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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 favourable 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.

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.
 c

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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.

 c

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Exchange Traded Derivatives Over The Counter Derivatives

National Stock Bombay Stock National Commodity &

Exchange Exchange Derivative Exchange

?????????????????Index Future Index option Stock option Stock future


 

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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.

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‡ 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.
‡ 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, whic h often results in high prices being charged.

However forward contracts incertain 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
becau se bot h serve essent ially t he same economic fu nct io 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 futures contract 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 delivery date or final settlement date. The pre-set price is called the futures
price. The price of the underlying asset on the delivery date is called the settlement price. The
settlement price, normally, converges towards the futures price on the delivery date.

A futures contract gives the holder the right and the obligation 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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Futures contracts ensure their liquidity by being highly standardized, usually by specifying:

? The ˜
 . This can be anything from a barrel of sweet crude oil to a short term
interest rate.
? The type of settlement, either cash settlement or physical settlement.
? The @
˜  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.
? The currency in which the futures contract is quoted.
 ? The @
 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.
? The last trading date.
? 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.
c$( $' 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.

   )  $' 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.
 l()$'

Settlement is the act of consummating the contract, and can be done in one of two ways, as
specified per type of futures contract:

? *+(%(, 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).
? *()$, 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.
- 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.

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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.
In the case where the forward price is higher:
? The arbitrageur sells the futures contract and buys the underlying today (on the spot
market) with borrowed money.
 !? On the delivery date, the arbitrageur hands over the underlying, and receives the agreed
forward price.
l? He then repays the lender the borrowed amount plus interest.
K? The difference between the two amounts is the arbitrage profit.

In the case where the forward price is lower:

? The arbitrageur buys the futures contract and sells the underlying today (on the spot
market); he invests the proceeds.
!? On the delivery date, he cashes in the matured investment, which has appreciated at the
risk free rate.
l? 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.]
K? The difference between the two amounts is the arbitrage profit.


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$( Traded directly between two Traded on the exchanges.

+*$) parties (not traded on the
exchanges).

$+ Differ from trade to trade. Contracts are standardized contracts.

++$

$, Exists. Exists. However, assumed by the clearing

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

/0%$ Low, as contracts are tailor High, as contracts are standardized

( made contracts catering to the exchange traded contracts.
needs of the needs of the
parties.

+%+ Not efficient, as markets are Efficient, as markets are centralized and
scattered. all buyers and sellers come to a common
platform to discover the price.

-)( Currency market in India. Commodities, futures, Index Futures and

Individual stock Futures in India.
 
c 
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 µoption¶. Underlying asset refers to any asset
that is traded. The price at which the underlying is traded is called the µstrike price¶.

There are two types of options i.e., 

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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 µCall option¶.
The owner makes a profit provided he sells at a higher current price and buys at a lower future
price.



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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 µPut option¶.
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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"


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 µSWAP¶. In case of swap, only
the payment flows are exchanged and not the principle amount. The two commonly used swaps
are:
?
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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.
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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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Baskets options are option on portfolio of underlying asset. Equity Index Options are most
popular form of baskets.
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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.
?
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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.
?
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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.
 2c
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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 Chicago Board of Trade (CBOT), 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 Chicago Mercantile Exchange (CME), a spin-off of CBOT,
was formed in 1919, though it did exist before in 1874 under the names of µChicago Produce
Exchange¶ (CPE) and µChicago Egg and Butter Board¶ (CEBB). 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 International Monetary Market (IMM), 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 exchanges, was
formed between the Singapore International Monetary Exchange (SIMEX) 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 Black-Scholes Option Formula. 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.

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.
 c c
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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

5(!*$($)$

1991 Liberalisation process initiated

14 December 1995 NSE asked SEBI for permission to trade index futures.

18 November 1996 SEBI setup L.C.Gupta Committee to draft a policy framework

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
trading.
9 June 2000 Trading of BSE Sensex futures commenced at BSE.
12 June 2000 Trading of Nifty futures commenced at NSE.
25 September 2000 Nifty futures trading commenced at SGX.
2 June 2001 Individual Stock Options & Derivatives
?
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ß6 %%$c$%%

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.

