-capitalization/http://www.sharegyan.com/share-market/what-is-market-capitalization/http://www.sharegyan.com/nse/what-is-nse-derivatives/http://www.sharegyan.com/nse/national-stock-exchange/http://www.sharegyan.com/share-market/what-is-market-capitalization/http://www.sharegyan.com/nse/what-is-nse-derivatives/


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Investor !rotection fund 'hich is a very im!ortant function introduced by the national Stock

-he conce!t of 8S 'as e7tended by the introduction of clearin) and settlement

'ith the hel! of 8S in year 1??@ -he 8ational stock


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;-


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DETAILS O8 STOCK ECHANGES

S$.N

o.

N":e o= t)e E;c)"%,e V"!i# U1to

1 Ahmedabad Stock


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16 Madhya /radesh Stock


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S*ICA+ Se'urities Li%ited,

SBIA/ Securities td *SS+ is a 155 subsidiary of SBI a!ital Markets td 'hich

is one of the oldest !layers in the Indian a!ital Market and has a dominant !osition in the

Indian !rimary ca!ital markets SBIA/ Securities imited is a !art of the SBI Grou!

*usiness Overvie-,

SBIA/ Securities td *SS+ is a 155 subsidiary of SBI a!ital Markets td 'hich

is one of the oldest !layers in the Indian a!ital Market and has a dominant !osition in the

Indian !rimary ca!ital markets SBI a!ital Markets td commenced brokin) activities in

March 4551 to fulfill the secondary market needs of $inancial Institutions, $IIs,

Mutual $unds, Banks, or!orates, i)h 8et'orth Individual, 8onEresidential

Investors and .etail domestic investors SBIA/ Securities td *SS+ is a com!any, 'hich

has been formed to take over the brokin) o!erations of SBI a!ital Markets td SS

commenced o!erations in the first (uarter of financial year of 455@E455=

Services currently offered include Institution


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;!erate and mana)e venture ca!ital funds

S*I Asset anage%ent

Investment advisory services, investment trust mana)ement

S*I Capital

;!erate and mana)e buyout and revitali9ation funds

S*I Capital Solutions

Me99anine fund mana)ement

S*I /EN CA+ITAL +TE

;verseas investments

B$o&e$",e + I%'est:e%t B"%&i%, B2si%ess

S*I Se'urities

om!rehensive online securities com!any

S*I 0und *an!

onsultin) of mutual fund sales and o!eration of mutual funds information 'ebsite

based on its uni(ue evaluation and analysis

S*I Li1uidity ar!et

;fferin) market Infrastructure and services of $ore7 tradin) to financial firms and

develo!in) related systems and !roducts

8i%"%ci"! Se$'ices B2si%ess

S*2 Insuran'e

8onElife insurance com!any usin) !rimarily the Internet

Global Business School | A Study of Derivatives Market in India )-


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S*I Lease

om!rehensive leasin) business

S*I Card

redit card business

S*I *usiness Solutions

Back ;ffice su!!ort services

S*I ar!eting

Advertisin) a)ency

S*I *usiness Support

ontact center and tem!orary staff service for cor!orations

Ho2si%, "%# Re"! Est"te B2si%ess

S*I ortgage

on)Eterm, fi7edErate housin) loans

S*I +lanners

Architectural construction and consultin) services

Ot)e$s

S*I Net Syste%s

. H D, Sales and Maintenance for financial system and !rovision of information

security !roducts and solution services

De>%itio% o= De$i'"ti'es

Global Business School | A Study of Derivatives Market in India ).


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;ne of the most si)nificant events in the securities markets has been the develo!ment and

e7!ansion of financial derivatives -he term #derivatives is used to refer to financial

instruments 'hich derive their value from some underlyin) assets

-he underlyin) assets could be e(uities *shares+, debt *bonds, -Ebills, and notes+,

currencies, and even indices of these various assets, such as the 8ifty >5 Inde7

Derivatives derive their names from their res!ective underlyin) asset -hus if a

derivatives underlyin) asset is e(uity, it is called e(uity derivative and so on Derivatives can

be traded either on a re)ulated e7chan)e, such as the 8S< or off the e7chan)es, ie, directly

bet'een the different !arties, 'hich is called #overEtheEcounter *;-+ tradin) *In India

only e7chan)e traded e(uity derivatives are !ermitted under the la'+

-he basic !ur!ose of derivatives is to transfer the !rice risk *inherent in fluctuations

of the asset !rices+ from one !arty to anotherF they facilitate the allocation of risk to those

'ho are 'illin) to take it In so doin), derivatives hel! miti)ate the risk arisin) from the

future uncertainty of !rices

$or e7am!le, on 8ovember 1, 455? a rice farmer may 'ish to sell his harvest at a

future date *say 3anuary 1, 4515+ for a !reEdetermined fi7ed !rice to eliminate the risk of

chan)e in !rices by that date Such a transaction is an e7am!le of a derivatives contract -he

!rice of this derivative is driven by the s!ot !rice of rice 'hich is the Junderlyin)J

O$i,i% o= De$i'"ti'es

Global Business School | A Study of Derivatives Market in India )(


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hile tradin) in derivatives !roducts has )ro'n tremendously in recent times, the

earliest evidence of these ty!es of instruments can be traced back to ancient Greece 5 -he farmers

'ere afraid of rice !rices fallin) in the future at the time of harvestin) -o lock in a !rice *that

is, to sell the rice at a !redetermined fi7ed !rice in the future+, the farmers entered into

contracts 'ith the buyers

-hese 'ere evidently standardi9ed contracts, much like todays futures contracts

In 12C2, the hica)o Board of -rade *B;-+ 'as established to facilitate tradin) of for'ard

contracts on various commodities $rom then on, futures contracts on commodities have

remained more or less in the same form, as 'e kno' them today

hile the basics of derivatives are the same for all assets such as e(uities, bonds,

currencies, and commodities, 'e 'ill focus on derivatives in the e(uity markets and all

e7am!les that 'e discuss 'ill use stocks and inde7 *basket of stocks+

De$i'"ti'es i% I%#i"

Global Business School | A Study of Derivatives Market in India )/


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In India, derivatives markets have been functionin) since the nineteenth century, 'ith

or)ani9ed tradin) in cotton throu)h the establishment of the otton -rade Association in

12=>Derivatives, as e7chan)e traded financial instruments 'ere introduced in India in 3une

4555-he 8ational Stock @, or S*.+A, 'as amended so that

derivatives could be declared as #securities -his allo'ed the re)ulatory frame'ork for

tradin) securities, to be e7tended to derivatives -he Act considers derivatives on e(uities to

be le)al and valid, but only if they are traded on e7chan)es

0i!esto%es i% t)e #e'e!o1:e%t o= I%#i"% De$i'"ti'e 0"$&et

Global Business School | A Study of Derivatives Market in India )0


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8ovember 12, 1??@ Gu!ta ommittee set u! to draft a !olicy frame'ork for

introducin) derivatives

May 11, 1??2 Gu!ta committee submits its re!ort on the !olicy $rame'ork

May 4>, 4555 S


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In the conte7t of securities, the s!ot market or cash market is a securities market in

