Study of Derivative Market In India

1
A
DESSERTATION REPORT
ON
“STUDY OF DERIVATIVES MARKET IN
INDIA”
SUBMITTED TO
“UTTARAKHAND TECHNICAL UNIVERSITY”
IN THE PARTIAL FULFILMENT OF
“MASTER OF BUSINESS ADMINISTRATION”
(Two Year’s Regular Degree Programme)
SUBMITTED BY: UNDER THE SUPERVISION OF:
Gaurav Pandey Prof. (Dr.) Y.P.Singh
M.B.A (4th
SEMESTER) Dean (QSB)
Batch: 2014-2016
Mandawar (22KM Milestone), Roorkee-Dehradun Highway
(NH-73), Roorkee Uttarakhand

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CERTIFICATE
Quantum School of Business
Mandawar (22 Km Milestone), Roorkee- Dehradun Highway (NH 73), Roorkee-
247662
Contact No.- 01332-2781728, +91-9319909777
Approved by AICTE, Ministry of HRD, Government of India
This is to certify that Mr. Gaurav Pandey is a student of MBA final year
of Quantum School of Business, Roorkee of Batch 2014-2016. He has
satisfactory completed the dessertation on the topic “A STUDY OF
DERIVATIVES MARKET IN INDIA” as per the rules and guidelines of
Uttarakhand Technical University, Dehradun (Uttarakhand) in the
academic session 2014-2016.
(Signature) (Signature)
Project Mentor Head of Department (HOD)

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CONTENTS
Certificate from Institute I
Acknowledgement II
ExecutiveSummary III
Need/Scopeof the study IV
Objective of the study V
1. About Industry/Introduction
2. About Topic
3. Research Methodology
(a)Primary Data
(b)Secondary Data
4. Analysis & Interpretation
5. Findings
6. Recommendations
Bibliography
Annexure

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AKNOWLEDGEMENT
With the deep sense of gratitude, I wish to acknowledge the support and
help extended by all the people, in successful completion of this project
work.
I express my gratitude to Dr. Y.P.Singh (Dean QSB) for his consistent
support, Head of the Department (HOD) Mr. Arun Kant Painoli for his
encouragement.
I would like to thank all the faculty members who have been a strong
source of inspiration throughout the project directly or indirectly.
Place:-Quantum Global Campus

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Executive Summary
The emergence of the market for derivatives products, most notably
forwards, futures and options, can be tracked back to the willingness of
risk-averse economic agents to guard themselves against uncertainties
arising out of fluctuations in asset prices.
Derivatives are risk management instruments, which derive their value
from an underlying asset. The following are three broad categories of
participants in the derivatives market Hedgers, Speculators and
Arbitragers. Prices in an organized derivatives market reflect the
perception of market participants about the future and lead the price of
underlying to the perceived future level.
In recent times the Derivative markets have gained importance in terms
of their vital role in the economy. The increasing investments in stocks
(domestic as well as overseas) have attracted my interest in this area.
Numerous studies on the effects of futures and options listing on the
underlying cash market volatility have been done in the developed
markets.
The derivative market is newly started in India and it is not known by
every investor, so SEBI has to take steps to create awareness among
the investors about the derivative segment.In cash market the profit/loss
of the investor depends on the market price of the underlying asset. The
investor may incur huge profit or he may incur huge loss. But in
derivatives segment the investor enjoys huge profits with limited
downside.
Derivatives are mostly used for hedging purpose. In order to increase
the derivatives market in India, SEBI should revise some of their

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regulations like contract size, participation of FII in the derivatives
market. In a nutshell the study throws a light on the derivatives market.

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Need of the Study
In recent times the Derivative markets have gained importance in terms
of their vital role in the economy. The increasing investments in
derivatives (domestic as well as overseas) have attracted my interest in
this area. Through the use of derivative products, it is possible to
partially or fully transfer price risks by locking-in asset prices. As the
volume of trading is tremendously increasing in derivatives market, this
analysis will be of immense help to the investors.
Derivatives act as a risk hedging tool for the investors. The objective is
to help the investor in selecting the appropriate derivates instrument to
the attain maximum risk and to construct the portfolio in such a manner
to meet the investor should decide how best to reach the goals from the
securities available.
The develop and improvement strategies in the with investment policy
formulated. They will help the selectionof asset classes and securities in
each class depending up on their risk return attributes.

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Scope of the Study
The study is limited to “Derivatives” with special reference to futures and
options in the Indian context; the study is not based on the international
perspective of derivative markets.
The study is limited to the analysis made for types of instruments of
derivates each strategy is analyzed according to its risk and return
characteristics and derivatives performance against the profit and
policies of the company.
The study has only made a humble attempt at evaluation derivatives
market only in India context. The study is not based on the international
perspective of derivatives markets, which exists in NASDAQ, CBOT etc.

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Objective of the Study
 To analyze the operations of futures and options.
 To find the profit/loss position of futures buyer and seller and also the
option writer and option holder.
 To study about risk management with the help of derivatives.
 To study the role of derivative in Indian financial market.
 Comparison of the profits/losses in cash market and derivative market.

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CHAPTER – 1
ABOUT INDUSTRY

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INDUSTRY PROFILE
Financial services
Financial services are the economic services provided by the
finance industry, which encompasses a broad range of organizations
that manage money, including credit unions, banks, credit card
companies, insurance companies, consumer finance companies, stock
brokerages, investment funds and some government sponsored
enterprises.
History of Indian Stock Market
The Indian broking industry is one of the oldest trading industries
that have been around even before the establishment of BSE in 1875.
BSE is the oldeststock market in India. The history of India stock trading
starts with 318 persons taking membership in Native share and Stock
Brokers Association, which we know by the name Bombay Stock
Exchange or BSE in short. In 1965,BSE got permanent recognition from
the Government of India. BSE and NSE represent themselves as
synonyms of India stock market. The history of India stock market is
almost the same as the history of BSE
The regulations and reforms been laid down in the equity market
has resulted in rapid growth and development .Basically the growth in
the equity market is largely due to the effective intermediaries. The
broking houses not only act as an intermediate link for the equity market
but also for the commodity market, the foreign currency exchange
market and many more. The broking houses have also made an impact
on foreign investors to invest in India to certain extent. In the last
decade, the Indian brokerage industry has undergone a dramatic

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transformation. Large and fixed commissions have been replaced by
wafer thin margins, with competition driving down the brokerage fees, in
some cases to a few basis points. There have also been major changes
in the way the business is conducted. The scope of services have
enhanced from being equity products to a wide range of financial
services.
Financial Products
The survey also revealed that in the past couple of years, apart
from trading, the firms have started various investment value services.
The sustained growth of the economy in past couple of years has
resulted in broking firms offering many diversified services related to
IPO’s, mutual funds, company research etc.
However, the core trading activity is still the predominant form of
business, forming 90% of the firms in the sample. 67% firms are
engaged in offering IPO related services. The broking industry seems to
have capitalized on the growth of the mutual fund industry, which
pegged at 40% in 2006. More than 50% of the sample broking houses
deal in mutual fund investment services. The average growth in assets
under management in last two years is almost 48% company research
services. Additionally, a host of other value added services such as
fundamental and technical analysis, investment banking, arbitrage etc
are offered by the firms at different levels.
Capital Market
Capital market is a market for securities (debt or equity), where
business enterprises (companies) and governments can raise long-term
funds. Capital market may be classified as primary markets and
secondarymarkets. In primary market new stock or bond issues are sold

