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Derivatives

I. Introduction A Derivative instrument, broadly, is a financial contract whose payoff structure is determined by the value of an underlying asset. A derivative instrument derives its value from an underlying variable, but it does not, by itself, constitute ownership. To illustrate, the value of a derivative like Stock Index Futures is linked to a particular stock index. When one buys Stock Index Futures, one does not buy a part of the index. However, the value at which the futures are bought/sold is dependant on the value of the underlying, which in this case is the index. All derivatives are based on some assets. The underlying asset of a derivative instrument may be a product of any of the following types: i. ii. iii. iv. v. vi. vii. viii. Commodities Precious metals Currency Bonds of different types, including medium to long-term negotiable debts securities issued by the government or companies Short term debt securities such as Treasury bills Over the counter money market products such as loans or deposits Stocks or stock indexes Credit Such derivatives segregate the credit (ie. Default) from the price risk (ie. Changes in prevailing interest rate) on a loan. Weather Primarily used by utility and agricultural industries, weather derivatives are designed to protect companies against weather conditions adversely affecting revenues.

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Derivative markets worldwide comprise of three market players: i. Hedgers Hedgers enter the derivatives market with a view to reduce their risk position. Suppose an Indian importer is due to pay a US supplier US$ 10,000 after three months. Foreign exchange fluctuations may expose him to a risk of paying more than the above amount. He, therefore, would be inclined to hedge against such risks by entering a contract, which freezes the rate at which the rupee would be exchanged for the dollar three months hence. Though, hedging does not 1

necessarily improve the overall financial position, it makes the financial outcome of a transaction for the importer more certain. ii. Speculators Derivatives can be used for speculation because of the huge potential for profits. Speculators specifically assume positions in the markets, based upon information, analysis, research etc. They take a bet as to whether the prices would move up or down. iii. Arbitrageurs Arbitrage involves making risk-less profit by simultaneously entering into transactions in two or more markets. Arbitrageurs are people who maintain constant synchronicity between the derivatives market prices and the underlying cash market prices. In developed markets, arbitrage opportunities exist for a short period of time. As the knowledge of arbitrage opportunities becomes increasingly available, the number of trades to secure arbitrage profits increase and ultimately the spreads which existed between the two markets decrease to a level where arbitrage is not feasible.

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Types of Derivatives Different types of derivatives have emerged in the field of finance and risk management. They can be classified as the following: i. Forwards Majorities of our day-to-day transactions are in spot or cash markets where we pay cash and take delivery of the goods when the contract is entered into. In a forwards contract however, the buyer agrees to pay cash later when the seller delivers the goods at pre-determined date. Typically, the price at which the underlying asset will be exchanged is decided at the time of entering the contract, thereby freezing the price and avoiding the risk of price uncertainty. Usually, no money changes hands at the time of entering into a contract, however, one of the parties may ask for some initial, good faith, deposit. A forward contract obligates a party to buy (or sell) and a counterparty to sell (or buy) an asset or commodity in the future at an agreed price. Forwards essentially being one-on-one contracts, are not traded on an exchange and hence lack liquidity. In a forwards contract the size, nature and delivery terms of the 2

contract are not standardised. A major risk in a forwards contract is the possibility of the counterparty defaulting the contract. ii. Futures The problems associated with forward contracts led to the emergence of futures contracts. A futures contract is a standardised contract between two parties where one of the parties commits to sell, and the other to buy, a stipulated quantity (and quality, where applicable) of an asset at an agreed price on or before a given date in the future. As opposed to forward contracts, futures are standardised contracts and can therefore be traded on commodity/futures exchanges. When an investor buys a futures contract on a futures exchange, he takes a long position and when he sells, he takes a short position. Typically, in futures trading, a clearing house/corporation guarantees the trade by taking the opposite position in each trade. It becomes the buyer to the seller and vice versa. As a result, the clearing house removes the problem of counterparty risk associated with forwards contracts. Futures can be of commodity or financial types. Commodity futures cover commodity items such as wheat, cotton, etc. and financial futures cover treasuries, bonds, stocks, stock-index, foreign exchange, euro-dollar deposits etc. iii. Options An option is the right, but not the obligation to buy or sell something at a stated price on/before a pre-agreed date. Like futures, options are also standardised contracts, which are traded on exchanges. A call option gives one the right to buy and a put option gives one the right to sell. The buyer of an option has the right to exercise his option, but is not obliged to do so if adverse conditions exist in the market place. In return for this right, he pays a price, which is commonly referred to as option premium. The price at which the underlying may be purchased is referred to as Strike price or Exercise price. Options can be of two types i.e. European and American options. In European options, the option holder can exercise his right only on the expiration date, which is the last date for exercising the option. In American options, the right can be exercised anytime between purchase date and the expiration date.