ß!6*$%(5%
?
In less than three decades of their coming into vogue, derivatives markets have become the most
important markets in the world. Financial derivatives came into the spotlight along with the rise
in uncertainty of post-1970, when US announced an end to the Bretton Woods System of fixed
exchange rates leading to introduction of currency derivatives followed by other innovations
including stock index futures. Today, derivatives have become part and parcel of the day-to-day
life for ordinary people in major parts of the world. While this is true for many countries, there
are still apprehensions about the introduction of derivatives. There are many myths about
derivatives but the realities that are different especially for Exchange traded derivatives, which
are well regulated with all the safety mechanisms in place.
What are these myths behind derivatives?
? Derivatives increase speculation and do not serve any economic purpose
? Indian Market is not ready for derivative trading
? Disasters prove that derivatives are very risky and highly leveraged instruments.
? Derivatives are complex and exotic instruments that Indian investors will find difficulty
in understanding.
 ßl6)$ 4)4*-$)

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.
The figure 3.3a ±3.3d 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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?
???????????????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.

%$
? Greater Leverage as to pay only the premium.
? Greater variety of strike price options at a given time.

?
?
?
?
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? ?
?
????????????????????????????
5
?
?
?????????????????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 whichever way promising as still game.
another exchange. the Market moves. in weekly settlement
forward transactions. 2) Cash &Carry
2) If Future Contract arbitrage continues
more or less than Fair price

? Fair Price = Cash Price + Cost of Carry.

?
?
ll+

2%

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
?

%$
? Availability of Leverage


ll%
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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.

%$
? Losses Protected.

K-+*$,%%
%) 

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:
? The management of counter-party (credit) risk is decentralized and located within
individual institutions,
!? There are no formal centralized limits on individual positions, leverage, or margining,
l? There are no formal rules for risk and burden-sharing,
 K? There are no formal rules or mechanisms for ensuring market stability and integrity, and
for safeguarding the collective interests of market participants, and
'? 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 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.
'


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Factors contributing to the explosive growth of derivatives are price volatility, globalisation of
the markets, technological developments and advances in the financial theories.

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8
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 another person¶s 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 breakdown of the BRETTON WOODS agreement brought an 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.

#7./#
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8
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 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.
7
2 /.c
/

8
A significant growth of derivative instruments has been driven by technological breakthrough.
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 worldwide
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.
?
7

c c
c
/
2c8
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 Black
and Scholes 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.
 / 
c

c 

c c c


The first step towards introduction of derivatives trading in India was the promulgation of the
Securities Laws (Amendment) Ordinance, 1995, which withdrew the prohibition on options in
securities. The market for derivatives, however, did not take off, as there was no regulatory
framework to govern trading of derivatives. SEBI set up a 24±member committee under the
Chairmanship of Dr.L.C.Gupta on November 18, 1996 to develop appropriate regulatory
framework for derivatives trading in India. The committee submitted its report on March 17,
1998 prescribing necessary pre±conditions for introduction of derivatives trading in India. The
committee recommended that derivatives should be declared as µsecurities¶ so that regulatory
framework applicable to trading of µsecurities¶ could also govern trading of securities. SEBI also
set up a group in June 1998 under the Chairmanship of Prof.J.R.Varma, to recommend measures
for risk containment in derivatives market in India. The report, which was submitted in October
1998, worked out the operational details of margining system, methodology for charging initial
margins, broker net worth, deposit requirement and real±time monitoring requirements. The
Securities Contract Regulation Act (SCRA) was amended in December 1999 to include
derivatives within the ambit of µsecurities¶ and the regulatory framework were developed for
governing derivatives trading. The act also made it clear that derivatives shall be legal and valid
only if such contracts are traded on a recognized stock exchange, thus precluding OTC
derivatives. The government also rescinded in March 2000, the three decade old notification,
which prohibited forward trading in securities. Derivatives trading commenced in India in June
2000 after SEBI granted the final approval to this effect in May 2001. SEBI permitted the
derivative segments of two stock exchanges, NSE and BSE, and their clearing house/corporation
to commence trading and settlement in approved derivatives contracts. To begin with, SEBI
approved trading in index futures contracts based on S&P CNX Nifty and BSE±30 (Sense)
index. This was followed by approval for trading in options based on these two indexes and
options on individual securities.

