Financial Services:-

Financial services are the economic services provided by the finance industry, which
encompasses a broad range of businesses that manage money, including credit
unions, banks, credit-card companies, insurance companies, accountancy
companies, consumer-finance companies, stock brokerages, investment funds and
some government-sponsored enterprises. Companies usually have two distinct
approaches to this new type of business. One approach would be a bank which
simply buys an insurance company or an investment bank, keeps the original
brands of the acquired firm, and adds the acquisition to its holding company simply
to diversify its earnings. Outside the U.S. (e.g., in Japan), non-financial services
companies are permitted within the holding company. In this scenario, each
company still looks independent, and has its own customers, etc. In the other style,
a bank would simply create its own brokerage division or insurance division and
attempt to sell those products to its own existing customers, with incentives for
combining all things with one company.
History of Indian Stock Market

The first organized stock exchange in India was started in 1875 at Bombay and it is
stated to be the oldest in Asia. In 1894 the Ahmedabad Stock Exchange was started
to facilitate dealings in the shares of textile mills there. The Calcutta stock exchange
was started in 1908 to provide a market for shares of plantations and jute mills.
Then the madras stock exchange was started in 1920. At present there are 24 stock
exchanges in the country, 21 of them being regional ones with allotted areas. Two
others set up in the reform era, viz., the National Stock Exchange (NSE) and Over
the Counter Exchange of India (OICEI), have mandate to have nation-wise trading.
They are located at Ahmedabad, Vadodara, Bangalore, Bhubaneswar, Mumbai,
Kolkata, Kochi, Coimbatore, Delhi, Guwahati, Hyderabad, Indore, Jaipur Kanpur,
Ludhiana, Chennai Mangalore, Meerut, Patna, Pune, Rajkot. The Stock Exchanges
are being administered by their governing boards and executive chiefs. Policies
relating to their regulation and control are laid down by the Ministry of Finance.
Government also Constituted Securities and Exchange Board of India (SEBI) in April
1988 for orderly development and regulation of securities industry and stock
exchanges.
The Indian broking industry is one of the oldest exchange commercial enterprises
that have been around even before the foundation of BSE in 1875. BSE is the oldest
securities exchange in India. The historical backdrop of India stock exchanging
begins with 318 persons taking participation in Local share and Stock Specialists
Affiliation, which we know by the name Bombay Stock Trade or BSE in short. In
1965, BSE got lasting acknowledgment from the Legislature of India. BSE and NSE
speak to themselves as equivalent words of India securities exchange. The historical
backdrop of India securities exchange is just about the same as the historical
backdrop of BSE.
Financial Products

The study likewise uncovered that in the recent years, aside from trading , the
organizations have begun different venture value services. The maintained
development of the economy in recent years has brought about broking firms
offering numerous enhanced administrations identified with IPO's, shared assets,
organization research and so forth. Be that as it may, the trading movement is still
the overwhelming type of business, capturing 90% of the organizations in the
sample. 67% firms are occupied with offering Initial public offering related
administrations. The broking business appears to have profited by the development
of the common asset industry, which pegged at 40% in 2006. More than half of the
broking houses trade in mutual asset venture administrations. The normal
development in resources under administration in most recent two years is right

around 48% organization research administrations. Additionally, a host of other

value added services such as fundamental and technical analysis, investment
banking, arbitrage etc. are offered by the firms at different levels.

Capital markets

They are financial markets for the buying and selling of long-term debt or equitybacked securities. These markets channel the wealth of savers to those who can put
it to long-term productive use, such as companies or governments making longterm investments. Capital markets are defined as markets in which money is
provided for periods longer than a year. Financial regulators, such as the UK's Bank
of England (BoE) or the U.S. Securities and Exchange Commission (SEC), oversee
the capital markets in their jurisdictions to protect investors against fraud, among
other duties.
Modern capital markets are almost invariably hosted on computer-based electronic
trading systems; most can be accessed only by entities within the financial sector or
the treasury departments of governments and corporations, but some can be
accessed directly by the public. There are many thousands of such systems, most
serving only small parts of the overall capital markets. Entities hosting the systems
include stock exchanges, investment banks, and government departments.
Physically the systems are hosted all over the world, though they tend to be
concentrated in financial centres like London, New York, and Hong Kong.
A key division within the capital markets is between the primary markets and
secondary markets. In primary markets, new stock or bond issues are sold to
investors, often via a mechanism known as underwriting. The main entities seeking
to raise long-term funds on the primary capital markets are governments (which
may be municipal, local or national) and business enterprises (companies).
Governments tend to issue only bonds, whereas companies often issue either equity
or bonds. The main entities purchasing the bonds or stock include pension funds,
hedge funds, sovereign wealth funds, and less commonly wealthy individuals and
investment banks trading on their own behalf. In the secondary markets, existing
securities are sold and bought among investors or traders, usually on an exchange,
over-the-counter, or elsewhere. The existence of secondary markets increases the
willingness of investors in primary markets, as they know they are likely to be able
to swiftly cash out their investments if the need arises. A second important division
falls between the stock markets (for equity securities, also known as shares, where
investors acquire ownership of companies) and the bond markets (where investors
become creditors).
Primary and Secondary Capital Markets
A company cannot easily attract investors to invest in their securities if the
investors cannot subsequently trade these securities at will. In other words,
securities cannot have a good primary market unless it is ensured of an active
secondary market.

Primary Market The primary markets deal with the trading of newly issued
securities. The corporations, governments and companies issue securities like
stocks and bonds when they need to raise capital. The investors can purchase the
stocks or bonds issued by the companies. Money thus earned from the selling of
securities goes directly to the issuing company. The primary markets are also called
New Issue Market (NIM). Initial Public Offering is a typical method of issuing security
in the primary market. The functioning of the primary market is crucial for both the
capital market and economy as it is the place where the capital formation takes
place.
Secondary Market The secondary market is that part of the capital market that
deals with the securities that are already issued in the primary market. The
investors who purchase the newly issued securities in the primary market sell them
in the secondary market. The secondary market needs to be transparent and highly
liquid in nature as it deals with the already issued securities. In the secondary
market, the value of a particular stock also varies from that of the face value. The
resale value of the securities in the secondary market is dependent on the
fluctuating interest rates.