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Swaps Swaps, broadly defined, is the agreed exchange of future cash flows. The cash flows exchanged may have a variety of bases. In Interest Rate Swaps, the typical exchange, known as Plain Vanilla swap, is of cash flows arising from a fixed rate of interest for cash flows arising from a floating rate of interest. Similarly, Currency swaps involve exchanging interest flows in one currency for interest flows in another. While futures and options are exchange traded, swaps are never exchange traded. Swaps are the result of direct negotiations between counterparties and one of the counterparties may be a bank that makes a market in swaps. Swaps are longer-term instruments than forwards, futures and options. In addition, there are swaptions, which are options on swaps. In return for the premium the buyer of swaption obtains the right, but not the obligation to enter a swap agreement in the future on terms agreed upon when buying the swaption.

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Need for derivatives Derivatives perform a number of useful economic functions. categorised as the following: They can be broadly

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Risk Management Financial risk is an integral part of any business. Adverse changes in stock market prices, interest rates or exchange rates may threaten the existence of otherwise successful businesses. Derivatives are financial instruments, which are used to distribute such financial risks from persons who are unwilling to bear such risks to persons who are willing to take on such risks. Derivatives are therefore, risk-management tools. Risk management involves structuring of financial contracts to produces gains (or losses) that counterbalance the losses (or gains) arising from movements in financial prices. Such a process is known as Hedging

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Price Discovery Individuals with better information and judgement are inclined to participate in derivatives markets to take advantage of such information. For instance, when they receive information, perhaps some good news about the economy, the actions of speculators swiftly feed such information into the derivatives markets causing changes 4

in the prices of derivatives. These markets are generally the first ones to react because the transaction cost is much lower than in the spot markets. Therefore, Derivative markets indicate what is likely to happen and assist in better price discovery. iii. Transactional efficiency Transactional efficiency is the product of liquidity. Inadequate liquidity results in higher transaction cost. This impedes investments and deters the accumulation of capital. Derivatives significantly increase market liquidity. As a result, transaction costs are lowered and the amount of capital available for productive investment is expanded. Moreover, at the larger level of the economy, well functioning derivatives markets improve the market efficiency of the underlying cash markets. The cash markets improve their ability to direct resources towards the projects and industries where the rate of return is highest. This improves the cash markets allocative efficiency. Hence a well established derivatives market enhances market liquidity which in turn increases the market efficiency and ultimately the GDP of the country

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International scenario Derivatives have also become an integral part of the financial system in the worlds leading economies. Financial derivatives represent some of the basic tools necessary in the mechanics of efficient capital markets. The past three decades have seen a singular rise in the development and growth of derivatives markets the world over. Futures and Options exchanges and OTC derivative markets are integral parts of virtually all the economies which have reached an advanced state of economic development. The first financial future came into existence in the USA with the introduction of currency futures by the International Monetary Market, a division of the Chicago Mercantile Exchange. Stock Index futures were first offered in 1982 by the Kansas City Board of Trade. Exchanges were substantial derivatives trading takes place are the Chicago Board of Trade, Chicago Mercantile Exchange, Singapore International Monetary Exchange Limited etc. Apart from the USA, UK and several European countries, Japan and Singapore, amongst others, have well-developed futures and options markets.

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Indian scenario In India, there has always been derivatives markets on commodities. Trading in commodity futures in India was established in six relatively minor commodities, though the Kabra Committee has recommended another 14 commodities to start futures trading on. Trading in the spot market in India has also been a futures market with weekly or fortnightly settlement. A variety of interesting derivatives exist informally in India, though there are no exchange-traded financial derivatives. These informal derivatives markets trade contracts popularly known as teji-mandi, bhav-bhav etc and are outside the mainstream institutions of Indias financial system. NSE, with index based derivatives in mind, created a market index, the NSE-50, in 1996 and submitted a proposal to SEBI. SEBI however, asked them for a detailed plan and derivatives trading kept getting delayed.

