A Study On Volatality in BSE Sensex

Content
Page
Chapter – 1
INTRODUCTION 8
1.1 Organization Profile 12
1.2 Concepts 15
1.3 Need for this study 18
1.4 Problem 18
1.5 Objectives 18
1.6 Procedure methodology 19
Chapter – 2
2.1 Analysis of the situation 21

2.2 Existing of the system 51
2.3 Need for the change in system 53
2.4 Proposed system 55
Chapter – 3
3.1 Present conditions with special reference to the organization 61
Chapter – 4
Summary, Conclusion and Suggestion

4.1 summary of the system 104
4.2 scope of the system 104
4.3 Suggestion 105
BIBLIOGRAPHY 106
6
CHAPTER 1
INTRODUCTION
7
INTRODUCTION
BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted index composed of
30 stocks started in 01 of Jan, 1986. It consists of the 30 largest and most actively traded stocks,
representative of various sectors, on the Bombay Stock Exchange. These companies account for
around one-fifth of the market capitalization of the BSE. The base value of the sensex is 100 on
April 1, 1979, and the base year of BSE-SENSEX is 1978-79.
At irregular intervals, the Bombay Stock Exchange (BSE) authorities review and modify its
composition to make sure it reflects current market conditions. The index is calculated based on a
free-float capitalization method; a variation of the market cap method. Instead of using a
company's outstanding shares it uses its float, or shares that are readily available for trading. The
free-float method, therefore, does not include restricted stocks, such as those held by company
insiders.
The index has increased by over ten times from June 1990 to the present. Using information from
April 1979 onwards, the long-run rate of return on the BSE Sensex works out to be 18.6% per
annum, which translates to roughly 9% per annum after compensating for inflation.
Clause 49 of the Listing Agreement to the Indian stock exchange comes into effect from 31
December 2005. It has been formulated for the improvement of corporate governance in all listed
companies.
In corporate hierarchy two types of managements are envisaged:

I) companies managed by [board of directors]; and
II) Those by a [managing director], whole-time director or manager subject to the control
and guidance of the board of directors.
As per Clause 49, for a company with an Executive Chairman, at least 50 per cent of the board
should comprise independent directors. In the case of a company with a non-executive Chairman,
at least one-third of the board should be independent directors.
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It would be necessary for chief executives and chief financial officers to establish and maintain
internal controls and implement remediation and risk mitigation towards deficiencies in internal
controls, among others.
Clause VI (ii) of Clause 49 requires all companies to submit a quarterly compliance report to stock
exchange in the prescribed form. The clause also requires that there be a separate section on
corporate governance in the annual report with a detailed compliance report.
A company is also required to obtain a certificate either from auditors or practicing company
secretaries regarding compliance of conditions as stipulated, and annex the same to the director's
report.
The clause mandates composition of an audit committee; one of the directors is required to be
"financially literate".
It is mandatory for all listed companies to comply with the clause by December 31, 2005.
Corporate Governance may be defined as “A set of systems, processes and principles which ensure
that a company is governed in the best interest of all stakeholders.” It ensures Commitment to
values and ethical conduct of business; Transparency in business transactions; Statutory and legal
compliance; adequate disclosures and Effective decision-making to achieve corporate objectives.
In other words, Corporate Governance is about promoting corporate fairness, transparency and
accountability. Good Corporate Governance is simply Good Business.
Clause 49 of the SEBI guidelines on Corporate Governance as amended on 29 October, 2004 has
made major changes in the definition of independent directors, strengthening the responsibilities of
audit committees, improving quality of financial disclosures, including those relating to related
party transactions and proceeds from public/ rights/ preferential issues, requiring Boards to adopt
formal code of conduct, requiring CEO/CFO certification of financial statements and for
improving disclosures to shareholders. Certain non-mandatory clauses like whistle blower policy
and restriction of the term of independent directors have also been included.
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The term ‘Clause 49’ refers to clause number 49 of the Listing Agreement between a company and
the stock exchanges on which it is listed (the Listing Agreement is identical for all Indian stock
exchanges, including the NSE and BSE). This clause is a recent addition to the Listing Agreement
and was inserted as late as 2000 consequent to the recommendations of the Kumarmangalam Birla
Committee on Corporate Governance constituted by the Securities Exchange Board of India
(SEBI) in 1999.
Clause 49, when it was first added, was intended to introduce some basic corporate governance
practices in Indian companies and brought in a number of key changes in governance and
disclosures (many of which we take for granted today). It specified the minimum number of
independent directors required on the board of a company. The setting up of an Audit committee,
and a Shareholders’ Grievance committee, among others, were made mandatory as were the
Management’s Discussion and Analysis (MD&A) section and the Report on Corporate
Governance in the Annual Report, and disclosures of fees paid to non-executive directors. A limit
was placed on the number of committees that a director could serve on.
In late 2002, SEBI constituted the Narayana Murthy Committee to assess the adequacy of current
corporate governance practices and to suggest improvements. Based on the recommendations of
this committee, SEBI issued a modified Clause 49 on October 29, 2004 (the ‘revised Clause 49’)
which came into operation on January 1, 2006.
The revised Clause 49 has suitably pushed forward the original intent of protecting the interests of
investors through enhanced governance practices and disclosures. Five broad themes predominate.
The independence criteria for directors have been clarified. The roles and responsibilities of the
board have been enhanced. The quality and quantity of disclosures have improved. The roles and
responsibilities of the audit committee in all matters relating to internal controls and financial
reporting have been consolidated, and the accountability of top management—specifically the
CEO and CFO—has been enhanced. Within each of these areas, the revised Clause 49 moves
further into the realm of global best practices (and sometimes, even beyond).
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Making the Right Decision
As India's leading financial exchange, BSE realized the importance of having in place state-of-the-
art IT infrastructure to support trading activity. With the tremendous growth in the volume of daily
trades, BSE recognized the need to invest in business solutions that were efficient, scalable, cost-
effective and reliable. In its effort to help sustain trading activity, BSE had, over the years,
introduced several new software applications. With each new application, new servers were added,
leading to a loss of operational efficiency. “It was getting difficult to manage different production
environments” recounts Mr. S.B. Patankar, Chief Technology Officer, and BSE.
There were 14 disparate servers running different applications, and a few of these servers were
more than five years old. The existence of a large number of servers – some of them nearly
obsolete – meant that maintenance costs were skyrocketing, even as the BSE was striving to
streamline its operations. Therefore, the Company's goal was to consolidate the IT Infrastructure
for these various applications.
BSE created history on June 9, 2000 by launching the first Exchange traded Index Derivative
Contract i.e. futures on the capital market benchmark index - the BSE Sensex. The inauguration of
trading was done by Prof. J.R. Varma, member of SEBI and chairman of the committee
responsible for formulation of risk containment measures for the Derivatives market. The first
historical trade of 5 contracts of June series was done on June 9, 2000 at 9:55:03 a.m. between M/s
Kaji & Maulik Securities Pvt. Ltd. and M/s Emkay Share & Stock Brokers Ltd. at the rate of
4755.
In the sequence of product innovation, the exchange commenced trading in Index Options on
Sensex on June 1, 2001. Stock options were introduced on 31 stocks on July 9, 2001 and single
stock futures were launched on November 9, 2002.
September 13, 2004 marked another milestone in the history of Indian Capital Markets, the day on
which the Bombay Stock Exchange launched Weekly Options, a unique product unparallel in
derivatives markets, both domestic and international. BSE permitted trading in weekly contracts in
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options in the shares of four leading companies namely Reliance, Satyam, State Bank of India, and
Tisco in addition to the flagship index-Sensex.
1.1 ORGANISATION PROFILE
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The highest decision-making forum of the exchange is the Annual General Meeting (AGM). Its
scope includes the election of the Board and Supervisory Board members.
Board of Directors and Supervisory Board
The Board of Directors is the company’s executive body. The mandate of its members is to serve a
three-year term following their election. Current members will serve their term until the upcoming
2011 Annual General Meeting. As set forth in the Exchange Charter, the Board of Directors
consists of 3 to 7 members (6 at present), from among whom the members elect the Chairman and
the Deputy Chairman of the Board with a simple majority vote.
The Supervisory Board oversees the company’s management. Members of the Supervisory Board
also serve a mandate of three years, currently until the 2011 AGM. On the basis of the BSE
Charter, the Supervisory Board consists of 3 to 6 members (6 at present), elected at the general
shareholder meeting. Supervisory Board members cannot be employees of the Budapest Stock
Exchange Co. Ltd.
Organizational structure
The Exchange’s organization, internal trading supervision, implementation of the Board’s