'hich securities are sold for cash and delivered immediately -he delivery ha!!ens after the

settlement !eriod et us describe this in the conte7t of India -he 8S5 stocks traded in the market 3ust as

derivatives on stocks are called stock derivatives, derivatives on indices such as 8ifty are

called inde7 derivatives

De>%itio%s o= B"sic De$i'"ti'es

-here are various ty!es of derivatives traded on e7chan)es across the 'orld -hey

ran)e from the very sim!le to the most com!le7 !roducts -he follo'in) are the three basic

forms of derivatives, 'hich are the buildin) blocks for many com!le7 derivatives instruments

*the latter are beyond the sco!e of this book+0

Global Business School | A Study of Derivatives Market in India );


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$or'ards

$utures

;!tions

%no'led)e of these instruments is necessary in order to understand the basics of

derivatives e shall no' discuss each of them in detail

8o$*"$#s

A for'ard contract or sim!ly afor'ard is a contract bet'een t'o !arties to buy or sell

an asset at a certain future date for a certain !rice that is !reEdecided on the date of the

contract -he future date is referred to as e7!iry date and the !reEdecided !rice is referred toas $or'ard /rice It may be noted that $or'ards are !rivate contracts and their terms are

determined by the !arties involved

A for'ard is thus an a)reement bet'een t'o !arties in 'hich one !arty, the buyer,

enters into an a)reement 'ith the other !arty, the seller that he 'ould buy from the seller an

underlyin) asset on the e7!iry date at the for'ard !rice -herefore, it is a commitment by

both the !arties to en)a)e in a transaction at a later date 'ith the !rice set in advance -his is

different from a s!ot market contract, 'hich involves immediate !ayment and immediate

transfer of asset -he !arty that a)rees to buy the asset on a future date is referred to as a lon)

investor and is said to have a lon) !osition Similarly the !arty that a)rees to sell the asset in

a future date is referred to as a short investor and is said to have a short !osition -he !rice

a)reed u!on is called the delivery !rice or the $or'ard /rice

$or'ard contracts are traded only in ;ver the ounter *;-+ market and not in stock

e7chan)es ;- market is a !rivate market 'here individuals:institutions can trade throu)h

ne)otiations on a one to one basis

82t2$es

ike a for'ard contract, a futures contract is an a)reement bet'een t'o !arties in

'hich the buyer a)rees to buy an underlyin) asset from the seller, at a future date at a !rice

that is a)reed u!on today o'ever, unlike a for'ard contract, a futures contract is not a

!rivate transaction but )ets traded on a reco)ni9ed stock e7chan)e In addition, a futures

Global Business School | A Study of Derivatives Market in India -*


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An o!tion is a derivative contract bet'een a buyer and a seller, 'here one !arty *say

$irst /arty+ )ives to the other *say Second /arty+ the ri)ht, but not the obli)ation, to buy from

*or sell to+ the $irst /arty the underlyin) asset on or before a s!ecific day at an a)reedEu!on

!rice In return for )rantin) the o!tion, the !arty )rantin) the o!tion collects a !ayment from

the other !arty -his !ayment collected is called the #!remium or !rice of the o!tion

-he ri)ht to buy or sell is held by the #o!tion buyer *also called the o!tion holder+F

the !arty )rantin) the ri)ht is the #o!tion seller or #o!tion 'riter &nlike for'ards and

futures contracts, o!tions re(uire a cash !ayment *called the !remium+ u!front from the

o!tion buyer to the o!tion seller -his !ayment is called o!tion !remium or o!tion !rice

;!tions can be traded either on the stock e7chan)e or in over the counter *;-+ markets

;!tions traded on the e7chan)es are backed by the learin) or!oration thereby minimi9in)

the risk arisin) due to default by the counter !arties involved ;!tions traded in the ;-

market ho'ever are not backed by the learin) or!oration

-here are t'o ty!es of o!tionsUcall o!tions and !ut o!tionsU'hich are e7!lained

belo'

C"!! o1tio%

A call o!tion is an o!tion )rantin) the right to the buyer of the o!tion to buy the

underlyin) asset on a s!ecific day at an a)reed u!on !rice, but not the obligation to do so It

is the seller 'ho )rants this ri)ht to the buyer of the o!tion It may be noted that the !erson

'ho has the ri)ht to buy the underlyin) asset is kno'n as the #buyer of the call o!tion

-he !rice at 'hich the buyer has the ri)ht to buy the asset is a)reed u!on at the time

of enterin) the contract -his !rice is kno'n as the strike !rice of the contract *call o!tion

strike !rice in this case+

Since the buyer of the call o!tion has the ri)ht *but no obli)ation+ to buy the

underlyin) asset, he 'ill e7ercise his ri)ht to buy the underlyin) asset if and only if the !rice

of the underlyin) asset in the market is more than the strike !rice on or before the e7!iry date

of the contract -he buyer of the call o!tion does not have an obli)ation to buy if he does not

'ant to

Global Business School | A Study of Derivatives Market in India -)


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P2t o1tio%

A !ut o!tion is a contract )rantin) the right to the buyer of the o!tion to sell the

underlyin) asset on or before a s!ecific day at an a)reed u!on !rice, but not the obligation to

do so It is the seller 'ho )rants this ri)ht to the buyer of the o!tion-he !erson 'ho has the ri)ht to sell the underlyin) asset is kno'n as the #buyer of the

!ut o!tion -he !rice at 'hich the buyer has the ri)ht to sell the asset is a)reed u!on at the

time of enterin) the contract -his !rice is kno'n as the strike !rice of the contract *!ut

o!tion strike !rice in this case+

Since the buyer of the !ut o!tion has the ri)ht *but not the obli)ation+ to sell the

underlyin) asset, he 'ill e7ercise his ri)ht to sell the underlyin) asset if and only if the !rice

of the underlyin) asset in the market is less than the strike !rice on or before the e7!iry date

of the contract -he buyer of the !ut o!tion does not have the obli)ation to sell if he does not

'ant to

Te$:i%o!o,y o= De$i'"ti'es

In this section 'e e7!lain the )eneral terms and conce!ts related to derivatives

S1ot 1$ice (ST/

S!ot !rice of an underlyin) asset is the !rice that is (uoted for immediate delivery of

the asset

$or e7am!le, at the 8S


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-he !rice at 'hich t he buyer of an o!tion can buy the stock *in the case of a call

o!tion+ or sell the stock *in the case of a !ut o!tion+ on or before the e7!iry date of o!tion

contracts is called strike !rice It is the !rice at 'hich the stock 'ill be bou)ht or sold 'hen

the o!tion is e7ercised Strike !rice is used in the case of o!tions onlyF it is not used for

futures or for'ards

E;1i$"tio% #"te (T/

In the case of $utures, $or'ards, Inde7 and Stock ;!tions,


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B


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#Moneyness of an o!tion at any )iven time de!ends on 'here the s!ot !rice of the

underlyin) is at that !oint of time relative to the strike !rice -he !remium !aid is not taken

into consideration 'hile calculatin) moneyness of an ;!tion, since the !remium once !aid is

a sunk cost and the !rofitability from e7ercisin) the o!tion does not de!end on the si9e of the

