A study to understand the awareness of derivatives across the city of Mumbai

A Project Submitted to
University of Mumbai for partial completion of the degree of
Bachelor in Commerce (Accounting and Finance)
Under the Faculty of Commerce

By
Bucha Piyush Kanak Parmila

Under the Guidance of

Prof. Adv. Khushboo Wadhawan

College Name& Address

Malini Kishor Sanghvi College of Commerce and Economics
Nirmala Devi Arunkumar Ahuja Marg,
J.V.P.D Scheme,
Vile Parle (W),
Mumbai – 400 049.

March,2022.
A study to understand the awareness of derivatives across the city of Mumbai

A Project Submitted to
University of Mumbai for partial completion of the degree of
Bachelor in Commerce (Accounting and Finance)
Under the Faculty of Commerce

By
Bucha Piyush Kanak Parmila

Under the Guidance of

Prof. Adv. Khushboo Wadhawan

College Name& Address

Malini Kishor Sanghvi College of Commerce and Economics
Nirmala Devi Arunkumar Ahuja Marg,
J.V.P.D Scheme,
Vile Parle (W),
Mumbai – 400 049.

March,2022.
 Certificate

This is to certify that Mr Bucha Piyush Kanak Parmila has worked and duly completed her
project work for the degree of Bachelor in Commerce (Accounting and Finance) under the
Faculty of Commerce in the subject of Accountancy and Finance and her project is entitled,

“A study to understand the awareness of derivatives across the city of Mumbai” under my
supervision.

I further certify that the entire work has been done by the learner under my guidance and that
no part of it has been previously for any degree or Diploma of any University.

It is her own work and facts reported by her personal findings and investigations.

Prof. Adv. Khushboo Wadhawan

Name and signature of
Guiding teacher

Date of Submission:
 Declaration by learner

I undersigned Mr Bucha Piyush Kanak Parmila here by, declare that the work embodied in
this project work titled “A study to understand the awareness of derivatives across the city
of Mumbai”

Forms my own contribution to the research work carried out under the Guidance of Prof.
Adv. Khushboo Wadhawan is a result of my own research work and has not been previously
submitted to any other University for any other Degree or Diploma to this or any other
University.

Wherever reference has been made to previous work or others, it has been clearly indicated as
a such and included in the bibliography.

I, here by further declare that all the information of this document has been obtained and
presented in accordance with academic rule and ethical conduct.

Bucha Piyush Kanak Parmila

Name and Signature of the learner

Certified by:

Prof. Adv. Khushboo Wadhawan

Name and Signature of the Guiding Teacher

 Acknowledgment
To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.

I would like to acknowledge the following as being idealistic channels and fresh dimension is
the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do this
project.

I would like to thank my Principal, Dr. (Mr). Keshav N. Ghorude for providing the
necessary facilities required for completion of this project.

I would take this opportunity to thank our Coordinator, Ms. Dimple Mehta, for her moral
support and guidance.

I would also like to express my sincere gratitude towards my project guide Prof. Adv.
Khushboo Wadhawan whose guidance and care made the project Successful.

I would like to thank my College Library, for having provided carious reference books and
magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me in
the completion of the project especially my Parents and Peers who supported me
throughout my project.
Index
 Chapter 1: An Introduction to Derivatives

1.1 Introduction:

Derivatives are one of the most complex instruments. The word derivative
comes from the word “to derive”. It indicates that it has no independent value. A
derivative is a contract whose value is derived from the value of another asset, known
as the underlying asset, which could be a share, a stock market index, an interest rate,
a commodity, or a currency. The underlying is the identification tag for a derivative
contract. When the price of the underlying changes, the value of the derivative also
changes. Without an underlying asset, derivatives do not have any meaning. For
example, the value of a gold futures contract derives from the value of the underlying
asset i.e., gold. The prices in the derivatives market are driven by the spot or cash
market price of the underlying asset, which is gold in this example.