Indian Stock Exchange

Stock Market
A stock market or equity market is a public entity (a loose network of economic
transaction, not a physical facility or discrete entity) for the trading of company
stock (shares) and derivatives at an agreed price; these are securities listed on a
stock exchange as well as those only traded privately.
Stock exchange
A stock exchange provides services for stock brokers and traders to trade stocks,
bonds and other securities. Stock exchanges also provide facilities for issue and
redemption of securities and other financial instruments and capital events
including the payment of income and dividends. Securities traded on stock
exchange include shares issued by companies, unit trusts, derivatives, pooled
investment products and bonds.
Equity/Share
Total equity capital of a company is divided into equal units of small denominations,
each called a share. For example, in a company the total equity capital of Rs.
1,00,00,000 is divided into 10,00,000 units of Rs. 10 each. Each such unit of Rs. 10
is called a share. Thus, the company then is said to have 10, 00,000 equity share of
Rs. 10 each. The holders of such shares are members of the company and have
voting rights. There are now stock markets in virtually every developed and most
developing economy, with the worlds biggest being in the United States, UK,
Germany, France, India and Japan.
Market participants
Market participants include individual retail investors, institutional investors such as
mutual funds, banks, insurance companies and hedge funds, and also publically
traded corporations trading in their own shares. Lead Managers, Investors,
Custodians, Depositors are also referred to as Market Participants.

Trading
In finance, a trading strategy is a fixed plan that is designed to achieve a profitable
return by going long or short in markets. The main reasons that a properly
researched trading strategy helps are its verifiability, quantifiability, consistency,
and objectivity.

Listing
In corporate finance, a listing refers to the company's shares being on the list (or
board) of stock that are officially traded on a stock exchange. Normally the issuing
company is the one that applies for a listing but in some countries the exchange
can list a company, for instance because its stock is already being actively traded
via informal channels. Initial listing requirements usually include a history of a few
years of financial statements (not required for "alternative" markets targeting young
firms); a sufficient size of the amount being placed among the general public (the
free float), both in absolute terms and as a percentage of the total outstanding
stock; an approved prospectus, usually including opinions from independent
assessors, and so on. Stocks whose market value and/or turnover fall below critical
levels can get officially delisted; delisting is often the result of a merger or takeover,
or the firm going private.
Securities
A security is a financial instrument that represents an ownership position in a
publicly-traded corporation (stock), a creditor relationship with governmental body
or a corporation (bond), or rights to ownership as represented by an option. A
security is a fungible, negotiable financial instrument that represents some type of
financial value. The company or entity that issues the security is known as the
issuer.

SEBI
The Securities and Exchange Board of India (SEBI) is the regulator for the securities
market in India. It was established in the year 1988 and given statutory powers on
12 April 1992 through the SEBI Act, 1992.
It was established by The Government of India on 12 April 1988 and given statutory
powers in 1992 with SEBI Act 1992 being passed by the Indian Parliament. SEBI has

its headquarters at the business district of Bandra Kurla Complex(BKC) in Mumbai,

and has Northern, Eastern, Southern and Western Regional Offices in New Delhi,
Kolkata, Chennai and Ahmedabad respectively. It has opened local offices at Jaipur
and Bangalore and is planning to open offices at Guwahati, Bhubaneshwar, Patna,
Kochi and Chandigarh in Financial Year 2013 - 2014.
Controller of Capital Issues was the regulatory authority before SEBI came into
existence; it derived authority from the Capital Issues (Control) Act, 1947.
Initially SEBI was a non statutory body without any statutory power. However, in
1995, the SEBI was given additional statutory power by the Government of India
through an amendment to the Securities and Exchange Board of India Act, 1992. In
April 1988 the SEBI was constituted as the regulator of capital markets in India
under a resolution of the Government of India.
The SEBI is managed by its members, which consists of following:
1. The chairman who is nominated by Union Government of India.
2. Two members, i.e., Officers from Union Finance Ministry.
3. One member from the Reserve Bank of India.
4. The remaining five members are nominated by Union Government of India,
out of them at least three shall be whole-time members.

Objectives of SEBI:The main objectives of SEBI are:

(1) Regulation of Stock Exchanges:
The first objective of SEBI is to regulate stock exchanges so that efficient services
may be provided to all the parties operating there.
(2) Protection to the Investors:
The capital market is meaningless in the absence of the investors. Therefore, it is
important to protect the interests of the investors.
The protection of the interests of the investors means protecting them from the
wrong information given by the companies in their prospectus, reducing the risk of
delivery and payment, etc. Hence, the foremost objective of the SEBI is to provide
security to the investors.
(3) Checking the Insider Trading:
Insider trading means the buying and selling of securities by those peoples
directors Promoters, etc. who have some secret information about the company and
who wish to take advantage of this secret information.
This hurts the interests of the general investors. It was very essential to check this
tendency. Many steps have been taken to check inside trading through the medium
of the SEBI.
(4) Control over Brokers:

It is important to keep an eye on the activities of the brokers and other middlemen
in order to control the capital market. To have a control over them, it was necessary
to establish the SEBI.
FUNCTIONS OF SEBI
The SEBI performs functions to meet its objectives. To meet three objectives SEBI
has three important functions. These are:
i. Protective functions
ii. Developmental functions
iii. Regulatory functions.
1. Protective Functions:
These functions are performed by SEBI to protect the interest of investor and
provide safety of investment.
As protective functions SEBI performs following functions:
(i) It Checks Price Rigging:
Price rigging refers to manipulating the prices of securities with the main objective
of inflating or depressing the market price of securities. SEBI prohibits such practice
because this can defraud and cheat the investors.
(ii) It Prohibits Insider trading:
Insider is any person connected with the company such as directors, promoters etc.
These insiders have sensitive information which affects the prices of the securities.
This information is not available to people at large but the insiders get this
privileged information by working inside the company and if they use this
information to make profit, then it is known as insider trading, e.g., the directors of
a company may know that company will issue Bonus shares to its shareholders at
the end of year and they purchase shares from market to make profit with bonus
issue. This is known as insider trading. SEBI keeps a strict check when insiders are
buying securities of the company and takes strict action on insider trading.
(iii) SEBI prohibits fraudulent and Unfair Trade Practices:
SEBI does not allow the companies to make misleading statements which are likely
to induce the sale or purchase of securities by any other person.
(iv) SEBI undertakes steps to educate investors so that they are able to
evaluate the securities of various companies and select the most profitable
securities.
(v) SEBI promotes fair practices and code of conduct in security market by
taking following steps:
(a) SEBI has issued guidelines to protect the interest of debenture-holders wherein
companies cannot change terms in midterm.
(b) SEBI is empowered to investigate cases of insider trading and has provisions for
stiff fine and imprisonment.
(c) SEBI has stopped the practice of making preferential allotment of shares
unrelated to market prices.
2. Developmental Functions:
These functions are performed by the SEBI to promote and develop activities in
stock exchange and increase the business in stock exchange. Under developmental
categories following functions are performed by SEBI:
(i) SEBI promotes training of intermediaries of the securities market.
(ii) SEBI tries to promote activities of stock exchange by adopting flexible and
adoptable approach in following way:

(a) SEBI has permitted internet trading through registered stock brokers.
(b) SEBI has made underwriting optional to reduce the cost of issue.
(c) Even initial public offer of primary market is permitted through stock exchange.
3. Regulatory Functions:
These functions are performed by SEBI to regulate the business in stock exchange.
To regulate the activities of stock exchange following functions are performed:
(i) SEBI has framed rules and regulations and a code of conduct to regulate the
intermediaries such as merchant bankers, brokers, underwriters, etc.
(ii) These intermediaries have been brought under the regulatory purview and
private placement has been made more restrictive.
(iii) SEBI registers and regulates the working of stock brokers, sub-brokers, share
transfer agents, trustees, merchant bankers and all those who are associated with
stock exchange in any manner.
(iv) SEBI registers and regulates the working of mutual funds etc.
(v) SEBI regulates takeover of the companies.
(vi) SEBI conducts inquiries and audit of stock exchanges.

Bombay Stock Exchange(BSE):The Bombay Stock Exchange (BSE) is an Indian

stock exchange located at Dalal Street, Kala Ghoda, Mumbai, Maharashtra, India.
Established in 1875, the BSE is Asias first stock exchange and the world's fastest
stock exchange with a median trade speed of 6 microseconds. The BSE is the
world's 11th largest stock exchange with an overall market capitalization of $1.7
trillion as of January 23, 2015. More than 5500 companies are publicly listed on the
BSE.
The Bombay Stock Exchange is the oldest exchange in Asia. Its history dates back
to 1855, when five stockbroker would gather under banyan trees in front of
Mumbai's Town Hall. The location of these meetings changed many times to
accommodate an increasing number of brokers. The group eventually moved to
Dalal Street in 1874 and in became an official organization known as "The Native
Share & Stock Brokers Association" in 1875.
On August 31, 1957, the BSE became the first stock exchange to be recognized by
the Indian Government under the Securities Contracts Regulation Act. In 1980, the
exchange moved to the Phiroze Jeejeebhoy Towers at Dalal Street, Fort area. In
1986, it developed the BSE SENSEX index, giving the BSE a means to measure the
overall performance of the exchange. In 2000, the BSE used this index to open its
derivatives market, trading SENSEX futures contracts. The development of SENSEX

options along with equity derivatives followed in 2001 and 2002, expanding the
BSE's trading platform.
Historically an open outcry floor trading exchange, the Bombay Stock Exchange
switched to an electronic trading system developed by CMC Ltd. in 1995. It took the
exchange only 50 days to make this transition. This automated, screen-based
trading platform called BSE On-Line Trading (BOLT) had a capacity of 8 million
orders per day. The BSE has also introduced a centralized exchange-based internet
trading system, BSEWEBx.co.in to enable investors anywhere in the world to trade
on the BSE platform. The BSE is also a Partner Exchange of the United Nations
Sustainable Stock Exchange initiative, joining in September 2012.
BSE is the first exchange in India and the second in the world to obtain an ISO
9001:2000 certification. It is also the first exchange in the country and second in the
world to receive Information Security Management System Standard BS 7799-22002 certification for its BSE On-line Trading System (BOLT). BSE continues to
innovate. In recent times, it has become the first national level stock exchange to
launch its website in Gujarati and Hindi to reach out to a larger number of investors.
It has successfully launched a reporting platform for corporate bonds in India
christened the ICDM or Indian Corporate Debt Market and a unique ticker-cumscreen aptly named 'BSE Broadcast' which enables information dissemination to the
common man on the street. In 2006, BSE launched the Directors Database and
ICERS (Indian Corporate Electronic Reporting System) to facilitate information flow
and increase transparency in the Indian capital market.
The launch of SENSEX in 1986 was later followed up in January 1989 by the
introduction of the BSE National Index (Base: 198384 = 100). It comprised 100
stocks listed at five major stock exchanges in India Mumbai, Calcutta, Delhi,
Ahmedabad and Madras. The BSE National Index was renamed BSE-100 Index from
14 October 1996 and, since then, its calculations take into consideration only the
prices of stocks listed at BSE.BSE launched the dollar-linked version of BSE-100
index on 22 May 2006, the "BSE-200" and the "DOLLEX-200" on 27 May 1994, the
BSE-500 Index and 5 sectoral indices in 1999, and the BSE-PSU Index, DOLLEX-300,
and the BSE TECk Index (the country's first free-float based index) in 2001. Over the
years, BSE shifted all its indices to the free-float methodology (except BSE-PSU
index).
The BSE disseminates information on the Price-Earnings Ratio, the Price to Book
Value Ratio, and the Dividend Yield Percentage of all its major indices on day-to-day
basis. The values of all BSE indices are updated on a real-time basis during market
hours and displayed through the BOLT system, the BSE website, and news wire
agencies. All BSE Indices are reviewed periodically by the BSE Index Committee.
This Committee, which comprises eminent independent finance professionals,
frames the broad policy guidelines for the development and maintenance of all BSE
indices. The BSE Index Cell carries out the day-to-day maintenance of all indices
and conducts research on development of new indices. SENSEX is significantly
correlated with the stock indices of other emerging markets.
National Stock Exchange (NSE) It is the leading stock exchange of India, located in