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to investor via a mechanism known as underwriting. In secondary
markets, existing securities are sold and brought among investors or
traders, usually on a security exchange, over the counter or elsewhere.
The capital market includes e stock market (equity securities) and Bond
market (debt).
Primary and Secondary Capital Markets
A company cannot easily attract investors to invest in their
securities if the investors cannot subsequently trade these securities at
will. In other words, securities cannot have a good primary market unless
it is ensured of an active secondary market.
Primary Market
Securities generally have two stages in their lifespan. The first
stage is when the company initially issues the security directly from its
treasury at a predetermined offering price. Primary market is the market
for issue of new securities. It therefore essentially consist of the
companies issuing securities, the public subscribing to these securities,
the regulatory agencies like SEBI and the Government, and the
intermediaries such as brokers, merchant bankers and banks who
underwrite the issues and help in collecting subscription money from the
public. It is referred to as Initial Public offer (IPO). Investment dealers
frequently buy initial offering on the primary market and the securities on
the secondary market.
Secondary Market
The second stage is when an investor or dealer makes the shares,
bought from a company treasury, available for sale to other investors on
the secondary market. Secondary market is the market for trading in

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existing securities, after they have been created in the primary market. It
essentially consists of the public who are buyers and sellers of
securities, brokers, mutual funds, and most importantly, the stock
exchanges where the trading takes place, such as the BSE (Bombay
Stock Exchange) or NSE (National Stock Exchange).
INDIAN STOCK EXCHANGE
Stock Market
A stock market or equity market is a public entity (a loose network
of economic transaction, not a physical facility or discrete entity) for the
trading of company stock (shares) and derivatives at an agreed price;
these are securities listed on a stock exchange as well as those only
traded privately.
Stock Exchange
A stock exchange provides services for stock brokers and traders
to trade stocks, bonds and other securities. Stock exchanges also
provide facilities for issue and redemption of securities and other
financial instruments and capital events including the payment of income
and dividends. Securities traded on stock exchange include shares
issued by companies, unit trusts, derivatives, pooled investment
products and bonds.
Equity/Share
Total equity capital of a company is divided into equal units of
small denominations, each called a share. For example, in a company

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the total equity capital of Rs. 2,00,00,000 is divided into 20,00,000 units
of Rs 10 each. Each such unit of Rs. 10 is called a share. Thus, the
company then is said to have 20, 00,000 equity share of Rs 10 each.
The holders of such shares are members of the company and have
voting rights. There are now stock markets in virtually every developed
and most developing economy, with the world’s biggest being in the
United States, UK, Germany, France, India and Japan.
Market participants
Market participants include individual retail investors, institutional
investors such as mutual funds, banks, insurance companies and hedge
funds, and also publically traded corporations trading in their own
shares.
Trading
Participants in the stock market range from small individual stock
investors to large hedge fund traders, who can be based anywhere.
Listing
Listing means admission of securities of an issuer to trading
privileges on a stock exchange through a formal agreement. The prime
objective of admission to dealing on the Exchange is to provide liquidity
and marketability to securities.
Securities
A Security gives the holder an ownership interest in the assets of a
company. For example, when a company issues security in the form of
stock, they give the purchaser an interest in the company’s assets in
exchange for money. There are a number of reasons why a company

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issues securities: meeting a short – term cash crunch or obtaining
money for an expansion are just two.
WHAT IS SEBI AND WHAT IS ITS ROLE?
In 1988 the Securities and Exchange Board of India (SEBI) was
established by the Government of India through an executive resolution,
and was subsequentlyupgraded as a fully autonomous body (a statutory
Board) in the year 1992 with the passing of the Securities and Exchange
Board of India Act (SEBI Act) on 30th January 1992. In place of
Government Control, statutory and autonomous regulatory boards with
defined responsibilities, to cover both development & regulation of the
market, and independent powers have been set up. Paradoxically this is
a positive outcome of the Securities Scam of 1990-91.
OBJECTIVES OF SEBI
The promulgation of the SEBI ordinance in the parliament gave status to
SEBI in 1992. According to the preamble of the SEBI, the three main
objectives are:
 To protect the interests of the investors in securities
 To promote the development of securities market
 To regulate the securities market
FUNCTIONS OF SEBI
The main functions entrusted with SEBI are:
 Regulating the business in stock exchange and any other
securities market
 Registering and regulating the working of stock brokers, share
transfer agents, bankers to the issue, trustees of trust deed,

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registrars to an issue, merchant bankers, underwriters, portfolio
managers, investment advisers and such other intermediaries who
may be associated with securities market in any manner.
 Registering and regulating the working of collective investment
schemes including mutual funds
 Promoting and regulating self-regulatory organizations
 Prohibiting fraudulent and unfair trade practices in the securities
market
 Promoting investors education and training of intermediaries in
securities market
 Prohibiting insiders trading in securities
 Regulating substantial acquisition of shares and takeover of
companies
 Calling for information, undertaking inspection, conducting
enquiries and audits of the stock exchanges, intermediaries and
self-regulatory organizations in the securities market.
Since its inception SEBI has been working targeting the securities
and is attending to the fulfillment of its objectives with commendable zeal
and dexterity. The improvements in the securities markets like
capitalization requirements, margining, establishment of clearing
corporations etc. reduced the risk of credit and also reduced the market.
SEBI has introduced the comprehensive regulatory measures,
prescribed registration norms, the eligibility criteria, the code of
obligations and the code of conduct for different intermediaries like,
bankers to issue, merchant bankers, brokers and sub-brokers,registrars,
portfolio managers, credit rating agencies, underwriters and others. It
has framed bye-laws, risk identification and risk management systems
for Clearing houses of stock exchanges, surveillance system etc. which

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has made dealing in securities both safe and transparent to the end
investor.
Another significant event is the approval of trading in stock indices
(like S&P CNX Nifty & Sensex) in 2000. A market Index is a convenient
and effective product because of the following reasons:
 It acts as a barometer for market behavior;
 It is used to benchmark portfolio performance;
 It is used in derivative instruments like index futures and index
options;
 It can be used for passive fund management as in case of Index
Funds.
Two broad approaches of SEBI is to integrate the securities market at
the national level, and also to diversify the trading products, so that there
is an increase in number of traders including banks, financial institutions,
insurance companies, mutual funds, primary dealers etc. to transact
through the Exchanges. In this context the introduction of derivatives
trading through Indian Stock Exchanges permitted by SEBI in 2000 AD
is a real landmark.
SEBI appointed the L. C. Gupta Committee in 1998 to recommend
the regulatory framework for derivatives trading and suggest bye-laws
for Regulation and Control of Trading and Settlement of Derivatives
Contracts. The Board of SEBI in its meeting held on May 11, 1998
accepted the recommendations of the committee and approved the
phased introduction of derivatives trading in India beginning with Stock
Index Futures. The Board also approved the "Suggestive Bye-laws" as
recommended by the Dr LC Gupta Committee for Regulation and

