Professional Documents
Culture Documents
The setting up of NSE and OTCEI with the screen based trading facility resulted
in more and more stock exchanges turning towards the computer based trading. Bombay
stock exchange introduced the screen based trading system in 1995, which is known as
BOLT (Bombay On-line Trading System).
HISTORY OF DERIVATIVES
Early forward contracts in US addressed merchants concerns about ensuring that there
were buyers and sellers for commodity. However, "credit risk" remained a serious
problem. To deal with this problem, a group of Chicago businessmen formed the Chicago
board of trade (CBOT) in 1848. The primary intention of the CBOT was to provide a
centralized location in known in advance for buyers and seller to negotiate forward
contracts. In 1865, the CBOT went one step further and listed the first "exchange traded"
derivatives contracts in the US; these contracts were called "future contracts". In 1919,
Chicago butter and egg board, a spin-off of CBOT, was reorganized to allow future
trading. Its name was changed to Chicago mercantile exchange (CME). The CBOT and
the CME remain the two largest organized future exchanges, indeed two largest
"financial" exchange of any kind in world of today. The first stock index futures contracts
were traded at Kansas City board of trade. Currently the most popular stock index future
contract in the world is based on S&P 500 index, traded on CME. During mid eighties,
financial future became the most active derivative instruments generating much time
more the commodity future. Index futures, future on T-bills and Euro-Dollar future are
the three most popular future contracts traded today. Either popular international
exchange that trade derivatives is, OTB in - Germany, SGX in Singapore, TIFFE in Japan,
MATIF in France, EUREX etc.
1995
1996
November 1996
March 1998
June 1998
4 July 1998
10 July 1998
October 1998
March 1999
July 1999
RBI gave permission for OTC forward rate agreements and interest
rate swaps.
December 1999
May 2000
SEBI to gave final approval for derivatives trading to NSE and BSE.
9June 2000
12 June 2000
4 June 2001
July 2001
The emergence of the market for derivative products, most notably forwards,
futures and options, can be traced back to the willingness of risk-averse economic agents
to guard themselves against uncertainties arising out of fluctuations in asset prices. By
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 lockingin asset prices. As instruments of risk management, these generally do
not influence the fluctuations in the underlying asset prices. However, by locking-in asset
prices, derivative products minimize the impact of fluctuations in asset prices on the
profitability and cash flow situation of risk-averse investors.
2.
A contract which derives its value from the prices, or index of prices, of
underlying securities.
Derivatives are securities under the SC(R) A and hence the trading of derivatives
is governed By the regulatory framework under the SC(R) A.
Calls and Puts: Calls give the buyer the right but not the obligation to buy a given
quantity of the underlying asset, at a given price on or before a given future date.
Puts give the buyer the right, but not the obligation to sell a given quantity of the
underlying asset at a given price on or before a given date.
1.3.7 CLEARING
The first step in clearing process is working out open positions or obligations of
members. ACMs open position is arrived at by aggregating the open position of all the
TMs and all custodial participants clearing through him, in the contracts in which they
have traded. A TMs open position is arrived at as the summation of his proprietary open
position and clients open positions, in the contracts in which they have traded. While
entering orders on the trading system, TMs are required to identify the orders, whether
proprietary (if they are their own trades) or client (if entered on behalf of clients).
Proprietary positions are calculated on net basis (buy-sell) for each contract. Clients
positions are arrived at by summing together net (buy-sell) positions of each individual
client for each contract. A TMs open position is the sum of proprietary open position,
client open long position and client open short position.
1.3.8 SETTLEMENT
All futures and options contracts are cash settled, i.e. through exchange of cash.
The underlying for index futures/options of the Nifty index cannot be delivered. These
contracts, therefore, have to be settled in cash. Futures and options on individual
securities can be delivered as in the spot market. However, it has been currently mandated
that stock options and futures would also be cash settled. The settlement amount for a
CM is netted across all their TMs/clients in respect of MTM, premium and final exercise
settlement. For the purpose of settlement, all CMs are required to open a separate bank
account with NSCCL designated clearing banks for F&O segment.
