You are on page 1of 14

Sandesh Kotwal (21) Krithika (22) Nija Narayanan (39) Ravish (40

)

Securities Contract (Regulation) Act, 1956 defines ³derivatives´ to include1. A security derived from a debt instrument, share, loan whether secured or unsecured, risk instrument or contract for difference or any other form of security. 2. A contract which derives its value from the prices, or index of prices, of underlying securities.

Introduction of financial derivatives. Need for equity derivatives, interest derivatives, currency derivatives. Phased introduction of derivative products. Regulatory framework: two-level regulation. Trading should take place on separate segment of the existing stock exchanges. Settlement of the derivatives through Clearing House.

Online trading & surveillance systems. Complete segregation of client money. Stringent eligibility conditions. Minimum deposit. Removal of prohibition. Creation of derivative cell. Declaration.

Volatility in asset prices

Integration of national & international market

Improvement in communication facility

Sophisticated risk management tools

Innovations

‡ Forward

‡ Futures

Leaps

Baskets

Warrants ‡ Options

Swaptions ‡ Swaps

Hedgers

Speculators

Arbitrageurs

Helps in discovery of future as well as current prices

Helps to transfer risk

They are linked to underlying cash markets

Speculative trades shift to a more controlled environment of derivatives market

Acts as catalyst for new entrepreneurial activity