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Control of Trading and Settlement of Derivatives Contracts.
SEBI then appointed the J. R. Verma Committee to recommend Risk
Containment Measures (RCM) in the Indian Stock Index Futures Market.
The report was submitted in November1998.
However the Securities Contracts (Regulation) Act, 1956 (SCRA)
required amendment to include "derivatives" in the definition of securities
to enable SEBI to introduce trading in derivatives. The necessary
amendment was then carried out by the Government in 1999. The
Securities Laws (Amendment) Bill, 1999 was introduced. In December
1999 the new framework was approved. Derivatives have been
accorded the status of `Securities'. The ban imposed on trading in
derivatives in 1969 under a notification issued by the Central
Government was revoked. Thereafter SEBI formulated the necessary
regulations/bye-laws and intimated the Stock Exchanges in the year
2000. The derivative trading started in India at NSE in 2000 and BSE
started trading in the year 2001.
Bombay Stock Exchange (BSE)
Bombay Stock Exchange is the oldest stock exchange in Asia with
a rich heritage, now spanning three centuries in its 133 years of
existence. What is now popularly known as BSE was established as
"The Native Share & Stock Brokers' Association" in 1875.BSE is the first
stock exchange in the country which obtained permanent recognition (in
1956) from the Government of India under the Securities Contracts
(Regulation) Act 1956. BSE's pivotal and pre-eminent role in the
development of the Indian capital market is widely recognized. It
migrated from the open outcry system to an online screen-based order
driven trading system in 1995. Earlier an Association of Persons (AOP),

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BSE is now a corporatized and demutualised entity incorporated under
the provisions of the Companies Act, 1956, pursuant to the BSE
(Corporatization and Demutualization) Scheme, 2005 notified by the
Securities and Exchange Board of India (SEBI). With demutualization,
BSE has two of world's bestexchanges, Deutsche Borse and Singapore
Exchange, as its strategic partners.
Over the past 133 years, BSE has facilitated the growth of the
Indian corporate sector by providing it with an efficient access to
resources. There is perhaps no major corporate in India which has not
sourced BSE's services in raising resources from the capital market.
Today, BSE is the world's number 1 exchange in terms of the number of
listed companies and the world's 5th in transaction numbers. The market
capitalization as on December 31, 2007 stood at USD 1.79 trillion. An
investor can choose from more than 4,700 listed companies, which for
easy reference, are classified into A, B, S, T and Z groups.
The BSE Index, SENSEX, is India's first stock market index that
enjoys an iconic stature, and is tracked worldwide. It is an index of 30
stocks representing 12 major sectors. The SENSEX is constructed on a
'free-float' methodology, and is sensitive to market sentiments and
market realities. Apart from the SENSEX, BSE offers 21 indices,
including 12 sect oral indices.
BSE has entered into an index cooperation agreement with Deutsche
Borse. This agreement has made SENSEX and other BSE indices
available to investors in Europe and America. Moreover, Barclays Global
Investors (BGI), the global leader in ETFs through its shares brand, has
created the shares BSE SENSEX India Tracker' which tracks the
SENSEX.

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The ETF enables investors in Hong Kong to take an exposure to the
Indian equity market. The first Exchange Traded Fund (ETF) on
SENSEX, called "SPICE" is listed on BSE. It brings to the investors a
trading tool that can be easily used for the purposes of investment,
trading, hedging and arbitrage. SPICE allows small investors to take a
long-term view of the market.
BSE provides an efficient and transparent market for trading in
equity, debt instruments and derivatives. It has a nation-wide reach with
a presence in more than 359 cities and towns of India. BSE has always
been at par with the international standards. The systems and processes
are designed to safeguard market integrity and enhance transparency in
operations.
BSE is the first exchange in India and the second in the world to
obtain an ISO 9001:2000 certifications.It is also the first exchange in the
country and second in the world to receive Information Security
Management System Standard BS 7799-2-2002 certification for its BSE
On-line Trading System (BOLT). BSE continues to innovate. In recent
times, it has become the first national level stock exchange to launch its
website in Gujarati and Hindi to reach out to a larger number of
investors. It has successfullylaunched a reporting platform for corporate
bonds in India christened the ICDM or Indian Corporate Debt Market and
a unique ticker-cum-screen aptly named 'BSE Broadcast' which enables
information dissemination to the common man on the street. In 2006,
BSE launched the Directors Database and ICERS (Indian Corporate
Electronic Reporting System) to facilitate information flow and increase
transparency in the Indian capital market.

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While the Directors Database provides a single-point access to
information on the boards of directors of listed companies, the ICERS
facilitates the corporate in sharing with BSE their corporate
announcements. BSE also has a wide range of services to empower
investors and facilitate smooth transactions: Investor Services: The
Department of Investor Services redresses grievances of investors.
BSE was the first exchange in the country to provide an amount of
Rs.1 million towards the investor protection fund; it is an amount higher
than that of any exchange in the country. BSE launched a nationwide
investor awareness programme- 'Safe Investing in the Stock Market'
under which 264 programmes were held in more than 200 cities. The
BSE On-line Trading (BOLT): BSE On-line Trading (BOLT)facilitates on-
line screen based trading in securities. BOLT is currently operating in
25,000 Trader Workstations located across over 359 cities in India.
BSEWEBX.com: In February 2001, BSE introduced the world's first
centralized exchange-based Internet trading system, BSEWEBX.com.
This initiative enables investors anywhere in the world to trade on the
BSE platform.
Surveillance: BSE's On-Line Surveillance System (BOSS)
monitors on a real-time basis the price movements, volume positions
and members' positions and real-time measurement of default risk,
market reconstruction and generation of cross market alerts. BSE
Training Institute: BTI imparts capital market training and certification, in
collaboration with reputed management institutes and universities.
It offers over 40 courses on various aspects of the capital market and
financial sector. More than 20,000 people have attended the BTI

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programmes Awards the World Council of Corporate Governance has
awarded the Golden Peacock Global CSR Award for BSE's initiatives in
Corporate Social Responsibility (CSR). The Annual Reports and
Accounts of BSE for the year ended March 31, 2006 and March 31 2007
have beenawarded the ICAI awards for excellence in financial reporting.
The Human Resource Management at BSE has won the Asia - Pacific
HRM awards for its efforts in employer branding through talent
management at work, health management at work and excellence in HR
through technology drawing from its rich past and its equally robust
performance in the recent times, BSE will continue to remain an icon in
the Indian capital.
National Stock Exchange (NSE)
The National Stock Exchange of India is a stock Exchange that is
located in Mumbai, Maharashtra. The National Stock Exchange basically
function in three market sections, that is, (CM) the Capital Market
Section); F&Q (The Future and Options Market Sections) and WDM
(Wholesale Debt Market Segment). It is important place where the
trading of shares, debt etc takes place.
It was in year 1992 that the National stock Exchange was for the
first time incorporated in India. It was not regarded as a stock exchange
at once. Rather, the national Stock exchange was incorporated as a tax
paying company and had got the recognition of a stock exchange only in
year 1993 the recognition was given under the provisions of the
Securities Contracts (Regulation) Act, 1956.
The National Stock exchange is highly active in the field of market
capitalization and thus aiming it the ninth largest stock exchange in the