!remium -herefore, the decision *of the buyer of the o!tion+ 'hether to e7ercise the o!tion

or not is not affected by the si9e of the !remium -he follo'in) three terms are used to define

the moneyness of an o!tion

I%t)e:o%ey o1tio%

An o!tion is said to be inEtheEmoney if on e7ercisin) the o!tion, it 'ould !roduce a

cash inflo' for the buyer -hus, all ;!tions are inEtheEmoney 'hen the value of s!ot !rice

of the underlyin) e7ceeds the strike !rice ;n the other hand, /ut ;!tions are inEtheE money

'hen the s!ot !rice of the underlyin) is lo'er than the strike !rice Moneyness of an o!tion

should not be confused 'ith the !rofit and loss arisin) from holdin) an o!tion contract It

should be noted that 'hile moneyness of an o!tion does not de!end on the !remium !aid,

!rofit:loss do -hus a holder of an inEtheEmoney o!tion need not al'ays make !rofit as the

!rofitability also de!ends on the !remium !aid

O2to=t)e:o%ey o1tio%

An outEofEtheEmoney o!tion is an o!!osite of an inEtheEmoney o!tion An o!tionE

holder 'ill not e7ercise the o!tion 'hen it is outEofEtheEmoney A all o!tion is outEofEtheE

money 'hen its strike !rice is )reater than the s!ot !rice of the underlyin) and a /ut o!tion is

outEofEthe money 'hen the s!ot !rice of the underlyin) is )reater than the o!tions strike

!rice

Att)e:o%ey o1tio%

An atEtheEmoneyEo!tion is one in 'hich the s!ot !rice of the underlyin) is e(ual to

the strike !rice It is at the sta)e 'here 'ith any movement in the s!ot !rice of the

underlyin), the o!tion 'ill either become inEtheEmoney or outEofEtheEmoney

A11!ic"tio%s o= De$i'"ti'es

In this cha!ter, 'e look at the !artici!ants in the derivatives markets and ho' they use

derivatives contracts

Global Business School | A Study of Derivatives Market in India -/


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P"$tici1"%ts i% t)e De$i'"ti'es 0"$&et

As e(uity markets develo!ed, different cate)ories of investors started !artici!atin) in

the market In India, e(uity market !artici!ants currently include retail investors, cor!orate

investors, mutual funds, banks, forei)n institutional investors etc


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also seek to make !rofit in case there is !rice discre!ancy bet'een the stock !rice in the cash

and the derivatives markets

Uses o= De$i'"ti'es

Ris& :"%",e:e%t

-he most im!ortant !ur!ose of the derivatives market is risk mana)ement .isk

mana)ement for an investor com!rises of the follo'in) three !rocesses0

Identifyin) the desired level of risk that the investor is 'illin) to take on his

investmentsF

Identifyin) and measurin) the actual level of risk that the investor is carryin)F and Makin) arran)ements 'hich may include tradin) *buyin):sellin)+ of derivatives

contracts that allo' him to match the actual and desired levels of risk

0"$&et ecie%cy


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$or e7am!le, )old may trade at different !rices in Mumbai and Delhi but a derivatives

contract on )old 'ould have one value and so traders in Mumbai and Delhi can validate the

!rices of s!ot markets in their res!ective location to see if it is chea! or e7!ensive and trade

accordin)ly

Second, the !rices of the futures contracts serve as !rices that can be used to )et a

sense of the market e7!ectation of future !rices $or e7am!le, say there is a com!any that

!roduces su)ar and e7!ects that the !roduction of su)ar 'ill take t'o months from today As

su)ar !rices fluctuate daily, the com!any does not kno' if after t'o months the !rice of su)ar

'ill be hi)her or lo'er than it is today o' does it !redict 'here the !rice of su)ar 'ill be in

futureT It can do this by monitorin) !rices of derivatives contract on su)ar *say a Su)ar

$or'ard contract+ If the for'ard !rice of su)ar is tradin) hi)her than the s!ot !rice that

means that the market is e7!ectin) the su)ar s!ot !rice to )o u! in future If there 'ere no

derivatives !rice, it 'ould have to 'ait for t'o months before kno'in) the market !rice of

su)ar on that day Based on derivatives !rice the mana)ement of the su)ar com!any can

make strate)ic and tactical decisions of ho' much su)ar to !roduce and 'hen

W)"t is O1e% I%te$est (OI/ "%# Co%t$"ct i% t)e e%c!ose#

c)"$ts

;!en interest is the total number of o!tions and:or futures contracts that are not closed

out on a !articular day, that is contracts that have been !urchased and are still outstandin) and

not been sold and vice versa A c ommon misconce!tion is that o!en interest is the same thin)

as volume of o!tions and futures trades -his is not correct since there could be hu)e volumes

but if the volumes are "ust because of !artici!ants s(uarin) off their !ositions then the o!en

interest 'ould not be lar)e ;n the other hand, if the volumes are lar)e because of fresh

!ositions bein) created then the o!en interest 'ould also be lar)e

-he ontract column tells us about the strike !rice of the call or !ut and the date of

their settlement $or e7am!le, the first entry in the Active alls section *C>5555EAu)ust+

means it is a 8ifty call 'ith .s C>55 strike !rice, that 'ould e7!ire in Au)ust It is interestin)

to note from the ne's!a!er e7tract )iven above is that it is !ossible to have a number of

o!tions at different strike !rices but all of them have the same e7!iry date

-here are different tables e7!lainin) different sections of the $H; markets

2( +ositive trend,It )ives information about the to! )ainers in the futures market

Global Business School | A Study of Derivatives Market in India -;


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3( Negative trend,It )ives information about the to! losers in the futures market

4( 0uture OI gainers,It lists those futures 'hose increases in o!en interest are amon) the

hi)hest on that day

5( 0uture OI losers,It lists those futures 'hose decreases in o!en interest are amon) the

hi)hest on that day

6( A'tive Calls,alls 'ith hi)h tradin) volumes on that !articular day

7( A'tive +uts,/uts 'ith hi)h tradin) volumes on that !articular day

Sett!e:e%t o= De$i'"ti'es

Settlement refers to the !rocess throu)h 'hich trades are cleared by the

!ayment:recei!t of currency, securities or cash flo's on !eriodic !ayment dates and on the

date of the final settlement -he settlement !rocess is some'hat elaborate for derivatives

instruments 'hich are e7chan)e traded *-hey have been very briefly outlined here $or a

more detailed e7!lanation, !lease refer to 8$M Derivatives Markets *Dealers+ Module+

