Indian Derivatives

market

History derivatives in india

The market for financial derivatives has grown tremendously in
terms of variety of instruments available, their complexity and
also turnover
In India the willingness to embark on formal derivatives trading
came forth only during the reforms process of the 1990s
Though various informal forms of derivatives contracts have
existed since time immemorial in the country.
A variety of interesting derivatives markets came into existence
in the informal financial sector too; these markets trade contracts
like teji-mandi, bhav-bhav, and other such strategies that are
essentially different combinations of put and call options

Conti
Indias primary securities market also has experience with
derivatives of two kinds: convertible bonds and warrants
(a slight variant of call options). Since these warrants are
listed and traded, an options market of a sort already
existed; however, trading on these instruments has been
very limited.
No OTC :-Custom built (OTC) derivatives, specifically,
options and swaps on Indian market indexes and baskets
of Indian ADR/GDRs (American/Global Depository
Receipts), were being traded on the international market
India went in for formal financial derivatives trading in the
exchanges by 2001 introducing index futures, index
options stock options and stock futures in a phased
manner.

Benefits
Derivatives markets provide at least two very important benefits to the
economy. One is that they facilitate risk shifting, which is also known as
risk management or hedging or redistributing risk away from risk averse
investors towards those more willing and able to bear risk.
The financial innovation of introducing derivatives to capital markets
allows these traditional arrangements of risk to be redesigned so as to
better match the desired risk profiles of the issuers and holders of these
capital instruments
The other benefit of derivatives markets is that they create price
discovery, i.e. the process of determining the price level for a commodity,
asset or other item based on supply and demand. An efficient financial
market is one, where forecasts about future risk and return determine
valuation. Thus the price observed at an instant in time on the ideal
efficient market is a good assessment of future risk and return. In an
efficient market new information is rapidly captured into prices, a better
market being one that reacts faster.

commodities
The first derivatives market for cotton futures was set up in Mumbai,
followed by the establishment of futures markets in edible oilseeds
complex, raw jute and jute goods and bullion. Organised futures market
in India dates back to the setting up of Bombay Cotton Trade Association
Ltd. in 1875.
Futures market in Bullion began in Mumbai as early as 1920. The
volumes of trade in these derivativesmarkets were reported to be
extremely large. However, with enactment of Defence of India Act, 1935,
futures trading became subject torestrictions/prohibition from time to
time
It was generally agreed that the derivatives markets play a valuable role
in shaping decisions of the market intermediaries, including decisions by
farmers about sowing and investments in inputs; smoothing price
volatility; and giving farmers and consumers better means of protecting
themselves against the adverse effects of seasonal/annual price volatility