Futures price: The price at which the futures contract trades in the futures market.
Contract cycle: The period over which a contract trades. The index futures contracts on
the NSE have one-month, two-months and three-months expiry cycles, which expire on
the last Thursday of the month. Thus a January expiration contract expires on the last
Thursday of January and a February expiration contract ceases trading on the last
Thursday of February. On the Friday following the last Thursday, a new contract having a
three-month expiry is introduced for trading.
Expiry date: It 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 size: The amount of asset that has to be delivered less than one contract. For
instance, the contract size on NSEs futures market is 200 Nifties.
Basis: In 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. In
a normal market, basis will be positive. This reflects that futures prices normally exceed
spot prices.
Cost of carry: The relationship between futures prices and spot prices can be
summarized 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.
Initial margin: The amount that must be deposited in the margin account at the time a
futures contract is first entered into is known as initial margin.
Marking-to-market: In the futures market, at the end of each trading day, the margin
account is adjusted to reflect the investors gain or loss depending upon the futures
closing price. This is called Markingtomarket.
Maintenance margin: This is somewhat lower than the initial margin. This is set to
ensure that the balance in the margin account never becomes negative. If the balance in
the margin account falls below the maintenance margin, the investor receives a margin
call and is expected to top up the margin account to the initial margin level before trading
commences on the next day.
American options: American options are options that can be exercised at any time up to
the expiration Date. Most exchange-traded options are American.
European options: European options are options that can be exercised only on the
expiration date itself. European options are easier to analyze than American options, and
properties of an American option are frequently deduced from those of its European
counterpart.
1.
2.
3.
Chapter II
REVIEW OF LITERATURE
This chapter deals with the studies and researches carried by different authors and
analyst. Though there are very few studies conducted on Derivatives attempt has been
made to compile all the related studies.
Curly & Bear (1988) have discussed in detail the mechanics of option trading. The
variables affecting the option contract are striking price, duration of contract and the
premium. The amount of premium depends upon expectations of writers and buyers with
regards to price behavior of the stock. Call & put option may be interchanged by process
called conversion. Conversion provides an arbitrage mechanism that insures parity
between put and call premium for the same stock.
Smith (1990) has highlighted the various terms used in the future contract and Option
contract. In practice stock options are seldom exercised. Instead, on the expiration date,
the option holders sell their options back to the option writers, thereby extinguishing the
contract at a price reflecting the value of the contract if it were exercised. The number of
outstanding options fluctuates daily; as same investors write new options and others close
their posit ion. The total amount of contracts outstanding is called the 'open interest'.
Chandra (1992) has highlighted that carry forward transactions that is found only in
India fuels a great deal of speculative activity. With the help of BadIa finance,transactions
can be carried forward indefinitely and this facility seems to create a feeling among
operators that if the price movement is not in their favour during a particular period they
can carry forward the transaction to the next period, so on and so forth, in the hope that
future price movement will be to their advantage. He has suggested considering hope that
future price movement will be to their advantage. He has suggested considering the
introduction of Future and Option trading with a well-defined commitment that cannot be
shifted temporarily in the hope of favorable market movement.
Gupta (1994) believes that the existence or Future and Option actually increase the
nation's welfare. This will enable the investor to find a set or financial claims, which are
consistent with his or her preferences, thus inducing the investor to make additional
investments. He has emphasized that it is high time that option trading is launched in
Indian stock exchanges. Future and Option trading result in a regulated form of
Speculation, which is both socially and economically desirable.
Anjaria (1996) has highlighted the major reason behind SEBIS dislike for the Badla
system is its view that the Badla facility causes large and undue variations in share prices.
The author has pointed that while curbing excessive speculation is an understandable
regulatory objective, the objective is sought to be attained by creating orderly and healthy
markets that both facilitates and yet monitor speculation, so that rule breakers can be
punished. Future and option trading -will neither does not eliminate speculation nor can
they replace the functions of the Badla system.