Mumbai. NSE was established in 1992 as the first demutualized electronic exchange in the
country. NSE was the first exchange in the country to provide a modern, fully automated screen-

based electronic trading system which offered easy trading facility to the investors spread across
the length and breadth of the country.
NSE has a market capitalization of more than US$1.65 trillion, making it the worlds
12th-largest stock exchange as of 23 January 2015. NSE's flagship index, the CNX
Nifty,the 50 stock index, is used extensively by investors in India and around the
world as a barometer of the Indian capital markets.
NSE was set up by a group of leading Indian financial institutions at the behest of
the government of India to bring transparency to the Indian capital market. Based
on the recommendations laid out by the government committee, NSE has been
established with a diversified shareholding comprising domestic and global
investors. The key domestic investors include Life Insurance Corporation of India,
State Bank of India, IFCI Limited IDFC Limited and Stock Holding Corporation of India
Limited. And the key global investors are Gagil FDI Limited, GS Strategic
Investments Limited, SAIF II SE Investments Mauritius Limited, Aranda Investments
(Mauritius) Pte Limited and PI Opportunities Fund I.
NSE offers trading, clearing and settlement services in equity, equity derivatives,
debt and currency derivatives segments. It is the first exchange in India to introduce
electronic trading facility thus connecting together the investor base of the entire
country. NSE has 2500 VSATs and 3000 leased lines spread over more than 2000
cities across India.
The exchange was incorporated in 1992 as a tax-paying company and was
recognized as a stock exchange in 1993 under the Securities Contracts (Regulation)
Act, 1956, when P. V. Narasimha Rao was the Prime Minister of India and Manmohan
Singh was the Finance Minister. NSE commenced operations in the Wholesale Debt
Market (WDM) segment in June 1994. The capital market (equities) segment of the
NSE commenced operations in November 1994, while operations in the derivatives
segment commenced in June 2000.

NSE offers trading in the following segments:

Equities

Equities
Indices
Mutual Funds
Exchange Traded Funds
Initial Public Offerings
Security Lending and Borrowing Scheme

Derivatives

Equity Derivatives (including Global Indices like CNX 500, Dow Jones and
FTSE )
Currency Derivatives
Interest Rate Futures

10

Debt

Corporate Bonds

Equity Derivatives
The National Stock Exchange of India Limited (NSE) commenced trading in
derivatives with the launch of index futures on 12 June 2000. The futures and
options segment of NSE has made a global mark. In the Futures and Options
segment, trading in NIFTY 50 Index, NIFTY IT index, NIFTY Bank Index, NIFTY Next 50
index and single stock futures are available. Trading in Mini Nifty Futures & Options
and Long term Options on NIFTY 50 are also available. The average daily turnover in
the F&O Segment of the Exchange during the financial year April 2013 to March
2014 stood at Rs 1,52,236 crore.
On 29 August 2011, National Stock Exchange launched derivative contracts on the
worlds most followed equity indices, the S&P 500 and the Dow Jones Industrial
Average. NSE is the first Indian exchange to launch global indices. This is also the
first time in the world that futures contracts on the S&P 500 index were introduced
and listed on an exchange outside of their home country, USA. The new contracts
include futures on both the DJIA and the S&P 500, and options on the S&P 500.
On 3 May 2012, the National Stock exchange launched derivative contracts (futures
and options) on FTSE 100, the widely tracked index of the UK equity stock market.
This was the first of its kind of an index of the UK equity stock market launched in
India. FTSE 100 includes 100 largest UK listed blue chip companies and has given
returns of 17.8 per cent on investment over three years. The index constitutes 85.6
per cent of UKs equity market cap.
On 10 January 2013, the National Stock Exchange signed a letter of intent with the
Japan Exchange Group, Inc. (JPX) on preparing for the launch of NIFTY 50 Index
futures, a representative stock price index of India, on the Osaka Securities
Exchange Co., Ltd. (OSE), a subsidiary of JPX.
Moving forward, both parties will make preparations for the listing of yendenominated NIFTY 50 Index futures by March 2014, the integration date of the
derivatives markets of OSE and Tokyo Stock Exchange, Inc. (TSE), a subsidiary of
JPX. This is the first time that retail and institutional investors in Japan will be able to
take a view on the Indian markets, in addition to current ETFs, in their own currency
and in their own time zone. Investors will therefore not face any currency risk,
because they will not have to invest in dollar denominated or rupee denominated
contracts.
Currency Derivatives
In August 2008, currency derivatives were introduced in India with the launch of
Currency Futures in USD INR by NSE. It also added currency futures in Euros, Pounds
and Yen. The average daily turnover in the F&O Segment of the Exchange on 20
June 2013 stood at Rs 41,926.16 crore in futures and Rs 27,397.70 crore in options,
respectively.