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L C Gupta Committee Report On November 18, 1996, the Securities and Exchange Board of India appointed a 24 member committee, headed by Dr. L.C.Gupta, to develop an appropriate regulatory framework for derivatives trading in India. The committee submitted its report in March 1998 and recommended that stock index futures would be the best starting point for equity derivatives in India. Other equity derivatives such stock index options and options on individual stocks could be introduced as derivatives markets grew and market participants acquired some degree of comfort and familiarity with derivatives.

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J R Varma Report In June 1998, SEBI also set up a ten member committee, under the chairmanship of Prof. J. R.Varma, to recommend measures for risk containment in the derivatives markets in India. The committee submitted its report in November 1998 and the report has been approved by SEBI. Derivatives markets need to work off a large foundation of asset value that is traded on an underlying market. Indias debt market has a market capitalisation of around Rs 3 trillion and Indias equity market has a market capitalisation of around Rs. 5 trillion. Indias foreign exchange market also has a considerable underlying market size.

International experience and the success of derivatives markets in many countries of much smaller market size shows that in India, each of the three markets mentioned above is ready for derivatives. iii. Securities Contract (Regulation) Act, 1956 The SCRA was enacted in 1956 and equity derivatives came into being only in the early 1980s. As a result, derivatives were not covered under Section 2(h) of the SCRA, which defined the word securities. Without the amendment to Section 2(h) of the SCRA, SEBI would not be able to permit index derivatives trading. Accordingly, the SCRA Amendment Act, 1999, which was passed on December 16, 1999, made a modification in Section 2(h) of the SCRA by declaring derivatives contracts based on an index price of securities and other derivatives as securities.

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Stock Index futures The most popular financial futures are Stock Index Futures. Futures on individual stocks exist in some countries, but are only a negligible percentage of the index futures market due to a variety of reasons. It is pertinent to note that even the United States does not permit individual stock futures. Index futures are future contracts where the underlying asset is the index itself. A Stock Index is an indicator of the status of the market. By tracking the changes in the index, one can effectively gauge stock market moods in the country. The most popular stock indices in the India are the BSE Sensex and the NSE Nifty. The Sensex is undoubtedly the most popular index and is the pulse of the Indian stock market i. A typical index futures contract specifies the asset, the contract size or the amount of asset or its value, the daily price movement limits and the margins that have to be maintained. It also contains the month in which the contract is going to expire and the contract is referred to by the expiry month (Indexes cannot be delivered and thus are term-expiring). In the case of the BSE Sensex Futures, the underlying asset will be the BSE Sensex while in the case of NSE futures it will be the Nifty. In India, the BSE expects retail investors, rather than institutions, to be the key players in the growth of the index futures market.

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Margins in Stock Index futures In futures, a clearing corporation guarantees all trades and it collects the necessary funds for this purpose by way of margins. Both the buyer and seller are required to deposit a margin on entering into a contract. This margin is known as the initial margin and the BSE proposes to fix the rate of initial margin between 5 to 8% on its futures trading. The JRVC report has also recommended that the initial margin should not be less than 5%. Following the initial margin, at the end of each trading day, the margin account would be adjusted to reflect the investors gain or loss at the end of each day. This is termed as marking to market. In effect, what occurs is that a futures contract is closed out at the end of each day and a new futures is contracted with the same contract size, delivery price etc on the next day.