-he settlement !rocess for e7chan)e traded derivatives is standardi9ed and a certain set of

!rocedures e7ist 'hich take care of the counter!arty risk !osed by these instruments At the

8S


41/79

C!e"$i%, "%&s

Some commercial banks have been desi)nated by the 8S as learin) Banks

$inancial settlement can take !lace only throu)h learin) Banks All the clearin) membersare re(uired to o!en a se!arate bank account 'ith an 8S desi)nated clearin) bank for the

$H; se)ment -he clearin) members kee! a mar)in amount in these bank accounts

Sett!e:e%t o= 82t2$es

hen t'o !arties trade a futures contract, both have to de!osit mar)in money 'hich

is called the initial mar)in $utures contracts have t'o ty!es of settlement0 *i+ the markEtoE

market *M-M+ settlement 'hich ha!!ens on a continuous basis at the end of each day, and

*ii+ the final settlement 'hich ha!!ens on the last tradin) day of the futures contract ie, the

last -hursday of the e7!iry month

0"$& to :"$&et sett!e:e%t

-o cover for the risk of default by the counter!arty for the clearin) cor!oration, the

futures contracts are markedEtoEmarket on a daily basis by the e7chan)e Mark to market

settlement is the !rocess of ad"ustin) the mar)in balance in a futures account each day for the

chan)e in the value of the contract from the !revious day, based on the daily settlement !rice

of the futures contracts */lease refer to the -ables )iven belo'+ -his !rocess hel!s the

clearin) cor!oration in mana)in) the counter!arty risk of the future contracts by re(uirin) the

!arty incurrin) a loss due to adverse !rice movements to !art 'ith the loss amount on a daily

basis Sim!ly !ut, the !arty in the loss !osition !ays the clearin) cor!oration the mar)in

money to cover for the shortfall in cash In e7traordinary times, the


42/79

!rofit:loss is settled in cash $inal settlement loss is debited and final settlement !rofit is

credited to the relevant clearin) bank accounts on the day follo'in) the e7!iry date of the

contract Su!!ose the above contract closes on day @ *that is, it e7!ires+ at a !rice of .s

15C5, then on the day of e7!iry, .s 155 'ould be debited from the seller *short !osition

holder+ and 'ould be transferred to the buyer *lon) !osition holder+

Sett!e:e%t o= O1tio%s

In an o!tions trade, the buyer of the o!tion !ays the o!tion !rice or the o!tion

!remium -he o!tions seller has to de!osit an initial mar)in 'ith the clearin) member as he is

e7!osed to unlimited losses -here are basically t'o ty!es of settlement in stock o!tion

contracts0 daily !remium settlement and final e7ercise settlement ;!tions bein)


43/79

settlement value 'hich is the difference bet'een the settlement !rice and the strike !rice

Similarly, an investor 'ho has a short !osition in an inEtheEmoney o!tion 'ill have to !ay the

e7ercise settlement value

Acco2%ti%, "%# T";"tio% o= De$i'"ti'es

-he Institute of hartered Accountants of India *IAI+ has issued )uidance notes on

accountin) of inde7 future contracts from the vie' !oint of !arties 'ho enter into such future

contracts as buyers or sellers $or other !arties involved in the tradin) !rocess, like brokers,

tradin) members, clearin) members and clearin) cor!orations a trade in e(uity inde7 futures

is similar to a trade in, say shares, and accountin) remains similar as in the case of buyin) or

sellin) of shares

T";"tio% o= De$i'"ti'e I%st$2:e%ts

/rior to the year 455>, the Income -a7 Act did not have any s!ecific !rovision

re)ardin) ta7ability of derivatives -he only ta7 !rovisions 'hich had indirect bearin) on

derivatives transactions 'ere sections =6*1+ and C6*>+ &nder these sections, trade in

derivatives 'as considered #s!eculative transactions for the !ur!ose of determinin) ta7

liability All !rofits and losses 'ere ta7ed under the s!eculative income cate)ory -herefore,

loss on derivatives transactions could be set off only a)ainst other s!eculative income and the

same could not be set off a)ainst any other income -his resulted in hi)h ta7 liability

$inance Act, 455> has amended section C6*>+ so as to e7clude transactions in

derivatives carried out in a #reco)ni9ed stock e7chan)e from Xs!eculative transaction -his

im!lies that derivatives transactions that take !lace in a #reco)ni9ed stock e7chan)e are not

ta7ed as s!eculative income or loss -hey are treated under the business income head of the

Income ta7 Act Any losses on these activities can be set off a)ainst any business income in

the year and the losses can be carried for'ard and set off a)ainst any other business income

for the ne7t ei)ht years

0C

M *Multi ommodity


44/79

for facilitatin) online tradin), clearin) and settlement o!erations for commodity futures

markets across the country

%ey shareholders of M are $inancial -echnolo)ies *India+ td, State Bank of

India, D$ Bank, State Bank of Indore, State Bank of yderabad, State Bank of

Saurashtra, SBI ife Insurance o td, &nion Bank of India, Bank of India,

Bank of Baroda, anera Bank, or!oration Bank

ead(uartered in Mumbai, M is led by an e7!ert mana)ement team 'ith dee!

domain kno'led)e of the commodity futures markets

-oday M is offerin) s!ectacular )ro'th o!!ortunities and advanta)es to a lar)e

cross section of the !artici!ants includin) /roducers : /rocessors, -raders, or!orate,

.e)ional -radin) anters, Im!orters,


45/79

8ational ommodity and Derivatives


46/79

8ational Multi ommodity


47/79

-he uni(ue stren)th of 8M< is its settlements via a Delivery Backed System, an

im!erative in the commodity tradin) business -hese deliveries are e7ecuted throu)h a sound

and reliable arehouse .ecei!t System, leadin) to )uaranteed clearin) and settlement

Lite$"t2$e Re'ie*

Global Business School | A Study of Derivatives Market in India .0


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Dr +re%alata :3;;48e7amines the im!act of introducin) inde7 futures and o!tions

contracts on the volatility of the underlinin) stock inde7 in India -he results su))est that

futures and o!tions tradin) have not led to a chan)e in the volatility of the underlyin) stock

inde7 Susan Tho%as and A crores in 4555E51 to .s

11515C24 crores, 'ithin a short s!an of ei)ht years derivative tradin) in India has sur!assed

cash se)ment in terms of volume and turnovers

O(+ $upta:3;;58study su))est that the overall volatility of the stock market has

declined after the introduction of the inde7 futures for both 8ifty and Sense7 indices,

o'ever there is no conclusive evidence Sandeep Srivastava :3;;68 uses the call and !ut

o!tion o!en interest and volume based !redictors as )iven by Bhuyan and Ran *4554+ -he

results sho' that these !redictors have si)nificant e7!lanatory !o'er 'ith o!en interest bein)

more si)nificant as com!ared to tradin) volume

$ola!a C Nath :3;;68studies the behaviour of volatility in cash market after the

introduction of derivatives Ra


49/79


50/79

-he time available to conduct the study 'as only 4 months Bein) a 'ide to!ic I had a

limited time

imited resources 'ere available to collect the information about commodity tradin)