11

Interest Rate Futures

In December 2013, exchanges in India received approval from market regulator
SEBI for launching interest rate futures (IRFs) on a single GOI bond or a basket of
bonds that will be cash settled. Market participants have been in favour of the
product being cash settled and being available on a single bond. NSE will launch the
NSE Bond Futures on 21 January on highly liquid 7.16 percent and 8.83 percent 10year GOI bonds. Interest Rate Futures were introduced for the first time in India by
NSE on 31 August 2009, exactly one year after the launch of Currency Futures. NSE
became the first stock exchange to get an approval for interest-rate futures, as
recommended by the SEBI-RBI committee.
Debt Market
On 13 May 2013, NSE launched India's first dedicated debt platform to provide a
liquid and transparent trading platform or debt related products.
The Debt segment provides an opportunity to retail investors to invest in corporate
bonds on a liquid and transparent exchange platform. It also helps institutions who
are holders of corporate bonds. It is an ideal platform to buy and sell at optimum
prices and help Corporates to get adequate demand, when they are issuing the
bonds.
Exchange Traded Funds and Derivatives on National Stock Exchange :
The following products are trading on CNX Nifty Index in the Indian and international
Market:
7 Asset Management Companies have launched exchange-traded funds on
CNX Nifty Index which are listed on NSE
15 index funds have been launched on CNX Nifty Index
Unit linked products have been launched on CNX Nifty Index by several
insurance companies in India
World Indices
Derivatives Trading on NIFTY 50 Index:
Futures and Options trading on CNX Nifty Index
Trading in NIFTY 50 Index Futures on Singapore Stock Exchange(SGX)
Trading in NIFTY 50 Index Futures on Chicago Mercantile Exchange(CME)
Over the Counter Exchange of India (OTCEI)
The OTC Exchange Of India (OTCEI), also known as the Over-the-Counter Exchange
of India, is based in Mumbai, Maharashtra. It is India's first exchange for small
companies, as well as the first screen-based nationwide stock exchange in India.
OTCEI was set up to access high-technology enterprising promoters in raising
finance for new product development in a cost-effective manner and to provide a
transparent and efficient trading system to investors.
OTCEI is promoted by the Unit Trust of India, the Industrial Credit and Investment
Corporation of India, the Industrial Development Bank of India, the Industrial
Finance Corporation of India, and other institutions, and is a recognized stock
exchange under the SCR Act.
The OTC Exchange Of India was founded in 1990 under the Companies Act 1956
and was recognized by the Securities Contracts Regulation Act, 1956 as a stock

12

exchange. The OTCEI is no longer a functional exchange as the same has been derecognized by SEBI vide its order dated 31 Mar 2015.

Details of Stock Exchange in India:Sr.

No.

Name of the Exchange

Valid Up to

Ahmedabad Stock Exchange Ltd.

PERMANENT

Bangalore Stock Exchange Ltd.

PERMANENT

Bhubaneswar Stock Exchange Ltd.

Bombay Stock Exchange Ltd.

PERMANENT

Calcutta Stock Exchange Ltd.

PERMANENT

Cochin Stock Exchange Ltd.

Coimbatore Stock Exchange Ltd.: Due to pending

litigation before the Hon'ble Madras High Court,
Coimbatore Stock Exchange Ltd. (CSX) has not filed
application for renewal of recognition which expired on
17.09.06. However, in terms of order dated 15.09.06 of the
Hon'ble Court, the right of CSX to apply for renewal shall
be subject to further orders of the court and the stock
exchange shall not be entitled to oppose the renewal
solely on the ground of lapse of time.

Delhi Stock Exchange Ltd.

Guwahati Stock Exchange Ltd.

10

Hyderabad Stock Exchange Ltd: The Hyderabad Stock

Exchange Ltd. (HSE) failed to dilute at least 51% of its
equity share capital to
public other than shareholders having trading rights on or
before the
stipulated date i.e. August 28, 2007. Consequently, in
terms
of section 5(2) of the Securities Contracts (Regulation) Act,
1956,

June 04, 2012

November 07, 2011

September 17, 2006

PERMANENT

April 30, 2012

13

the recognition granted to HSE stands withdrawn

with effect from August 29, 2007.

11

Interconnected Stock Exchange of India Ltd.

12

Jaipur Stock Exchange Ltd.

13

Ludhiana Stock Exchange Ltd.

14

Madhya Pradesh Stock Exchange Ltd

PERMANENT

15

Madras Stock Exchange Ltd.

PERMANENT

16

Magadh Stock Exchange Ltd.: "SEBI vide order dated

September 3, 2007 refused to renew the recognition
granted to Magadh Stock Exchange Ltd."

17

Mangalore Stock Exchange :As per Securities Appellete

Tribunal order dated October 4, 2006, the Mangalore Stock
Exchange is a de-recognized Stock Exchange under
Section 4 (4) of SCRA

18

MCX Stock Exchange Ltd

19

National Stock Exchange of India Ltd.

20

OTC Exchange of India

21

Pune Stock Exchange Ltd.

22

Saurashtra Kutch Stock Exchange Ltd: SEBI vide order

dated July 06, 2007 has withdrawn the recognition granted
to Saurashtra Kutch Stock Exchange Limited.

23

U.P. Stock Exchange Limited

24

United Stock Exchange of India Limited

25

The Vadodara Stock Exchange Ltd.