Barva (1996) has pointed that the SEBl's resolve to abolish Badla so as to eliminate
speculation in the market is based on unsound logic. To reduce speculation and default in
payment SEBI must ensure that operators in the market deposit adequate margins.
However, SEBI should first popularize option and future trading that will lead to natural
death of Badla transaction.
Dhokla (1997) has illustrated how the present trading system tends to favour either the
Bulls or the Bears depending on the technical positions in the market and how investors
are taken for ride. This has prompted the SEBI to suggest that there should be switch over
to an option and future market. The author has described that there is a small options
market in India that has been in existence for more than two decades. This Unofficial
market is called jota Phatak.
Rangarajan (1997) has explained the merits and demerits of the BadIa system and has
pointed out the role of speculators in Indian stock exchanges. According to the author
Badla system and the derivatives instruments such as future and option are not
comparable. Badla transaction can be bent a little but here and there to make it resemble
the option mechanism. The major advantage of the option market is that it segregates
genuine investor and speculator, with the cash market open only to the former and the
option market only to the latter.
Sharma (1998) has described in detail the mechanism of option trading and has
emphasized that SEBl, brokers and others regulatory bodies are not sure whether the
introduction of option trading in the Indian market will be a stabilizing or destablishing
experience.
Sriram (1998) has explained the difference between the European call and American
call. I f the holder of the call can exercise the option only on the expiration date.it is
referred to as on European call. I f the holder of the call is permitted to exercise the call
on any date prior to the expiration date. it is called an American call. If option trading is
to be introduced in the Indian stock market we must understand the pricing mechanism of
the options.
Avadhani (1999) has focused that speculation on the stock market is an accepted fact of
life the world over. It reflects the mood of the market and the stock market being the
window of the economy, the investors should look to this mood rather than the facts of an
economy. If Badla is to be phased out, bank money should be made available to brokers
on commercial terms and trading on margins should be allowed. The objective of SEBI is
replacing Badla by Future and Options can be achieved by planned process of Reforms,
which will also quicken deliveries and improve liquidity.
Chugh (2000) has described that the Indian stock market is characterized by high price
volatility and is driven more oy sentiment and less by financial performance indicators
and has resulted in increasing risk exposure of market participants. At present the market
offers no risk hedge instrument that allows the investor to manage and minimize their
risks. The solution to the above problem is to permit futures and option trading on Indian
stock exchanges. Many investors would be willing to pay for hedging the risk of price
change, which gets shifted to the writer of the option. The success of an Organized future
and option exchange would, however, require a careful selection of underlying securities,
appointment of a number of market makers for each underlying security and
standardization of the terms of option contracts.
Gupta (2000) has emphasized that a widely held belief in India is that forward trading is
indispensable for maintaining market liquidity. There is a misconception that the
introduction of future and option will solve the problem of liquidity arising from the
restriction of carry forward. These derivatives have nothing to contribute to cash market
resupposes the implementation of certain market reforms such as capital adequacy norms
and stricter adherence to settlement systems that the broker may not easily accept and it is
SCOPE OF STUDY
The study is limited to Ludhiana only. Major consideration for choosing Ludhiana is
that I belong to Ludhiana.
RESEARCH DESIGN
Research Design is a pattern or an outline of a research project workings. It is a
statement of only essential elements of study those provides basic guidelines for details
of project. The present research is a descriptive research because it describes behavior of
individual as group.
DATA COLLECTION
Both primary and secondary data will be collected. Secondary data information
was collected from various journals, Books, Internet sites and Reports. For collecting
primary data, Structured Questionnaire was designed.
SAMPLE DESIGN
Universe
All the brokers listed on LSE who are trading in Futures and Options in Ludhiana.
Population
It consisted of brokers of LSE in Ludhiana
Sampling Unit
Any Broker who was dealing in LSE who are trading in Futures
and Options in Ludhiana.
Sample Size
It consisted of 50 brokers as respondents.
Sampling Technique
The selection of respondents was done on the basis of convenience sampling
(Non- Probability).