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said field. Similarly, the trading of the stock exchange in equities
and derivatives is so high that it has resulted in high turnovers and thus
making it the largest stock exchange in India.
It is the stock exchange wherein there is the facility of electronic
exchange offering investors. This facility is available in almost types of
equitable transactions such as equities, debentures, etc. it is also the
largest stock exchange if calculated in the terms of traded values.
Origin and History of the National Stock Exchange
The National Stock exchange was incorporated for the first time in
November, 1992. The national stock exchange was not incorporated as
the national stock exchange; rather, it had got the recognition of the
recognized stock exchange in April, 1993. The National stock Exchange
has increased its trading facilities in June 1994 when the WDM
(Wholesale Debt Market Segment) was gone live. It is basically one of
the three market segments in which the national stock Exchange works.
In the same year, 1994 November, the Capital Market (CM) segment of
the stock exchange goes live through VSAT.
The National Stock Exchange has become the first Clearing
Corporation in India by the introduction of NSCCL in April 1995. In the
same year, 1995 July, it has introduced the Investor protection fund
which is a very important function introduced by the national Stock
Exchange.
The National stock Exchange had grown with leaps and bounds
and had shown tremendous growth mainly in all the fields and thus
making it the largest stock exchange of India by October, 1995.

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The concept of NSCCL was extended by the introduction of
clearing and settlement with the help of NSCCL in year 1996. The
National stock Exchange has introduced its Index for the first time in
year April 1996. The index was known as the S&P CNX Nifty Index. In
year June 1996, it has introduced the Settlement Guarantee Fund. The
National Securities Depositor Fund was launched by the National Stock
exchange in year 1996, November, and thus making it the first stock
exchange who becomes the first depository in India.
Because of the efforts and introduction of new concept in the field
of trading, the National stock Exchange has received the BEST IT
USAGE award by the computer Society of India in the year November,
1996.It has also received an award for the TOP IT USER in the name of
“Dataquest award” in year December, 1996.
The National stock exchange has also introduced another index in
year December 1996 in the name of CNX Nifty Junior in year 1996. It
had again received an award for the BEST IT USAGE award by the
computer Society of India in the year December, 1996. In May, 1998 it
had launched its first website. Further in October 1999, it had launched
the NSE.IT LTD. Further in year October, 2002, it had launched the
Government securities index.
The growth of the National Stock Exchange has been tremendous
in every field. It had introduced several programmes and has achieved
various achievements and awards while working best in the field in
which it is working. The efforts and hard work that is contributed by the

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National Stock exchange has been tremendous and thus making an
important and unique stock exchange in India.
Over the Counter Exchange of India (OTCEI)
OTCEI (Over the Counter Exchange of India) was incorporated in
1990 as a Section 25 company under the Companies Act 1956 and is
recognized as a stock exchange under Section 4 of the Securities
Contracts Regulation Act, 1956. The Exchange was set up to aid
enterprising promoters in raising finance for new projects in a cost
effective manner and to provide investors with a transparent & efficient
mode of trading. Modeled along the lines of the NASDAQ market of
USA, OTCEI introduced many novel concepts to the Indian capital
markets such as screen-based nationwide trading, sponsorship of
companies, market making and scrip less trading. As a measure of
success of these efforts, the Exchange today has 115 listings and has
assisted in providing capital for enterprises that have gone on to build
successful brands for themselves like VIP Advanta, Sonora Tiles &
Brilliant mineral water, etc.
Trading at OTCEI is done over the centers spread across the
country. Securities traded on the OTCEI are classified into:
Listed Securities - The shares and debentures of the companies listed
on the OTC can be bought or sold at any OTC counter all over the
country and they should not be listed anywhere else Permitted
Securities - Certain shares and debentures listed on other exchanges
and units of mutual funds are allowed to be traded.
Initiated Debentures - Any equity holding at least one lakh debentures
of particular scrip can offer them for trading on the OTC.

27
Over the Counter Exchange of India (OTCEI)
 Is the first screen based nationwide stock exchange in India.
 Is the first exchange to introduce Market Making in India.
 Is the first exchange to introduce Sponsorship of companies in
India.
 Is the only exchange to allow listing of companies with paid-up
below Rs.3 crores.
 Is the only exchange to allow companies with less than 3 year
track record to tap capital market.
 Has shifted trading from counter receipts to share certificates.
 Has introduced Weekly Settlement Cycle.
 Allows short selling.

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DETAILS OF STOCK EXCHANGES
Sr.
No
.
Name of the Exchange Valid Upto
1 Ahmadabad Stock Exchange Ltd. PERMANENT
2 Bangalore Stock Exchange Ltd. PERMANENT
3 Bhubaneswar Stock Exchange Ltd. June 04, 2012
4 Bombay Stock Exchange Ltd. PERMANENT
5 Calcutta Stock Exchange Ltd. PERMANENT
6 Cochin Stock Exchange Ltd. November07, 2011
7 Delhi Stock Exchange Ltd. PERMANENT
8 Gauhati Stock Exchange Ltd. April 30, 2012
10 Interconnected Stock Exchange of India
Ltd.
November17, 2011

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11 Jaipur Stock Exchange Ltd. January 08, 2012
12 Ludhiana Stock Exchange Ltd. April 27, 2012
13 Madhya Pradesh Stock Exchange Ltd PERMANENT
14 Madras Stock Exchange Ltd. PERMANENT
15 MCX Stock Exchange Ltd September 15,
2011
16 National Stock Exchange of India Ltd. PERMANENT
17 OTC Exchange of India August 22, 2012
18 Pune Stock Exchange Ltd. September 01,
2012
19 U.P. Stock Exchange Limited June 02, 2012
20 United Stock Exchange of India Limited March 21, 2012
21 The Vadodara Stock Exchange Ltd. January 03, 2012

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COMPANY PROFILE
History of the Company
SBICAP Securities Limited:
SBICAP Securities Ltd (SSL) is a 100% subsidiary of SBI Capital
Markets Ltd which is one of the oldest players in the Indian Capital
Market and has a dominant position in the Indian primary capital
markets. SBICAP Securities Limited is a part of the SBI Group.
Business Overview:
SBICAP Securities Ltd (SSL) is a 100% subsidiary of SBI Capital
Markets Ltd which is one of the oldest players in the Indian Capital
Market and has a dominant position in the Indian primary capital
markets. SBI Capital Markets Ltd. commenced broking activities in
March 2001 to fulfill the secondary market needs of Financial
Institutions, FIIs,
Mutual Funds, Banks, Corporates, High Net worth Individual, Non-
residential Investors and Retail domestic investors. SBICAP Securities
Ltd. (SSL) is a company, which has been formed to take over the
broking operations of SBI Capital Markets Ltd. SSL commenced
operations in the first quarter of financial year of 2006-2007.
Services currently offered include Institution Equity, Retail Equity,
Derivatives, Broking, Depository Participant services, E-Broking. SSL is
registered with the Securities Exchange Board of India for its various
services, a summary of which is as under:

31
SBI GROUP
Asset ManagementBusiness-
SBI Investment
Operate and manage venture capital funds.
SBI Asset Management
Investment advisory services, investment trust management.
SBI Capital
Operate and manage buyout and revitalization funds.
SBI Capital Solutions
Mezzanine fund management.
SBI VEN CAPITAL
Overseas investments.
Registered with/as Registration No.
SEBI – Stock Broker – NSE INB231052938
SEBI – Stock Broker – BSE INB011053031
SEBI – Stock Broker – NSE
– F&O
INF231052938
SEBI – Depository
Participant
IN – DP – CDSL – 370
– 2006
SEBI – Portfolio Manager INP000002098

32
BROKERAGE & INVESTMENT BANKING
BUSINESS
SBI Securities
Comprehensive online securities company.
SBI Fund Bank
Consulting of mutual fund sales and operation of mutual funds
information website based on its unique evaluation and analysis.
SBI Liquidity Market
Offering market Infrastructure and services of Forex trading to
financial firms and developing related systems and products.
FINANCIAL SERVICES BUSINESS
SBI Insurance
Non-life insurance company using primarily the Internet.
SBI Lease
Comprehensive leasing business.
SBI Card
Credit card business.
SBI Business Solutions
Back Office support services.

33
SBI Marketing
Advertising agency.
SBI Business Support
Contact center and temporary staff service for corporations.
HOUSING AND REAL ESTATE BUSINESS
SBI Mortgage
Long-term, fixed-rate housing loans.
SBI Planners
Architectural construction and consulting services.
OTHERS
SBI Net Systems
R & D, Sales and Maintenance for financial system and provision
of information security products and solution services.

35
DERIVATIVES
Definition of Derivatives
One of the most significant events in the securities markets has been
the development and expansion of financial derivatives. The term
“derivatives” is used to refer to financial instruments which derive their
value from some underlying assets.
The underlying assets could be equities (shares), debt (bonds, T-
bills, and notes), currencies, and even indices of these various assets,
such as the Nifty 50 Index.
Derivatives derive their names from their respective underlying
asset. Thus if a derivative’s underlying asset is equity, it is called equity
derivative and so on. Derivatives can be traded either on a regulated
exchange, such as the NSE or off the exchanges, i.e., directly between
the differentparties, which is called “over-the-counter” (OTC) trading. (In
India only exchange traded equity derivatives are permitted under the
law.)
The basic purpose of derivatives is to transfer the price risk
(inherent in fluctuations of the asset prices) from one party to another;
they facilitate the allocation of risk to those who are willing to take it. In
so doing, derivatives help mitigate the risk arising from the future
uncertainty of prices.
For example, on November 1, 2009 a rice farmer may wish to sell
his harvest at a future date (say January 1, 2010) for a pre-determined

36
fixed price to eliminate the risk of change in prices by that date. Such a
transaction is an example of a derivatives contract. The price of this
derivative is driven by the spot price of rice which is the "underlying".
Origin of Derivatives
While trading in derivatives products has grown tremendously in
recent times, the earliest evidence of these types of instruments can be
traced back to ancient Greece. Even though derivatives have been in
existence in some form or the other since ancient times, the advent of
modern day derivatives contracts is attributed to farmers’need to protect
themselves against a decline in crop prices due to various economic and
environmental factors.
Thus, derivatives contracts initially developed in commodities. The
first “futures” contracts can be traced to the Yodoya rice market in
Osaka, Japan around 1650.The farmers were afraid of rice prices falling
in the future at the time of harvesting. To lock in a price (that is, to sell
the rice at a predeterminedfixed price in the future), the farmers entered
into contracts with the buyers.
These were evidently standardized contracts, much like today’s
futures contracts.
In 1848, the Chicago Board of Trade (CBOT) was established to
facilitate trading of forward contracts on various commodities. From then
on, futures contracts on commodities have remained more or less in the
same form, as we know them today.

37
While the basics of derivatives are the same for all assets such as
equities, bonds, currencies, and commodities, we will focus on
derivatives in the equity markets and all examples that we discuss will
use stocks and index (basket of stocks).
Derivatives in India
In India, derivatives markets have been functioning since the
nineteenth century, with organized trading in cotton through the
establishment of the Cotton Trade Association in 1875.Derivatives, as
exchange traded financial instruments were introduced in India in June
2000.The National Stock Exchange (NSE) is the largest exchange in
India in derivatives, trading in various derivatives contracts. The first
contract to be launched on NSE was the Nifty 50 index futures contract.
In a span of one and a half years after the introduction of index futures,
index options, stock options and stock futures were also introduced in
the derivatives segment for trading. NSE’s equity derivatives segment is
called the Futures & Options Segment or F&O Segment. NSE also
trades in Currency and Interest Rate Futures contracts under a separate
segment.
A series of reforms in the financial markets paved way for the
development of exchange-traded equity derivatives markets in India. In
1993, the NSE was established as an electronic, national exchange and
it started operations in 1994.It improved the efficiency and transparency
of the stock markets by offering a fully automated screen-based trading
system with real-time price dissemination. A report on exchange traded
derivatives, by the L.C. Gupta Committee, set up by the Securities and
Exchange Board of India (SEBI),recommended aphased introduction of

38
derivatives instruments with bi-level regulation (i.e., self-regulation by
exchanges, with SEBI providing the overall regulatory and supervisory
role). Another report, by the J.R. Verma Committee in 1998, worked out
the various operational details such as margining and risk management
systems for these instruments. In 1999, the Securities Contracts
(Regulation) Act of 1956, or SC(R) A, was amended so that derivatives
could be declared as “securities”. This allowed the regulatory framework
for trading securities, to be extended to derivatives. The Act considers
derivatives on equities to be legal and valid, but only if they are traded
on exchanges.
MILESTONES IN THE DEVELOPMENT OF
INDIAN DERIVATIVE MARKET
November 18,
1996
L.C. Gupta Committee set up to draft a policy
framework for introducing derivatives
May 11, 1998 L.C. Gupta committee submits its report on the policy
Framework
May 25, 2000 SEBI allows exchanges to trade in index futures
June 12, 2000 Trading on Nifty futures commences on the NSE

39
June 4, 2001 Trading for Nifty options commences on the NSE
July 2, 2001 Trading on Stock options commences on the NSE
November 9,
2001
Trading on Stock futures commences on the NSE
August 29, 2008 Currency derivatives trading commences on the NSE
August 31, 2009 Interest rate derivatives trading commences on the
NSE
February 2010 Launch of Currency Futures on additional currency
pairs
October 28,
2010
Introduction of European style Stock Options
October 29,
2010
Introduction of Currency Options
Two important terms-
Before discussing derivatives, it would be useful to be familiar with
two terminologies relating to the underlying markets. These are as
follows:

40
Spot Market
In the context of securities, the spot market or cash market is a
securities market in which securities are sold for cash and delivered
immediately. The delivery happens after the settlement period. Let us
describe this in the context of India. The NSE’s cash market segment is
known as the Capital Market (CM) Segment. In this market, shares of
SBI, Reliance, Infosys, ICICI Bank, and other public listed companies
are traded.
The settlement period in this market is on a T+2 basis i.e., the
buyer of the shares receives the shares two working days after trade
date and the seller of the shares receives the money two working days
after the trade date.
Index
Stock prices fluctuate continuously during any given period. Prices
of some stocks might move up while that of others may move down. In
such a situation, what can we say about the stock market as a whole?
Has the market moved up or has it moved down during a given period?
Similarly, have stocks of a particular sector moved up or down?
To identify the general trend in the market (or any given sector of
the market such as banking), it is important to have a reference
barometer which can be monitored. Market participants use various
indices for this purpose. An index is a basket of identified stocks, and its
value is computed by taking the weighted average of the prices of the
constituent stocks of the index.