-he !rimary data has been collected throu)h a structured (uestionnaire to a sam!le of155 investors, 'hich may not reflect the o!inion of the entire !o!ulation

H>+OTHESIS O0 THE ST?D>

50 Income and investment in different ty!e of derivative instruments are not related

10 Income and investment in different ty!e of derivative instruments are related

9*> A:e and !ur!ose of Investin: in Derivative market are not related,

91> A:e and !ur!ose of Investin: in Derivative market are related,

50 Income !er annum and monthly income available for investment are related

10 Income !er annum and monthly income available for investment are related

50 Maturity !eriod of investment and results of investment are no related

10 Maturity !eriod of investment and results of investment are related

Global Business School | A Study of Derivatives Market in India (*


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RESEARCH 0ETHODOLOGY

Desc$i1ti'e Rese"$c)

D"t" Co!!ectio% 0et)o#

/rimary Data Secondary Data

P$i:"$y D"t"

/rimary data 'as collected throu)h a structured (uestionnaire -he Questionnaire 'as

distributed throu)h online !latform by


52/79

0e"s2$e:e%t Tec)%i?2es Use#

Soft'are /acka)e for Social Science *S/SS+ has been used for the !ur!ose of this

analysis I SQ&A.< test 'as used for testin) the y!othesis

More s!ecifically the !rocess 'as or)ani9ed -he research (uestionnaire 'as !reEtested

throu)h !ilot survey In its draft form it 'ent under a !re test 'ith hannel /artner of t'o

different com!anies -he second !reEtest 'as conducted after discussion 'ith the e7!erts inthe field

Global Business School | A Study of Derivatives Market in India ()


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ANALYSIS O8 THE RESULTS

3. Ge%#e$ o= t)e $es1o%#e%ts

Inter!retation0 $rom the (uestionnaire it is observed that 2C of the res!ondents are

Male and 1@ of them are $emale

Global Business School | A Study of Derivatives Market in India (-

T"!e 39 W)"t is yo2$ Ge%#e$

8$e?2e%c

y

Pe$ce

%t

V"!i#

Pe$ce%t

C2:2!"ti'

e Pe$ce%t

0"!e 4. 4.,* 4.,* 4.,*

8e:"!

e1/ 1/,* 1/,* 1**,*

Tot"! 344 344.4 344.4


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6. A,e o= t)e $es1o%#e%ts

T"!e 69 W)"t is yo2$ A,e

8$e?2e%c

y

Pe$ce%t V"!i#

Pe$ce%t

C2:2!"ti'e

Pe$ce%t

Bet*ee% 37

6)- )-,* )-,* )-,*

Bet*ee% 6F

)) )),* )),* .(,*

Bet*ee% F

./ ./,* ./,* ;1,*

Bet*ee% F

F; ;,* ;,* 1**,*

Tot"! 344 344.4 344.4

Global Business School | A Study of Derivatives Market in India (.


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Inter!retation0 C@ of the res!ondents fall under the a)e cate)ory of 6> CC years,46 of them fall under 12 E4C years 'ere as 44 of the res!ondents are bet'een the a)e

cate)ory of 4> E6C years and ? of the res!ondents are Bet'een the a)e )rou! of C> >C

years

. Occ21"tio% o= t)e $es1o%#e%ts

T"!e 9 W)ic) o= t)e =o!!o*i%, est #esc$ies yo2$

c2$$e%t Occ21"tio%

8$e?2e%c

y

Pe$ce%t V"!i#

Pe$ce%t

C2:2!"ti'

e Pe$ce%t

E:1!oyee -0 -0,* -0,* -0,*

B2si%ess:"

%

-. -.,* -.,* 01,*

St2#e%t 1* 1*,* 1*,* 41,*

P$o=essio%"! 1; 1;,* 1;,* 1**,*Tot"! 344 344.4 344.4

Global Business School | A Study of Derivatives Market in India ((


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Inter!retation0 $rom the above chart it is clear that ma"ority of the res!ondents are

em!loyee 'ith a 'ei)hta)e of 6= , 8e7t are Businessman 'ith a total of 6C and

/rofessionals bein) 1? and Students 15

. E#2c"tio%"! 2"!i>c"tio% o= t)e $es1o%#e%ts

T"!e 9 W)"t is yo2$ E#2c"tio%"! 2"!i>c"tio%

8$e?2e%c

y

Pe$ce%

t

V"!i#

Pe$ce%t

C2:2!"ti'

e Pe$ce%t

U%#e$,$"#2"

te-- --,* --,* --,*

G$"#2"te -( -(,* -(,* /4,*

Post

G$"#2"te)1 )1,* )1,* 4;,*

P$o=essio%"!

De,$ee11 11,* 11,* 1**,*

Global Business School | A Study of Derivatives Market in India (/


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Tot"! 344 344.4 344.4

Inter!retation0 Ma"ority of the res!ondents are Graduate bein) 6> 'ere are

&nder)raduate are closely follo'ed 'ith 66, /ost )raduates consist of 41 and

/rofessional De)ree olders are 11

F. I%co:e 1e$ A%%2: o= t)e $es1o%#e%ts

T"!e F9 W)"t is yo2$ "11$o;i:"te I%co:e 1e$ A%%2:

8$e?2e%c

y

Pe$ce%t V"!i#

Pe$ce%t

C2:2!"ti'

e Pe$ce%t

Be!o* 3F4444@ 1( 1(,* 1(,* 1(,*

Bet*ee% 3F4443

44444@

-; -;,* -;,* (.,*

Global Business School | A Study of Derivatives Market in India (0


58/79

Bet*ee% 44443

F44441. 1.,* 1.,* /4,*

F4444@ "%# Ao'e -) -),* -),* 1**,*

Tot"! 344 344.4 344.4

Inter!retation0 6? of the res!ondents have annual income bet'een 1,>5,551

6,55,555:E 'ere as res!ondents havin) income above C,>5,555:E are 64, bet'een 6,55,551:E

E C,>5,555:E are 1C and belo' 1,>5,555:E are 1>

. Pe$ce%t",e o= :o%t)!y i%co:e "'"i!"!e =o$ i%'est:e%t i%

De$i'"ti'es

T"!e 9 W)"t 1e$ce%t",e o= yo2$ :o%t)!y )o2se)o!#

i%co:e *o2!# yo2 i%'est i% De$i'"ti'es

Global Business School | A Study of Derivatives Market in India (4


59/79

8$e?2e%c

y

Pe$ce%t V"!i#

Pe$ce%t

C2:2!"ti'

e Pe$ce%t

Bet*ee% F

34J)0 )0,* )0,* )0,*

Bet*ee% 33

3FJ.1 .1,* .1,* /4,*

Bet*ee% 3

64J-) -),* -),* 1**,*

Tot"! 344 344.4 344.4

Inter!retation0 C1 of the res!ondents invest bet'een 11 1> of the monthly

household income in Derivatives, 'ere as 64 of the res!ondents 'ould invest bet'een 1@E