November 17, 2011

January 08, 2012

April 27, 2012

September 15, 2011

PERMANENT

August 22, 2012

September 01, 2012

June 02, 2012

March 21, 2012

January 03, 2012

14

Derivatives:
A derivative is a contract that derives its value from the performance of an
underlying entity. This underlying entity can be an asset, index, or interest rate, and
is often simply called the "underlying".[1][2] Derivatives can be used for a number of
purposes, including insuring against price movements (hedging), increasing
exposure to price movements for speculation or getting access to otherwise hardto-trade assets or markets.[3] Some of the more common derivatives include
forwards, futures, options, swaps, and variations of these such as synthetic
collateralized debt obligations and credit default swaps. Most derivatives are traded
over-the-counter (off-exchange) or on an exchange such as the Bombay Stock
Exchange, while most insurance contracts have developed into a separate industry.
Derivatives are one of the three main categories of financial instruments, the other
two being stocks (i.e., equities or shares) and debt (i.e., bonds and mortgages).
Origin of Derivatives:
Derivative Instruments are used by traders either for hedging purposes or for
leveraging their profit through speculation.
Origins of Derivative Instruments are given in a chronological manner:
6th Century B.C.
Thalus, a Greek Philosopher, instrumented an agreement by which he secured the
rights of the olive presses. He was able to secure the same at a comparatively low
rate because of the uncertainty relating to the extent of harvest. Olive harvest for
that year was very high which generated excess demand for olive presses. This
gave Thalus the opportunity to charge a very high price from the consumers and
consequently book a heavy profit.
12th Century
During the 12th century, trade flourished in Europe. The merchants had to ship their
goods from one part of the continent to another in search of profit. But this process
bore risk of shipwreck and consequent loss. In order to bypass this problem these
merchants came out with letter de faire which were nothing but customized
forward contracts. These letters acted as evidence of the deals between the
customer and the merchant. In turn, the merchant remained obliged for making
delivery of the traded commodity whenever the customer asks for it. After some
time of its initiation, the merchants started trading of these commodities among
themselves.
17th Century
In Japan, the feudal lords used to issue storage tickets on surplus rice, which
promised delivery of the same at a future date. These tickets in turn were also
traded in the rice market of Dojima.
19th Century
Derivative instruments were formulated in the early part of the 19th century and
were primarily restricted to Chicago, USA. Need for such instruments cropped up
due to seasonal fluctuations in agricultural production, which heavily depended on
the vagaries of nature. Farmers and traders started to device forward contracts on
agricultural produce from this time around in order to hedge their risk from
irregularities in production.
20th Century
More and more derivative instruments were invented in this century and their
popularity increased tremendously. Some of the factors behind this popularity are:

15

1. Dismantling of fixed exchange rate system

2. Invention of theoretical basis of Options, namely Black-Scholes formula

Derivative Markets in India:BSE created history on June 9, 2000 by launching the first Exchange-traded Index
Derivative Contract in India i.e. futures on the capital market benchmark index - the
BSE Sensex. The inauguration of trading was done by Prof. J.R. Varma, member of
SEBI and Chairman of the committee which formulated the risk containment
measures for the derivatives market.
In sequence of product innovation, BSE commenced trading in Index Options on
Sensex on June 1, 2001, Stock Options were introduced on 31 stocks on July 9, 2001
and Single Stock Futures were launched on November 9, 2002.
Long Dated Options: BSE also introduced 'Long Dated Options' on its flagship
index Sensex -on February 29, 2008, whereby the Members can trade in Sensex
Options contracts with an expiry of up to 5 years.
Currency Derivatives : Going ahead, on October 1, 2008 BSE launched its
currency derivatives segment in dollar-rupee currency futures as the exchange
traded currency futures contracts facilitate easy access, increased transparency,
efficient price discovery, better counterparty credit risk management, wider
participation and reduced transaction costs.
Futures on BOLT: BSE re-launched its Derivatives Segment by enabling trading of
Index and Stock Futures on its BOLT Terminal. The change was in response to
requests from trading members for a common front end from which equities and
equity derivatives could be traded. The change will enable a trader to trade in cash
Securities and futures products through BOLT TWS/ IML while Option products would
continue to trade through the DTSS TWS/DIML. The risk management and
settlement of futures and option trades will continue to take place on DTSS.
Why Sensex Futures:
There are many reasons why SENSEX futures makes sense:
SENSEX as compared with other indices shows less volatility and at the
same time gives returns equivalent to the returns given by the other indices.
SENSEX is widely used to describe the mood in the Indian stock market.
Because of its long history and wide acceptance, no other index matches the
BSE SENSEX in reflecting market movements and sentiments and it makes
an attractive underlying for index-based products like Index Funds, Futures &
Options and Exchange Traded Funds.
SENSEX is truly investible as it is the only broad based index in India that is
"free float market capitalization weighted", which reflects the market trends
more rationally and takes into consideration only those shares that are
available for trading in the market.
It may be noted that in addition to the SENSEX, five sectoral indices belonging to

16

the 90/FF series are also available for trading in the Futures and Options Segment of
BSE Limited. The term '90 /FF' means that the indices cover 90% of the market
capitalization of the sector to which the index belongs and is thus well
representative of that sector. Also, FF stands for free float - i.e. the indices are
based on the globally followed standard of free float market capitalization
methodology.
The five sectoral indices that are presently available for F&O are BSE TECK, BSE
FMCG, BSE Metal, BSE Bankex and BSE Oil & Gas.

Spot Market: The spot market is a public financial market in which financial
instruments or commodities are traded for immediate delivery. It contrasts with a
futures market, in which delivery is due at a later date. In spot market, settlement
happens in t+2 working days, i.e., delivery of cash and commodity must be done
after two working days of the trade date.
A spot market can be:
an organized market;
an exchange; or
over-the-counter (OTC)
Spot markets can operate wherever the infrastructure exists to conduct the
transaction.
Index: An index is a statistical measure of change in an economy or a securities
market. In the case of financial markets, an index is an imaginary portfolio of
securities representing a particular market or a portion of it. Each index has its own
calculation methodology and is usually expressed in terms of a change from a base
value. Thus, the percentage change is more important than the actual numeric
value. Stock and bond market indexes are used to construct index mutual funds and
exchange-traded funds (ETFs) whose portfolios mirror the components of the index.
Definitions of Basic Derivatives:There are various types of derivatives traded on exchanges across the world. They
range from the very simple to the most complex products. The following are the
three basic forms of derivatives, which are the building blocks for many complex
derivatives instruments (the latter are beyond the scope of this book):
Forwards
Futures
Options
Knowledge of these instruments is necessary in order to understand the basics of
derivatives. We shall now discuss each of them in detail.