The trading in BSE Sensex options commenced on June 4, 2001 and the trading in options on
individual securities commenced in July 2001. Futures contracts on individual stocks were
launched in November 2001. The derivatives trading on NSE commenced with S&P CNX Nifty
Index futures on June 12, 2000. The trading in index options commenced on June 4, 2001 and
trading in options on individual securities commenced on July 2, 2001. Single stock futures were
launched on November 9, 2001. The index futures and options contract on NSE are based on
S&P CNX Trading and settlement in derivative contracts is done in accordance with the rules,
byelaws, and regulations of the respective exchanges and their clearing house/corporation duly
approved by SEBI and notified in the official gazette. Foreign Institutional Investors (FIIs) are
permitted to trade in all Exchange traded derivative products.

The following are some observations based on the trading statistics provided in the NSE report
on the futures and options (F&O):

‡ Single-stock futures continue to account for a sizable proportion of the F&O segment. It
constituted 70 per cent of the total turnover during June 2002. A primary reason attributed to this
phenomenon is that traders are comfortable with single-stock futures than equity options, as the
former closely resembles the erstwhile badla system.

‡ On relative terms, volumes in the index options segment continue to remain poor. This
may be due to the low volatility of the spot index. Typically, options are considered more
valuable when the volatility of the underlying (in this case, the index) is high. A related issue is
that brokers do not earn high commissions by recommending index options to their clients,
because low volatility leads to higher waiting time for round-trips.

‡ Put volumes in the index options and equity options segment have increased since
January 2002. The call-put volumes in index options have decreased from 2.86 in January 2002
to 1.32 in June. The fall in call-put volumes ratio suggests that the traders are increasingly
becoming pessimistic on the market.

‡ Farther month futures contracts are still not actively traded. Trading in equity options on
most stocks for even the next month was non-existent.
‡ Daily option price variations suggest that traders use the F&O segment as a less risky
alternative (read substitute) to generate profits from the stock price movements. The fact that the
option premiums tail intra-day stock prices is evidence to this. If calls and puts are not looked as
just substitutes for spot trading, the intra-day stock price variations should not have a one-to-one
impact on the option premiums.

? The spot foreign exchange market remains the most important segment but the
derivative segment has also grown. In the derivative market foreign exchange swaps
account for the largest share of the total turnover of derivatives in India followed by
forwards and options. Significant milestones in the development of derivatives market
have been (i) permission to banks to undertake cross currency derivative transactions subject
to certain conditions (1996) (ii) allowing corporates to undertake long term foreign
currency swaps that contributed to the development of the term currency swap market
(1997) (iii) allowing dollar rupee options (2003) and (iv) introduction of currency futures
(2008). I would like to emphasise that currency swaps allowed companies wit h ECBs to
swap their foreign currency liabilities into rupees. However, since banks could not carry
open positions the risk was allowed to be transferred to any other resident corporate.
Normally such risks should be taken by corporates who have natural hedge or have potential
foreign exchange earnings. But often corporate assume these risks due to interest rate
differentials and views on currencies.

This period has also witnessed several relaxations in regulations relating to forex markets
and also greater liberalisation in capital account regulations leading to greater integration
with the global economy.

? Cash settled exchange traded currency futures have made foreign currency a separate
asset class that can be traded without any underlying need or exposure a n d on a leveraged
basis on the recognized stock exchanges with credit risks being assumed by the central
counterparty
Since the commencement of trading of currency futures in all the three exchanges, the value
of the trades has gone up steadily from Rs 17, 429 crores in October 2008 to Rs 45, 803
crores in December 2008. The average daily turnover in all the exchanges has also
increased from Rs871 crores to Rs 2,181 crores during the same period. The turnover in the
currency futures market is in line with the international scenario, where I understand the
share of futures market ranges between 2 ± 3 per cent.