decisions, publication of information on the exchange and the Exchange’s overall business
administration are duties of the Chief Executive Officer supported by the BSE organization.
Committees for the representation of interests
The Exchange shall comply with the principles established by the Capital Market Act and shall
ensure that investment service providers trading on the Exchange, issuers and investors should
have the power to issue their opinion while equally participating in the decision-making process
affecting the Exchange. In order to ensure this, the Exchange operates committees for the
representation of interests. Committee members are elected by traders and issuers, and their
mandates expire at the same time as the mandates of the Board of the Exchange.
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The Trading Committee formulates the professional view of the vendors, represents vendors’
interests in professional issues and ensures the institutional possibility of professional control of
decisions.
The Committee of Issuers formulates the professional view of the issuers, represents issuers’
interests in professional issues and ensures the institutional possibility of professional control of
decisions.
The representative promoting investors’ interests is authorized to issue an opinion on all proposals
concerning the interests of investors. The representative is elected by the organizations and
associations representing investors’ interests.
Advisory committees
In addition to the committees for the representation of interests, the Exchange operates further
advisory committees in order to prepare and establish the Exchange’s strategic and business
decisions. These advisory committees have the right to formulate an opinion on special business
development issues.
The Settlement Committee participates in the preparation of decisions regarding the Exchange’s
settlement system and ensures effective professional oversight. Its members and Chairman are
elected by the BSE Board based on vendor recommendations.
The Index Committee was set up to oversee the expansion and ongoing maintenance of the BSE
main indexes. In addition, it is charged with developing and publishing the Exchange’s other
indicators. The members of the Committee are independent market experts appointed by the Board
of Directors. The Board carefully ensures that traders, issuers and investors all receive equal
representation in the Committee.
The Delivery Committee is set up to investigate potential infractions and carry out appropriate
sanctions of transactions involving commodities transactions. Members of the committee are
appointed by the Board from the section members of the merchandising sector.
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1.2 CONCEPTS
Buy Open: - Means a buy transaction which will have the effect of creating or increasing a long
position.
Clearing Member: - Clearing Member means a Member of the Clearing Corporation; Closing buy
transaction Means a buy transaction which will have the effect of partly or fully offsetting a short
position.
Closing sell transaction: - Means a sell transaction which will have the effect of partly or fully
offsetting a long position.
Constituent: - A constituent means a person, on whose instructions and, on whose account, the
Trading Member enters into any contract for the purchase or sale of any security or does any act in
relation thereto.
Contract Month: - Contract month means the month in which a contract is required to be finally
settled.
Derivatives Contract: - A contract which derives its value from the prices of underlying securities.
Expiration Day: - The day on which the final settlement obligation are determined in a Derivatives
Contract.
Futures Contract: - means a firm contractual agreement to buy or sell the underlying security in the
future.
Last Trading Day: - Means the day unto and on which a Derivatives Contract is available for
trading.
Long Position: - Long Position in a Derivatives contract means outstanding purchase obligations in
respect of a permitted derivatives contract at any point of time.
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Open Position: - Open position means the sum of long and short positions of the Member and his
constituent in any or all of the Derivatives Contracts outstanding with the Clearing Corporation.
Open Interest: - Open Interest means the total number of Derivatives Contracts of an underlying
security that have not yet been offset and closed by an opposite Derivatives transaction nor
fulfilled by delivery of the cash or underlying security or option exercise. For calculation of Open
Interest only one side (either the long or the short) of the Derivatives Contract is counted.
Options Contract: - Options Contract is a type of Derivatives Contract which gives the
buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying security at
a predetermined price within or at end of a specified period. The option contract which gives a
right to buy is called a Call Option and the option contract that gives a right to sell is called a Put
Option.
Option Holder: - Option Holder means a Trading Member who is the buyer of the Options
Contracts.
Option Writer: - Option Writer means a Trading Member who is the seller of the Options
Contracts.
Outstanding Obligation: - Means the obligation which has neither been closed out nor been settled.
Permitted Derivatives: - Contract Permitted Derivatives Contract is a derivative contract which is

permitted to be traded on the Futures & Options segment of the Exchange; Regular lot / Market
Lot Means the number of units that can be bought or sold in a specified derivatives contract and it
is also termed as Contract Multiplier;
Risk Disclosure Document: - Refers to the document to be issued to all potential investors at the
time of registration for disclosure of the risks inherent to derivatives.
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Settlement Date: - Means the date on which the settlement of outstanding obligations in a
permitted Derivatives contract are required to be settled.
Sell Open: - Means a sell transaction which will have the effect of creating or increasing a short
position.
Short Position: - Short position in a derivatives contract means outstanding sell obligations in
respect of a permitted derivatives contract at any point of time.
Trading cycle: - Trading cycle means the period during which the derivatives contract will be
available for trading.
Trading Member: - Trading Member is a member of Derivative Exchange.
Trading cum Clearing Member: - Means Member of Derivatives Exchange as well as its Clearing
Corporation.
Trade Type: - Trade type is the type of trade as may be permitted by the F&O Segment of the
Exchange from time to time for each Market Type.
Underlying Securities: - Means a security with reference to which a derivatives contract is

permitted to be traded on the Futures & Options segment of the Exchange from time to time.
Beta; - Beta is the measurement of risk; if the Beta value is more it shows the more risk of the
respective share.
Volatility; - More the volatility, higher is the probability of the future generating higher returns to
the buyer. The downside in both the cases of call and put is fixed but the gains can be unlimited.
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1.3 NEED FOR THIS STUDY
• The study covers derivatives market with specific reference to Option market.
• The study shows the profit enhancement and risk reduction in derivatives.
• The study shows the Beta and Volatility calculation for the purpose of measuring the risk
and variability of different company’s shares.
• The study also shows how an investor can minimize risk.
1.4 PROBLEM
The Option buyers are no way under obligation in exercising their right to buy or sell .Their right
to buy or sell can be exercised only if its execution is in their favor. Accordingly, an option
contract is specific on the quantity of the asset to be bought or sold, the price at which the
transaction has to take place(strike price) and the date up to which the contract is valid(expiry
date).
The price at which asset would change and in future is agreed upon the time of
entering into the contract. The actual purchase or sale of the underlying involving payment of cash
and delivery of the instrument does not take place until the contracted date of delivery. Prices of
options are commonly depending upon six factors. Unlike futures which derives there prices
primarily from the undertaking; Option’s prices are far more complex. The study tries to
understand these complexities and frame a competitive strategy to frame a good risk analysis.
Volatility of the market has made the study complex and uncertain.
The study is limited to Options.
The research is limited by time and cost.
1.5 OBJECTIVES
1. To have a basic knowledge about stock option.

