Introduction

A Derivative is a financial instrument that derives its value from an underlying asset. Derivative is an financial contract whose price/value is dependent upon price of one or more basic underlying asset, these contracts are legally binding agreements made on trading screens of stock exchanges to buy or sell an asset in the future. The most commonly used derivatives contracts are forwards, futures and options, which we shall discuss in detail later. The main objective of the study is to analy e the derivatives market in !ndia and to analy e the operations of futures and options. Analysis is to evaluate the profit/loss position futures and options. Derivates market is an innovation to cash market. Approximately its daily turnover reaches to the e"ual stage of cash market !n cash market the profit/loss of the investor depend the market price of the underlying asset. Derivatives are mostly used for hedging purpose. !n bullish market the call option writer incurs more losses so the investor is suggested to go for a call option to hold, where as the put option holder suffers in a bullish market, so he is suggested to write a put option. !n bearish market the call option holder will incur more losses so the investor is suggested to go for a call option to write, where as the put option writer will get more losses, so he is suggested to hold a put option.

OBJECTIVES
To study the various trends in derivatives market. To study the role of derivatives in !ndia financial market To study in detail the role of futures and options. To study the role of stock exchange with emphasis on $%&. To find out profit/loss position of the option writer and option holder.

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IMPORTANCE OF THE STUDY

The present study on futures and options is very much appreciable on the grounds that it gives deep insights about the ()* market. !t would be essential for the perfect way of trading in ()*. An investor can choose the fight underlying or portfolio for investment +which is risk free. The study would explain the various ways to minimi e the losses and maximi e the profits. The study would help the investors how their profit/loss is reckoned. The study would assist in understanding the ()* segments. The study assists in knowing the different factors that cause for the fluctuations in the ()* market. The study provides information related to the byelaws of ()* trading. The studies elucidate the role of ()* in !ndia (inancial ,arkets.

METHODOLOGY
The data had been collected through primary and secondary source.

Primary data:
The data had been collected through UNICON staff, -roject guide and %tock brokers.

Secondary data:
The data had been collected through .ournals, /ews papers, and !nternet.

Literature Review
Derivative
The emergence of the market for derivative products, most notably forwards, futures and options, can be traced back to the willingness of risk1averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. 2y their very nature, the financial markets are marked by a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking3in asset prices. As instruments of risk management, these generally do not influence the fluctuations in the underlying asset prices. $owever, by locking1in asset prices, derivative products minimi e the impact of fluctuations in asset prices on the profitability and cash flow situation of risk1averse investors. Derivatives are risk management instruments, which derive their value from an underlying asset. The underlying asset can be bullion, index, share, bonds, currency, interest etc. 2anks, securities firms, companies and investors to hedge risks, to gain access to cheaper money and to make profit, use derivatives. Derivatives are likely to grow even at a faster rate in future.

DEFINITION:
Derivative is a product whose value is derived from the value of an underlying asset in a contractual manner. The underlying asset can be e"uity, forex, commodity or any other asset.

%ecurities 5ontracts 67egulation8 Act, #94: 6%5678 A8 defines ;derivative< to include 3

#. 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.

PARTICIPANTS:
The following three broad categories of participants in the derivatives market.

HEDGERS:
$edgers face risk associated with the price of an asset. They use futures or options markets to reduce or eliminate this risk.

SPECULATORS:
%peculators wish to bet on future movements in the price of an asset. (utures and options contracts can give them an extra leverage= that is, they can increase both the potential gains and potential losses in a speculative venture.

ARBITRAGEURS:
Arbitrageurs are in business to take advantage of a discrepancy between prices in two different markets. !f, for example, they see the futures price of an asset getting out of line with the cash price, they will take offsetting positions in the two markets to lock in a profit.
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FUNCTIONS OF DERIVATIVES
markets. They are>

AR!ET:

The following are the various functions that are performed by the derivatives

-rices in an organi ed derivatives market reflect the perception of market participants about the future and lead the prices 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. Derivative trading acts as a catalyst for new entrepreneurial activity. Derivatives markets help increase savings and investment in the long run.

T"PES OF DERIVATIVES:
The following are the various types of derivatives. They are:

FOR#ARDS:
A forward contract is a customi ed contract between two entities, where settlement takes place on a specific date in the future at today?s pre1agreed price

FUTURES>
A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price.

OPTIONS>

*ptions are of two types 1 calls and puts. 5alls give the buyer the right but not the obligation to buy a given "uantity of the underlying asset, at a given price on or before a given future date. -uts give the buyer the right, but not the obligation to sell a given "uantity of the underlying asset at a given price on or before a given date.

#ARRANTS>
*ptions generally have lives of up to one year= the majority of options traded on options exchanges having a maximum maturity of nine months. Aonger1dated options are called warrants and are generally traded over1the1counter.

LEAPS>
The acronym A&A-% means Aong1Term &"uity Anticipation %ecurities. These are options having a maturity of up to three years.

BAS!ETS>
2asket options are options on portfolios of underlying assets. The underlying asset is usually a moving average of a basket of assets. &"uity index options are a form of basket options.

S#APS>
%waps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. They can be regarded as portfolios of forward contracts. The two commonly used swaps are

Intere$t rate $%a&$:

These entail swapping only the interest related cash flows between the -arties in the same currency.
B

C'rrency $%a&$:
These entail swapping both principal and interest between the parties, with the cash flows in one direction being in a different currency than those in the opposite Direction.

S%a&tion$:
%waptions are options to buy or sell a swap that will become operative at the expiry of the options. Thus a %waptions is an option on a forward swap.

RATIONALE BEHIND THE DEVELOP ENT OF DERIVATIVES:

$olding portfolio of securities is associated with the risk of the possibility that the investor may reali e his returns, which would be much lesser than what he expected to get. There are various factors, which affect the returns> #. -rice or dividend 6interest8. '. %ome are internal to the firm like 3 !ndustrial policy ,anagement capabilities 5onsumer?s preference Aabor strike, etc.