CHAPTER IV
TRADING MECHANISM
Under this head we will take a brief look at the trading system for NSEs futures
and options market.
TRADING MEMBERS:
Trading members are members of NSE. They can trade either on their own
account or on behalf of their clients including participants. The exchange assigns a
Trading member ID to each trading member. Each trading member can have more than
one user. The number of users allowed for each trading member is notified by the
exchange from time to time. Each user of a trading member must be registered with the
exchange and is assigned an unique user ID. The unique trading member ID functions as
a reference for all orders/trades of different users. This ID is common for all users of a
particular trading member. It is the responsibility of the trading member to maintain
adequate control over persons having access to the firms User IDs.
CLEARING MEMBERS:
Clearing members are members of NSCCL. They carry out risk management
activities and confirmation/inquiry of trades through the trading system.
PARTICIPANTS:
BASIS OF TRADING
The NEAT F&O system supports an order driven market, wherein orders match
automatically. Order matching is essentially on the basis of security, its price, time and
quantity. All quantity fields are in units and price in rupees. The lot size on the futures
market is for 200 Nifties. The exchange notifies the regular lot size and tick size for each
of the contracts traded on this segment from time to time. When any order enters the
trading system, it is an active order. It tries to find a match on the other side of the book.
If it finds a match, a trade is generated. If it does not find a match, the order becomes
passive and goes and sits in the respective outstanding order book in the system.
CORPORATE HIERARCHY
In the F&O trading software, a trading member has the facility of defining a
hierarchy amongst users of the system. This hierarchy comprises corporate manager,
branch manager and dealer.
1. CORPORATE MANAGER:
The term Corporate manager is assigned to a user placed at the highest level in a
trading firm. Such a user can perform all the functions such as order and trade h related
activities, receiving reports for all branches of the trading member firm and also all
dealers of the firm. Additionally, a corporate manager can define exposure limits for the
branches of the firm.
2. BRANCH MANAGER:
The branch manager is a term assigned to a user who is placed under the
corporate manager. Such a user can perform and view order and trade related activities
for all dealers under that branch.
3. DEALER:
Dealers are users at the lower most level of the hierarchy. A Dealer can perform
view order and trade related activities only for oneself and does not have access to
information on other dealers under either the same branch or other branches. Below given
cases explain activities possible for specific user categories:
1.
2.
(a)
Outstanding orders, previous trades and net position of his client trading members
by putting The TM ID and leaving the Branch ID and the Dealer ID blank.
(b)
Outstanding orders, previous trades and net positions entered for himself by
entering his own TM ID, Branch ID and User ID. This is his default screen.
(c)
Outstanding orders, previous trades and net position entered for his branch by
entering his TM ID and Branch ID fields.
(d)
Outstanding orders, previous trades, and net positions entered for any of his
users/dealers by Entering his TM ID, Branch ID and user ID fields.
3.
Clearing member and trading member dealer: He can only view requests
entered by him.
4.
(a)
Outstanding requests and activity log for requests entered by him by entering his
own Branch and User IDs. This is his default screen.
(b)
5.
(a)
Outstanding requests and activity log for requests entered by him by entering his
own Branch and User IDs. This is his default screen.
(b)
Outstanding requests entered by his users either by filling the User ID field with a
specific user or leaving the User ID field blank.
6.
Time conditions
Price conditions
Other conditions
Several combinations of the above are allowed thereby providing enormous
flexibility to the users. The order types and conditions are summarized below.
TIME CONDITIONS
* Day order: A day order, as the name suggests is an order that is valid for the day on
which it is entered. If the order is not executed during the day, the system cancels the
order automatically at the end of the day.
* Good till canceled (GTC): A GTC order remains in the system until the user cancels it.
Consequently, it spans trading days, if not traded on the day the order is entered. The
maximum number of days an order can remain in the system is notified by the exchange
from time to time after which the order is automatically cancelled by the system. Each
day counted is a calendar day inclusive of holidays.