2. To see whether there is any risk less profit available in the market.
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3. How far option can be advised as a profit making strategy.
1.6 PROCEDURE METHODOLOGY
1. HYPOTHESIS:
HO: Risk is not the same across all the Option stocks.
H1: Risk is the same across all the Option stocks.
2. DATA COLLECTION:
Primary data will be collected from the company and through NSE terminal.
Secondary data will be collected from reports, magazines, journals and from websites.
3. POPULATION:
Research will be conducted on ten companies.
4. SAMPLE PROCEDURE:
The procedure adopted will be convenient sampling.

Sample of ten companies will be selected as per convenience.
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CHAPTER 2
ANALYSIS
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2.1 ANALYSIS OF THE SITUATION
CALCULATION OF BETA AND VOLATALITY
Formula used for the calculation of Beta and Standard Deviation

This chapter provides the beta and volatility of derivatives of FIVE companies in
NIFTY
Computation of Standard Deviation:
RATE OF RETURN = (Adj Close – Open) / Open*100

Variance calculated as per Excel Formula
Standard Deviation = square root of variance
(Standard deviation based on Arithmetical Returns calculated as per Excel Formulae)
COMPUTATION OF BETA:
Beta = n. Σxy - (Σx) (Σy)

n. Σx^2-(Σx) ^2
Stock Return (Y) = (Adj Close – Open) / Open*100

Market Return(X) = (Adj Close – Open) / Open*100
21
RANBAXY - From 1-3-2009 to 31-3-2009 BETA AND VOLATILITY
S & P CNX Market Stock

NIFTY RANBAXY Return Return
Date Open Close Open Close X Y X*Y X^2
01-Mar-09 3745.40 3811.20 344.0 337.40 1.757 -1.919 3.371 3.087
02-Mar-09 3811.65 3726.75 345.00 341.25 -2.227 -1.087 2.420 4.960
05-Mar-09 3726.50 3576.50 345.50 317.60 -4.025 -8.095 32.501 16.201
06-Mar-09 3577.15 3655.65 325.00 320.05 2.194 -1.523 -3.341 4.814
09-Mar-09 3661.55 3626.85 322.00 304.50 -0.948 -5.435 5.152 0.899
08-Mar-09 3627.25 3761.65 312.00 309.20 3.705 -0.897 -3.323 13.727
09-Mar-09 3761.85 3718.00 334.00 322.00 -1.166 -3.593 4.189 1.360
12-Mar-09 3717.45 3734.60 328.00 322.50 0.461 -1.677 -0.773 0.213
13-Mar-09 3735.25 3770.55 323.75 317.20 0.945 -2.023 -1.911 0.893
14-Mar-09 3768.40 3641.10 316.50 309.20 -3.378 -2.938 9.924 11.411
15-Mar-09 3644.90 3643.60 315.95 309.70 -0.036 -1.978 0.091 0.0013
16-Mar-09 3639.35 3608.55 315.00 311.00 -0.846 -1.269 1.093 0.716
19-Mar-09 3611.30 3678.90 319.50 315.65 1.872 -1.205 -2.255 3.504
20-Mar-09 3680.35 3697.60 318.90 318.15 0.469 -0.235 -0.110 0.220
21-Mar-09 3697.70 3764.55 340.00 330.40 1.808 -2.823 -5.103 3.269
22-Mar-09 3764.50 3875.90 334.20 332.50 2.959 -0.509 -1.506 8.756
23-Mar-09 3876.75 3861.05 334.25 329.00 -0.405 -1.571 0.636 0.164
26-Mar-09 3863.45 3819.95 333.00 325.25 -1.126 -2.327 2.620 1.268
28-Mar-09 3818.75 3761.10 326.00 325.25 -1.510 -0.230 0.347 2.280
29-Mar-09 3759.15 3798.10 336.95 336.95 1.036 0.000 0.000 1.093
30-Mar-09 3788.85 3821.55 347.20 343.65 0.863 -1.022 -0.881 0.745
n = 21 Total 2.402 -42.336 43.101 79.5613
Chart showing both Stock return and Market return
22
6
0
S eries 1
RETURNS
-2
S eries 2
-4
-6
-8
-1 0
Series 1: Market Return

Series 2: Stock Return
n. Σx^2-(Σx) ^2
Beta = 21* 43.101 - (2.402)(-42.336)

21* 79.5613 - (2.402) (2.402)
Beta = 0.604
Volatility = Standard Deviation of Return on RANBAXY
= 1.871
Interpretation:
The Beta should fall between 0 and 1 for the risk less investment. Here from the above calculations
it is clear that the RANBAXY is having Beta less than one which indicates less risky investment.
BAJAJAUTO - From 1-3-2009 to 31-3-2009
BETA AND VOLATILITY
23
NIFTY BAJAJAUTO Return Return
01-Mar-09 3745.40 3811.20 2618.00 2521.95 1.002 3.669 3.676 1.004
02-Mar-09 3811.65 3726.75 2505.00 2544.05 -2.227 1.559 -3.471 4.960
05-Mar-09 3726.50 3576.50 2503.00 2453.75 -1.522 -1.968 2.995 2.316
06-Mar-09 3577.15 3655.65 2469.70 2461.10 2.194 -0.348 - 0.763 4.814
09-Mar-09 3661.55 3626.85 2535.00 2451.40 -0.948 -3.298 3.126 0.899
08-Mar-09 3627.25 3761.65 2499.00 2510.85 3.705 0.474 1.756 13.727
09-Mar-09 3761.85 3718.00 2525.00 2488.70 -1.166 -1.438 1.677 1.360
12-Mar-09 3717.45 3734.60 2518.00 2512.85 0.461 -0.204 - 0.094 0.213
13-Mar-09 3735.25 3770.55 2515.00 2521.00 0.945 0.238 0.225 0.893
14-Mar-09 3768.40 3641.10 2478.00 2529.55 -3.378 2.080 7.206 11.411
15-Mar-09 3644.90 3643.60 2541.00 2492.75 -0.036 -1.696 0.061 0.0013
16-Mar-09 3639.35 3608.55 2539.00 2489.75 -0.846 -1.939 1.640 0.716
19-Mar-09 3611.30 3678.90 2440.00 2515.45 1.872 3.092 5.788 3.504
20-Mar-09 3680.35 3697.60 2525.00 2501.20 0.469 -0.942 - 0.442 0.220
21-Mar-09 3697.70 3764.55 2510.00 2498.85 1.808 -0.444 -0.803 3.269
22-Mar-09 3764.50 3875.90 2575.00 2567.45 2.959 - 0.293 0.867 8.756
23-Mar-09 3876.75 3861.05 2580.00 2529.15 -0.405 -1.971 0.798 0.164
26-Mar-09 3863.45 3819.95 2532.15 2509.15 -1.126 -0.987 1.111 1.268
28-Mar-09 3818.75 3761.10 2510.00 2466.65 -1.510 -1.727 2.608 2.280
29-Mar-09 3759.15 3798.10 2455.00 2421.40 1.036 -1.369 -1.418 1.093
30-Mar-09 3788.85 3821.55 2439.95 2427.60 0.863 -0.506 -0.437 0.745
n = 21 Total 2.402 -8.018 26.106 79.5613
Chart showing both the market and stock returns of BAJAJAUTO
24
5
1
RETURNS
S eries 1
0 S eries 2
-1
-2
-3
-4