Forwards:
A forward contract or simply a forward is a non-standardized contract between two
parties to buy or to sell an asset at a specified future time at a price agreed upon
today, making it a type of derivative instrument. This is in contrast to a spot
contract, which is an agreement to buy or sell an asset on its Spot Date, which may
vary depending on the instrument, for example most of the FX contracts have Spot
Date two business days from today.

17

Note: the current usage of the term forward is inconsistent. Compared to the trade
date, the spot date is already two days ahead in the future. There is no reasonable
argument why two days ahead is not forward but three days is forward. An
overnight date is before spot date, so consequently it should be called backward.
Furthermore, some currency pairs (e.g. CAD and USD) trade spot as only one day
after today, etc.
The party agreeing to buy the underlying asset in the future assumes a long
position, and the party agreeing to sell the asset in the future assumes a short
position. The price agreed upon is called the delivery price, which is equal to the
forward price at the time the contract is entered into.
The price of the underlying instrument, in whatever form, is paid before control of
the instrument changes. This is one of the many forms of buy/sell orders where the
time and date of trade is not the same as the value date where the securities
themselves are exchanged.
The forward price of such a contract is commonly contrasted with the spot price,
which is the price at which the asset changes hands on the spot date. The
difference between the spot and the forward price is the forward premium or
forward discount, generally considered in the form of a profit, or loss, by the
purchasing party.
Forwards, like other derivative securities, can be used to hedge risk (typically
currency or exchange rate risk), as a means of speculation, or to allow a party to
take advantage of a quality of the underlying instrument which is time-sensitive.
A closely related contract is a futures contract; they differ in certain respects.
Forward contracts are very similar to futures contracts, except they are not
exchange-traded, or defined on standardized assets.Forwards also typically have no
interim partial settlements or "true-ups" in margin requirements like futures such
that the parties do not exchange additional property securing the party at gain and
the entire unrealized gain or loss builds up while the contract is open. However,
being traded over the counter (OTC), forward contracts specification can be
customized and may include mark-to-market and daily margin calls. Hence, a
forward contract arrangement might call for the loss party to pledge collateral or
additional collateral to better secure the party at gain. In other words, the terms of
the forward contract will determine the collateral calls based upon certain "trigger"
events relevant to a particular counterparty such as among other things, credit
ratings, value of assets under management or redemptions over a specific time
frame, e.g., quarterly, annually, etc.

18

How a forward contract works: Suppose that Bob wants to buy a house a

year from now. At the same time, suppose that Andy currently owns a $100,000
house that he wishes to sell a year from now. Both parties could enter into a forward
contract with each other. Suppose that they both agree on the sale price in one
year's time of $104,000 (more below on why the sale price should be this amount).
Andy and Bob have entered into a forward contract. Bob, because he is buying the
underlying, is said to have entered a long forward contract. Conversely, Andy will
have the short forward contract.
At the end of one year, suppose that the current market valuation of Andy's house is
$110,000. Then, because Andy is obliged to sell to Bob for only $104,000, Bob will
make a profit of $6,000. To see why this is so, one needs only to recognize that Bob
can buy from Andy for $104,000 and immediately sell to the market for $110,000.
Bob has made the difference in profit. In contrast, Andy has made a potential loss of
$6,000, and an actual profit of $4,000.
The similar situation works among currency forwards, in which one party opens a
forward contract to buy or sell a currency (ex. a contract to buy Canadian dollars) to
expire/settle at a future date, as they do not wish to be exposed to exchange
rate/currency risk over a period of time. As the exchange rate between U.S. dollars
and Canadian dollars fluctuates between the trade date and the earlier of the date
at which the contract is closed or the expiration date, one party gains and the

19

counterparty loses as one currency strengthens against the other. Sometimes, the
buy forward is opened because the investor will actually need Canadian dollars at a
future date such as to pay a debt owed that is denominated in Canadian dollars.
Other times, the party opening a forward does so, not because they need Canadian
dollars nor because they are hedging currency risk, but because they are
speculating on the currency, expecting the exchange rate to move favorably to
generate a gain on closing the contract.
In a currency forward, the notional amounts of currencies are specified (ex: a contract
to buy $100 million Canadian dollars equivalent to, say $114.4 million USD at the
current ratethese two amounts are called the notional amount(s)). While the
notional amount or reference amount may be a large number, the cost or margin
requirement to command or open such a contract is considerably less than that
amount, which refers to the leverage created, which is typical in derivative contracts.
Futures:
A futures contract (more colloquially, futures) is a standardized forward contract
which can be easily traded between parties other than the two initial parties to the
contract. The parties initially agree to buy and sell an asset for a price agreed upon
today (the forward price) with delivery and payment occurring at a future point, the
delivery date. Because it is a function of an underlying asset, a futures contract is a
derivative product.
Contracts are negotiated at futures exchanges, which act as a marketplace between
buyers and sellers. The buyer of a contract is said to be long position holder, and
the selling party is said to be short position holder. As both parties risk their
counterparty walking away if the price goes against them, the contract may involve
both parties lodging a margin of the value of the contract with a mutually trusted
third party. For example, in gold futures trading, the margin varies between 2% and
20% depending on the volatility of the spot market.
The first futures contracts were negotiated for agricultural commodities, and later
for natural resources such as oil. Financial futures were introduced in 1972, and in
recent decades, currency futures, interest rate futures and stock market index
futures have played an increasingly large role in the overall futures markets.
The original use of futures contracts was to mitigate the risk of price or exchange
rate movements by allowing parties to fix prices or rates in advance for future
transactions. This could be advantageous when (for example) a party expects to
receive payment in foreign currency in the future, and wishes to guard against an
unfavorable movement of the currency in the interval before payment is received.
However, futures contracts also offer opportunities for speculation in that a trader
who predicts that the price of an asset will move in a particular direction can
contract to buy or sell it in the future at a price which (if the prediction is correct)
will yield a profit.