* Good till days/date (GTD): A GTD order allows the user to specify the number of
days/date till which the order should stay in the system if not executed. The maximum
days allowed by the system are the same as in GTC order. At the end of this day/date, the
order is cancelled from the system.
* Immediate or Cancel (IOC): An IOC order allows the user to buy or sell a contract as
soon as the order is released into the system, failing which the order is cancelled from the
system. Partial match is possible for the order, and the unmatched portion of the order is
cancelled immediately.
PRICE CONDITION
Stop loss: This facility allows the user to release an order into the system, after the
market price of the security reaches or crosses a threshold price e.g. if for stoploss buy
order, the trigger is 1027.00, the limit price is 1030.00 and the market (last traded) price
is 1023.00, then this order is released into the system once the market price reaches or
exceeds 1027.00. This order is added to the regular lot book with time of triggering as the
time stamp, as a limit order of 1030.00.
OTHER CONDITIONS
Market price: Market orders are orders for which no price is specified at the time the
order is entered (i.e. price is market price). For such orders, the system determines the
price.
Trigger price: Price at which an order gets triggered from the stoploss book.
Limit price: Price of the orders after triggering from stoploss book.
Pro: Pro means that the orders are entered on the trading members own account.
Cli: Cli means that the trading member enters the orders on behalf of a client. Carrying
cost in percentage terms.
BASKET TRADING
In order to provide a facility for easy arbitrage between futures and cash markets,
NSE introduced basket-trading facility. Figure 10.4 shows the basket-trading screen. This
enables the generation of portfolio offline order files in the derivatives trading system and
its execution in the cash segment. A trading member can buy or sell a portfolio through a
single order, once he determines its size.
2.
3.
4.
CHARGES
The maximum brokerage chargeable by a TM in relation to trades effected in the
contracts admitted to dealing on the F&O segment of NSE is fixed at 2.5% of the contract
value incase of index futures and 2.5% of notional value of the contract [(Strike price +
Premium)* Quantity] in case of index options, exclusive of statutory levies.
The transaction charges payable by a TM for the trades executed by him on the F&O
segment are fixed at Rs.2 per lakh of turnover (0.002%)(each side) or Rs.1lakh annually,
whichever is higher. The TMs contribute to Investor Protection Fund of F&O segment at
the rate of Rs.10 per crore of turnover (0.0001%)(each side).
CHAPTER V
Number of Brokers
50
50
50
50
%Age
(100)
(100)
(100)
(100)
No. of Brokers
Segments of Dealings
60
50
50
50
40
Number of Brokers
20
0
Spot
Futures
Options
Segments
From the above Table and Graph, it showed that all the Brokers deal in Spot,
Futures as well as Options. In LSE, all the Brokers not only deal in Spot Market but also
in Futures and Options also. The reason for Trading in both segment is high profits in
F&O but also large number of investors invests still in spot market.
Table No.5.4
Role of Brokers in F&O Trading
Number of Brokers
% Age
3
43
4
50
(6)
(86)
(8)
(100)
Number of Brokers
Graph No.5.4
Role of Broker
50
40
30
20
10
0
43
4
3
Broker to
investors only
Personal
Investment by
Brokers
Number of Brokers
Both
Role of Brokers
From the above Table and Graph, it is clear that 43 Brokers (i.e.86%) invest in
securities on personal basis simply because of Less No. Of investors in F&O Trading and
it involves huge investments while only 3 Brokers (6%) invests on behalf of investors and
4 Brokers (8%) invests on personal basis as well as a Broker to investor.
5.5
SEGMENT IN
WHICH
MOSTLY
Number of Brokers
30
12
8
50
% Age
(60)
(24)
(16)
(100)
Number of Brokers
30
20
12
10
Number of Brokers
8
0
Futures
Options
Both
Segments
From the above Table and Graph, it is clear that 30 Brokers (60%) Trade in
Futures because in Futures most of the reputed companies are involved and its has major
share of investors dealing in Futures, 12 Brokers (24%) trade in options because of its ill
liquid nature of Calls Put and only 8 Brokers (16%) trade in both Futures and Options.