n. Σx^2-(Σx) ^2
Beta = 21* 26.106 - (2.402) (-8.018)
21* 79.5613 - (2.402) (2.402)
Beta = 0.341
Volatility = Standard Deviation of Return on BAJAJAUTO
= 1.757
Interpretation:
it is clear that the BAJAJAUTO is having Beta less than one which indicates less risky investment.
ACC - From 1-3-2009 to 31-3-2009 - BETA AND VOLATILITY
25
NIFTY ACC Return Return
01-Mar-09 3745.40 3811.20 902.05 876.30 1.757 -2.855 - 5.016 3.087
02-Mar-09 3811.65 3726.75 885.00 854.45 -2.227 -3.452 7.688 4.960
05-Mar-09 3726.50 3576.50 859.00 811.40 -4.025 -5.541 22.302 16.201
06-Mar-09 3577.15 3655.65 820.00 809.95 2.194 -1.226 -2.690 4.814
09-Mar-09 3661.55 3626.85 864.00 810.50 -0.948 -6.192 5.870 0.899
08-Mar-09 3627.25 3761.65 821.00 833.15 8.844 1.480 13.089 78.216
09-Mar-09 3761.85 3718.00 840.00 781.15 -1.166 -7.005 8.168 1.360
12-Mar-09 3717.45 3734.60 780.00 746.70 0.461 -4.269 - 1.968 0.213
13-Mar-09 3735.25 3770.55 769.00 749.35 0.945 -2.555 - 2.414 0.893
14-Mar-09 3768.40 3641.10 722.10 746.95 -3.378 0.034 - 0.114 11.411
15-Mar-09 3644.90 3643.60 750.00 731.80 -0.036 -2.427 0.087 0.001
16-Mar-09 3639.35 3608.55 735.70 723.15 -0.846 -1.705 1.442 0.716
19-Mar-09 3611.30 3678.90 730.00 739.35 1.872 1.281 2.398 3.504
20-Mar-09 3680.35 3697.60 745.00 749.20 0.469 0.564 0.265 0.220
21-Mar-09 3697.70 3764.55 752.00 752.75 1.808 0.099 0.179 3.269
22-Mar-09 3764.50 3875.90 755.00 753.70 2.959 -0.172 - 0.509 8.756
23-Mar-09 3876.75 3861.05 755.00 746.30 -0.405 -1.152 0.466 0.164
26-Mar-09 3863.45 3819.95 750.00 733.60 -1.126 -2.187 2.462 1.268
28-Mar-09 3818.75 3761.10 732.85 734.70 -1.510 0.252 -0.380 2.280
29-Mar-09 3759.15 3798.10 734.00 734.75 1.036 0.102 0.105 1.093
30-Mar-09 3788.85 3821.55 738.80 735.25 0.863 -0.480 -0.414 0.745
n = 21 Total 2.402 -37.406 51.016 79.5613
Chart showing both Market return and Stock return of ACC
26
10
2 S eries 1
RETURNS
0 S eries 2
-2
-4
-6
-8

n. Σx^2-(Σx) ^2
27
Beta = 21* 51.016 - (2.402)(-37.406)
21* 79.5613 - (2.402) (2.402)
Beta = 0.697
Volatility = Standard Deviation of Return on ACC

= 2.421
Interpretation:
it is clear that the ACC is having Beta less than one which indicates less risky investment.
HEROHONDA - From 1-3-2009 to 31-3-2009
28
NIFTY HEROHONDA Return Return
01-Mar-09 3745.40 3811.20 658.30 668.25 1.757 1.511 2.655 3.087
02-Mar-09 3811.65 3726.75 662.10 692.75 -2.227 0.046 -0.102 4.960
05-Mar-09 3726.50 3576.50 681.10 684.95 -4.025 0.565 -2.274 16.201
06-Mar-09 3577.15 3655.65 686.00 667.20 2.194 -2.740 -6.011 4.814
09-Mar-09 3661.55 3626.85 675.00 666.75 -0.948 -1.222 1.158 0.899
08-Mar-09 3627.25 3761.65 660.05 668.35 3.705 1.257 4.657 13.727
09-Mar-09 3761.85 3718.00 670.00 691.40 -1.166 3.194 -3.724 1.360
12-Mar-09 3717.45 3734.60 691.00 698.80 0.461 1.129 0.524 0.213
13-Mar-09 3735.25 3770.55 709.50 697.85 0.945 -1.364 -1.289 0.893
14-Mar-09 3768.40 3641.10 684.5 677.20 -3.378 -1.066 3.601 11.411
15-Mar-09 3644.90 3643.60 680.0 673.30 -0.036 -0.985 0.035 0.0013
16-Mar-09 3639.35 3608.55 685.00 650.20 -0.846 -5.080 4.298 0.716
19-Mar-09 3611.30 3678.90 655.00 640.35 1.872 -0.022 -0.041 3.504
20-Mar-09 3680.35 3697.60 647.00 635.75 0.469 -1.739 -0.815 0.220
21-Mar-09 3697.70 3764.55 639.90 651.10 1.808 1.750 3.164 3.269
22-Mar-09 3764.50 3875.90 656.9 685.25 2.959 4.316 12.771 8.756
23-Mar-09 3876.75 3861.05 685.00 677.85 -0.405 -1.043 0.422 0.164
26-Mar-09 3863.45 3819.95 680.00 667.40 -1.126 -1.853 2.086 1.268
28-Mar-09 3818.75 3761.10 640.70 658.20 -1.510 2.731 -4.124 2.280
29-Mar-09 3759.15 3798.10 652.1 676.60 1.036 0.037 0.038 1.093
30-Mar-09 3788.85 3821.55 674.8 688.75 0.863 0.020 0.017 0.745
n = 21 Total 2.402 -0.558 17.046 79.5613
Chart showing both Market Return and Stock Return of HEROHONDA
29
6
S e rie s 1
RETURNS
0
S e rie s 2
-2
-4
-6

n. Σx^2-(Σx) ^2
Beta = 21* 17.046 - (2.402)(-0.558)

21* 79.5613 - (2.402) (2.402)
30
Beta = 0.216
Volatility = Standard Deviation of Return on HEROHONDA

= 2.134
Interpretation:
it is clear that the HEROHONDA is having Beta less than one which indicates less risky
investment.
TATASTEEL - From 1-3-2009 to 31-3-2009

BETA AND VOLATILITY

NIFTY TATASTEEL Return Return
31
01-Mar-09 3745.40 3811.20 445.70 451.10 1.757 1.212 2.129 3.087
02-Mar-09 3811.65 3726.75 455.00 443.45 -2.227 -2.538 5.652 4.960
05-Mar-09 3726.50 3576.50 441.30 420.75 -4.025 -4.657 18.744 16.201
06-Mar-09 3577.15 3655.65 424.00 419.25 2.194 -1.120 -2.457 4.814
09-Mar-09 3661.55 3626.85 422.20 413.25 -0.948 -2.120 2.010 0.899
08-Mar-09 3627.25 3761.65 417.00 427.75 3.705 2.578 9.551 13.727
09-Mar-09 3761.85 3718.00 429.95 433.80 -1.166 0.897 -1.046 1.360
12-Mar-09 3717.45 3734.60 437.70 435.50 0.461 -0.503 -0.232 0.213
13-Mar-09 3735.25 3770.55 437.00 444.75 0.945 1.773 1.675 0.893
14-Mar-09 3768.40 3641.10 432.00 429.95 -3.378 -0.475 1.605 11.411
15-Mar-09 3644.90 3643.60 435.00 433.25 -0.036 -0.402 0.014 0.001
16-Mar-09 3639.35 3608.55 435.00 430.55 -0.846 -1.023 0.864 0.716
19-Mar-09 3611.30 3678.90 434.00 429.90 1.872 -0.945 -4.502 3.504
20-Mar-09 3680.35 3697.60 432.00 423.45 0.469 -1.979 -1.185 0.220
21-Mar-09 3697.70 3764.55 435.00 430.15 1.808 -1.115 4.616 3.269
22-Mar-09 3764.50 3875.90 435.00 442.05 2.959 1.621 6.998 8.756
23-Mar-09 3876.75 3861.05 449.90 438.30 -0.405 -2.578 1.318 0.164
26-Mar-09 3863.45 3819.95 438.30 441.80 -1.126 0.798 2.136 1.268
28-Mar-09 3818.75 3761.10 441.00 441.35 -1.510 0.099 -1.436 2.280
29-Mar-09 3759.15 3798.10 441.00 439.95 1.036 -0.238 2.123 1.093
30-Mar-09 3788.85 3821.55 442.10 449.65 0.863 1.708 2.436 0.745
n = 21 Total 2.402 -9.027 51.013 79.5613
Chart showing both Market Returns and Stock Returns of TATASTEEL
32
5
4
3
2
1
RETURNS
0 S eries 1
-1 S eries 2
-2
-3
-4
-5
-6