Cross margining refers to taking a dealers combined position in the cash and derivatives segments across all stock exchanges. The LCGC Report, taking a conservative stand, has recommended that cross margining should not be allowed in derivatives trading. Contract Multiple The concept of a contract multiple is akin to lot size in the cash market. The contract multiple in the case of BSE index futures has been fixed at 50 for every point of the index. The BSE expects that fixing the multiple at such a low level would enable retail investors to actively participate in the derivatives market. The NSE has however, fixed the contract multiple at 100. Contract Value Contract value is the monetary value of the futures contract and is based on the number of contracts, the multiplier and the price at which the futures are quoted. For example if the January futures are quoted at 5500 and A buys 4 January futures, the contract value would be 4*5500*50 = Rs. 11 lakhs. Contract Lifetime Index futures contracts are generally referred to as series. Index futures expiring on the last Thursday of January are referred to as January series. Similarly, if in December one buys index futures expiring in two months, he would buy 2-months February series. Although SEBI has permitted the introduction of 12-month series in derivatives trading, the BSE proposes to start trading in three months series. At any point of time, there will be three series open for trading. In this way, we will have one-month futures, twomonth futures three-month futures. The contract would mature on the last Thursday of the respective month. A new series will come into existence on the immediately succeeding day, which is Friday. For instance, if BSE introduces trading in Sensex futures from January 1, 2000, then we will have three contracts open for trading. We will have one month January futures maturing on January 27, 2000, two month February futures maturing on February 24, 2000 and a three month March futures maturing on March 26, 2000. On expiry of the one month January future on January 28, 2000, a new April three month future will come into existence (maturing on April 29, 2000) on January 29, 2000. The two-month February will now automatically become the one month February future while the three month March futures will now become the new two month March futures. Hence, every future will be replaced by a new three month future on its expiry and the remaining two futures will automatically change to one month and two month futures respectively.

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Closing futures index On the last trading day (day of maturity) the futures closing price will be calculated based on the cash sensex values. This is known as the final settlement price or closing futures index. Calendar Spreads A calendar spread is a position in one maturity, which is hedged by on opposite position at a different maturity. For example, a short position in the one month contract is offset by a long position in the three month contract. Example: one buys 100 Jan futures and sells 100 March futures. Calendar spreads are exposed to interest rate fluctuations and not market risk and therefore low margins are levied on such positions. The margins on calendar spreads will be levied at a flat rate of 0.5% per month of spread on the far month contract of the spread subject to a minimum of 1% and a maximum of 3% on the far side of the spread. Closing out the contract Since an index cannot be delivered, an index futures contract is cash settled. Cash settlement means, there will be no physical delivery of securities. On maturity, only the difference between the contracted value and the futures closing index will be settled, which would result in the gain/loss on the futures contract. In case a person does not want to hold the contract till maturity, he simply has to take an opposite position, thereby squaring up his original position. For example, if one takes a long position in January futures, he would have to take up a short position in order to square up his contract. This transaction would close out his existing long position and the difference between the buy and sell prices would be his gain or loss. However, if the contract is held until maturity then the open positions are closed out on the last day of trading at a price determined with reference to the cash value of the index ie. the closing futures index. Clearing House A clearing house is an adjunct of the exchange and acts as an intermediary or middleman in futures transactions. It guarantees the performance of the parties to each transaction. This is known as the concept of full novation. However, it is restricted to the members of the clearing corporation. 11

The clearing house has a number of members; brokers who are not members must channel their business through a member. The main task of the clearing house is to keep a track of all the transactions that take place during a day so that it can calculate the net positions of each of its members. Membership for Derivatives Trading Only members would be allowed to trade in derivatives and membership in the cash market does not automatically entitle one to be a member in the Derivatives segment of the market. Existing members of the Exchange would have to take separate registration for Derivatives segment. Only individuals or a body corporate can become members The following are the classes of members for derivatives trading: i. Trading Member Trading member has to be an existing member of the Exchange. He has to be associated with a clearing member, unless he himself is the Clearing Member. He can be associated with only one Clearing Member. ii. Clearing Members are of the following types Trading member Clearing Member TMCM means a member who is a trading member and also a clearing member. A TMCM may clear and settle transactions either on his own account or on account of his Trading member or the Trading members/Clearing Members client. Custodian Clearing Members Custodian Clearing Members means custodians registered as clearing members and who may clear and settle trades directly for clients of Trading members. He would not have trading rights. Professional Clearing Members PCM means a clearing member who is permitted by the Clearing House to clear and settle trades on account of his Clients or on account of Trading members and/or Clients of Trading Members.

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The financial requirements for membership to the Derivatives Segment are as under: Particulars Net Worth Security Deposit (Interest free cash) Security Deposit (Cash or cash equivalents*) Security Deposit (Cash/Cash equivalents*/securities) Annual Subscription One-time charges * CM with trading rights 3 crores 12.5 lakhs 12.5 lakhs (FDRs only) 25 lakhs CM without TM Trading rights 3 crores 12.5 lakhs 12.5 lakhs (FDRs only) 25 lakhs 50 lakhs 2.5 lakhs ** 5 lakhs ** 5 lakhs **

50,000 8 lakhs

50,000 5 lakhs

25,000 3 lakhs

The JRV report defines cash equivalents as cash, bank guarantees, fixed deposit receipts, T bills and dated Government securities. Each Clearing member will have to pay the amount of Rs. 10 lakhs of Security deposit for every trading member he undertakes to clear for.

**

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Clearing house Customer A Matching System Customer B

confirmation Buy order confirmation

Sell order

Broker 1

Broker 1 Booth

Deal Struck

Broker 2 Booth

Broker 2

Pit Market floor Dissemination of price and information

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Example of stock index futures trading i. A takes a long position by buying 10 Jan futures contract at Rs. 5,400 each on Jan 1, 2000. The futures mature on the last Thursday of January ie. Jan 27. The contract multiple specified by the BSE for futures trading is 50. The contract value (CV) on Jan 1, therefore, would be 5400*10*50 = Rs. 2,700,000. Calculation of gain/loss Date Futures price Closing (a) 1-Jan 2-Jan 3-Jan 4-Jan (b) 5500 5600 5300 5670 Closing Futures index (c) CV based On (b) (d ) 2,750,000 2,800,000 2,650,000 2,835,000 CV based On (c) (e) Mark to market Gain/loss (f) 50,000 50,000 -150,000 185,000 Cumulative Gain/loss (g) 50,000 100,000 -50,000 135,000

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27-Jan

5800

2,900,000

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Futures settled before maturity To settle the futures contract before maturity, A would have to reverse his position by taking a short position. Accordingly, in order to settle the contracts on Jan 4, he would therefore sell futures contract at the quoted price ie. 5670. The resulting gain on futures would be Rs.2,835,000 - Rs.2,700,000 = Rs.135,000 (ie. CV on Jan 4 - CV on Jan 1) . This could also be computed taking the cumulative daily gain/loss on the futures contract shown in column (f) above.

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Futures held till maturity If the futures were held till maturity, the gain/loss on futures would be the difference in CV on Jan 27 (based on closing futures index) less the CV on Jan 1. In the above table, the gain/loss on futures, if held till maturity, would be Rs. 200000 (ie. 2,900,000 2,700,000). This would also be equal to the cumulative daily gain/loss.

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Conclusion If futures are held till maturity, they would be settled based on the closing futures index; if they are settled before maturity, they would be settled based on the prices quoted as on that day. ACCOUNTING FOR DERIVATIVES US FASB-133 FAS-133 establishes accounting and reporting standards for derivative instruments, including derivative instruments that are embedded in other contracts, as well as for hedging activities. FAS-133 requires that derivative instruments be classified in one of the four categories and that they be accounted for in fair value. The treatment of change in fair value depends on the category in which the instrument is classified. The four classes of derivative instruments specified in FAS-133 are: i. ii. iii. iv. No hedge designation; Fair value hedge; Cash flow hedge; and Foreign currency hedge.

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No Hedge Designation Residual category; one which does not qualify as any of the other three derivatives. The change in its fair value is recognised currently in net income.

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Fair Value Hedge Instruments to hedge the risk of changes in the fair value of an asset/liability or an identified portion thereof. Must meet the following criteria: Formal documentation at the inception of the hedge including identification of the hedged instrument, the hedged item, nature of risk being hedged and the hedging instruments effectiveness in offsetting risk. Hedging should be highly effective in offsetting risk during the period that the hedge is designated. If written option is designated as hedging a recognised asset/liability, the combination of the hedged item and the written option provides at least as much potential for gains as the exposure to losses from changes in combined fair values.

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Moreover, In order for an asset/liability to be eligible for designation as a hedged item it should satisfy certain criteria. While FAS-133 generally requires accounting for derivative instruments at fair value, fair value hedges are derivative instruments for which change in value is included in determining net income. This distinguishes fair value hedges from cash flow hedges and foreign currency hedges expected to result in some volatility in reported income iii. Cash Flow Hedge Derivative instrument designated as hedging the exposure to variability in expected future cash flows attributed to a particular risk. Exposure may be associated with existing recognised asset/liability or a forecasted transaction. In addition to meeting the three criteria specified in fair value hedges, it should also meet the following criteria: If a hedging instrument is used to modify interest receipts/payments associated with a recognised financial asset/liability from one variable rate to another variable rate, the instrument must be a link between an existing designated asset with variable cash flows and an existing designated liability with variable cash flows and must be highly effective in offsetting cash flows.