These forces are to a large extent controllable and are termed as non %ystematic risks. An investor can easily manage such non1systematic by having a well 3 diversified portfolio spread across the companies, industries and groups so that a loss in one may easily be compensated with a gain in other. There are yet other types of influences which are external to the firm, cannot be controlled and affect large number of securities. They are termed as systematic risk. They are> #. &conomic '. -olitical +. %ociological changes are sources of systematic risk. (or instance, inflation, interest rate, etc. their effect is to cause prices of nearly all individual stocks to move together in the same manner. Ce therefore "uite often find stock prices falling from time to time in spite of company?s earnings rising and vice versa. 7ationale behind the development of derivatives market is to manage this systematic risk, li"uidity and li"uidity in the sense of being able to buy and sell relatively large amounts "uickly without substantial price concessions. !n debt market, a large position of the total risk of securities is systematic. Debt instruments are also finite life securities with limited marketability due to their small si e relative to many common stocks. Those factors favor for the purpose of both portfolio hedging and speculation, the introduction of a derivative security that is on some broader market rather than an individual security.

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!ndia has vibrant securities market with strong retail participation that has rolled over the years. !t was until recently basically cash market with a facility to carry forward positions in actively traded EA? group scrips from one settlement to another by paying the re"uired margins and borrowing some money and securities in a separate carry forward session held for this purpose. $owever, a need was felt to introduce financial products like in other financial markets world over which are characteri ed with high degree of derivative products in !ndia. Derivative products allow the user to transfer this price risk by looking in the asset price there by minimi ing the impact of fluctuations in the asset price on his balance sheet and have assured cash flows. Derivatives are risk management instruments, which derive their value from an underlying asset. The underlying asset can be bullion, index, shares, bonds, currency etc.

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AN" E(CHANGE FULFILLING THE DERIVATIVE SEG ENT AT NATIONAL STOC! E(CHANGE:
The derivatives segment on the exchange commenced with %)- 5/F /ifty !ndex futures on .une #', 'DDD. The ()* segment of /%& provides trading facilities for the following derivative segment> #. !ndex 2ased (utures '. !ndex 2ased *ptions +. !ndividual %tock *ptions 0. !ndividual %tock (utures

REGULATOR" FRA E#OR!:

The trading of derivatives is governed by the provisions contained in the %5 678 A, the %&2! Act and the regulations framed there under the rules and byelaws of stock exchanges.

Re)'*ation +or Deri,ati,e Tradin):

%&2! set up a '0 member committed under 5hairmanship of Dr.A.5.Gupta develop the appropriate regulatory framework for derivative trading in !ndia. The committee submitted its report in ,arch #99B. *n ,ay ##, #99B %&2! accepted the recommendations of the committee and approved the phased introduction of Derivatives trading in !ndia beginning with %tock !ndex (utures. and control of trading and settlement of Derivatives contracts. %&2! also approved he ;%uggestive bye1laws< recommended by the committee for regulation

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The provisions in the %5 678 A govern the trading in the securities. The amendment of the %5 678 A to include ;D&7!HAT!H&%< within the ambit of E%ecurities? in the %5 67 8 A made trading in Derivatives possible within the framework of the Act. #. &ligibility criteria as prescribed in the A.5. Gupta committee report may apply to %&2! for grant of recognition under %ection 0 of the %5 6 7 8 A, #94: to start Derivatives Trading. The derivatives exchange/segment should have a separate governing council and representation of trading / clearing members shall be limited to maximum of 0DI of the total members of the governing council. The exchange shall regulate the sales practices of its members and will obtain approval of %&2! before start of Trading in any derivative contract. '. The exchange shall have minimum 4D members. +. The members of an existing segment of the exchange will not automatically become the members of the derivative segment. the A.5.Gupta 5ommittee. 0. The clearing and settlement of derivates trades shall be through a %&2! approved 5learing 5orporation / 5learing house. 5learing 5orporation / 5learing $ouse complying with the eligibility conditions as lay down 2y the committee have to apply to %&2! for grant of approval. The members of the derivative segment need to fulfill the eligibility conditions as lay down by

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4. Derivatives broker/dealers and 5learing members are re"uired to seek registration from %&2!. :. The ,inimum contract value shall not be less than 7s.' Aakh. &xchanges should also submit details of the futures contract they purpose to introduce. @. The trading members are re"uired to have "ualified approved user and sales person who have passed a certification programmed approved by %&2!.

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Futures
DEFINITION
A (utures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. To facilitate li"uidity in the futures contract, the exchange specifies certain standard features of the contract. The standardi ed items on a futures contract are> Juantity of the underlying Juality of the underlying The date and the month of delivery The units of price "uotations and minimum price change Aocations of settlement

Ty&e$ o+ +'t're$:
*n the basis of the underlying asset they derive, the futures are divided into two types> Stoc- +'t're$: The stock futures are the futures that have the underlying asset as the individual securities. The settlement of the stock futures is of cash settlement and the settlement price of the future is the closing price of the underlying security. Inde. +'t're$: !ndex futures are the futures, which have the underlying asset as an !ndex. The !ndex futures are also cash settled. The settlement price of the !ndex futures

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shall be the closing value of the underlying index on the expiry date of the contract.

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PARTIES IN THE FUTURES CONTRACT:

There are two parties in a future contract, the 2uyer and the %eller. The buyer of the futures contract is one who is LONG on the futures contract and the seller of the futures contract is one who is SHORT on the futures contract. The pay off for the buyer and the seller of the futures contract are as follows.

PA"OFF FOR A BU"ER OF FUTURES:

PROFIT

LOSS

CASE /: The buyer bought the future contract at 6(8= if the futures price goes to &# then the buyer gets the profit of 6(-8. CASE 0: The buyer gets loss when the future price goes less than 6(8, if the futures price goes to &' then the buyer gets the loss of 6(A8.

