self studu derivatives

8/7/2019 self studu derivatives

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STUDY OF DERIVATIVES IN INDIAN

CAPITAL MARKET

Presented by:

DHEERAJ ARORA


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In this presentation:

Introduction about Indian capital market.

Meaning and types of derivatives.

Pay off for derivative contract.

Clearing and settlement of contracts.

Indian derivative market.

Users of derivatives.

Legal framework for derivatives in India. Conclusion.


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INDIAN CAPITAL MARKET

By 1830's business on corporate stocks and shares in Bank and

Cotton presses took place in Bombay.

During 1840 and 1850, there were only half a dozen brokersrecognized by banks and merchants.

By 1860 the number of brokers increased into 60.

In 1887, brokers formally established in Bombay, the "Native

Share and Stock Brokers' Association" (which is alternativelyknown as " The Stock Exchange ").

In 1899, the Stock Exchange at Bombay was consolidated.


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Post-independence Scenario

Lahore Exchange was closed during partition of the

country and later migrated to Delhi and merged with

Delhi Stock Exchange.

Bangalore Stock Exchange Limited was registered in

1957 and recognized in 1963.Only Bombay, Calcutta, Madras, Ahmadabad, Delhi,

Hyderabad and Indore, the well established

exchanges, were recognized under the Securities

Contracts (Regulation) Act, 1956 till 1957.During early sixties, there were eight recognized

stock exchanges in India.


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Growth Pattern of the Indian Stock MarketSl. No. As on 31st 1946 1961 1971 1975 1980 1985 1991 2010

December

1 No. ofStock Exchanges 7 7 8 8 9 14 20 23

2 No. ofListed Cos. 1125 1203 1599 1552 2265 4344 6229 8987

3 No. of StockIssues ofListed Cos. 1506 2111 2838 3230 3697 6174 8967 11789

4 Capital of ListedCos. (Cr. Rs.) 270 753 1812 2614 3973 9723 32041 61235

5 Market value ofCapital of ListedCos. (Cr. Rs.) 971 1292 2675 3273 6750 25302 110279 502245

6 Capital per

Listed Cos. (4/2)(Lakh Rs.) 24 63 113 168 175 224 514 715

7 Market Value ofCapital per ListedCos. (Lakh Rs.) 86 107 167 211 298 582 1770 6112


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Trading Pattern of the Indian Stock Market

Listed Securities

Specified

securities(forwardlist)

Non-specified

securities(cashlist)


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Two types of transactions can be carried out on the Indian

stock exchanges:

Spot delivery transactions "for delivery and payment within the timeor on the date stipulated when entering into the contract which shall

not be more than 14 days following the date of the contract.

Forward transactions "delivery and payment can be extended by

further period of 14 days each so that the overall period does not

exceed 90 days from the date of the contract".

NSE

Trading at NSE

Wholesale debtmarket

Capital market


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INTRODUCTION TO FUTURES & OPTIONS

Forward Contracts

Options

a) call option

b) put option

c)Strike price

d)Maturity datee)American option

f) European option

g)Premium (Option price, Option value)

h) Intrinsic value of the option

i) Time value of the option

j) At-the-Money, In-the-Money and Out-of-the-MoneyOptions

FUTURES


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PAYOFF FOR DERIVATIVES CONTRACTS

Payoff For A Seller On Nifty Future

profit

1220

0

Nifty

loss

FIG. PAYOFF FOR A SELLER OF FUTURE


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Payoff for a buyer on Nifty Futures

profit

1220

Nifty

loss

Fig. Payoff for a buyer on Nifty futures


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Payoff profile for seller of asset: Short asset

Profit

1160 1220 1280 Nifty

Loss

Fig. Payoff for investor who went short Nifty at 1220


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Payoff profile for buyer of call option: Long run

Profit

0 1250 Nifty

86.60

Loss

Fig. Payoff for buyer of a call


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Payoff profile for writer of call option: Short call

Profit

86.60

0 1250 Nifty

Loss

Fig. Payoff for a writer of calls options


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Payoff for buyer of put option: Long put

profit

1250 Nifty

0

61.70

loss

Fig. Payoff for buyer of put option


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Payoff profile for writer of put option: short put

profit

61.70

0 1250 Nifty

loss

Fig. Payoff for writer of put option


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CLEARING AND SETTLEMENT

Clearing Entities

Clearingmembers

TMCM

PCM

SCM


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Settlement Mechanism

Settlement of future contracts:

Futures contracts have two types of settlement, the

MTM settlement, which happen on a continuous

basis at the end of each day, and the finalsettlement, which happens on the last trading day of

the futures contracts.

SETTLEMENT OF OPTIONS CONTRACTS:

There are three types of settlement, Daily premiumsettlement, Interim exercise settlement and final

exercise settlement.


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DERIVATIVES MARKET AT NSE

B

usiness Growth of Derivatives at NSE from 2000-2009


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Product wise Turnover of F&O at NSE from 2000-2008

Source: Authors calculation based on data complied from NSE


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NSE Derivatives Segment Turnover

Source: Complied from NSE website

Year Index

futures

Stock

futures

Index

optionsStock

options

Interest

Rate

Futures

Total Avg. daily

turnover

2008-09

2007-08

2006-072005-06

2004-05

2003-04

2002-03

2001-02

2000-01

2583617

3820667

25395741513755

772147

554446

43952

21483

2365

2558863

7548563

38309672791697

1484056

1305939

286533

51515

___

2358916

1362110

791906338469

121943

52816

9246

3765

___

149498

359136

193795180253

168836

217207

100131

25163

___

0.00

0.00

00

0

202

___

___

___

795089613090477

73562424824174

2546982

2130610

439862

101926

2365

46938

52153

2954319220

10107

8388

1752

410

11


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