41
A market index for example consists of a group of top stocks
traded in the market and its value changes as the prices of its
constituent stocks change. In India, Nifty Index is the most popular stock
index and it is based on the top 50 stocks traded in the market. Just as
derivatives on stocks are called stock derivatives, derivatives on indices
such as Nifty are called index derivatives.
Definitions of Basic Derivatives
There are various types of derivatives traded on exchanges across
the world. They range from the very simple to the most complex
products. The following are the three basic forms of derivatives, which
are the building blocks for many complex derivatives instruments (the
latter are beyond the scope of this book):
 Forwards
 Futures
 Options
Knowledge of these instruments is necessary in order to
understand the basics of derivatives. We shall now discuss each of them
in detail.
Forwards
A forward contract or simply a forward is a contract between two
parties to buy or sell an asset at a certain future date for a certain price
that is pre-decided on the date of the contract. The future date is
referred to as expiry date and the pre-decided price is referred to as
Forward Price. It may be noted that Forwards are private contracts and
their terms are determined by the parties involved.

42
A forward is thus an agreement between two parties in which one
party, the buyer, enters into an agreement with the other party, the seller
that he would buy from the seller an underlying asset on the expiry date
at the forward price. Therefore, it is a commitment by both the parties to
engage in a transaction at a later date with the price set in advance. This
is different from a spot market contract, which involves immediate
payment and immediate transfer of asset. The party that agrees to buy
the asset on a future date is referred to as a long investor and is said to
have a long position. Similarly the party that agrees to sell the asset in a
future date is referred to as a short investor and is said to have a short
position. The price agreed upon is called the delivery price or the
Forward Price.
Forward contracts are traded only in Over the Counter (OTC)
market and not in stock exchanges. OTC market is a private market
where individuals/institutions can trade through negotiations on a one to
one basis.
Futures
Like a forward contract, a futures contract is an agreement
between two parties in which the buyer agrees to buy an underlying
asset from the seller, at a future date at a price that is agreed upon
today. However, unlike a forward contract, a futures contract is not a
private transaction but gets traded on a recognized stock exchange. In
addition, a futures contract is standardized by the exchange. All the
terms, other than the price, are set by the stock exchange (rather than
by individual parties as in the case of a forward contract). Also, both
buyer and seller of the futures contracts are protected against the

43
counter party risk by an entity called the Clearing Corporation. The
Clearing Corporation provides this guarantee to ensure that the buyer or
the seller of a futures contract does not suffer as a result of the counter
party defaulting on its obligation. In case one of the parties defaults, the
Clearing Corporation steps in to fulfill the obligation of this party, so that
the other party does not suffer due to non-fulfillment of the contract. To
be able to guarantee the fulfillment of the obligations under the contract,
the Clearing Corporation holds an amount as a security from both the
parties. This amount is called the Margin money and can be in the form
of cash or other financial assets. Also, since the futures contracts are
traded on the stock exchanges, the parties have the flexibility of closing
out the contract prior to the maturity by squaring off the transactions in
the market.
The basic flow of a transaction between three parties, namely
Buyer, Seller and Clearing Corporation is depicted in the diagram below:

44
Options
Like forwards and futures, options are derivative instruments that
provide the opportunity to buy or sell an underlying asset on a future
date.
An option is a derivative contract between a buyer and a seller,
where one party (say First Party) gives to the other (say Second Party)
the right, but not the obligation, to buy from (or sell to) the First Party the
underlying asset on or before a specific day at an agreed-upon price. In
return for granting the option, the party granting the option collects a
payment from the other party. This payment collected is called the
“premium” or price of the option.
The right to buy or sell is held by the “optionbuyer” (also called the
option holder); the party granting the right is the “option seller” or “option
writer”. Unlike forwards and futures contracts, options require a cash
payment (called the premium) upfront from the option buyer to the option
seller. This payment is called option premium or option price. Options
can be traded either on the stock exchange or in over the counter (OTC)
markets. Options traded on the exchanges are backed by the Clearing
Corporation thereby minimizing the risk arising due to default by the
counter parties involved. Options traded in the OTC market however are
not backed by the Clearing Corporation.
There are two types of options—
 Call Options
 Put Options

45
Call option
A call option is an option granting the right to the buyer of the
option to buy the underlying asset on a specific day at an agreed upon
price, but not the obligation to do so. It is the seller who grants this right
to the buyer of the option. It may be noted that the person who has the
right to buy the underlying asset is known as the “buyer of the call
option”.
The price at which the buyer has the right to buy the asset is
agreed upon at the time of entering the contract. This price is known as
the strike price of the contract (call option strike price in this case).
Since the buyer of the call option has the right (but no obligation)
to buy the underlying asset, he will exercise his right to buy the
underlying asset if and only if the price of the underlying asset in the
market is more than the strike price on or before the expiry date of the
contract. The buyer of the call option does not have an obligation to buy
if he does not want to.
Put option
A put option is a contract granting the right to the buyer of the
option to sell the underlying asset on or before a specific day at an
agreed upon price, but not the obligation to do so. It is the seller who
grants this right to the buyer of the option.
The person who has the right to sell the underlying asset is known
as the “buyer of the put option”. The price at which the buyer has the
right to sell the asset is agreed upon at the time of entering the contract.
This price is known as the strike price of the contract (put option strike
price in this case).

46
Since the buyer of the put option has the right (but not the
obligation) to sell the underlying asset, he will exercise his right to sell
the underlying asset if and only if the price of the underlying asset in the
market is less than the strike price on or before the expiry date of the
contract. The buyer of the put option does not have the obligation to sell
if he does not want to.
Terminology of Derivatives
In this section we explain the general terms and concepts related
to derivatives.
Spot Price (ST)
Spot price of an underlying asset is the price that is quoted for
immediate delivery of the asset.
For example, at the NSE, the spot price of Reliance Ltd. at any
given time is the price at which Reliance Ltd. shares are being traded at
that time in the Cash Market Segment of the NSE. Spot price is also
referred to as cash price sometimes.
Forward Price or Futures Price (F)
Forward price or futures price is the price that is agreed upon at
the date of the contract for the delivery of an asset at a specific future
date. These prices are dependent on the spot price, the prevailing
interest rate and the expiry date of the contract.
Strike Price (K)
The price at which t he buyer of an option can buy the stock (in the
case of a call option) or sell the stock (in the case of a put option) on or
before the expiry date of option contracts is called strike price. It is the