20

Options:
An option is a contract which gives the buyer (the owner or holder of the option) the
right, but not the obligation, to buy or sell an underlying asset or instrument at a
specified strike price on a specified date, depending on the form of the option. The
strike price may be set by reference to the spot price (market price) of the
underlying security or commodity on the day an option is taken out, or it may be
fixed at a discount or at a premium. The seller has the corresponding obligation to
fulfill the transaction to sell or buy if the buyer (owner) "exercises" the option. An
option that conveys to the owner the right to buy at a specific price is referred to as
a call; an option that conveys the right of the owner to sell at a specific price is
referred to as a put. Both are commonly traded, but the call option is more
frequently discussed.
The seller may grant an option to a buyer as part of another transaction, such as a
share issue or as part of an employee incentive scheme, otherwise a buyer would
pay a premium to the seller for the option. A call option would normally be exercised
only when the strike price is below the market value of the underlying asset, while a
put option would normally be exercised only when the strike price is above the
market value. When an option is exercised, the cost to the buyer of the asset
acquired is the strike price plus the premium, if any. When the option expiration
date passes without the option being exercised, then the option expires and the
buyer would forfeit the premium to the seller. In any case, the premium is income to
the seller, and normally a capital loss to the buyer.
The owner of an option may on-sell the option to a third party in a secondary
market, in either an over-the-counter transaction or on an options exchange,
depending on the option. The market price of an American-style option normally
closely follows that of the underlying stock, being the difference between the
market price of the stock and the strike price of the option. The actual market price
of the option may vary depending on a number of factors, such as a significant
option holder may need to sell the option as the expiry date is approaching and
does not have the financial resources to exercise the option, or a buyer in the
market is trying to amass a large option holding. The ownership of an option does

21

not generally entitle the holder to any rights associated with the underlying asset,
such as voting rights or any income from the underlying asset, such as a dividend.
Long call

Payoff from buying a call: A trader who expects a stock's price to increase can
buy a call option to purchase the stock at a fixed price ("strike price") at a later
date, rather than purchase the stock outright. The cash outlay on the option is the
premium. The trader would have no obligation to buy the stock, but only has the
right to do so at or before the expiration date. The risk of loss would be limited to
the premium paid, unlike the possible loss had the stock been bought outright.
The holder of an American style call option can sell his option holding at any time
until the expiration date, and would consider doing so when the stock's spot price is
above the exercise price, especially if he expects the price of the option to drop. By
selling the option early in that situation, the trader can realise an immediate profit.
Alternatively, he can exercise the option for example, if there is no secondary
market for the options and then sell the stock, realising a profit. A trader would
make a profit if the spot price of the shares rises by more than the premium. For
example, if the exercise price is 100 and premium paid is 10, then if the spot price
of 100 rises to only 110 the transaction is break-even; an increase in stock price
above 110 produces a profit.If the stock price at expiration is lower than the
exercise price, the holder of the options at that time will let the call contract expire
and only lose the premium (or the price paid on transfer).
Long put

Payoff from buying a put: A trader who expects a stock's price to decrease can
buy a put option to sell the stock at a fixed price ("strike price") at a later date. The
trader will be under no obligation to sell the stock, but only has the right to do so at
or before the expiration date. If the stock price at expiration is below the exercise
price by more than the premium paid, he will make a profit. If the stock price at
expiration is above the exercise price, he will let the put contract expire and only
lose the premium paid. In the transaction, the premium also plays a major role as it
enhances the break-even point. For example, if exercise price is 100, premium paid
is 10, then a spot price of 100 to 90 is not profitable. He would make a profit if the
spot price is below 90.

22

Short call

Payoff from writing a call: A trader who expects a stock's price to decrease can
sell the stock short or instead sell, or "write", a call. The trader selling a call has an
obligation to sell the stock to the call buyer at a fixed price ("strike price"). If the
seller does not own the stock when the option is exercised, he is obligated to
purchase the stock from the market at the then market price. If the stock price
decreases, the seller of the call (call writer) will make a profit in the amount of the
premium. If the stock price increases over the strike price by more than the amount
of the premium, the seller will lose money, with the potential loss being unlimited.
Short put

Payoff from writing a put:A trader who expects a stock's price to increase can
buy the stock or instead sell, or "write", a put. The trader selling a put has an
obligation to buy the stock from the put buyer at a fixed price ("strike price"). If the
stock price at expiration is above the strike price, the seller of the put (put writer)
will make a profit in the amount of the premium. If the stock price at expiration is
below the strike price by more than the amount of the premium, the trader will lose
money, with the potential loss being up to the strike price minus the premium. A
benchmark index for the performance of a cash-secured short put option position is
the CBOE S&P 500 PutWrite Index (ticker PUT).
Types of Options
Options can be divided into two different categories depending upon the primary
exercise styles associated with options. These categories are:
European Options: European options are options that can be exercised only on
the expiration date.
American options: American options are options that can be exercised on any day
on or before the expiry date. They can be exercised by the buyer on any day on or
before the final settlement date or the expiry date.

23

Terminology of Derivatives

In this section we explain the general terms and concepts related to derivatives.
Spot price (ST)
Spot price of an underlying asset is the price that is quoted for immediate delivery
of the asset.
For example, at the NSE, the spot price of Infosys Ltd. at any given time is the price
at which Infosys Ltd. shares are being traded at that time in the Cash Market
Segment of the NSE. Spot price is also referred to as cash price sometimes.
Forward price or futures price (F)
Forward price or futures price is the price that is agreed upon at the date of the
contract for the delivery of an asset at a specific future date. These prices are
dependent on the spot price, the prevailing interest rate and the expiry date of the
contract.
Strike price (K)
The price at which the buyer of an option can buy the stock (in the case of a call
option) or sell the stock (in the case of a put option) on or before the expiry date of
option contracts is called strike price. It is the price at which the stock will be
bought or sold when the option is exercised. Strike price is used in the case of
options only; it is not used for futures or forwards.
Expiration date (T)
In the case of Futures, Forwards, Index and Stock Options, Expiration Date is the
date on which settlement takes place. It is also called the final settlement date.