# c
c

c 
Derivative markets help investors in many different ways:

9c

.
8
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.
!9 cc 8
Price discovery refers to the market¶s 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.
l9  

c
/



.8
As opposed to spot markets, derivatives markets involve lower transaction costs. Secondly, they
offer greater liquidity. Large spot transactions can often lead to 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.
K9 

cc 8
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 
 /

c 8
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.

The derivative market performs a number of economic functions.

? 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.
? An important incidental benefit that flows from derivatives trading is that it acts as a
catalyst for new entrepreneurial activity.
? Derivatives markets help increase savings and investment in the long run. Transfer of risk
enables market participants to expand their volume of activity.

 $(-+*$
In enhancing the institutional capabilities for futures trading the idea of setting up of National
Commodity Exchange(s) has been pursued since 1999. Three such Exchanges, viz, National
Multi-Commodity Exchange of India Ltd., (NMCE), Ahmedabad, National Commodity &
Derivatives Exchange (NCDEX), Mumbai, and Multi Commodity Exchange (MCX), Mumbai
have become operational. ³National Status´ implies that these exchanges would be
automatically permitted to conduct futures trading in all commodities subject to clearance
of byelaws and contract specifications by the FMC. While the NMCE, Ahmedabad commenced
futures trading in November 2002, MCX and NCDEX, Mumbai commenced operations in
October/ December 2003 respectively. 

:

MCX (Multi Commodity Exchange of India Ltd.) an independent and de-mutualised multi
commodity exchange has permanent recognition from Government of India for facilitating
online trading, clearing and settlement operations for commodity futures markets across the
country. Key shareholders of MCX are Financial Technologies (India) Ltd., State Bank of India,
HDFC Bank, State Bank of Indore, State Bank of Hyderabad, State Bank of Saurashtra, SBI Life
Insurance Co. Ltd., Union Bank of India, Bank of India, Bank of Baroda, Canara Bank,
Corporation Bank

Headquartered in Mumbai, MCX is led by an expert management team with deep domain
knowledge of the commodity futures markets. Today MCX is offering spectacular growth
opportunities and advantages to a large cross section of the participants including Producers /
Processors, Traders, Corporate, Regional Trading Canters, Importers, Exporters, Cooperatives,
Industry Associations, amongst others MCX being nation-wide commodity exchange, offering
multiple commodities for trading with wide reach and penetration and robust infrastructure.

MCX, having a permanent recognition from the Government of India, is an independent and
demutualised multi commodity Exchange. MCX, a state-of-the-art nationwide, digital Exchange,
facilitates online trading, clearing and settlement operations for a commodities futures trading.


National Multi Commodity Exchange of India Ltd. (NMCE) was promoted by Central
Warehousing Corporation (CWC), National Agricultural Cooperative Marketing Federation of
India (NAFED), Gujarat Agro-Industries Corporation Limited (GAICL), Gujarat State
Agricultural Marketing Board (GSAMB), National Institute of Agricultural Marketing (NIAM),
and Neptune Overseas Limited (NOL). While various integral aspects of commodity economy,
viz., warehousing, cooperatives, private and public sector marketing of agricultural commodities,
research and training were adequately addressed in structuring the Exchange, finance was still a
vital missing link. Punjab National Bank (PNB) took equity of the Exchange to establish that
linkage. Even today, NMCE is the only Exchange in India to have such investment and technical
support from the commodity relevant institutions.

NMCE facilitates electronic derivatives trading through robust and tested trading platform,
Derivative Trading Settlement System (DTSS), provided by CMC. It has robust delivery
mechanism making it the most suitable for the participants in the physical commodity markets. It
has also established fair and transparent rule-based procedures and demonstrated total
commitment towards eliminating any conflicts of interest. It is the only Commodity Exchange in
the world to have received ISO 9001:2000 certification from British Standard Institutions (BSI).
NMCE was the first commodity exchange to provide trading facility through internet, through
Virtual Private Network (VPN).