45 and 4= of the res!ondents invest bet'een > 15 in Derivatives Market

5. Ki%# o= $is& 1e$cei'e *)i!e i%'esti%, i% De$i'"ti'es

Global Business School | A Study of Derivatives Market in India (;


60/79

T"!e 59 W)"t &i%# o= $is& #o yo2 1e$cei'e *)i!e i%'esti%,

8$e?2e%c

y

Pe$ce%

t

V"!i#

Pe$ce%t

C2:2!"ti'

e Pe$ce%t

U%ce$t"i%ty o=

Ret2$%s.- .-,* .-,* .-,*

S!2:1 i% 0"$&et -. -.,* -.,* 00,*

8e"$ o= Co:1"%y

Wi%#21; ;,* ;,* 4/,*

Ot)e$s 1. 1.,* 1.,* 1**,*

Tot"! 344 344.4 344.4

Inter!retation0 C6 of the res!ondents feel that &ncertainty of .eturns is the ma"or

risk they !erceive 'hile investin) in Derivative Market, 'ere as 6C of the res!ondents feel

Slum! in Market and ? of the res!ondents feel that fear of com!any 'indu! is the risk they

!erceive 'hile investin) in Derivatives

7. P2$1ose o= I%'esti%, i% De$i'"ti'es 0"$&et

Global Business School | A Study of Derivatives Market in India /*


61/79

T"!e 79 W)"t is t)e 12$1ose o= i%'esti%, i%

De$i'"ti'e 0"$&et

8$e?2e%c

y

Pe$ce%

t

V"!i#

Pe$ce%t

C2:2!"ti'

e Pe$ce%t

To He#,e

82%#s-- --,* --,* --,*

Ris& Co%t$o! ); );,* );,* /),*

St"!e

I%co:e)1 )1,* )1,* 4-,*

Di$ect

I%'est:e%t

10 10,* 10,* 1**,*

Tot"! 344 344.4 344.4

Global Business School | A Study of Derivatives Market in India /1


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Inter!retation0 66 of the res!ondents invest in Derivatives to hed)e funds, 4? of

them invest for risk control, 41 of the res!ondents for stable income and 1= invest as a

direct investment

. P"$tici1"tio% i% #ie$e%t ty1e o= De$i'"ti'e i%st$2:e%t

T"!e 9 I% *)ic) o= t)e =o!!o*i%, *o2!# yo2 !i&e to 1"$tici1"te

8$e?2e%

cy

Pe$ce%

t

V"!i#

Pe$ce%t

C2:2!"ti'

e Pe$ce%t

I%#e; 82t2$es 1/ 1/,* 1/,* 1/,*

I%#e; O1tio%s ); );,* );,* .(,*

Stoc& 82t2$es 1; 1;,* 1;,* /.,*Stoc& O1tio%s ). ).,* ).,* 44,*

C2$$e%cy

82t2$es@O1tio%s1) 1),* 1),* 1**,*

Tot"! 344 344.4 344.4

Global Business School | A Study of Derivatives Market in India /)


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64/79

Inter!retation0 6C of the res!ondents 'ould like to invest their money for 1 Month,4= of them for 6 months, 44 of the res!ondents for @ months, ? of the res!ondents for 4

months and 2 of the res!ondents for 1 Rear

33. I%'est:e%t i% De$i'"ti'es :"$&et

T"!e 339 Ho* o=te% #o yo2 i%'est i% De$i'"ti'e 0"$&et

8$e?2e%c

y

Pe$ce%

t

V"!i#

Pe$ce%t

C2:2!"ti'

e Pe$ce%t

Bet*ee% 3 34

ti:es/) /),* /),* /),*

Bet*ee% 33 6F

ti:es1. 1.,* 1.,* 0/,*

6 F4 ti:es 1( 1(,* 1(,* ;1,*

Re,2!"$!y ; ;,* ;,* 1**,*

Tot"! 344 344.4 344.4

Global Business School | A Study of Derivatives Market in India /.


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Inter!retation0 Ma"ority of the res!ondents @5 of them invest bet'een 1 15 times a

year in Derivatives, 'ere as res!ondents investin) bet'een 11 4> times, 4@ >5 times and

re)ularly are 1C, 1> and ? res!ectively

36. Res2!t o= I%'est:e%t

T"!e 369 W)"t *"s t)e $es2!t o= yo2$ I%'est:e%t

8$e?2e%c

y

Pe$ce%

t

V"!i#

Pe$ce%t

C2:2!"ti'

e Pe$ce%t

G$e"t Res2!ts 10 10,* 10,* 10,*

0o#e$"te 2t

"cce1t"!e(* (*,* (*,* /0,*

Dis"11oi%te# -- --,* --,* 1**,*

Tot"! 344 344.4 344.4

Global Business School | A Study of Derivatives Market in India /(


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Inter!retation0 >5 of the res!ondents are moderate about their results in investin) in

Derivatives market, 1= of the res!ondents have )reat results and 66 of the res!ondents

are disa!!ointed 'ith their investment in Derivatives Market

H49 I%co:e "%# i%'est:e%t i% #ie$e%t ty1e o= #e$i'"ti'e

i%st$2:e%ts "$e %ot $e!"te#.

H39 I%co:e "%# i%'est:e%t i% #ie$e%t ty1e o= #e$i'"ti'e

i%st$2:e%ts "$e $e!"te#.

Global Business School | A Study of Derivatives Market in India //

#hat is your appro)i%ate In'o%e per Annu%@ In -hi'h of the follo-ing -ould you

li!e to parti'ipate@

Cross Ta&

Count

In -hi'h of the follo-ing -ould you li!e to

parti'ipate@

Total

Inde)

0utures

Inde)

Options

Sto'!

0utures

Sto'!

Options

Curren'y

0utures.Options

#hat is your

appro)i%ate

In'o%e per

Annu%@

*elo-

2B6;B;;;.96 C 4 5 @ 26

*et-een

2B6;B;;2 9

4B;;B;;;.9

6 1C 11 11 5 4

*et-een

4B;;B;;2 9

5B6;B;;;

6 6 5 > 6 25

5B6;B;;;.9

and

A&ove

= 2 @ 2 6 43

Total 27 3 2 35 23 2;;


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-he value of chiEs(uared statistic is 42?>2 -he chiEs(uared statistic has 14 de)ree of

freedom -he ! value *55C+ is less than 55> ence there is si)nificant relationshi! bet'eenincome and investment in different ty!e of derivative instruments


Chi9S1uare Tests

/alue df Asy%p( Sig( :39sided8

+earson Chi9S1uare 42?>2a 14 55C

Li!elihood Ratio 6>?65 14 555

Linear9&y9Linear Asso'iation 61> 1 >=>

N of /alid Cases 155

a 14 cells *@55+ have e7!ected count less than > -he minimum e7!ected count is 1@2


68/79

H49 A,e "%# 12$1ose o= I%'esti%, i% De$i'"ti'e :"$&et "$e %ot

$e!"te#.

