PRESENTED BY:

SUMIT ATHWANI
 Financial derivatives are instruments whose value
depends, or derives from, one or more underlying
financial assets. The underlying assets include
i. financial securities,
ii. commodities,
iii. Others such as rainfall , temperature.
 A derivative can be regarded as a kind of asset, the
ownership of which entitles the holder to receive from
the seller a cash payment or possibly a series of cash
payments at some point in the future, depending in
some pre-specified way on the behavior of the
underlying assets over the relevant time interval.
 To manage or reduce various business risks at low transaction
costs.

 Helps end-users on cut their financing cost.

 Provides more access to financial markets, especially to

unfamiliar ones at lower costs.

 Opportunities on taking advantage of asymmetries in tax and

regulatory requirements across different countries, markets
or securities.

 Can be used to speculate and make profits by assuming

certain risks, probably with suitable degree.
• DERIVATIVES MARKETS IN INDIA

 Promulgation of the Securities

Laws Ordinance 1995.
 It provided for withdrawal of
prohibition on options in
securities.
 On May 2001 SEBI permitted
the derivative segment of two
stock exchanges , NSE & BSE.
Derivatives market witnessed
tremendous growth.
 REGULATION OF DERIVATES TRADING

 Based on L.C Gupta Committee Report & the J.R Varma

Committee report.
 It addresses common concerns of investor protection.
 Market efficiency , integrity & financial integrity
 It divides responsibility between the Exchange and the
SEBI.
 SEBI’s role should be restricted to approving rules , by laws
and regulations.
 In 2000 started trading in SENSEX based futures
contract.
 In 2001, it started trading in index options , in stock
options & single stock futures.
 There are 1096 number of stocks under single futures
& options.
 In 2004 it launched WEEKLY OPTIONS, which was a
milestone for BSE.
 In 2008 it permitted trading in stocks of SATYAM ,
STATE BANK OF INDIA , RELIANCE & TISCO.
 Equity derivatives market in India has registered an
explosive growth.
 NSE alone accounts for 99 % of the derivatives trading
in Indian market.
 Performance of BSE isnot encouraging both in terms
of volumes and numbers of contracts.
 In NSE equity futures are most popular , followed by
Index futures .
 In case of BSE , Index futures outperform stock
features.
 On the basis of how they are traded:
1. Over The Counter (OTC) derivatives are contracts
that are traded (and privately negotiated) directly
between two parties, without going through an
exchange or other intermediary.

2. Exchange Traded Derivatives (ETD) are those

derivatives instruments that are traded via
specialized derivatives exchange or other exchanges.

 The most common types of derivatives are forwards,

futures, swaps and options.