Derivatives are very similar to insurance. Insurance protects against specific risks,
such as fire, floods, theft and so on. Derivatives on the other hand, take care of market
risks - volatility in interest rates, currency rates, commodity prices, and share prices. It
offer a sound mechanism for insuring against various kinds of risks arising in the
world of finance. They offer a range of mechanisms to improve redistribution of risk,
which can be extended to every product existing, from coffee to cotton and live cattle
to debt instruments.

Theoretically, ‘Derivatives’ are financial instruments whose values depend on the

values of other, more basic underlying assets. They do not have value of their own &
they derive their values from another asset or multiple of assets. Derivatives are useful
in reallocating risk either across time or across individuals with different risk bearing
preferences. The underlying asset can be equity, forex, commodity or any other asset
class.
Derivatives Market is a recent development in India. The stock exchanges in India
have been in existence for more than a century now. Bombay Stock Exchange (BSE)
is a stock exchange located in Mumbai, Maharashtra and was established in 1875.
Subsequently, the National Stock Exchange (NSE) was set up in November 1992. The
road for stock exchange traded derivatives contracts was cleared with the removal of
prohibition of options on securities by way of amendment to Securities Laws through
Securities Laws (Amendment) Ordinance, 1995. A Bill was introduced on October
28, 1999 and was converted into an Act on December 16, 1999 making way for
derivatives trading in India.

Since the introduction of derivatives market in India in 2000, the market has grown at a
very fast rate. The NSE has improved its ranking since then in terms of traded volumes in
futures and options taken together, improving its worldwide ranking from 15th in 2006 to
eighth position in 2008, seventh in 2009, and fifth in 2010. In 2010, the National Stock
Exchange (NSE) stood at rank 9 in terms of market capitalization with the market
capitalization of 1597 billion USD. In terms of the number of single stock futures contracts
traded in 2010, the NSE has held the second position globally. It was second in terms of the
number of stock index options contracts traded and third in terms of the number of stock
index futures contracts traded globally in 2010. National Stock Exchange(NSE) is  world's
largest derivatives exchange for 3rd consecutive year in 2021 in terms of number of contracts
traded, according to the Futures Industry Association (FIA).
In addition, the bourse has been ranked fourth in the world in cash equities by number of
trades by the World Federation of Exchanges for calendar year 2021, NSE statement added.
At the instrument level, NSE ranks first in index options and currency options by number of
contracts traded. The index options contracts on Nifty Bank index ranks 1st and Nifty 50
index ranks 2nd globally within the index options category by number of contracts traded.
The US Dollar – Indian Rupee options contract ranks 1st by number of contracts traded in the
currency options category.

"It is a matter of great pride for us and for our country that NSE has emerged as a global
leader and achieved the distinction of being the largest derivatives exchange in the world for
the 3rd consecutive year and the 4th largest exchange in cash equities by number of trades.
We are truly grateful to the Government of India, Securities & Exchange Board of India,
Reserve Bank of India, trading & clearing members, market participants and all our
stakeholders for the support extended to us over the years. Our achievements would not have
been possible without their support.”, Vikram Limaye, MD & CEO, NSE said.

NSE recently said it got approval from Securities Exchange Board of India(SEBI) to launch
derivatives on Nifty MidCap Select Index and will start from January 24(2022). The segment
has come into focus due to a rally in equities with broad based participation from all classes
of investors resulting in improved liquidity in these stocks. The year 2021 witnessed total
registered investor base on NSE surpassing the 5-crore mark to reach a count of 5.5 crore
investors. In the last 10 years, the equity derivatives daily average turnover increased by 4.2
times to Rs 1,41,267 crores. During the same period, the cash market daily average turnover
increased by 6.2 times to Rs 69,644 crores. In currency derivatives, the daily average
turnover increased by 83% to Rs 26,017 crores

The current study is carried out on only the equity derivatives i.e. derivatives where the
underlying is equity shares traded on the stock exchanges. The equity derivatives trading in
India is offered by two stock exchanges namely National Stock Exchange (NSE) and
Bombay Stock Exchange (BSE) in June 2000. Subsequently, MCX Stock Exchange
(MCXSX) was allowed to offer equity derivatives trading in India in 2012.

Definations: