DERIVATIVE<br />A product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index or reference rate ), in a contractual manner. The underlying asset can be equity , forex commodity or any other asset.<br /> <br />In the Indian context the securities contracts (Regulation)Act, 1956(SC(R)A) defines “Derivative” to include :<br /><ul><li>A security derived from a debt instrument ,share, loan whether secured or unsecured, risk instrument or contract for differences or any other form of security.
A contract which derives its value from the prices, or index of prices, of underlying securities.</li></li></ul><li>WORLD HISTORY OF DERIVATIVES<br /><ul><li>The derivative markets have existed for centuries as a result of the need for both users and producers of natural resources to hedge against price fluctuations in the underlying commodities.
In 1848, future contracts came into existence with the establishment of Chicago Board of Trade.
In 1864, Chicago Board of Trade, began trading on the products involving gold, silver, and food items.</li></li></ul><li>CONTI…………..<br /><ul><li>Trading in financial futures like stock futures originated with International Monetary Markets in 1972.
Stock index futures were introduced in the USA in 1982.</li></li></ul><li>CONTI………………<br /><ul><li>Options trading occurred later than futures trading. Until 1973, options on equity stock were traded on the OTC market only, but the major boost came in 1973 when Chicago Board Options Exchange was established entirely dedicated for trading of options contracts in standardized forms.
The first trading of SWAPS occurred in 1981.</li></li></ul><li>EVOLUTION OF DERIVATIVES IN INDIA<br /><ul><li>India has been trading derivatives contracts in silver, gold, spices, coffee, cotton and oil etc. for decades in the grey market.
Trading derivatives in organized market was legal before Morarji Desai’s government(1977) which banned forward contracts.
The first step towards introduction of derivatives trading in India was announced officially of the Securities Laws (Amendment) Ordinance, 1995, which withdrew the prohibition on options in securities.</li></li></ul><li>Derivatives in India :Chronology<br /><ul><li>December 14,1995 : The NSE sought SEBI’s permission to trade index futures .
November 18, 1996 : The L C Gupta Committee set up to draft a policy framework for index futures.
May 11,1998: The L C Gupta Committee submitted a report on the policy framework for index futures .
July 7, 2000: Reserve Bank of India gave permission for OTC forward rate agreements and interest rate swaps.
May 24,2000: SIMEX chose Nifty for trading futures and options on an Indian index.
May 25,2000: SEBI allowed the NSE and BSE to trade in index futures.</li></li></ul><li>Conti…….<br /><ul><li>June 9,2000:Trading of the BSE Sensex futures commenced on the BSE.
June 12 ,2000: Trading of Nifty futures commenced on the NSE.
September 25,2000: Nifty futures trading commenced on the SGX.</li></li></ul><li>THANK YOU<br />