Market Players
Arbitrageurs
Hedgers
Speculators
Traders
Total
Numbers of Brokers
7
35
6
2
50
% Age
(14)
(70)
(12)
(4)
(100)
Graph No.5.7
Number of Brokers
Market Players
35
40
30
Numbers of Brokers
20
10
0
Arbitrageurs
Hedgers
Speculators
Traders
Market Players
From the above Table and Graph, it shows that F&O Trading is beneficial to
Market Player like Hedgers where 35 Brokers (70%) had recommended its beneficial
because F&O is suitable for them to reduce risk as they face risk associated with price of
an asset, 7 Brokers (14%) said its Beneficial for Arbitrageurs because they can take
advantage of a discrepancy between prices of two different markets, 6 Brokers (12%)
said its beneficial for Speculators because Futures will help these market players to bet on
future price and 2 Brokers (4%) said its Beneficial for Traders.
Table 5.8
Benefits
Number of Brokers
% Age
43
(86)
Reduction in Volatility
(6)
1
3
2
50
(10)
(8)
(4)
(100)
Graph No.5.8
50
40
30
20
10
0
Increase
in Payoffs
Hedge
against
risk
Risk less
Markets
Reduction
in
Volatility
Number of Brokers
Increase
in Volume
of Trading
No. of Brokers
Benefits
From the Above Table and Graph, the major benefit driven from F&O Trading is
the Volume of Trading has increased considerably which is indicated by nearly F&O
Trading dominates 60% to 70% capital market as recommended by 43 Brokers. F&O
Trading has benefited the Stock market by hedging against risk, which will benefit the
Buyers and Sellers as recommended by 3 Brokers. Only 2 Brokers said F&O would
benefit in increasing Payoffs and 1Broker each for Reduction in volatility and Risk Less
Market.
Brokers
45
5
0
0
50
% Age
(90)
(10)
(100)
Graph No.5.9
No. of Brokers
50
40
30
20
10
0
5
Between 75 to
100%
Between 50 to
75%
Brokers
0
Between 25 to
50%
Percentage Level
From the Table and Graph it shows that in Capital Market F&O Trading
percentage Level is expected to increase. 45 Brokers (90%) recommended that in near
future around about 75 to 100% Trading would be in F&O Segment, while 5 Brokers
(10%) recommended Trading would be between 50 to 75%.
Table No.5.10
Impact
Connectivity with International Capital Market
Safer Capital Market
Restore Investors Confidence
Increase in Investment by FIIS
More Avenues For Indian Investors
Total
Number of Brokers
3
10
1
32
4
50
% Age
6
20
2
64
(8)
(100)
Graph No.5.10
32
4
More
Avenues
For Indian
Investors
10
Restore
Investors
Confidence
35
30
25
20
15
10
5
0
Connectivity
with
International
Capital
No. of Brokers
Number of Brokers
Impact
From the above Table and Graph it shows that F&O Trading will result in more
investment by FIIS, which is highlighted by 32 Brokers (64%) who said that FIIS will be
making more investment in F&O Segment, 10 Brokers said that it will give more Safer
Capital Market, 4 Brokers said that F&O Trading will result in more avenues for Indian
Investors, 3 Brokers said that F&O Trading will result in more connectivity with
international capital market and1 Broker said that F&O Trading will result in restoring
investors confidence.
Table No.5.11
Views
Agree
Disagree
Total
Brokers
50
0
50
% Age
(100)
(100)
Graph No.5.11
Views On FIIS
Brokers
60
50
40
Brokers
20
0
0
Agree
Disagree
Views
From above Table and Graph, 50 Brokers (100%) agreed that FIIS would have
edge over Indian Investors because of the reason of position limit specified for FIIS,
which benefits them.
All the Brokers were asked whether they will recommend investors to trade in
F&O Segment in near future and all 50 Brokers said Yes they will recommend investors
to trade in F&O because main reason is it involves low investments with high returns,
also its traded in recognized stock exchange and is more secure and less risky not like
Badla System.