H39 A,e "%# 12$1ose o= I%'esti%, i% De$i'"ti'e :"$&et "$e

$e!"te#.

W)"t is yo2$ A,e M W)"t is t)e 12$1ose o= i%'esti%, i%De$i'"ti'e :"$&et

C$oss T"

Count

#hat is the purpose of investing in Derivative

%ar!et@

TotalTo Hedge

0unds

Ris!

Control

Sta&le

In'o%e

Dire't

Invest%ent

#hat is your

Age@

*et-een 2

3515 5 2 > 46

*et-een 36

456 1C 4 6 44

*et-een 46

551= 14 2 ? C@

*et-een 56

9656 6 6 5 ?

Total 44 3 32 2= 2;;

C)iS?2"$e Tests

/alue df Asy%p( Sig( :39sided8

+earson Chi9S1uare 4@15?a ? 554Li!elihood Ratio 64>@2 ? 555

Linear9&y9Linear Asso'iation @1@ 1 C64N of /alid Cases 155



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a 2 cells *>55+ have e7!ected count less than > -he minimum e7!ected count is 1>6

-he value of chiEs(uared statistic is 4@15? -he chiEs(uared statistic has ? de)ree of

freedom -he ! value *554+ is less than 55> ence there is si)nificant relationshi! bet'een

a)e and !ur!ose of Investin) in Derivative market

H49 I%co:e 1e$ "%%2: "%# :o%t)!y i%co:e "'"i!"!e =o$

i%'est:e%t "$e $e!"te#

H39 I%co:e 1e$ "%%2: "%# :o%t)!y i%co:e "'"i!"!e =o$

i%'est:e%t "$e $e!"te#

W)"t is yo2$ "11$o;i:"te I%co:e 1e$ A%%2: M W)"t1e$ce%t",e o= yo2$ :o%t)!y )o2se)o!# i%co:e *o2!# yo2

i%'est i% De$i'"ti'es

C$oss T"

Count

#hat per'entage of your %onthly

household in'o%e -ould you

invest in Derivatives@ Total

*et-een

6 9 2;F

*et-een 22

9 26F

*et-een

27 9 3;F

#hat is your

appro)i%ate

In'o%e per

Annu%@

*elo- 2B6;B;;;.9 6 6 ? 1>

*et-een 2B6;B;;2 9

4B;;B;;;.9 > 1= 1= 6?

*et-een 4B;;B;;2 9

5B6;B;;; 4 @ @ 1C

5B6;B;;;.9 and A&ove 1= 1> 5 64

Total 3= 52 43 2;;

Global Business School | A Study of Derivatives Market in India /;


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C)iS?2"$e Tests

/alue df Asy%p( Sig( :39

sided8

+earson Chi9S1uare 65165a @ 555Li!elihood Ratio 622=1 @ 555Linear9&y9Linear Asso'iation 4451= 1 555


a C cells *666+ have e7!ected count less than > -he minimum e7!ected count is 6=2

-he value of chiEs(uared statistic is 65165 -he chiEs(uared statistic has @ de)ree of

freedom -he ! value *555+ is less than 55> ence there is si)nificant relationshi! bet'eenincome !er annum and monthly income available for investment

H49 0"t2$ity 1e$io# o= i%'est:e%t "%# $es2!ts o= i%'est:e%t

"$e %o $e!"te#.

H39 0"t2$ity 1e$io# o= i%'est:e%t "%# $es2!ts o= i%'est:e%t

"$e $e!"te#.

W)"t co%t$"ct :"t2$ity 1e$io# *o2!# i%te$est yo2 =o$

t$"#i%, i% M W)"t *"s t)e $es2!t o= yo2$ i%'est:e%t

C$oss T"

Count

#hat -as the result of your invest%ent@ Total

$reat

Results

oderate

&ut

a''epta&le

Disappointed

#hat 'ontra't

%aturity period -ould

interest you for

trading in@

2 onth ? 1@ ? 6C

3 onths 5 6 @ ?

4 onths 5 1? 2 4=

7 onths > ? 2 44

2 >ear 6 6 4 2

Total 2= 6; 44 2;;

Global Business School | A Study of Derivatives Market in India 0*


71/79

C)iS?2"$e Tests

/alue df Asy%p( Sig( :39

sided8

+earson Chi9S1uare 1=>26a 2 54>Li!elihood Ratio 4452> 2 55>Linear9&y9Linear Asso'iation 515 1 ?41


a 2 cells *>66+ have e7!ected count less than > -he minimum e7!ected count is 16@

-he value of chiEs(uared statistic is 1=>26 -he chiEs(uared statistic has 2

de)ree of freedom -he ! value *54>+ is more than 55> ence there is no si)nificant

relationshi! bet'een maturity !eriod of investment and results of

investment

ount

Co:1"$iso% o= De$i'"ti'es T2$%o'e$ *it) E?2ity t2$%o'e$ o%

BSE + NSE

E1uity Turnover in *SE G NSE

*SE NSE

>ear Traded uantity Turnover :Cr8 Traded uantity Turnover :Cr8

3;;29;3 1241?@ 65=4?4 4=2C52 >161@=

3;;39;4 441C51 61C5=6 6@C5@> @1=?2?

3;;49;5 6?5CC1 >5>5>6 =16651 15??>6C3;;59;6 C==1=1 >12=1> =?=@2> 11C55=4


Derivatives Turnover in *SE G NSE

*SE NSE

>ear No of Contra'ts Turnover :Cr8 No of Contra'ts Turnover :Cr8

3;;29;3 15>>4= 1?4@ C1?@2=6 151?4>

3;;39;4 16256= 4C=2 1@=@=2>4 C6?2@>3;;49;5 6244>2 145=C >=552115 4165C@2

3;;59;6 >61=1? 1@114 ==51=12> 4>C=5>6

3;;69;7 456 ? 1>=@1?4=1 C24C4>1

3;;79;= 1=21445 >?55@ 41@226>=6 =6>@4=53;;=9; =C>66=1 4C4652 C4>516455 165?5C==3;;9; C?@>54 11==> @>=6?5C?= 11515C24

3;;92; ?54@ 46C @==4?6?44 1=@@6@>>

3;2;922 >@46 1>C 156C4145@4 4?4C2441

3;22923 6444424> 252C=@ 145>5C>C@C 616C?=64


72/79

3;;69;7 @@CC>> 21@5=C 2CCC2@ 1>@?>>2

3;;79;= >@5=== ?>@12> 2>>C>@ 1?C>42=3;;=9; @>6515 1>=22>= 1C?2C@? 6>>15623;;9; =6?@55 11555=C 1C4@6>> 4=>4546

3;;92; 116@>16 16=225? 441>>65 C1625463;2;922 ??5=== 115>54= 124C>1> 6>==C15

3;22923 @>C16= @@=C?2 1@1@?=2 42152?6

T"!e s)o*i%, co:1"$iso% o= De$i'"ti'es T2$%o'e$ "%# E?2ity

T2$%o'e$ i% BSE

*

)*****

.*****

/*****

4*****

1******

1)*****

1.*****

1/*****

14*****

Turnover of Derivatives in

BS? @3rTurnover of ?uity in BS?@3r

(source: sebi.gov.in)