47
price at which the stock will be bought or sold when the option is
exercised. Strike price is used in the case of options only; it is not used
for futures or forwards.
Expiration Date (T)
In the case of Futures, Forwards, Index and Stock Options,
Expiration Date is the date on which settlement takes place. It is also
called the final settlement date.
Participants in the Derivatives Market
As equity markets developed, different categories of investors
started participating in the market. In India, equity market participants
currently include retail investors, corporate investors, mutual funds,
banks, foreign institutional investors etc. Each of these investor
categories uses the derivatives market to as a part of risk management,
investment strategy or speculation. Based on the applications that
derivatives are put to, these investors can be broadly classified into
three groups:
 Hedgers
 Speculators
 Arbitrageurs
Hedgers
These investors have a position (i.e., have bought stocks) in the
underlying market but are worried about a potential loss arising out of a
change in the asset price in the future. Hedgers participate in the
derivatives market to lock the prices at which they will be able to transact
in the future. Thus, they try to avoid price risk through holding a position
in the derivatives market. Differenthedgers take differentpositions in the

48
derivatives market based on their exposure in the underlying market. A
hedger normally takes an opposite position in the derivatives market to
what he has in the underlying market.
Speculators
A Speculator is one who bets on the derivatives market based on
his views on the potential movement of the underlying stock price.
Speculators take large, calculated risks as they trade based on
anticipated future price movements. They hope to make quick, large
gains; but may not always be successful. They normally have shorter
holding time for their positions as compared to hedgers. If the price of
the underlying moves as per their expectation they can make large
profits. However, if the price moves in the opposite direction of their
assessment, the losses can also be enormous.
Arbitrageurs
Arbitrageurs attempt to profit from pricing inefficiencies in the
market by making simultaneous trades that offset each other and
capture a risk-free profit. An arbitrageur may also seek to make profit in
case there is price discrepancy between the stock price in the cash and
the derivatives markets.

49
FUNCTION OF DERIVATIVES MARKETS:
 The following are the various functions that are performed by the
derivatives markets. They are:
 Prices in an organized derivatives market reflectthe perceptionof
market participants about the future and lead the price of
underlying to the perceived future level.
 Derivatives market helps to transfer risks from those who have
them but may not like them to those who have an appetite for
them.
 Derivatives trading acts as a catalyst for new entrepreneurial
activity.
 Derivatives markets help increase saving and investment in long
run.

50
CHAPTER – 3
RESEARCH METHODOLOGY

51
INTRODUCTION
Business research can be defined as a systematic and objective
process of gathering, recording, and analyzing data that provides
information to guide business decisions. It is used either to understand
market trends, to find the optimal marketing mix, to devise effective HR
policies, or to find the best investment options.
In the present fast track business environment marked by cutthroat
competition, many organizations rely on business research to gain a
competitive advantage and greater market share. A good research
study helps an organization understand processes, products,
customers,markets and competitionand to develop policies,strategies,
and tactics that are most likely to succeed.
ROLE OF BUSINESS RESEARCH IN DECISION-MAKING
For effective planning and implementation of business decisions,
accurate information about the internal and external business
environments is of primary importance. The key objective of business
research is to provide accurate, relevant, and timely information to the
top management, so that they can make effective decisions.
The business decision-making process in an organization going
through the following key interrelated stages:
 Problem/opportunity Identification.
 Problem/opportunity prioritization and selection.
 Problem/opportunity resolution.
 Implementing the selected course of action.

52
RESEARCH METHODOLOGY
DATA COLLECTION METHOD
 Primary Data
 Secondary Data
Primary Data- Primary research consists of a collection of
original primary data collected by the researcher. It is often
undertaken after the researcher has gained some insight into the
issue by reviewing secondary research or by analyzing previously
collected primary data.
Secondary Data- Under Secondary sources, information was
collected from internal & external sources. I made use of Internet
sources.
SAMPLING DESIGN
 Sampling Size: 100
 Sampling Method: Convenience Sampling

53
CHAPTER – 4
ANALYSIS AND INTERPRETATION

54
ANALYSIS AND INTERPRETATION
1. Gender of the respondents
Table 1: What is your Gender?
Frequency Percent Valid
Percent
Cumulative
Percent
Male 84 84 84 84
Female 16 16 16 100
Total 100 100 100
Interpretation: From the questionnaire it is observed that 84% of the
respondents are Male and 16% of them are Female.

55
2. Age of the respondents
Table 2: What is your Age?
Freque
ncy
Percent Valid
Percent
Cumulative
Percent
Between 18 – 24 23 23.0 23.0 23.0
Between 25 - 34 22 22.0 22.0 45.0
Between 35 - 44 46 46.0 46.0 91.0
Between 45 -54 9 9.0 9.0 100.0
Total 100 100.0 100.0
Interpretation: 46% of the respondents fall under the age category of
35 – 44 years, 23% of them fall under 18 -24 years were as 22% of the
respondents are between the age category of 25 -34 years and 9% of
the respondents are Between the age group of 45 – 54 years.

56
3. Occupation of the respondents
Table 3: Which of the following best describes your current
Occupation?
Percent
Cumulative
Percent
Employee 37 37.0 37.0 37.0
Businessman 34 34.0 34.0 71.0
Student 10 10.0 10.0 81.0
Professional 19 19.0 19.0 100.0
Total 100 100.0 100.0
Interpretation: From the above chart it is clear that majority of the
respondents are employee with a weightage of 37% , Next are
Businessman with a total of 34% and Professionals being 19% and
Students 10%.

57
4. EducationalQualificationof the respondents
Table 4: What is your Educational Qualification?
Percent
Cumulative
Percent
Undergraduate 33 33.0 33.0 33.0
Graduate 35 35.0 35.0 68.0
Post Graduate 21 21.0 21.0 89.0
Professional
Degree
11 11.0 11.0 100.0
Total 100 100.0 100.0
Interpretation: Majority of the respondents are Graduate being 35% were
are Undergraduate are closely followed with 33%, Post graduates
consist of 21% and Professional Degree Holders are 11%.

58
5. Income per Annum of the respondents
Table 5: What is your approximate Income per Annum?
Percent
Cumulative
Percent
Below 1,50,000/- 15 15.0 15.0 15.0
Between 1,50,001 - 3,00,000/- 39 39.0 39.0 54.0
Between 3,00,001 - 4,50,000 14 14.0 14.0 68.0
4,50,000/- and Above 32 32.0 32.0 100.0
Total 100 100.0 100.0
Interpretation: 39% of the respondents have annual income between
1,50,001 – 3,00,000/- were as respondents having income above
4,50,000/-are 32%, between 3,00,001/- - 4,50,000/- are 14% and below
1,50,000/- are 15%.

59
6. Percentage of monthly income available for investmentin
Derivatives
Table 6: What percentage of your monthly household income would you
invest in Derivatives?
Frequency Percent Valid Percent Cumulative
Percent
Between 5 - 10% 27 27.0 27.0 27.0
Between 11 - 15% 41 41.0 41.0 68.0
Between 16 - 20% 32 32.0 32.0 100.0
Total 100 100.0 100.0
Interpretation:41% of the respondents invest between 11 – 15% of the
monthly household income in Derivatives, were as 32% of the
respondents would invest between 16-20% and 27% of the respondents
invest between 5 – 10% in Derivatives Market.