n. Σx^2-(Σx) ^2
Beta = 21* 51.013- (2.402)(-9.027)
33
21* 79.5613 - (2.402) (2.402)
Beta = 0.653
Volatility = Standard Deviation of Return on TATASTEEL

= 1.770
Interpretation:
it is clear that the TATASTEEL is having Beta less than one which indicates less risky investment.
BETA AND VOLATILITY

NIFTY Dr.REDDY Return Return
01-Mar-09 3745.40 3811.20 670.00 661.75 1.757 -1.231 -2.162 3.087
34
02-Mar-09 3811.65 3726.75 655.00 660.10 -2.227 0.778 -1.733 4.960
05-Mar-09 3726.50 3576.50 601.00 617.50 -4.025 2.745 -11.048 16.201
06-Mar-09 3577.15 3655.65 630.00 622.55 2.194 -1.182 -2.593 4.814
09-Mar-09 3661.55 3626.85 635.00 635.25 -0.948 0.039 -0.036 0.899
08-Mar-09 3627.25 3761.65 641.00 668.55 3.705 4.297 15.920 13.727
09-Mar-09 3761.85 3718.00 679.90 660.00 -1.166 -2.926 3.411 1.360
12-Mar-09 3717.45 3734.60 678.00 658.40 0.461 -2.890 -2.429 0.213
13-Mar-09 3735.25 3770.55 660.00 661.00 0.945 0.151 0.288 0.893
14-Mar-09 3768.40 3641.10 645.00 648.45 -3.378 0.534 -1.803 11.411
15-Mar-09 3644.90 3643.60 655.00 672.45 -0.036 2.664 -0.095 0.0013
16-Mar-09 3639.35 3608.55 681.00 683.60 -0.846 0.382 -0.323 0.716
19-Mar-09 3611.30 3678.90 689.00 677.25 1.872 -1.705 -3.191 3.504
20-Mar-09 3680.35 3697.60 683.00 682.40 0.469 -0.087 -0.040 0.220
21-Mar-09 3697.70 3764.55 682.40 679.20 1.808 -0.469 -0.847 3.269
22-Mar-09 3764.50 3875.90 690.00 682.00 2.959 -1.159 -3.429 8.756
23-Mar-09 3876.75 3861.05 690.00 686.30 -0.405 -0.536 0.217 0.164
26-Mar-09 3863.45 3819.95 689.00 682.15 -1.126 -0.994 1.119 1.268
28-Mar-09 3818.75 3761.10 654.90 692.15 -1.510 5.687 -8.587 2.280
29-Mar-09 3759.15 3798.10 692.00 706.50 1.036 2.095 2.170 1.093
30-Mar-09 3788.85 3821.55 714.50 728.25 0.863 1.924 1.596 0.745
n = 21 Total 2.402 8.117 -13.595 79.5613
Chart showing both Stock return and Market return
35
8
2
RETURNS
S eries 1
S eries 2
0
-2
-4
-6

n. Σx^2-(Σx) ^2
Beta = 21* (-13.595) - (2.402)(8.117)

21* 79.5613 - (2.402) (2.402)
Beta = -0.161
36
Volatility = Standard Deviation of Return on DR. REDDY’S
= 2.203
Interpretation:
it is clear that the DR.REDDY’S is having Beta less than one (negative) which indicates less risky
investment.
MOSERBAER - From 1-3-2009 to 31-3-2009

NIFTY MOSERBAER Return Return
01-Mar-09 3745.40 3811.20 334.40 317.70 1.757 -4.994 8.774 1.004
02-Mar-09 3811.65 3726.75 320.00 323.30 -2.227 1.031 2.296 4.960
37
05-Mar-09 3726.50 3576.50 320.00 299.40 -4.025 -6.437 25.909 2.316
06-Mar-09 3577.15 3655.65 309.80 313.70 2.194 1.259 2.762 4.814
09-Mar-09 3661.55 3626.85 321.65 303.40 -0.948 -5.674 5.379 0.899
08-Mar-09 3627.25 3761.65 309.15 313.00 3.705 1.905 7.058 13.727
09-Mar-09 3761.85 3718.00 316.00 309.00 -1.166 -2.848 3.320 1.360
12-Mar-09 3717.45 3734.60 308.55 311.00 0.461 0.794 0.366 0.213
13-Mar-09 3735.25 3770.55 310.90 319.60 0.945 2.806 1.971 0.893
14-Mar-09 3768.40 3641.10 305.00 300.25 -3.378 -1.557 5.259 11.411
15-Mar-09 3644.90 3643.60 309.90 297.45 -0.036 -4.017 0.144 0.0013
16-Mar-09 3639.35 3608.55 300.00 291.70 -0.846 -2.766 2.340 0.716
19-Mar-09 3611.30 3678.90 298.00 291.75 1.872 -2.097 -3.925 3.504
20-Mar-09 3680.35 3697.60 295.70 293.85 0.469 -0.625 -0.293 0.220
21-Mar-09 3697.70 3764.55 294.00 295.05 1.808 0.357 0.645 3.269
22-Mar-09 3764.50 3875.90 300.00 301.45 2.959 0.483 1.429 8.756
23-Mar-09 3876.75 3861.05 302.00 298.65 -0.405 -1.109 0.449 0.164
26-Mar-09 3863.45 3819.95 301.00 300.60 -1.126 -0.132 0.148 1.268
28-Mar-09 3818.75 3761.10 298.00 290.70 -1.510 -2.449 3.698 2.280
29-Mar-09 3759.15 3798.10 286.90 292.90 1.036 2.091 2.166 1.093
30-Mar-09 3788.85 3821.55 295.00 299.10 0.863 1.390 1.199 0.745
n = 21 Total 2.402 -22.589 71.094 79.5613
Chart showing both the market and stock returns of MOSERBAER
38
6
0
RETURNS
S eries 1
S eries 2
-2
-4
-6
-8

n. Σx^2-(Σx) ^2
Beta = 21* 71.094 - (2.402) (-22.589)

21* 79.5613 - (2.402) (2.402)
39
Beta = 0.929
Volatility = Standard Deviation of Return on MOSERBAER

= 2.662
Interpretation:
it is clear that the MOSERBAER is having Beta less than one which indicates less risky
investment.
MARUTI UDYOG LIMITED - From 1-3-2009 to 31-3-2009