Derivatives 'as introduced first time in India in 4551 -here after Derivatives market

has seen a hu)e )ro'th in terms traded contracts and turnover $rom the above chart 'e can

see that derivatives turnover in the year 4551 54 'as 1,?4@ crores com!ared to e(uity

turnover of 6,5=,4?4 In BS< the e(uity turnover is su!erior com!ared to derivatives turnover

but after the financial year 4511E 14 the momentum has shifted from e(uity to derivatives and

in the financial year 4511 4514 the derivatives turnover overtook the e(uity turnover for the1sttime ever, the derivatives turnover stood at 2,52,C=@ crores com!ared to e(uity turnover of

Global Business School | A Study of Derivatives Market in India 0)


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@,@=,C?2 'hich is 41 more of e(uity turnover clearly sho'in) the emer)ence of derivatives

market on BS crores com!ared to

Global Business School | A Study of Derivatives Market in India 0-


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e(uity turnover of >,16,1@= but after the financial year 4556 E5C derivatives has seen a hu)e

u! )ro'th, It has out!erformed e(uity se)ment both in volumes and turnover In the financial

year 4511 4514 the derivatives turnover stood at 6,16,C?,=64 crores com!ared to e(uity

turnover of 42,15,2?6 'hich is 151> more of e(uity turnover clearly sho'in) the

emer)ence of derivatives market on 8S5,551 6,55,55:E

C@ of the res!ondents fall under the a)e cate)ory of 6> CC years

Investors )enerally !erceive uncertainty of returns ty!e of risk 'hile investin) in

derivative market

Most of investors !ur!ose of investin) in derivative market is to hed)e their funds

Most of investors !artici!ate in Inde7 ;!tions

$rom this survey 'e come to kno' that most of investors make a contract of 1 month

maturity !eriod

Investors invest 1 E15 times a year in Derivatives Market

-he result of investment in derivative market is )enerally moderate but acce!table

Global Business School | A Study of Derivatives Market in India 0.


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y!othesis test sho'n that there is relationshi! bet'een Income and investment in

different ty!e of derivative instruments, A)e and !ur!ose of Investin) in Derivative

market , Income !er annum and monthly income available for investment

Derivatives turnover com!ared to Day movin) avera)e before makin) their trades

Investors !ortfolio should only consist of 1> 45 Derivatives contracts or scri!ts

As derivatives tradin) is very risky investors should have only a small !ortion of their

!ortfolio consistin) of derivatives

S


76/79

ANNEURE

SURVEY UESTIONNAIRE 8OR INVESTORS

Dear SirMam

This uestionnaire is meant for educational !ur!oses only,

The information !rovided by you $ill be ke!t secure and condential,

3. N":e> EEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE

6. Ge%#e$a Male b 'emale

. A:ea, Belo$ 14 Fearsb, Bet$een 14 5 ). Fearsc, Bet$een )(2 -. Fearsd, Bet$een .( 2(. Fearse, Above (( Fears

. Occ21"tio%a, ?m!loyeeb, Businessc, Student

d, "rofessional

Global Business School | A Study of Derivatives Market in India 0/


77/79

F. E#2c"tio%"! 2"!i>c"tio%a, nder:raduateb, Graduatec, "ost Graduated, "rofessional De:ree 9older

. I%co:e 1e$ A%%2:a, Belo$ 1(****b, 1(**** 5 -*****

c, -***** 5 (*****d, Above (*****

5. No$:"!!y *)"t 1e$ce%t",e o= yo2$ :o%t)!y )o2se)o!#

i%co:e co2!# e "'"i!"!e =o$ i%'est:e%ta, Bet$een (H to 1*Hb, Bet$een 11H to 1(Hc, Bet$een 1/H to )*Hd, Bet$een )1H to )(He, More than )(H

7. W)"t &i%# o= $is& #o yo2 1e$cei'e *)i!e i%'esti%, i% t)e

stoc& :"$&eta, ncertainty of returnsb, Slum! in stock marketc, 'ear of bein: $indu! of com!anyd, 8ther

. W)"t is t)e 12$1ose o= i%'esti%, i% De$i'"ti'e :"$&eta, To hed:e fundsb, 7isk controlc, More stabled, Direct investment

34. I% *)ic) o= t)e =o!!o*i%, *o2!# yo2 !i&e to 1"$tici1"tea, Inde 'uturesb, Inde 8!tionsc, Stock 'uturesd, Stock 8!tionse, 3urrency 'utures 8!tions



78/79

33. W)"t co%t$"ct :"t2$ity 1e$io# *o2!# i%te$est yo2 =o$

t$"#i%, i%a, 1 monthb, ) monthsc, - months

d, / monthse, ; monthsf, 1) months

36. Ho* o=te% #o yo2 i%'est i% De$i'"ti'e :"$&eta, 121* times in a yearb, 112(* timesc, More than (* times

#. 7e:ularly

3. W)"t *"s t)e $es2!t o= yo2$ I%'est:e%t". Great results. Moderate but acce!tablec. Disa!!ointed

Bi!io,$"1)y

nseindiacom

bseindiacom

sebi)ovin

Ashutosh Vashishtha and Satish %umar Development of Financial DerivativesMarket in India- A Case Study

Dr /remalata Shenba)araman Do Futures and !ptions trading increase stockmarket volatility"

Golaka 8ath #ehaviour of Stock Market $olatility after Derivatives

;/ Gu!ta %ffect !f Introduction !f Inde& Futures !n Stock Market $olatility'(heIndian %vidence



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.a"endra / hitale )se of Derivatives by India*s Institutional Investors'Issues andImpediments

Sandee! Srivastava Informational Content !f (rading $olume And !pen Interest +An %mpirical Study !f Stock !ption Market In India

A"ay Shah and Susan (homas (he evolution of the securities markets in India in the,.s

Snehal Bandivadekar and Saurabh Ghosh Derivatives and $olatility on Indian StockMarkets

Sumon #haumik and Suchismita #ose Impact of Derivatives (rading on %merging

Capital Markets' A /ote on %&piration Day %ffects in India

Susan -homas and A"ay Shah %0uity derivatives in India' (he state of the art

study on derivatives

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