Short Comings
Yes
No
Total
Brokers
45
5
50
% Age
(90)
(10)
(100)
Graph No.5.13
Number of Brokers
Brokers
Yes
No
Shortcoming
From the above Table and Graph, it shows that 45 Brokers (90%) had find certain
short comings in F&O Trading while 5 Brokers (10%) didnt find any short comings in
F&O Trading.
Factors Responsible For Short Comings (Table No.5.13a)
Short comings
Large lot size
Calls Puts ill liquid nature
Trading Cycle too short
Tenure period too short
Margins should decrease
Expiry date should not be
fixed
Total
Brokers
40
8
0
0
0
2
% Age
(80)
(16)
50
(100)
(4)
Margins
should
decrease
Trading
Cycle too
short
50
40
30
20
10
0
Large lot
size
Number of Brokers
Factors
From the above Table and Graph, it shows that 40 Brokers had find Large Lot
Brokers
Size major Shortcoming in F&O Trading, while 8 Brokers find Call Puts having ill liquid
nature and only 2 Brokers find Expiry date should not be fixed.
Table No.5.14
Measures (Operational level)
Lot size should reduce
More Scrip of reputed companies
Separate Exchange for F&O
Tenure period to increase
Total
(Communication Level)
Seminars
Discussions
Guest Lectures
Pamphlets
News
Events
Total
Brokers
40
5
5
% Age
(80)
(10)
(10)
50
Brokers
5
35
10
(100)
50
Graph No.5.14
(100)
(10)
(70)
(20)
No. of Brokers
Suggestions
50
40
30
20
10
0
40
Brokers
5
Lot size should
reduce
More Scrip of
Separate Exchange
reputed companies
for F&O
Tenure period to
increase
Operational Level
40
30
20
10
0
Events
News
Pamphlet
s
Guest
Lectures
Discussio
ns
Brokers
Seminars
No. of Brokers
Suggestions
Communication Level
From the Above Table and Graph, it shows some measures recommended by
Brokers at operational level were pertaining to 40 Brokers were in favour of Lot size
should decrease, 5 Brokers were in favour of more scrip of reputed companies and 5
Brokers were in favour of separate exchange for F&O.Measures suggested at
communication level were 35 Brokers suggested More Discussions should take place,
CHAPTER VI
For the study, the population was the Brokers of LSE in Ludhiana City. A sample
of 50 Brokers was chosen of which all were trading in F&O Segment and convenience
sampling technique was used for selecting the respondents.
Both Primary and Secondary data were collected. Secondary data was collected in
form of information from various books, journals, reports etc. Primary data was collected
with the help of structured questionnaire after collection of data, stastical techniques
techniques like mean score, and percentage was used to analyze the data.
6.1 FINDINGS
All the Brokers were dealing in F&O Segment in which 86% Brokers invest in securities on
personal basis whereas only 6% Brokers trade on behalf of investors and only 8% deal in
both roles.
In F&O Trading, 80%Brokers trade in Futures while 10% in Options and 10% in both Futures
and Options. Brokers trade in Futures mainly it involves reputed firms and it is less
complicated then Options.
F&O Trading act as a risk hedging tool, so 80% Brokers had think that F&O Trading will benefit
market players like Hedgers.
75% Brokers said that F&O Trading has benefited the stock market by increase in volume of
trading in capital market. At present nearly F&O Trading dominates 70% of level of
capital market and it is expected to have nearly 90% shares in capital market.
32 Brokers said that FIIS will have large investments in F&O Segment.F&O Trading will also
bring safer capital market and provide more avenues for Indian investors.
According to the results of this study F&O Trading will have rapid increase in future as per the
Brokers but it will have slow growth rate in Ludhiana city since investors have very less
knowledge.
Brokers have recommended that investors will be encouraged to trade in F&O Trading.
6.2 SUGGESTIONS
F&O Trading will now dominate the stock market, so Broker should encourage investors
to trade in securities by adopting F&O Trading.