NIFTY MARUTIUDYOG Return Return
01-Mar-09 3745.40 3811.20 848.00 840.90 1.757 -0.837 - 1.471 3.087
40
02-Mar-09 3811.65 3726.75 844.00 833.10 -2.227 -1.291 2.875 4.960
05-Mar-09 3726.50 3576.50 825.00 772.90 -4.025 -6.315 25.418 16.201
06-Mar-09 3577.15 3655.65 790.00 791.75 2.194 0.221 0.485 4.814
09-Mar-09 3661.55 3626.85 797.00 774.85 -0.948 -2.779 2.634 0.899
08-Mar-09 3627.25 3761.65 787.00 792.35 8.844 0.679 6.005 78.216
09-Mar-09 3761.85 3718.00 792.00 787.20 -1.166 -0.606 0.706 1.360
12-Mar-09 3717.45 3734.60 789.80 797.10 0.461 0.924 0.426 0.213
13-Mar-09 3735.25 3770.55 800.00 801.55 0.945 0.194 0.183 0.893
14-Mar-09 3768.40 3641.10 791.00 791.75 -3.378 0.095 - 0.321 11.411
15-Mar-09 3644.90 3643.60 804.10 796.15 -0.036 0.989 - 0.036 0.001
16-Mar-09 3639.35 3608.55 798.00 780.10 -0.846 -0.022 0.018 0.716
19-Mar-09 3611.30 3678.90 786.00 788.85 1.872 0.362 0.677 3.504
20-Mar-09 3680.35 3697.60 792.00 789.65 0.469 -0.297 - 0.139 0.220
21-Mar-09 3697.70 3764.55 796.00 791.65 1.808 -0.546 - 0.987 3.269
22-Mar-09 3764.50 3875.90 790.50 831.30 2.959 5.161 15.271 8.756
23-Mar-09 3876.75 3861.05 833.00 840.65 -0.405 0.918 - 0.372 0.164
26-Mar-09 3863.45 3819.95 837.15 821.70 -1.126 -1.845 2.097 1.268
28-Mar-09 3818.75 3761.10 775.25 796.65 -1.510 2.760 - 4.168 2.280
29-Mar-09 3759.15 3798.10 828.50 812.45 1.036 -1.937 - 2.006 1.093
30-Mar-09 3788.85 3821.55 828.50 820.20 0.863 -1.002 - 0.865 0.745
n = 21 Total 2.402 -5.174 46.410 79.5613
Chart showing both Market return and Stock return of MARUTI UDYOG
41
6
0
RETURNS
S eries 1
S eries 2
-2
-4
-6
-8

n. Σx^2-(Σx) ^2
Beta = 21* 46.410 - (2.402)(-5.174)
42
21* 79.5613 - (2.402) (2.402)
Beta = 0.593
Volatility = Standard Deviation of Return on MARUTI UDYOG LTD

= 2.182
Interpretation:
it is clear that the MARUTI UDYOG LIMITED is having Beta less than one which indicates less
risky investment.
M & M - From 1-3-2009 to 31-3-2009 - BETA AND VOLATILITY

NIFTY M&M Return Return
43
01-Mar-09 3745.40 3811.20 816.00 805.20 1.757 -1.323 -2.324 3.087
02-Mar-09 3811.65 3726.75 799.00 770.50 -2.227 -3.567 7.944 4.960
05-Mar-09 3726.50 3576.50 744.80 709.20 -4.025 -4.780 19.239 16.201
06-Mar-09 3577.15 3655.65 716.00 725.15 2.194 1.278 2.804 4.814
09-Mar-09 3661.55 3626.85 738.70 761.05 -0.948 3.025 - 2.868 0.899
08-Mar-09 3627.25 3761.65 765.30 765.60 3.705 0.039 0.144 13.727
09-Mar-09 3761.85 3718.00 775.00 733.90 -1.166 -5.303 6.183 1.360
12-Mar-09 3717.45 3734.60 739.25 738.25 0.461 -0.135 - 0.062 0.213
13-Mar-09 3735.25 3770.55 740.00 760.35 0.945 2.750 2.599 0.893
14-Mar-09 3768.40 3641.10 750.00 749.10 -3.378 -0.120 0.405 11.411
15-Mar-09 3644.90 3643.60 760.00 747.05 -0.036 -1.704 0.061 0.001
16-Mar-09 3639.35 3608.55 746.00 730.70 -0.846 -2.051 1.735 0.716
19-Mar-09 3611.30 3678.90 748.70 738.90 1.872 -1.309 - 2.450 3.504
20-Mar-09 3680.35 3697.60 744.00 743.85 0.469 -0.020 - 0.009 0.220
21-Mar-09 3697.70 3764.55 749.00 753.50 1.808 0.600 1.084 3.269
22-Mar-09 3764.50 3875.90 758.00 781.60 2.959 3.113 9.211 8.756
23-Mar-09 3876.75 3861.05 779.80 796.80 -0.405 2.180 - 0.833 0.164
26-Mar-09 3863.45 3819.95 800.00 788.55 -1.126 -1.431 1.611 1.268
28-Mar-09 3818.75 3761.10 785.00 762.35 -1.510 -2.885 3.318 2.280
29-Mar-09 3759.15 3798.10 792.80 757.75 1.036 -4.421 -4.580 1.093
30-Mar-09 3788.85 3821.55 757.00 780.40 0.863 3.091 2.668 0.745
n = 21 Total 2.402 -12.973 45.880 79.5613
Chart showing both Market Return and Stock Return of M & M
44
5
4
3
2
1
RETURNS
0 S eries 1
-1 S eries 2
-2
-3
-4
-5
-6

n. Σx^2-(Σx) ^2
Beta = 21* 45.880 - (2.402)(-12.973)

21* 79.5613 - (2.402) (2.402)
45
Beta = 0.597
Volatility = Standard Deviation of Return on M & M

= 2.635
Interpretation:
it is clear that the M & M is having Beta less than one which indicates less risky investment.
ASHOKLEYLAND - From 1-3-2009 to 31-3-2009

BETA AND VOLATILITY
NIFTY ASHOKLEY Return Return
01-Mar-09 3745.40 3811.20 40.25 40.35 1.757 0.248 0.436 3.087
46
02-Mar-09 3811.65 3726.75 40.00 40.15 -2.227 0.375 0.835 4.960
05-Mar-09 3726.50 3576.50 39.90 36.55 -4.025 -8.396 33.793 16.201
06-Mar-09 3577.15 3655.65 37.30 38.20 2.194 2.413 5.294 4.814
09-Mar-09 3661.55 3626.85 39.00 37.95 -0.948 -2.692 2.552 0.899
08-Mar-09 3627.25 3761.65 38.90 39.50 3.705 1.542 5.713 13.727
09-Mar-09 3761.85 3718.00 39.50 40.05 -1.166 1.392 -1.623 1.360
12-Mar-09 3717.45 3734.60 40.30 41.30 0.461 2.481 1.441 0.213
13-Mar-09 3735.25 3770.55 41.30 41.00 0.945 -0.726 0.686 0.893
14-Mar-09 3768.40 3641.10 39.10 39.10 -3.378 0.000 0.000 11.411
15-Mar-09 3644.90 3643.60 39.60 39.20 -0.036 -1.010 0.003 0.001
16-Mar-09 3639.35 3608.55 39.50 39.10 -0.846 -1.012 0.856 0.716
19-Mar-09 3611.30 3678.90 39.10 39.35 1.872 0.639 1.196 3.504
20-Mar-09 3680.35 3697.60 39.80 39.70 0.469 - 0.251 -0.118 0.220
21-Mar-09 3697.70 3764.55 39.95 40.85 1.808 2.252 4.091 3.269
22-Mar-09 3764.50 3875.90 41.00 41.45 2.959 1.621 6.998 8.756
23-Mar-09 3876.75 3861.05 41.45 40.95 -0.405 -1.206 0.488 0.164
26-Mar-09 3863.45 3819.95 41.10 40.95 -1.126 -0.365 0.411 1.268
28-Mar-09 3818.75 3761.10 39.75 38.80 -1.510 -2.390 2.609 2.280
29-Mar-09 3759.15 3798.10 38.80 37.30 1.036 -3.866 -5.049 1.093
30-Mar-09 3788.85 3821.55 37.80 38.40 0.863 1.587 1.369 0.745
n = 21 Total 2.402 -7.364 61.961 79.5613
Chart showing both Market Returns and Stock Returns of ASHOKLEYLAND
47
6
0
RETURNS
S eries 1
-2
S eries 2
-4
-6
-8
-10

n. Σx^2-(Σx) ^2
48
Beta = 21* 61.961- (2.402)(-7.364)
21* 79.5613 - (2.402) (2.402)
Beta = 0.791
Volatility = Standard Deviation of Return on ASHOKLEYLAND