NMCE follows best international risk management practices. The contracts are marked to market
on daily basis. The system of upfront margining based on Value at Risk is followed to ensure
financial security of the market. In the event of high volatility in the prices, special intra-day
clearing and settlement is held. NMCE was the first to initiate process of dematerialization and
electronic transfer of warehoused commodity stocks. The unique strength of NMCE is its
settlements via a Delivery Backed System, an imperative in the commodity trading business.
These deliveries are executed through a sound and reliable Warehouse Receipt System, leading
to guaranteed clearing and settlement.
:
National Commodity and Derivatives Exchange Ltd (NCDEX) is a technology driven
commodity exchange. It is a public limited company registered under the Companies Act, 1956
with the Registrar of Companies, Maharashtra in Mumbai on April 23,2003. It has an
independent Board of Directors and professionals not having any vested interest in commodity
markets. It has been launched to provide a world-class commodity exchange platform for market
participants to trade in a wide spectrum of commodity derivatives driven by best global
practices, professionalism and transparency.
Forward Markets Commission regulates NCDEX in respect of futures trading in commodities.
Besides, NCDEX is subjected to various laws of the land like the Companies Act, Stamp Act,
Contracts Act, Forward Commission (Regulation) Act and various other legislations, which
impinge on its working. It is located in Mumbai and offers facilities to its members in more
than 390 centres throughout India. The reach will gradually be expanded to more centres.

NCDEX currently facilitates trading of thirty six commodities - Cashew, Castor Seed, Chana,
Chilli, Coffee, Cotton, Cotton Seed Oilcake, Crude Palm Oil, Expeller Mustard Oil, Gold, Guar
gum, Guar Seeds, Gur, Jeera, Jute sacking bags, Mild Steel Ingot, Mulberry Green Cocoons,
Pepper, Rapeseed - Mustard Seed ,Raw Jute, RBD Palmolein, Refined Soy Oil, Rice, Rubber,
Sesame Seeds, Silk, Silver, Soy Bean, Sugar, Tur, Turmeric, Urad (Black Matpe), Wheat,
Yellow Peas, Yellow Red Maize & Yellow Soybean Meal.

* $'
? Presently futures¶ trading is permitted in all the commodities. Trading is taking place in
about 78 commodities through 25 Exchanges/Associations as given in the table below:-



#/K%+))%-+*$$c$%

 -+*$ c

 India Pepper & Spice Trade Association, Pepper (both domestic and
Kochi (IPSTA) international contracts)
! Vijai Beopar Chambers Ltd., Gur, Mustard seed
Muzaffarnagar
l Rajdhani Oils & Oilseeds Exchange Ltd., Gur, Mustard seed its oil &
Delhi oilcake
K Bhatinda Om & Oil Exchange Ltd., Gur
Bhatinda
' The Chamber of Commerce, Hapur Gur, Potatoes and Mustard seed
; The Meerut Agro Commodities Exchange Gur
Ltd., Meerut
< The Bombay Commodity Exchange Ltd., Oilseed Complex, Castor oil
Mumbai international contracts
= Rajkot Seeds, Oil & Bullion Merchants Castor seed, Groundnut, its oil
Association, Rajkot & cake, cottonseed, its oil &
cake, cotton (kapas) and RBD
palmolein.
> The Ahmedabad Commodity Exchange, Castorseed, cottonseed, its oil
Ahmedabad and oilcake
? The East India Jute & Hessian Exchange Hessian & Sacking
Ltd., Calcutta
 The East India Cotton Association Ltd., Cotton
Mumbai
! The Spices & Oilseeds Exchange Ltd., Turmeric
Sangli.
l National Board of Trade, Indore Soya seed, Soyaoil and Soya
meals, Rapeseed/Mustardseed
its oil and oilcake and RBD
Palmolien
K The First Commodities Exchange of India Copra/coconut, its oil & oilcake
Ltd., Kochi
' Central India Commercial Exchange Ltd., Gur and Mustard seed
Gwalior
; E-sugar India Ltd., Mumbai Sugar
< National Multi-Commodity Exchange of Several Commodities
India Ltd., Ahmedabad
= Coffee Futures Exchange India Ltd., Coffee
Bangalore
> Surendranagar Cotton Oil & Oilseeds, Cotton, Cottonseed, Kapas
Surendranagar
!? E-Commodities Ltd., New Delhi Sugar (trading yet to commence)
! National Commodity & Derivatives, Several Commodities
Exchange Ltd., Mumbai
!! Multi Commodity Exchange Ltd., Mumbai Several Commodities
!l Bikaner commodity Exchange Ltd., Mustard seeds its oil & oilcake,
Bikaner Gram. Guar seed. Guar Gum