60
7. Kind of risk perceive while investing in Derivatives
Table 7: What kind of risk do you perceive while investing?
Percent
Cumulative
Percent
Uncertainty of
Returns
43 43.0 43.0 43.0
Slump in Market 34 34.0 34.0 77.0
Fear of Company
Windup
9 9.0 9.0 86.0
Others 14 14.0 14.0 100.0
Total 100 100.0 100.0
Interpretation: 43% of the respondents feel that Uncertainty of Returns
is the major risk they perceive while investing in Derivative Market, were
as 34% of the respondents feel Slump in Market and 9% of the
respondents feel that fear of company windup is the risk they perceive
while investing in Derivatives.

61
8. Purpose of Investing in Derivatives Market
Table 8: What is the purpose of investing in Derivative Market?
Percent
Cumulative
Percent
To Hedge
Funds
33 33.0 33.0 33.0
Risk Control 29 29.0 29.0 62.0
Stable Income 21 21.0 21.0 83.0
Direct
Investment
17 17.0 17.0 100.0
Total 100 100.0 100.0
Interpretation: 33% of the respondents invest in Derivatives to hedge
funds, 29% of them invest for risk control, 21% of the respondents for
stable income and 17% invest as a direct investment.

62
9. Participationin differenttype of Derivative instrument
Table 9: In which of the following would you like to participate?
Percent
Cumulative
Percent
Index Futures 16 16.0 16.0 16.0
Index Options 29 29.0 29.0 45.0
Stock Futures 19 19.0 19.0 64.0
Stock Options 24 24.0 24.0 88.0
Currency
Futures/Options
12 12.0 12.0 100.0
Total 100 100.0 100.0
Interpretation: From the above chart we find that 29% of the
respondentwould like to participate in Index Options were as 24% of the
respondents’ would like to invest in Stock Options, Stock Futures and
Index Futures attract 19 and 16% respectively and respondents liking to
invest in Currency Futures and Options are 12%.

63
10. Interest of investment in terms of time frame
Table 10: Which contract maturity period would interest
you for trading in?
Percent
Cumulative
Percent
1 Month 34 34.0 34.0 34.0
2 Months 9 9.0 9.0 43.0
3 Months 27 27.0 27.0 70.0
6 Months 22 22.0 22.0 92.0
1 Year 8 8.0 8.0 100.0
Total 100 100.0 100.0
Interpretation: 34% of the respondents would like to invest their money
for 1 Month, 27% of them for 3 months, 22% of the respondents for 6
months, 9% of the respondents for2 months and 8% of the respondents
for 1 Year.

64
11. Investmentin Derivativesmarket
Table 11: How often do you invest in Derivative Market?
Percent
Cumulative
Percent
Between 1 - 10 times 62 62.0 62.0 62.0
Between 11 - 25
times
14 14.0 14.0 76.0
26 - 50 times 15 15.0 15.0 91.0
Regularly 9 9.0 9.0 100.0
Total 100 100.0 100.0
Interpretation: Majority of the respondents 60% of them invest between
1 – 10 times a year in Derivatives, were as respondents investing
between 11 – 25 times, 26 – 50 times and regularly are 14%, 15% and
9% respectively.

65
12. Result of Investment
Table 12: What was the result of your Investment?
Percent
Cumulative
Percent
Great Results 17 17.0 17.0 17.0
Moderate but
acceptable
50 50.0 50.0 67.0
Disappointed 33 33.0 33.0 100.0
Total 100 100.0 100.0
Interpretation: 50% of the respondents are moderate about their results
in investing in Derivatives market, 17% of the respondents have great
results and 33% of the respondents are disappointed with their
investment in Derivatives Market.

66
FINDINGS
 84% of the respondents are Male and 16% of them are Female.
 Most of the investors who invest in derivatives market are
graduate.
 Majority of the investors who invest in derivative market have a
income of above 1,50,001 – 3,00,00/-
 46% of the respondents fall under the age category of 35 – 44
years
 Investors generally perceive uncertainty of returns type of risk
while investing in derivative market.
 Most of investor’s purpose of investing in derivative market is to
hedge their funds.
 Most of investors participate in Index Options.
 From this survey we come to know that most of investors make a
contract of 1 month maturity period.
 Investors invest 1 -10 times a year in Derivatives Market.
 The result of investment in derivative market is generally moderate
but acceptable.

67
RECOMMENDATIONS
 Knowledge needs to be spread concerning the risk and return of
derivative market.
 Investors should have knowledge of technical analysis, especially
5 Day moving averages as derivatives trading is for a short period
of time Investors should analysis their script with the help of 5 Day
moving average before making their trades.
 Investors’ portfolio should only consist of 15 – 20% Derivatives
contracts or scripts. As derivatives trading is very risky investors
should have only a small portion of their portfolio consisting of
derivatives.
 SEBI should conduct seminars regarding the use of derivatives to
educate individual investors.
 As FII play a prominent role in Derivatives trading, an individual
investor should keep himself updated with various economic
trends, government policies, and company and industry
announcements.

68
BIBLIOGRAPHY
 nseindia.com
 bseindia.com
 sebi.gov.in
 Ashutosh Vashishtha and Satish Kumar “Development of Financial
Derivatives Market in India- A Case Study”
 Dr. Premalata Shenbagaraman “Do Futures and Options trading
increase stock market volatility?”
 Golaka C Nath “Behaviour of Stock Market Volatility after
Derivatives”
 O.P. Gupta “Effect Of Introduction Of Index Futures On Stock
Market Volatility: The Indian Evidence”

69
ANNEXURE
SURVEY QUESTIONNAIRE FOR INVESTORS
Dear Sir/Maim,
This questionnaire is meant for educational purposes only.
The information provided by you will be kept secure and confidential.
1. Name: ___________________________________________
2. Gender
a) Male b) Female
3. Age
a. Below 18 Years
b. Between 18 – 24 Years
c. Between 25- 34 Years
d. Between 45 -54 Years
e. Above 55 Years
4. Occupation
a. Employee
b. Business
c. Student
d. Professional

70
5. Educational Qualification
a. Undergraduate
b. Graduate
c. Post Graduate
d. Professional Degree Holder
6. Income per Annum
a. Below 1,50,000
b. 1,50,000 – 3,00,000
c. 3,00,000 – 5,00,000
d. Above 5,00,000
7. Normally what percentage of your monthly household income could be
available for investment?
a. Between 5% to 10%
b. Between 11% to 15%
c. Between 16% to 20%
d. Between 21% to 25%
e. More than 25%
8. What kind of risk do you perceive while investing in the stock market?
a. Uncertainty of returns
b. Slump in stock market
c. Fear of being windup of company
d. Other
9. What is the purpose of investing in Derivative market?
a. To hedge funds
b. Risk control
c. More stable

71
d. Direct investment
10.In which of the following would you like to participate?
a. Index Futures
b. Index Options
c. Stock Futures
d. Stock Options
e. Currency Futures / Options
11. What contract maturity period would interest you for trading in?
a. 1 month
b. 2 months
c. 3 months
d. 6 months
e. 9 months
f. 12 months
12. How often do you invest in Derivative market?
a. 1-10 times in a year
b. 11-50 times
c. More than 50 times
d. Regularly
13.What was the result of your Investment?
a. Great results
b. Moderate but acceptable
c. Disappointed

Study of Derivative Market In India

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