PA"OFF FOR A SELLER OF FUTURES:

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P PROFIT

E E
1

LOSS L

( 3 (KTK7&% -7!5& &#, &' 3 %&TTA&,&/T -7!5&. CASE /: The %eller sold the future contract at 6f8= if the futures price goes to &# then the %eller gets the profit of 6(-8. CASE 0: The %eller gets loss when the future price goes greater than 6(8, if the futures price goes to &' then the %eller gets the loss of 6(A8.

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ARGINS:
,argins are the deposits, which reduce counter party risk, arise in a futures contract. These margins are collected in order to eliminate the counter party risk. There are three types of margins>

INITIAL

ARGIN:

Chenever a futures contract is signed, both buyer and seller are re"uired to post initial margin. 2oth buyer and seller are re"uired to make security deposits that are intended to guarantee that they will infact be able to fulfill their obligation. These deposits are !nitial margins and they are often referred as performance margins. The amount of margin is roughly 4I to #4I of total purchase price of futures contract.

AR!ING TO

AR!ET

ARGIN:

The process of adjusting the e"uity in an investor?s account in order to reflect the change in the settlement price of futures contract is known as ,T, ,argin.

AINTENANCE

ARGIN:

The investor must keep the futures account e"uity e"ual to or greater than certain percentage of the amount deposited as !nitial ,argin. !f the e"uity goes less than that percentage of !nitial margin, then the investor receives a call for an additional deposit of cash known as ,aintenance ,argin to bring the e"uity up to the !nitial margin.

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ROLE OF
example.

ARGINS:

The role of margins in the futures contract is explained in the following % sold a %atyam .une futures contract to 2 at 7s.+DD= the following table shows the effect of margins on the contract. The contract si e of %atyam is #'DD. The initial margin amount is say 7s.'DDDD, the maintenance margin is :4I of !nitial margin.
DAL -7!5& *( %ATLA, &((&5T 2KL&7 628 ,T, -/A 2al. in ,argin # +DD.DD */ &((&5T %&AA&7 6%8 ,T, -/A 2al. in ,argin 5ontract is entered and initial margin is deposited. 2 got profit and % got loss, % deposited maintenance margin. 2 got loss and deposited maintenance margin. 2 got profit, % got loss. 5ontract settled at +D4, totally 2 got profit and % got loss. */ 7&,A7M%

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+##6price increased8

N#+,'DD

1#+,'DD N#+,'DD

'B@

1'B,BDD N#4,0DD

N'B,BDD

+D4

N'#,:DD

1'#,:DD

Pricin) t1e F't're$:

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The fair value of the futures contract is derived from a model known as the 5ost of 5arry model. This model gives the fair value of the futures contract.

Co$t o+ Carry
(O% 6#Nr1"8 t
Chere
F 2 F't're$ Price S 2 S&ot &rice o+ t1e Under*yin) r 2 Co$t o+ Financin) 3 2 E.&ected Di,idend "ie*d T 2 Ho*din) Period4

ode*:

F't're$ termino*o)y:
S&ot &rice: The price at which an asset trades in the spot market. F't're$ &rice: The price at which the futures contract trades in the futures market. Contract cyc*e: The period over which a contract trades. The index futures contracts on the /%& have one1month, two1months and three1month expiry cycles which expire on the last Thursday of the month. Thus a .anuary expiration contract expires on the last Thursday of .anuary and a (ebruary expiration contract ceases trading on the last Thursday of (ebruary. *n the (riday following the last Thursday, a new contract having a three1month expiry is introduced for trading. E.&iry date:

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!t is the date specified in the futures contract. This is the last day on which the contract will be traded, at the end of which it will cease to exist. Contract $i5e: The amount of asset that has to be delivered under one contract. (or instance, the contract si e on /%&?s futures market is 'DD /ifties. Ba$i$: !n the context of financial futures, basis can be defined as the futures price minus the spot price. There will be a different basis for each delivery month for each contract. !n a normal market, basis will be positive. This reflects that futures prices normally exceed spot prices. Co$t o+ carry: The relationship between futures prices and spot prices can be summari ed in terms of what is known as the cost of carry. This measures the storage cost plus the interest that is paid to finance the asset less the income earned on the asset. O&en Intere$t: Total outstanding long or short positions in the market at any specific time. As total long positions for market would be e"ual to short positions, for calculation of open interest, only one side of the contract is counted.

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Trading
INTRODUCTION
The futures ) *ptions trading system of /%&, called /&AT1()* trading system, provides a fully automated screen1based trading for /ifty futures ) options and stock futures ) *ptions on a nationwide basis as well as an online monitoring and surveillance mechanism. !t supports an order driven market and provides complete transparency of trading operations. !t is similar to that of trading of e"uities in the cash market segment. The software for the ()* market has been developed to facilitate efficient and transparent trading in futures and options instruments. Meeping in view the familiarity of trading members with the current capital market trading system, modifications have been performed in the existing capital market trading system so as to make it suitable for trading futures and options. *n starting /&AT 6/ational &xchange for Automatic Trading8 Application, the log on 6-ass Cord8 %creen Appears with the (ollowing Details. #8 Kser !D '8 Trading ,ember !D +8 -assword 3 /&AT 5, 6default -ass word8 08 /ew -ass Cord Note: 6 #8 Kser !D is a Kni"ue '8 Trading ,ember !D is Kni"ue ) (unction= it is 5ommon for all user of the Trading ,ember +8 /ew password 3 ,inimum : 5haracteristic, ,aximum B characteristics only + attempts are accepted by the user to enter the password? to open the %creen
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TRADING SYSTEM
/ation wide1online1fully Automated %creen 2ased Trading %ystem 6%2T%8 -rice priority Time -riority /ote> 1 #8 /&AT system provides open electronic consolidated limit orders book 6*&5A*28 '8 Aimit order means> %tated Juantity and stated price Be+ore O&enin) t1e mar-et Kser allowed to set Kp #8 ,arket Catch %creen '8 !n"uiry %creens *nly O&en &1a$e 7O&en Period8 Kser allowed to #8 &n"uiry '8 *rder &ntry +8 *rder ,odification 08 *rder 5ancellation 48 *rder ,atching