!K Haryana Commodities Ltd., Hissar Mustard seed complex

!' Bullion Association Ltd., Jaipur Mustard seed Complex



 

2 / 
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2c

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 The Board at its meeting on November 29, 2002 had desired that a quarterly report be
submitted to the Board on the developments in the derivative market. Accordingly, this
memorandum presents a status report for the quarter July-September 2008-09 on the
developments in the derivative market.

! Equity Derivatives Segment

A. Observations on the quarterly data for July-September, 2008-09
During July-September 2008-09, the turnover at BSE was Rs.1,510 crore, which was
insignificant as compared to that of NSE at Rs. 3,315,491 crore.

















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Source: www.world-exchanges.org (as on November 10, 2008)

($$*!$% 0!??=,?>

Ë? The volume (no. of contracts) and open interest in the derivatives market has
increased even when the underlying market is witnessing a downward trend. This
indicates that there are sufficient long position holders who anticipate value
proposition in a falling market. Falling or rising markets on the back of low
volumes may be a cause of concern from the point of market integrity. However, as
observed from the data, under the present scenario the fall in the market has been
accompanied by high volumes.

Ë? In Index Option, there is a sharp increase in turnover (97.95%) and volume

(117.08%) during July-September 2008-09 over April-June 2008-09. Possible reasons
for increase in options trading activity can be attributed to increase in volatility.
Market observers believe that conditions across markets and asset classes have
become more volatile and uncertain in the recent past. Generally in such conditions,
many people believe that options act as "insurance" against adverse price movements
while offering the flexibility to benefit from possible favourable price movements at
the same time. Another reason which can be attributed to the increase in activity is the
new directive as per the Budget 2008-09 which states that STT would now be levied on
the Option premium instead of the strike price.
 Ë? In Index Future, both turnover (15.17%) and volume (30.53%) have increased during
July-September 2008-09 as compared to April-June 2008-09.

Ë? There is a decrease in turnover (4.92%) in Single Stock Futures during July-

September 2008-09 as compared to April-June 2008-09.

Ë? Except Index Option, the market share of all other products has decreased (both in terms
of volume and turnover) in second quarter of 2008-09 as compared to the first quarter
of 2008-09.

Ë? There is a decrease in turnover (21.04%) and volume (17.39%) in Longer Dated

derivative contracts in second quarter of 2008-09 as compared to the first quarter of
2008-09.

Ë? Longer dated derivatives were launched in March 2008, but the volumes have not
picked up consequently.

Ë? For shorter dated derivative contracts, turnover increased by 24.52% whereas volume
increased by 4.81% in second quarter of 2008-09 as compared to the first quarter of
2008-09.

Ë? During 2008-09, Mini Nifty volumes increased by 49.15% and turnover increased by
33.43% during July-September 2008-09 over April-June 2008-09.







#$.4*$)$ß 6



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Year No. of contracts

2008-09 4116649

2007-08 156598579

2006-07 81487424

2005-06 58537886

 2004-05 21635449

 2003-04 17191668
 2002-03 2126763

2001-02 1025588

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c ' From the data and the bar diagram above, there is high business growth
in the derivative segment in India. In the year 2001-02, the number of contracts in Index Future
were 1025588 where as a significant increase of 4116679 is observed in the year 2008-09.

5(?# $

Year Turnover (Rs. Cr.)

2008-09 925679.96

2007-08 3820667.27

2006-07 2539574

2005-06 1513755

2004-05 772147

2003-04 554446

2002-03 43952

2001-02 21483

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c '
From the data and above bar chart, there is high turn over in the derivative segment in India. In
the year 2001-02 the turnover of index future was 21483 where as a huge increase of 92567996
in the year 2008-09 are observed.


#/



Year No. of contracts
2008-09 51449737
2007-08 203587952
2006-07 104955401
2005-06 80905493
2004-05 47043066
2003-04 32368842
2002-03 10676843
2001-02 1957856
2000-01 -

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!!+!"

