Introduction

Derivatives are recognized as the best and most cost-efficient

way of meeting the felt need for risk hedging in certain types
of commercial and financial operations.
Through the use of derivatives products, it is possible to

partially or fully transfer price risk away from risk-averse

investors towards those more willing and able to bear risk by
locking in asset prices.

Derivatives also help price discovery, i.e. the process of

determining the price level for any asset based on supply and
demand.

Derivatives market in India started working in 2001

Financial derivatives came into the spotlight in the post-1970

period due to growing instability in the global financial markets

Research Motivation
Derivatives market has emerged in India after 2000, but its

foundation had already been laid just after the reforms of

the stock market between 1993 and 1996 and these reforms
paved the way for the exchange traded equity derivatives
market in India

The total turnover of derivatives market has already

superseded the total turnover of cash market in India. The

screen based trading in India has given an edge to the
trading of derivatives in India. The derivatives market of
India has expanded torrently but its still very less in
comparison to the other developed markets of the world.

Objective of the Study

To study Indian derivatives market
To study different constituents of Indian derivatives

market e.g. commodity derivatives market, foreign

exchange derivatives market and exchange traded
financial derivatives market.

To study the various regulatory requirements of

derivatives market of India

Comparative study of cash market and derivatives

market of India

Comparative study of Indian derivatives market and

global derivatives market

Research Methodology
Source of Data

To conduct this study there is a need of

comprehensive secondary data of cash market
and derivatives market, Indian as well as global.
Secondary data has been collected from various
research papers, journals, articles, websites and
books etc.
Research Design

The design of the research is descriptive in

nature.

Limitations
The study is limited to the secondary data available for

the Indian derivatives and cash market

The constraint of global derivatives data

The study has been conducted within a limited period of

time

The study has been conducted from a particular location

Indian Derivatives Market

NSE

global rank

AsiaPacific
rank

Stock Index Options

No. of contracts traded
Notional Turnover (mn USD)

239207

10

22340

12

1447464

134192

16

590300

11

47841

Stock Index Futures

No. of contracts traded
Notional Turnover (mn USD)
Stock Options
No. of contracts traded
Notional Turnover (mn USD)
Single Stock Futures
No. of contracts traded
Notional Turnover (mn USD)

5238498
412668

Source: Focus, World Federation of Exchanges.

Global Derivatives Market

Contd

Contd

Findings and Discussion

After the economic reforms of 1991, capital market

had gained momentum and it paved the way for

the derivatives market in India

In India there are mainly two exchanges e.g. BSE

and NSE in which NSE accounts for nearly all the

exchange traded derivatives trading.

Stock futures has the maximum share of the total

derivatives market and that makes India to come in

highest position in trading of stock futures

In both futures and options market, as far as most

traded contract is concerned, Index trading has got

the maximum share.

The correlation coefficient between the turnover of

cash market and the turnover of derivatives

market is = 0.92

Contd

The market capitalization to GDP ratio was 85.6% in

March 21, 2006

Foreign

exchange derivatives in India have

progressed significantly over a period of three years
and have increased nearly three fold

The global derivatives market has increased four

times in a decade which is 30 times the size of US

economy

The nominal value of interest rate derivatives has

increased 24% in just 6 months to stand at about

$US262 trillion

Europe has the highest share in notional amount

outstanding of forwards and swaps as well as in

options bought and sold followed by US

In

exchange traded derivatives markets, North

America has the highest share followed by Europe
and then Asia

Conclusion and
Recommendations
As there is a wide variety and sophistication of instruments,

range of market participants, as well as the volume of

turnover so Adequate regulatory measures are also being put
in place

A few

important characteristics of the Indian financial

derivatives market, which relate to features like liquidity,
volatility, costs, and width of the market

Derivatives market provides two important benefits to the

economy:

Risk management
Price discovery

The two major concerns of derivatives markets are:

Abuse of derivatives
Negative consequences