In order to increase volume of F&O Trading, Lot size should be reduced so major
segment of Indian society i.e. small saving class comes under F&O trading.
More reputed companies should be listed and separate exchange of F&O should be
established.
Seminars, Guest Lectures, Discussions should be held to promote awareness among the
local investors.
Investors should trade in F&O Segment as they will get more investment avenues and it
is risk less market as compared to Badla System.
Separate exchange should be opened for various F&O Segment like Commodity
Exchanges should be opened.
REFERENCES
Agarwal, A.K.2004.Credit Derivatives: A Concept Note, The Chartered Accountant.
11(3): 982-984
Anjaria, D.C. 1996. BadIa versus future and options. The Economic Times, New Delhi,
Sep 6, p. 14
Avadhani, V.A. 1999. Misadventure with stock exchange reforms - The investors guide.
The Economic Times, New Delhi, Jun 27, p . 13
Barva, S. 1996. Badla,Speculation and SEBI. The Economic Times, New Delhi, Oct 1.
p.5
Chandra, P. 1992. The Indian Capital Market: Pathways of Development. Charted
Financial Analyst, 5(4): 6
Chugh, A.K. 2000. Future and Options. The Tribune, April 25. p.16
Curley, A.J. and Bear, M.R. 1988. Investment Analysis and Management. New York,
Harper & Row publishers, p. 370 - 382
Rangarajan, S.1997. Whether BadIa system, I. The ET, New Delhi, November 15, p. 14
Sharma, R.1998. More option in the future. The ET, New Delhi, November 26, p. 5
.
Sriram, K.l998. Option based financial instrument, Charted Financial Analyst. 8(3): 19
-25
Verma, J.R. 2002. Future and options- A Hasty Move. The ET, New Delhi, p. 6
www.derivativesindia.com
www.economictimeslinvestorguide.com
www.financialexpresslarticles.com
www. nse/derivativeslfuture.com
Project Report
On
Submitted
in partial fulfilment of the requirements
for the award of the
Master degree in Commerce
For the
Session 2009-10
Submitted By:
Anuradha
Class : M.Com.I
Enrol No.: 24963
CERTIFICATE
Certified that the Project Report entitled A STUDY OF WORKING OF
STOCK EXCHANGE IN LUDHIANA CITY submitted by Gaytri Jain
is her own work and has been done under my supervision.
It is recommended that this Project Report be placed before the examiner for
evaluation.
Name
: Shelja Anand
ACKNOWLEDGEMENT
This would be a small to acknowledge people who have
helped me in the completion of the project.
One person without whom nothing would actually have
been possible is my project guide Shelja Anand. She has given me
hope and encouragement when I had last before starting my project.
She has actually driven me to the right track. Without her help I would
have done anything. From the bottom of my heart I thank her to let me
my project come true.
Gaytri Jain
Enrol. No.16809
Gaytri Jain
Enrolment Number
16809
Title of Project
Designation
Lecturer
Qualification of Supervisor
B.Com, M.Com
Experience
12 years
Signature of Student
Signature of Supervisor
Date: ____________
Date _______________
Supervisor
Remarks if any
____________________
TABLE OF CONTENT
Chapter 1.
Introduction
SYNOPSIS
FOR
LUDHIANA CITY
INTRODUCTION
The origin of the stock exchanges in India can be traced back to the later half of
19th century, after the American Civil war (1860-61) due to the share mania of the public,
the number of brokers dealing in shares increased. The brokers organized an informal
association in Mumbai named the Native stock and share brokers associations in 1875.
Till recent past, floor trading took place in all stock exchanges. In the floor
trading system, the trade takes place through open outcry system during the official
trading hours. Trading posts are assigned the different securities where buy and sell
activities of securities took place. This system needs a face-to-face contact among the
traders and restricts the trading volume.
CONTENTS
Chapter 1. Introduction
History of Stock Exchange of India
History of Derivative
Introduction of Derivative
Introduction of Future and Options
Objective of Study
Chapter 2. Review of Literature
Chapter 3. Research Methodology
Chapter 4. Trading Mechanism