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c '
From the data and bar diagram above there were no stock futures available but in the year 2001-
02, it predominently increased to 1957856. Then there was a huge increase of 20, 35, and 87,952
in the year 2007-08 but there was a steady decline to 51449737 in the year 2008-09.


#/# 
  
Year Turnover
(Rs. Crores)
2008-09 1093048.26
2007-08 7548563.23
2006-07 3830967
2005-06 2791697
2004-05 1484056
2003-04 1305939
2002-03 286533
2001-02 51515
2000-01 -

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c
 


c '
From the data and bar chart above, there were no stock futures available in the year 2000-01.
There was a steady increase of stock future 51515 in the year 2001-02. but in the year there was
a huge increae of 7548563.23 in the year 2007-08 with a considerable decline of 1093048.26 in
the year 2008-09.


#/!
c :
c 
Year No. of contracts
2008-09 24008627
2007-08 55366038
2006-07 25157438
2005-06 12935116
2004-05 3293558
2003-04 1732414
2002-03 442241
2001-02 175900
2000-01 -

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,!!!!!!!
!!+!
(!!!!!!! !!)!+
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c
 


c '
From the data and bar chart above, the no of contracts of index option was nil in the year 2000-
2001. But there was a predominant increase of 1,75,900 in the year 2001-2002. In the year 2007-
2008 there was a huge increase in the index option contracts to 55366038 and a decline of
24008627 in the year 2008-2009.



#/!#
$$

Year Turnover (Rs. Crores)

2008-09 71340.02
2007-08 1362110.88
2006-07 791906
2005-06 338469
2004-05 121943
2003-04 52816
2002-03 9246
2001-02 3765
2000-01 -

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c '
From the data and bar chart above, there was no turnover in the year 2000-2001 for Index option.
It slowly started increasing in the year 2000-2001 to 3765.But in the year 2007-2008 there was a
huge increase of 1362110.088 and a sudden decline to 71340.02 observed in 2008-2009.




#/l


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2008-09? ?
2007-08? ?
2006-07? ?
2005-06? ?
2004-05? ?
2003-04? ?
2002-03? ?
2001-02? ?
2000-01? ?
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c
 


c '
From the data and bar chart above the no of contracts of stock option in the year 2000-2001 was
nil. But there was a huge increase of 1037529 observed in the year 2001-2002. It was 9460631
which was the highest in the year 2007-2008. But a gradual decline of 2546175 in the year
2008-2009.


#/l# $($$
Year Notional turnover (Rs. crores)
2008-09 58335.03
2007-08 359136.55
2006-07 193795
2005-06 180253
2004-05 168836
2003-04 217207
2002-03 100131
2001-02 25163
2000-01 -

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c '
From the chart and the bar diagram above the stock option turnover in the year 2000-2001 was
nil. There was a slow increase of 25163 in the year 2001-2002. But a phenomenal increase of
359136.55 in the year 2007-2008, and a decline of 58355.03 in the year 2008-2009.





#/K
 
//

c .
Year No. of contracts Turnover (Rs. cr.)
2008-09 119171008 2648403.30
2007-08 425013200 13090477.75
2006-07 216883573 7356242
2005-06 157619271 4824174
2004-05 77017185 2546982
2003-04 56886776 2130610
2002-03 16768909 439862
2001-02 4196873 101926
2000-01 90580 2365

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c '
From the data and bar chart above, the overall trading contracts in the year 2000-2001 was
90580 and huge increase of 119171008 in the year 2008-2009.
From the data and bar chart above the overall trading turnover in the year 2000-2001 was as low
as 2365 but a predominant increase of 2648403.30 observed in the year 2008-2009.


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%($ß6 ?
!??=,?> 45390.21 ?
!??<,?= 52153.30 ?

!??;,?< 29543 ?

!??',?; 19220 ?

!??K,?' 10167 ?

!??l,?K 8388 ?
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Note:
Notional Turnover = (Strike Price + Premium) * Quantity
Index Futures, Index Options, Stock Options and Stock Futures were introduced in June 2000,
June 2001, July 2001 and November 2001 respectively.

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