DISSERTATION

ON
ROLES ROLES ROLES ROLES AND EVOLUTION OF DERIVATIVES MARKET IN INDIA AND EVOLUTION OF DERIVATIVES MARKET IN INDIA AND EVOLUTION OF DERIVATIVES MARKET IN INDIA AND EVOLUTION OF DERIVATIVES MARKET IN INDIA


Submitted in Partial Fulfillment of the Requirements for the
Award of the Degree
OF
MASTER OF BUSINESS ADMINISTRATION
(ACADEMIC SESSION)
2012-2014




Under the supervision of Submitted By
Dr. RASHID USMAN ANSARI MOHAMMED JAVED ANSARI
(Assistant Professor) (12-MBAW-16)
epartment of Business Administration

ALIGARH MUSLIM UNIVERSITY MURSHIDABAD CENTRE (W.B)
(2013-2014)






Date:____/____/______



CERTIFICATE
TO WHOM IT MAY CONCERN


This is to certify that Mr. MOHAMMED JAVED ANSARI, student of
Master of Business Administration (MBA) has completed his
dissertation on the topic entitled ROLES AND EVOLUTION OF
DERIVATIVES MARKET IN INDIA under my supervision and
guidance.
To the best of my knowledge and belief the work is based on
the investigations made, data collected and analyzed by him
and it has not been submitted in any other University or
Institution for award of any degree or diploma.



Dr. RASHID USMAN ANSARI

Dr. Rashid Usman Ansari
(Assistant Professor)
Department of Business Administration
Aligarh Muslim University,
Murshidabad Centre,
West Bengal



ACKNOWLEDGEMENT

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( MOHAMMED JAVED ANSARI)











DECLARATION




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MOHAMMED JAVED ANSARI
12MBAW-16
GG-9400

TABLE OF CONTENTS
PARTICULARS
PAGE NO.
CERTIFICATE
ACKNOWLEDGEMENT
DECLARATION
EXECUTIVE SUMMARY

CHAPTER 1
INTRODUCTION TO DERIVATIVES
2-19
Introduction to Derivatives 2-5
Underlying Markets 5
Forms/Instruments of Derivatives Market 6-10
Terminologies of Derivatives 11-13
Moneyness of Options 13-14
Regulatory Framework 14-16
Application of Derivatives 17-19
CHAPTER 2
LITERATURE REVIEW
21-23
CHAPTER 3
RESEARCH METHODOLOGY
25-26
CHAPTER 4
TRADING MECHAMISM IN DERIVATIVES MARKET
(INDIA)
28-36
F & O trading system 28-31
Traders workstation 32
Derivatives Trading (With NSEL) 32-36
CHAPTER 5
ROLES OF DERIVATIVES MARKET (INDIA)
38-40
CHAPTER 6
EVOLUTION OF DERIVATIVES MARKET
42-57
Evolution of Derivatives Market in India 42
History of Derivatives 42-44
Historical Developments of Derivatives Market in India 44-48
Risk associated with Derivatives Market 49-50
Development and Growth of Derivative Markets in India 50-53
CHAPTER 6
FINDINGS AND CONCLUSION
55-57
CHAPTER 7
BIBLIOGRAPHY
60-61

EXECUTIVE SUMMARY

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. They may take the form of forwards, futures, option or swap. The
three main players in the derivatives market consist of hedgers, speculators and arbitrageurs. In
India, we have index futures as the first step towards building a more liquid market.
In India, NSE has introduced index futures contract based on S&P CNX Nifty. The S&P CNX
Nifty futures are traded on NSE as one, two and three-month contracts. Whereas BSE has
introduced index futures contract based on BSE-30 Sensex. They are contracts whose
underlying is the value of the index at any point in time. At the time of delivery, the trade is
settled in cash. Trading in index futures is not just to hedge market risk; it can well be a source of
profit through arbitrage. There are arbitrage opportunities in index futures, just as in stocks.
Financial innovation that led to the issuance and trading of derivative products has been an
important boost to the development of financial markets. While the benefits stemming from the
economic functions performed by derivative securities have been discussed and proven by
academics, there is increasing concern within the financial community that the growth of the
derivatives markets - whether standardized or not - destabilizes the economy.
The Derivatives Committee strongly favors the introduction of financial derivatives in order to
provide the facility for hedging in the most cost-efficient way against market risk. This is an
important economic purpose. At the same time, it recognizes that in order to make hedging
possible, the market should also have speculators who are prepared to be counter-parties to
hedgers. And if sufficient numbers of hedgers with genuine hedging needs are not there and we
still introduce futures market, then we would end up having only speculators. Such a futures
market would be devoid of any connection with the cash or the spot market and would have its
own life full of speculation and bubbles. So now the question arises, do Indian investors need
futures trading? If trading in index futures is advocated on the basis of hedging needs of
investors, one must assess the market demand and supply source for trading in the market risk
before introducing the index futures.


The desirability of successful derivatives, such as futures trading, depends crucially on the
solidity and maturity of cash markets in underlying securities. To make cash markets robust and
effective, first let us put in place the mechanism of margin trading, short sale, dematerialized
settlement and electronic transfer of funds among market participants.

























TABLE OF CONTENTS

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A!'()W*"+"M"($
"!*A#A$%)(
$AB*" )& !)($"($S

CHAPTER 1: INTRODUCTION TO DERIVATIVES 2-19
1.1 Introduction to Derivatives 2-5
1.2 Underlying Markets 5
1.3 Forms of Derivatives Market 6-10
1.4 Terminologies of Derivatives 11-13
1.5 Moneyness of Options 13-14
1.6 Regulatory Framework 14-16
1.7 Application of Derivatives 17-19

CHAPTER 2: LITERATURE REVIEW 21-23

CHAPTER 3: RESEARCH METHODOLOGY 25-26
,-1 #esear.h esi/n and Methods of .o00e.tion ata 21
,-2 )b2e.tives of Study 26

CHAPTER : TRADING MECHANISM IN DERIVATIVES MAR!ET 2"-36
#INDIA$
3-1 & 4 ) tradin/ system 25-,1
3-2 $rader6s 7or8station ,2

3-, erivatives $radin/ (With (S"*) ,2-,6

CHAPTER 5: ROLES O% DERIVATIVES MAR!ET #INDIA$ 3"-&

CHAPTER 6: EVOLUTION O% DERIVATIVES MAR!ET 2-53
6-1 "vo0ution of erivatives Mar8et in %ndia 32
6-2 9istory of erivatives 32-33
6-, 9istori.a0 eve0opments of erivatives Mar8et in %ndia 33-35
6-3 #is8 asso.iated 7ith erivatives Mar8et 3:-1;
6-1 eve0opment and +ro7th of erivative Mar8ets in %ndia 1;-1,

CHAPTER ': %INDINGS AND CONCLUSION 55-5'
<-1 &indin/s 11
<-2 !on.0usion 16-15

CHAPTER ": (I(LIOGRAPHY 6&-61