A forecasted transaction is eligible for designation as a hedged transaction in a cash flow hedge if certain other criteria are met. Changes in the fair value of cash flow hedges are not included in net income like fair value hedges. They are included in other comprehensive income, outside the determination of net income. They are treated like changes in the fair value of available-for-sale investments. They are recognised initially in other comprehensive income and subsequently recognised in net income when they are realised. iv. Foreign Currency Hedge FAS-133 indicates that an entity may designate the following types of hedges as hedges of foreign currency exposure. Fair value hedge of an unrecognized firm commitment or an available for sale security.

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Cash flow hedge of a forecasted foreign currency denominated transaction or a forecasted inter-company foreign currency denominated transaction. A hedge of a net investment in a foreign operation.

General Disclosures Required for Hedging Instruments i. Objectives for holding/issuing the instrument ii. Context to understand the objectives iii. Entitys strategies for achieving these objectives iv. Distinctions in connection with the hedging instruments ie. Whether fair value hedge, cash flow hedge or a foreign currency hedge. v. Entitys risk management policy for each type of hedge vi. For instruments not designated as hedging instruments, the purpose of the derivative activity. In addition, there are some specific disclosures to be made depending on the type of hedging instrument. Disclosure is also required for changes in components of other comprehensive income. Types of derivatives in fair value No hedge designation Fair value hedge Accounting for changes Included in current income Included in current net income (with the offsetting gain or loss on the hedged item attributable to the risk being hedged) Included in other comprehensive income (outside net income) Included in comprehensive income (outside net income) as part of the cumulative transaction adjustment

Cash flow hedge Foreign currency hedge

FAS-133 requires companies to mark derivatives transactions to market and account for them on their balance sheets for the first time. All derivative positions would have to be revealed under the section other comprehensive income and if derivatives are deemed 18

not to be for the purpose of hedging, they will have to be marked to market and the gains/loss included in their quarterly statement.

ACCOUNTING OF DERIVATIVES IN INDIA Derivatives are being, introduced in India for the first time. Therefore, there is no precedence to their accounting. Further, the accounting policies and procedures to be followed, have also not been specified. The Institute of Chartered Accountants of India is in the process of drafting a Guidance note, prescribing the norms for accounting of derivatives. i. The company should disclose objectives for dealing in derivatives and comments on the effectiveness of internal control systems and procedures set up as part of financial risk management efforts to manage derivatives trading Index futures should not be recognised on the balance sheet. However, details such as notional value of contracts and maximum exposure taken should appear as notes to accounts. Margins (in cash) collected by stock exchanges for derivative trading should be treated as deposits in the balance sheet under the head current assets, loans and advances. Initial margin deposited by companies in the form of bank guarantees should be recorded in the books as contingent liability and shall appear as a note under the contingent liabilities along with the balance sheet. Settlement in futures is mark-to-market on a daily basis and the differential on the contract (gain or loss) should be reflected in the profit and loss account for the relevant period. Gains accrued on marking-to-market of derivatives but not realised should be accounted in the balance sheet under the head current assets while losses not paid should be accounted as current liabilities.

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TAXATION OF DERIVATIVES There are no specific provisions in the Income tax Act to tax the profits arising on dealings in derivatives. Derivatives (specifically index futures) are instruments, which will be, traded on the stock exchanges and settled in cash, without any delivery thereof. This peculiarity will lead to considerable confusion as regards the taxation of the profits earned from trading in Derivatives, unless clearly provided for.

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Section 43(5) of the Income tax Act 1961, defines a speculative transaction as a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. As a proviso however, the definition excludes any contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuation. Based on section 43(5), every derivative transaction will be deemed to be a speculative transaction because there never will be any delivery to settle the contract. Further, since a derivative instrument is neither a stock nor a share, but an independent legal instrument, it does not, get covered by the proviso as well.

Issues The definition of securities in FERA is as defined in the Public Debt Act, 1944 The definition of securities in the Income tax Act is as defined in the Depositories Act Definition of securities in Companies Act/Income tax Act is as per the Depositories Act.

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