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ar-et c*o$in) &eriod Kser Allowed only for in"uiries S'rcon &eriod 6%urveillance ) 5ontrol period8 The %ystem process the Date, for making the system, for the /ext Trading day. Lo) o+ t1e Screen 7Be+ore S'rcon Period8 The screen shows >1 #8 -ermanent sign off '8 Temporary sign off +8 &xit Permanent $i)n o++: 1 market not updates. Tem&orary $i)n o++: 1 market up date 6temporary sign off, after 4 minutes Automatically Activate8 E.it: 6 the user comes out sign off %creen. Loca* Data9a$e Aocal Database is used for all in"uiries made by the user for *wn *rder/Trades !nformation. !t is used for corporate manger/ 2ranch ,anager ,akes in"uiries for orders/ trades of any branch manager /dealer of the trading firm, and then the in"uiry is %erviced 2y the host. The local database also includes message of security information. Tic-er #indo% The ticker window displays information of All Trades in the system. The user has the option of %electing the %ecurity, which should be appearing in the ticker window. /ot allowed in"uiry and *rder -lacing

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ar-et %atc1 #indo% Title 2ar> Title 2ar %hows> /&AT, Date ) Time. ,arket watch window felicitate to set only 4DD %crip?s, 2ut the Kser set up a ,aximum of +D %ecurities in one -age. BP 7 ar-et 9y Price8 ,2- 6(:8 %creen shows Total *ut standing *rders of a particular security, in the ,arket, Aggregate at each price in order of 2est 4 prices. !t %hows> 1 7A *rder 67egular Aot *rder8 %A *rder 6%top Aoss *rder8 %T *rder 6%pecial Term *rders8 2uy 2ack *rder with EP? %ymbol - O indicate -re *pen -osition % O !ndicate %ecurity %uspend Re&ort Se*ection #indo% !t facilitates to print each copy of report at any time. These 7eports are /8 O&en order re&ort :6 (or details of out standing orders 08 Order *o) re&ort:6(or details of orders placed, modified ) cancelled :8 Trade Done6today re&ort :6 (or details of orders traded ;8 ar-et Stati$tic$ re&ort: 6 (or details of all securities traded !nformation in a Day Internet Bro-in) #8 /%& introduced internet trading system from (ebruary 'DDD '8 5lient place the order through brokers on order routing system

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#AP 7#ire*e$$ A&&*ication Protoco*8 #8 /%&.!T Aaunches the from /ovember 'DDD '8 #st %tep1getting the permission from exchange for CA+8 'nd step1Approved by the %&2!6%&2! Approved only for %&2! registered ,embers8 (40< Addre$$ c1ecF.'4 Address check, is performed in the /&AT system, when the user log on into the /&AT, system ) during report down load re"uest. FTP 7Fi*e Tran$+er &rotoco*8 #8 /%& -rovide for each member a separate directory 6(ile8 to know their trading DATA, clear DATA, bill trade 7eport. '8 /%& -rovide in Addition a ;5ommon< directory also, to know circulars, /5(, ) 2hava 5opy information. +8 (T- is connected to each member through H%AT, leased line and internet. 08 H%AT 6(7*, 0>#4-, to 9>+DA,8, !nternet 6'0 $ours8. Sna& S1ot Data Ba$e %nap shot data base provides %nap shot of the limit order book at many time points in a day. Inde. Data Ba$e !ndex Data 2ase provides information about stock market indexes. Trade Data Ba$e Trade Data 2ase provides a data base of every single traded order, take place in exchange.

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BASKET TRADING SYSTEM

#8 Taking advantage for easy arbitration between future market and ) cash market difference, /%& introduce basket trading system by off setting positions through off line1order1entry facility. '8 *rders are created for a selected portfolio to the ratio of their market 5apitali ation from # lake to +D corers. +8 O++*ine6order6entry +aci*ity: 6 generate order file in as specified format out side the system ) up load the order file in to the system by invoking this facility in 2asket trading system.

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TRADING NETWORK

HUB ANTENNA

SATELLITE

NSE MAIN FRAME

BROKERS PREMISES

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Ho*din) o+ S1are$ 7Votin) Ri)1t8 di$c*o$in) o9*i)ation

#8 Any person or Director or officer or the company '8 ,ore than 4I share or voting 7ight +8 Cith in 0th day inform to company is necessary 08 5ompany inform with in 4th day to stock exchange is compulsory

Fir$t Started
F't're tradin)> 5hicago 2oard of Trading #B0B Financia* F't're Tradin)> 5,& 65hicago ,ercantile &xchange #9#98 Stoc- Inde. F't're$> kansas 5ity 2oard of trade O&tion Fir$t Trade> $olland 1 Tulip 2alabmania

BRO!ER 7Tradin) em9er8 7Bro-er mean$ a mem9er in reco)ni5ed $toc- e.c1an)e8

E*i)i9i*ity: '# tears, graduation, ' years experience in stock market relative Affairs and +D Aakhs paid up capital #DD lakhs net worth #'4 lakhs interest free security deposit '4 lakhs collatery security deposit # lakh annual business subscription

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BRO!ER = CLIENT RELATION SHIP #8 (ill the client 7egistration Application form 6for all details of clients8. '8 Agreement on non1judicial form 6%pecified by SEBI that form8 +8 PAN> -ass -ort, Driving Aicense or voter !dentity card 6 SEBI 7egistration /umber in case of FII?$8 1 -an 5ards is must to future and option trading. 08 And than Allot1Kni"ue client code 48 Take copy of instruction in writing before placing order, cancellation ) modification. :8 !f order values exceed # lakh maintain the client record for @ years. @8 *n conformation any order, issue contract note within '0 hours. B8 5ollect margin of 4D,DDD ) multiple with #D,DDD. NOTE> 1 -A/ is compulsory if the transaction cost exceed 7s.# lakh. 98 !ssuing the ;know your client ;form is must. For Contin'in) em9er$1i&6Tradin) em9er F'*+i** t1e +o**o%in) doc'ment$4 #8 Audited two important (inancial %tatements 6profit ) Aoss account, balance %heet8 '8 /et worth certificate 65ertificate by 5A8 +8 Details of Directors, share holders 6certificate by 5A8 08 7enewal insurance covering proof.

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SUB BRO!ER
#8 &ligibility> 1 '# years, #DN' "ualification and paid up capital < *a-1$. '8 /ot convicted involving fraud and dishonesty. +8 /ot debarred by %&2! previously. 08 4#I of shares as dominant promoters his/her and his/her spouse. 48 (irst application to stock exchange1%tock exchange send his application to %&2!1%&2! satisfied issued 5ertificate 7egistration. :8 A registered sub1broker, holding registration, granted by %&2! on the 7ecommendations of a trading member, can transact through the member 6broker8 who had recommend his application for registration. @8 ,aximum 2rokerage 5ommission 'I. B8 -urchase note and sales note issued by the sub broker with '0 hours.

In,e$tor &rotection F'nd

#8 !nvestor protection fund setup under 2ombay public trust Act #94D. '8 !-( maintained by /%& &xact name of this fund is /%& !nvestors -rotection (und Trust. +8 Any ,ember defaulted the !-( paid maximum #D lakhs only to each investor. 08 5lient against default member, customer have right to apply within + months from the date of -ublishing notice by a widely circulated minimum one daily /ews paper.

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Demat o+ t1e S1are$

#8 Agreement with depository by security holder 6at the time opening the demat account8 '8 %urrender the security certificates to ;issuer< 65ompany8for cancellation +8 !ssuer 6company8 informs the ;depository< about the transfer of the shares. 08 -articipant 65ompany8 informs the ;depository< about the transfer of the shares. 48 ;Depository< records the ;transferee< name as ;beneficial owner< in ;book entry form< in his records. :8 &ach custodian/clearing member is re"uiring maintaining a 5lear pool account with depositaries. @8 The investor has no restriction and has full right to open many 6number of8 depository accounts B8 %hares or securities are transferred from one account to another account only on the instruction of the beneficial owner. ISIN 7Internationa* Sec'ritie$ Identi+ication N'm9er8 Any company going to foe demateriali ed with shares that company get this !%!/ for demat shares. !%!/ is assigned by %&2!. !%!/ is allotted by /%DA. ain O9@ecti,e$ o+ Demat Tradin) #8 (reely transferability '8 Demateriali ed in depository mode +8 ,aintenance of ownership records in book entry form

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INDUSTRY PROFILE

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HISTORY OF STOCK EXCHANGE

The only stock exchanges operating in the #9th century were those of 2ombay set up in #B@4 and Ahmedabad set up in #B90. These were organi ed as voluntary non profit1making association of brokers to regulate and protect their interests. 2efore the control on securities trading became central subject under the constitution in #94D, it was a state subject and the 2ombay securities contracts 6control8 Act of #9'4 used to regulate trading in securities. Knder this act, the 2ombay stock exchange was recogni ed in #9'@ and Ahmedabad in #9+@. During the war boom, a number of stock exchanges were organi ed in 2ombay, Ahmedabad and other centers, but they were not recogni ed. %oon after it became a central subject, central legislation was proposed and a committee headed by A.D. Gorwala went into the bill for securities regulation. *n the basis of the committee?s recommendations and public discussion, the securities contracts 6regulation8 Act became law in #94:.

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DEFINITION OF STOCK EXCHANGE

;%tock exchange means any body or individuals whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities<. !t is an association of member brokers for the purpose of self1regulation and protecting the interests of its members. !t can operate only if it is recogni ed by the Government under the securities contracts 6regulation8 Act, #94:. The recognition is granted under section + of the Act by the central government, ,inistry of (inance.

B"LA#S
2esides the above act, the securities contracts 6regulation8 rules were also made in #9@4 to regulative certain matters of trading on the stock exchanges. There are also bylaws of the exchanges, which are concerned with the following subjects. *pening / closing of the stock exchanges, timing of trading, regulation of blank transfers, regulation of 2adla or carryover business, control of the settlement and other activities of the stock exchange, fixating of margin, fixation of market prices or making up prices, regulation of taravani business 6jobbing8, etc., regulation of brokers trading, brokerage chargers, trading rules on the exchange, arbitrage and settlement of disputes, settlement and clearing of the trading etc.

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REGULATION OF STOC! E(CHANGES

The securities contracts 6regulation8 act is the basis for operations of the stock exchanges in !ndia. /o exchange can operate legally without the government permission or recognition. %tock exchanges are given monopoly in certain areas under section #9 of the above Act to ensure that the control and regulation are facilitated. 7ecognition can be granted to a stock exchange provided certain conditions are satisfied and the necessary information is supplied to the government. 7ecognition can also be withdrawn, if necessary. Chere there are no stock exchanges, the government licenses some of the brokers to perform the functions of a stock exchange in its absence.

SECURITIES AND E(CHANGE BOARD OF INDIA 7SEBI84

%&2! was set up as an autonomous regulatory authority by the government of !ndia in #9BB ;to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matter connected therewith or incidental thereto<. !t is empowered by two acts namely the %&2! Act, #99' and the securities contract 6regulation8 Act, #94: to perform the function of protecting investor?s rights and regulating the capital markets.

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BOMBAY STOCK EXCHANGE

This stock exchange, ,umbai, popularly known as ;2%&< was established in #B@4 as ;The /ative share and stock brokers association<, as a voluntary non1profit making association. !t has an evolved over the years into its present status as the premiere stock exchange in the country. !t may be noted that the stock exchanges the oldest one in Asia, even older than the Tokyo stock exchange, which was founded in #B@B. The exchange, while providing an efficient and transparent market for trading in securities, upholds the interests of the investors and ensures redressed of their grievances, whether against the companies or its own member brokers. !t also strives to educate and enlighten the investors by making available necessary informative inputs and conducting investor education programs. A governing board comprising of 9 elected directors, ' %&2! nominees, @ public representatives and an executive director is the apex body, which decides is the apex body, which decides the policies and regulates the affairs of the exchange. The &xchange director as the chief executive offices is responsible for the daily today administration of the exchange.

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+9

BSE INDICES:
!n order to enable the market participants, analysts etc., to track the various ups and downs in the !ndian stock market, the &xchange has introduced in #9B: an e"uity stock index called 2%&1%&/%&F that subse"uently became the barometer of the moments of the share prices in the !ndian stock market. !t is a ;,arket capitali ation weighted< index of +D component stocks representing a sample of large, well1established and leading companies. The base year of sensex #9@B1@9. The %ensex is widely reported in both domestic and international markets through print as well as electronic media. %ensex is calculated using a market capitali ation weighted method. As per this methodology the level of the index reflects the total market value of all +D1 component stocks from different industries related to particular base period. The total market value of a company is determined by multiplying the price of its stock by the nu@mber of shared outstanding. %tatisticians call index of a set of combined variables 6such as price and number of shares8 a composite !ndex. An indexed number is used to represent the results of this calcution in order to make the value easier to go work with and track over a time. !t is much easier to graph a chart based on !ndexed values than on based on actual valued world over majority of the well1known !ndices are constructed using ;,arket capitali ation weighted method<. !n practice, the daily calculation of %&/%&F is done by dividing the aggregate market value of the +D companies in the index by a number called the !ndex Divisor. The divisor is the only link to the original base period value of the %&/%&F. The Devisor keeps the !ndex comparable over a period value of time and if the references point for the entire !ndex maintenance adjustments. %&/%&F

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is widely used to describe the mood in the !ndian stock markets. 2ase year average is changed as per the formula new base year average O old base year averageP6new market value / old market value8.

NATIONAL STOC! E(CHANGE

The /%& was incorporated in /ov, #99' with an e"uity capital of 7s.'4 crs. The international securities consultancy 6!%58 of $ong Mong has helped in setting up /%&. !%5 has prepared the detailed business plans and initiali ation of hardware and software systems. The promotions for /%& were financial institutions, insurances, companies, banks and %&2! capital market ltd, !nfrastructure leasing and financial services ltd and stock holding corporations ltd. !t has been set up to strengthen the move towards professionalisation of the capital market as well as provide nation wide securities trading facilities to investors. /%& is not an exchange in the traditional sense where brokers own and manage the exchange. A two tier administrative set up involving a company board and a governing aboard of the exchange is envisaged. /%& is a national market for shares -%K bonds, debentures and government securities since infrastructure and trading facilities are provided.

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NSE6NIFT":
The /%& on Apr'', #99: launched a new e"uity !ndex. The /%&14D. The new !ndex which replaces the existing /%&1#DD !ndex is expected to serve as an appropriate !ndex for the new segment of future and option. ;/!(TL< mean /ational !ndex for fifty stocks. The /%&14D comprises fifty companies that represent 'D board industry groups with an aggregate market capitali ation of around 7s #, @D,DDD crs. All companies included in the !ndex have a market capitali ation in excess of 7s. 4DD crs each and should have trade for B4I of trading days at an impact cost of less than #.4I. The base period for the index is the close of price on /ov + #994, which makes one year of completion of operation of /%&?s capital market segment. The base value of the index has been set at #DDD.

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NSE6 IDCAP INDE(:

The /%& madcap index or the junior nifty comprises 4D stocks that represent '# board industry groups and will provide proper representation of the midcap segment of the !ndian capital market. All stocks in the !ndex should have market capitali ation of more than 7s.'DD crs and should have traded B4I of the trading days at an impact cost of less than '.4I. The base period for the index is /ov 0 #99:, which signifies ' years for completion of operations of the capital market segment of the operations. The base value of the !ndex has been set at #DDD. Average daily turn over of the present scenario '4B'#' 6Aaces8 and number of average daily trades '#:D6Aaces8. At present there are '0 stock exchanges recogni ed under the securities contract 6regulation Act, #94:8.

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Company profile
Unicon Investment Solutions
Unicon has been founded with the aim of providing world class investing
experience to hitherto underserved investor community. The technology today has made it possible to reach out to the last person in the financial market and give him the same level of service which was available to only the selected few. Ce give personali ed premium service with reasonable commissions on the /%&, 2%& ) Derivative market through our &"uity broking arm Knicon %ecurities -vt Atd. and 5ommodities on /5D&F and ,5F through our 5ommodity broking arm Knicon 5ommodities -vt. Atd. Cith our sophisticated technology you can trade through your computer and if you want human touch you can also deal through our 7elationship ,anagers out of our more than #DD branches spread across the nation. Ce also give personali ed services on !nsurance 6Aife ) General8 ) !nvestments 6,utual (unds ) !-*Qs8 needs, through our !nsurance ) !nvestment distribution arm Knicon !nsurance Advisors -vt. Atd. *ur tailor1made customi ed solutions are perfect match to different financial objectives. *ur distribution network is backed by in1house back office support to serve our customers promptly.

00

Mission :
To create long term value by empowering individual investors through superior financial services supported by culture based on highest level of teamwork, efficiency and integrity.

Vision :
To provide the most useful and ethical !nvestment %olutions 1 guided by values driven approach to growth, client service and employee development.

Unicon financial intermediaries group

#. (inance6%hares ) !-*8 Knicon (in cap pvt. Atd '.Distribution Knicon !nsurance Advisor pvt. Atd +. Trading in &"uities ) Derivatives Knicon %ecurities pvt. Atd 0. -roperties Knicon -roperties pvt. Atd 4.5ommodities Trading Knicon 5ommodities pvt. ltd

04

Analysis
LOT SIZE OF SELETTED COMPANIES FOR ANALYSIS
5*D& BHEL ONGC REL Ca&ita* TATA Stee* A*T %!R&% @4 ''4 44D +B' 5*,-A/L /A,& 2harath $eavy &lectrical Atd. *il) /atural Gas 5orporation 7eliance 5apital Atd TATA 5ompany Atd.

The following tables explain about the trades that took place in futures between #9/D'/DB to '4/D'/DB. The table has various columns, which explain various factors involved in Derivating trading. Date 3 the day on which trading took place 5losing -remium 3 -remium for that day *pen interest 3 /o. *ptions that did not get exercised Traded "uantity 3 /o of ()* traded on bourses on that day. /.*.5 3 /o of 5ontracts traded on that day

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 5losing -rice 3 The price of the (utures at the end of the trading day.

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FUTURES OF BHEL
Date *pen ddSmmSyy 7s. #91D'1DB ''4D.D D 'D1D'1DB ''D#.D D '#1D'1DB ''1D'1DB '41D'1DB '#4D.D D 'D0D.# D 'D0B.D D $igh 7s. '':D.D D ''D#.D D '#@D.D D 'D:'.4 D '#D0.D D Aow 7s. ''D4.D D 'D9'.+ 4 'D0#.' 4 'D'@.D D 'D+@.D 4 5lose 7s. ''#@.+ D '##@.9 4 'DB:.B D 'D0+.' D 'D9'.# D *pen /.*.5 !nt6EDDD8 #:#: 0+9' #:09 #::0 #4B0 #0+# 4:9# @D:@ +99B B@#D

Closing Price Movments of BHEL

2250 2200 2150 2100 2050 2000 1950 19/2/2008 20/2/2008 21/2/2008 Close Price 22/2/2008 25/2/2008 2117.95 2086.8 2043.2 2092.1 Price 2217.3 1700 1650 1600 1550 1500 1450 1400 1350 1300 19/2/2008 20/2/2008

Open Int(000)

21/2/2008 Date Open Int(000)

22/2/2008

25/2/2008

0B

No. of. contracts Traded per day

10000 8000 6000 4000 2000 0 19/2/2008 20/2/2008 21/2/2008 Da t e 22/2/2008 25/2/2008

N.O.C

FINDINGS
The price rise from ''4D.DD on first day to #9th (ebruary, where it stood at '':D.DD as high. As the players in the market with an intention to short or correct the market, the player?s showed a bearish attitude for the next day where the price fell to 'D9'.+4 and immediately rise to '##@.94. Aater being the last trading day of the week again the players became bears as to keep a negative for the next week, which surge the price to 'D0+.'D for the last day of the trading week. .

09

 !n the trading week most of the players closed up their contracts to make profit. As the price was low, the open interest was low and the no. of contracts traded declined to +99B.

There always exist an impact of price movements on open interest and contracts traded. The futures market is also influenced by cash market, /!(TL index future, and news related to the underlying assed or sector 6industry8, (!!?% involvement, national and international affairs etc.

4D

FUTURES OF OIL = NATURAL GAS CORPORATION

Date *pen ddSmmSyy 7s. #91D'1DB #D+D.' 4 'D1D'1DB 9B9.0D '#1D'1DB ''1D'1DB '41D'1DB #DD4.D D 9@'.+4 990.BD $igh 7s. #D09.: D #DD@.9 D #D#4.# D 99:.DD #D''.@ 4 Aow 7s. #DD'.9 D 9@0.#D 9@4.DD 9@'.+4 990.BD 5lose 7s. #DDB.0 4 9B9.0D 99:.'D 99D.#D #D#:.0 D *pen /.*.5 !nt6EDDD8 4:04 0'## :#:' 4+#D 0@D@ 0#:# B#@9 :444 4:9@ 9+'B

Closing Price Movements of ON C

1020 1015 1010 1005 1000 995 990 985 980 975 19/2/2008 20/2/2008 21/2/2008 Da t e 22/2/2008 25/2/2008 989.4 1008.45

Open Int(000)

1016.4

7000 6000 5000 4000

996.2 990.1

3000 2000 1000 0 19/2/2008 20/2/2008 21/2/2008 Da t e 22/2/2008 25/2/2008

Close Rs.

Open Int(000)

No.of.Contracts traded per day

1 0000 8000 6000 4000 2000 0 1 9/ 2/2008 20/ 2/2008 21/2/ 2008 Da t e 22/2/2008 25/ 2/2008

N.O.C

4#

4'

FINDINGS
After the market is "uite relieved by the fall in the discount on the /!(T in the futures segment, which was used by players to short the market. The market showed a positive upward movement in ()* segment and cash market during the first day of the week. The future of */G5 had shown a bears way till '4th day of the week whose impact shown on the open interest and contracts traded. The market for */G5 on the day of the trading week showed a decline in the closing price when compare with the weeks high price. The open interest closed at 0#:# with lowest 9+'B contracts on the last trading day of the week.

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FUTURES OF REL CAPITAL

Date ddSmmSyy #91D'1DB 'D1D'1DB '#1D'1DB ''1D'1DB '41D'1DB *pen 7s. '#D9.D D '#+9.D D 'D+:.B 4 #94D.D D #9'4.+ D $igh 7s. '#90.B 4 '#:9.9 D 'D@B.D D #9::.D D #944.D D Aow 7s. 'D+B.4 D #9B:.B D #90D.D D #BB'.' D #B:'.' 4 5lose 7s. '#:4.' 4 'DD:.+ D 'DD4.4 D #9D:.+ 4 #90D.D D *pen /.*.5 !nt6EDDD8 ':+4 #0+#0 '@9D '@4: '@40 ':B4 #4@'B #44#+ #D::# 9#9@

Closing Price Movem ents of !EL C"P

2200 2100 2000 1 900 1 800 1 700 19/2/2008 20/2/2008 21/2/2008 Da t e 22/2/2008 25/2/2008 2006.3 2005.5 1 906.35 1940

2165.25

Close Rs.

OpenInt(000)

2850 2800 2750 2700 2650 2600 2550 19/ 2/ 2008 20/ 2/ 2008 21/ 2/ 2008 Da te 22/ 2/ 2008 25/ 2/ 2008

OpenInt(000)

40

No .o f .C o nt rac t s t rad ed p er d ay
18000 16000 14000 12000 10000 8000 6000 4000 2000 0 19/ 2/ 2008 20/ 2/ 2008 21/ 2/ 2008 Da t e 22/ 2/ 2008 25/ 2/ 2008

N.O.C

44

FINDINGS
The trading week showed a high and low strike prices or exercising prices for the 7&A 5apital futures. The open interests shown bears market because of the huge correction done by the (!! 6(oreign !nstitutional investors8 in flows. The number of contracts traded high at #4@'B and low at 9#9@

4:

FUTURES OF TATA STEEL

Date ddSmmSyy #91D'1DB 'D1D'1DB '#1D'1DB ''1D'1DB '41D'1DB *pen 7s. B+D.#4 BD9.9D @B'.DD @9+.#D BD:.+D $igh 7s. B+9.4D B#9.:D B#0.DD B#9.4D B#+.9D Aow 7s. B#'.DD @:4.#4 @BD.DD @9+.#D @@B.#4 5lose *pen /.*.5 7s. !nt6EDDD8 B#4.#4 B@#: #D90B @@'.+D B#@: #+:44 BDB.:4 B#@' #+99@ BD@.DD @4'B #:#9@ B#D.+4 @00# #0:0:

Closing Price Movements of T"T" #T

820 800 780 760 740 19/2/2008 20/2/2008 21/2/2008 Da t e 22/2/2008 25/2/2008

Open $nt%&'''( of T"T"

9000 8000 7000 6000 19/2/2008 20/2/2008 21/2/2008 Da t e 22/2/2008 25/2/2008

Close Rs.

Open Int(000)

No.of.Contracts traded per day 20000 Price 15000 10000 5000 0 19/2/2008 20/2/2008 21/2/2008 Date .O.C 22/2/2008 25/2/2008

4@

4B

FINDINGS
The price gradually rises from @B'.DD on the day to '#st, where it stood at BDB.:4 as high. As the players in the market with an intention to short or correct the market, the players showed a bullish attitude for the next day the price rise to B#D.+4. The market was recovered faster from the bear market to bulls market for the next week. The total price is rise to B+9.DD in the week. The open interest of the tata steel was stood decline where the total week of interest is ups and down where from B@#: to @00#

49

CONCLUSIONS AND RECOMMENDATIONS

The

above analysis of (utures of B4H4E4L> O4N4G4C> REL

CAPITAL> TATA STEEL had shown a (lat market in the week.

The major factors that influence the ()* market are the cash market, (ull involvement, /ews related to the underlying asset, /ational and !nternational markets, 7esearchers view etc. !n bearish market it is suggested to an investor option for put option in order to minimi e losses. !n a bullish market it is suggested to investors to option for call option in order to maximi e profit. !n cash market the profit/loss is limited but where in () * an investor can enjoy unlimited profits/loss. !t is recommended that %&2! should take measures in improving awareness about the ()* market as it is launched very recently. !t is suggested to an investor to keep in mind the time or expiry duration of ()* contract before trading. The lengthy the time, the risk is low and profit making. The fewer time may be high risk and chances of loss making.

:D

 At present scenario the Derivatives market is increased to a great position. !ts daily turnover teaches to the e"ual stage of cash market. The derivatives are mainly used for hedging purpose. !n cash market the investor has to pay the total money, but in derivatives the investor has to pay premiums or margins, which are some percentage of total money. !n derivative segment the profit/loss of the option holder/option writer is purely depended on the fluctuations of the underlying asset.

:#

:'

LIMITATIONS OF THE STUDY

The study is confined to only one week trading of feb month contract
The sample si e chosen is limited to futures of

B4H4E4L> O4N4G4C>

REL CAPITAL> and TATA STEEL Knderlying %crip?s.

The study does not take any /ifty !ndex (utures and *ptions and !nternational ,arkets into the consideration. This is a study conducted within a period of 04 days. During this limited period of study, the study may not be a detailed, (ull 3 fledged and utilitarian one in all aspects. The study contains some assumptions based on the demands of the analysis. The study does not provide any predictions or forecast of the selected scripts. The study is done as per the syllabus prescribed by the Kniversity for the Award of the ,2A. The opening premium and closing spot price of the seek are taken for calculating option holder / writer profit / loss position.

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BIBLOGRAPHY
Boo-$:6
Derivatives Dealers ,odule Cork 2ook 1 /5(, (inancial (ebket and %ervices 1 G*7DA/ ) /AT7A.A/ (inancial ,anagement 1 -7A%A//A 5$A/D7A

Ne%$ Pa&er$:6
T$& (!/A/5!AA &F-7&%% 2K%!/&%%C*7AD &5*/*,!5 T!,&%

#EB SITES:6
))).*niconindia.in ))).+seindia.org ))).nseindia.com ))).,seindia.Com ))).derivatives.com

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