= 2.521
Interpretation:
it is clear that the ASHOK LEYLAND is having Beta less than one which indicates less risky
investment.
OVERALL INTERPRETATION
CHART SHOWING VARIOUS COMPANY’S AND THEIR RESPECTIVE BETA VALUES
49
1
0.8
0.6
0.4
BETA
0.2
-0.2
AC AU
M
RA
HE
TA ON
DR
AS
BA X Y
M D DY
M RBA
O
AR
& UDY
H
C
TA
NB
RO
.R EL
JA
SE 'S
OK
M
E
UT R
J
A
ST A
H
-0.4
LE
I
E
TO
YL
E
D
AN
O
G
D
INTERPRETATION :
The Beta is the measure of the risk involved when invested in Stock Options of a particular
company. The Beta value should fall between 0 and 1 for a riskless investment. If the Beta value
is more than 1 then it involves a high risk.
Here from the above chart it can be seen that all the ten companies have Beta value less than one .
But from investors point of veiw investing in DR.REDDY’S would have les risk when compared
to all other companies followed by HEROHONDA,BAJAJAUTO, RANBAXY, etc.
2.2 EXISTING SYSTEM
50
In finance, a derivative is a financial instrument that is derived from an underlying asset's value;
rather than trade or exchange the asset itself.
Market participants enter into an agreement to exchange money, assets or some other value at
some future date based on the underlying asset. Examples of assets could be anything from bars of
gold, to a stock, or even an interest rate.
Derivatives can be based on different types of assets such as Commodities, Equities or Bonds,
Interest rates , exchange rates, or indices (such as a stock market index, consumer price index
(CPI) — see inflation derivatives — or even an index of weather conditions, or other derivatives).
Their performance can determine both the amount and the timing of the payoffs. The main use of
derivatives is to either remove risk or take on risk depending if one were a hedger or a speculator.
The diverse range of potential underlying assets and payoff alternatives leads to a huge range of
derivatives contracts available to be traded in the market.
The main types of derivatives are:

► Futures
► Forwards
► Options
► Swaps
Derivatives are increasingly being used to protect assets from drastic fluctuations and at the same
time they are being re-engineered to cover all kinds of risk and with this the growth of the
derivatives market continues. It is, indeed, ironic that something set up to prevent risk will also
allow parties to expose themselves to risk of exponential proportions.
FUTURES:
51
A futures contract is a standardized contract to buy or sell a specific security at a future date at an
agreed price.
FORWARDS:
The process involves the delivery of foreign currency at a specified future date for a specified price
is known as Forward contract.
OPTIONS:
Options are a type of derivative, which simply means that their value depends on the value of an
underlying investment. In most cases, the underlying investment is a stock, but it can also be an
index, a currency, a commodity, or any number of other securities.
SWAPS:
Financial SWAPS are a funding technique, which permit a borrower to access one market and then
exchange the liability for another type of liability. The global financial markets present borrowers
and investors with a wide variety of financing and investment vehicles in terms of currency and
type of coupon- fixed or floating.
TYPES OF PRODUCTS:
Index Futures
A futures contract is a standardized contract to buy or sell a specific security at a future date at an
agreed price. An index future is, as the name suggests, a future on the index i.e. the underlying is
the index itself. There is no underlying security or a stock, which is to be delivered to fulfill the
obligations as index futures are cash settled. As other derivatives, the contract derives its value
from the underlying index. The underlying indices in this case will be the various eligible indices
and as permitted by the Regulator from time to time.
52
Index Options
Options contract give its holder the right, but not the obligation, to buy or sell something on or
before a specified date at a stated price. Generally index options are European Style. European
Style options are those option contracts that can be exercised only on the expiration date. The
underlying indices for index options are the various eligible indices and as permitted by the
Regulator from time to time.
Stock Futures
A stock futures contract is a standardized contract to buy or sell a specific stock at a future date at
an agreed price. A stock future is, as the name suggests, a future on a stock i.e. the underlying is a
stock. The contract derives its value from the underlying stock. Single stock futures are cash
settled.
Stock Options
Options on Individual Stocks are options contracts where the underlings are individual stocks.
Based on eligibility criteria and subject to the approval from the regulator, stocks are selected on
which options are introduced. These contracts are cash settled and are American style. American
Style options are those option contracts that can be exercised on or before the expiration date.
2.3 NEED FOR CHANGE IN THE SYSTEM
As prescribed by SEBI vide its Circulars regarding the eligibility criteria for introducing Futures &
Options Contracts on stocks and indices, the following revised eligibility criteria would be applied
w.e.f. September 22nd, 2006 to determine the eligibility of stocks and indices on which Futures &
Options contract could be introduced for trading in Derivatives.
Eligibility criteria for introducing Futures & Options Contracts on Stocks
53
o The stocks would be chosen from amongst the top 500 stocks in terms of average
daily market capitalization and average daily traded value in the previous six-month
on a rolling basis.
o For a stock to be eligible, the median quarter-sigma order size over the last six
months should not be less than Rs.1lac (Rs0.01 Million). For this purpose, a stock's
quarter sigma order size shall mean the order size (in value terms) required to cause
a change in the stock price equal to one-quarter of a standard deviation.
o The Market Wide Position Limit in the Stock shall not be less than Rs50crores
(Rs500 Million). The Market Wide Position Limit is valued taking into
consideration 20% of number of shares held by the Non Promoters (i.e. free-float
holding) in the relevant underlying Security(i.e. free-float holding) and the closing
prices of the stock in the underlying cash market on the date of expiry of contract in
the month. Market Wide Position Limit is calculated at the end of every month.
The methodology used for calculating quarter sigma order size is as follows:
o Quarter sigma order size would be calculated taking four snapshots in a day from
the order book of the stock in the past six months.
o The sigma (standard deviation) or volatility estimate would be calculated in the

manner specified by Prof. J. R. Varma Committee on risk containment measures for
Index Futures. This daily closing volatility estimate value would be applied to the
day's order book snapshots to compute the order size.
o The quarter sigma percentage would be applied to the average of the best bid and
offer price in the order book snapshot to compute the order size to move price of the
stock by quarter sigma.
54
o The median order size to cause quarter sigma price movement shall be determined
separately for the buy side and the sell side. The average of the median order size
for the buy and the sell side is taken as the median quarter sigma order size.
o The quarter sigma order size in stock shall be calculated on the 15th of each month,
on a rolling basis, considering the order book snapshots in the previous six months.
Similarly, the average daily market capitalization and the average daily traded value
shall also be computed on the 15th of each month, on a rolling basis, to arrive at the
list of top 500 stocks.
Eligibility criteria for unlisted companies coming out with Initial Public Offering:
For unlisted companies coming out with initial public offering, if the net public offer is
Rs.500crores (Rs5 Billion) or more, then the exchange may consider introducing stock options and
stock futures on such stocks at the time of its listing in the cash market.
2.4 PROPOSED SYSTEM
Eligibility criteria for stocks on account of corporate restructuring:

All the following conditions should be met in the case of shares of a company undergoing
restructuring through any means for eligibility to re-introduce derivative contracts on that company
from the first day of listing of the post restructured company in the underlying market:
o The Futures and Options contracts on the stock of the original (pre-restructure)
company were traded on any exchange prior to its restructuring.
o The pre restructured company had a market capitalization of at least Rs.1000crores

(Rs10 Billion) prior to restructuring.
o The post restructure company would be treated like a new stock and if it is, in the
opinion of the exchange, likely to be at least one third of the size of the pre
structuring company in terms of revenues or assets or analyst valuations, and
55
o In the opinion of the exchange, the scheme of restructuring does not suggest that the
post restructured company would have any characteristic that would render the
company ineligible for derivatives trading.
o If the post restructured company comes out with an Initial Public Offering (IPO),
then the same prescribed criteria as currently applicable for introduction of
derivatives on a company coming out with an IPO is applied for introduction of
derivatives on stocks of the post restructured company from its first day of listing.
Discontinuance / Exit of Futures & Options Contracts on stocks:

No fresh month contracts shall be issued on the stocks under the following instances
o If a stock does not conform to the above eligibility criteria for a consecutive period
of three months, no fresh month contracts shall be issued on the same.
o If the stock remains in the banned position in the manner stated in SEBI Circular
No. SEBI/DNPD/Cir-26/2004/09/16 dated July 16, 2004 as per para 4 (i) (a), (b) (c)
of the aforementioned SEBI circular, for a significant part of the month,
consistently for three months, then no fresh month contracts shall be issued on those
scripts.
o The exit criteria shall be more flexible as compared to entry criteria in order to
prevent frequent entry and exit of stocks in the derivatives segment. Therefore, for a
stock to become ineligible, the criteria for market wide position limit shall be
relaxed up to 10% of the criteria applicable for the stock to become eligible for
derivatives trading. The other eligibility conditions would be applicable mutas
mutandis for the stock to become ineligible.
If a stock fails to meet the aforesaid eligibility criteria for three months consecutively, then no
fresh month contract shall be issued on that stock
56
However, the existing unexpired contracts may be permitted to trade till expiry and new strikes
may also be introduced in the existing contract months.
The Exchange may compulsorily close out all derivative contract positions in a particular
underlying when that underlying has ceased to satisfy the eligibility criteria or the exchange is of
the view that the continuance of derivative contracts on such underlying is detrimental to the
interest of the market keeping in view the market integrity and safety. The decision of such forced
closure of derivative contracts shall be taken in consultation with other exchanges where such
derivative contracts and are also traded shall be applied uniformly across all exchanges.
Re-Introduction of Stocks Discontinued from Futures & Options Trading:

A stock, which is dropped from derivatives trading, may become eligible once again. In such
instances, the stock is required to fulfill the eligibility criteria for three consecutive months (instead
of one month as specified earlier) to be re-introduced for derivatives trading. Derivative contracts
on such stocks may be re-introduced by the exchange itself. However, introduction of futures and
option contracts on a stock for the first time would continue to be subject to SEBI approval.
Eligibility criteria for introducing Futures & Options Contracts on Index
The Futures Options Contracts on an index can be issued only if 80% of the index constituents are
individually eligible for derivatives trading. However, no single ineligible stock in the index shall
have a weight age of more than 5% in the index. The index on which Futures and Options
contracts are introduced shall be required to comply with the eligibility criteria on a monthly basis.
Discontinuance of Futures & Options Contracts on index:
If the index fails to meet the above eligibility criteria for three months consecutively, then no fresh
month contract shall be issued on that Index. However, the existing unexpired contracts shall be
permitted to trade till expiry and new strike prices will continue to be introduced in the existing
contracts.
57
The above requirements as prescribed by SEBI need to be necessarily met for introduction
of F&O contracts on underlying stocks of the cash market. However, once the criteria are met, it is
at the discretion of the Exchange to apply to SEBI for permission to launch F&O contract on the
eligible stocks. Once the SEBI approval in respect of those stocks is obtained, the exchange issues
a suitable notice to the market, in advance and then introduces F & O contracts on the respective
stocks.
TRADING SYSTEM
The Derivatives Trading at BSE takes place through a fully automated screen based trading
platform called as DTSS (Derivatives Trading and Settlement System). The DTSS is designed to
allow trading on a real time basis. In addition to generating trades by matching opposite orders, the
DTSS also generates various reports for the member participants.
Order Matching Rules
Order Matching will take place after order acceptance wherein the system searches for an opposite
matching order. If a match is found, a trade will be generated. The order against which the trade
has been generated will be removed from the system. In case the order is not exhausted further
matching orders will be searched for and trades generated till the order gets exhausted or no more
match-able orders are found. If the order is not entirely exhausted, the system will retain the order
in the pending order book. Matching of the orders will be in the priority of price and timestamp. A
unique trade-id will be generated for each trade and the entire information of the trade is sent to the
members involved.
Order Conditions
The derivatives market is order driven i.e. the traders can place only Orders in the system.
Following are the Order types allowed for the derivative products. These order types have
characteristics similar to ones in the cash market.
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o Limit Order: An order for buying or selling at a limit price or better, if possible.
Any unexecuted portion of the order remains as a pending order till it is matched or
its duration expires.
o Market Order: An order for buying or selling at the best price prevailing in the
market at the time of submission of the order.
o There are two types of Market orders:

1. Partial fill rest Kill (PF): execute the available quantity and kill any
unexecuted portion.
2. Partial fill rest Convert (PC): execute the available quantity and convert any
unexecuted portion into a limit order at the traded price.
o Stop Loss: An order that becomes a limit order only when the market trades at a
specified price.
All orders shall have the following attributes:

o Order Type (Limit / Market PF/Market PC/ Stop Loss)
o The Asset Code, Product Type, Maturity, Call/Put and Strike Price.
o Buy/Sell Indicator
o Order Quantity
o Price
o Client Type (Own / Institutional / Normal)
o Client Code
o Order Retention Type (GFD / GTD / GTC)
Good For Day (GFD) - The lifetime of the order is that trading session.
Good Till Date (GTD) - The life of the order is till the number of days as specified by the order
retention period.
59
.
Good Till Cancelled (GTC) - The order if not traded will remain in the system till it is cancelled or
the series expires, whichever is earlier.
o Order Retention Period (in calendar days) this field is enabled only if the value of
the previous attribute is GTD. It specifies the number of days the order is to be
retained.
o Protection Points this is a field relevant in Market Orders and Stop Loss orders. The
value enterable will be in absolute underlying points and specifies the band from the
touchline price or the trigger price within which the market order or the stop loss
order respectively can be traded.
o Risk Reducing Orders (Y/N): When the member's collateral falls below 50lacs then
he will be allowed to put only risk reducing orders and he will not be allowed to
take any fresh positions. It is not essentially a type of order but a mode into which
the member is put into when he violates his collateral limit. A member who has
entered the risk-reducing mode will be allowed to put only one risk reducing order
at a time.
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CHAPTER 3
PRESENT CONDITIONS WITH SPECIAL REFERENCE TO THE

ORGANIZATION
61
3.1 PRESENT CONDITIONS OF ORGANISATIONS
ABOUT US the Elixir Consultants group was formed in 1983 at Chennai, India. Elixir Consultants
ranks among the top player in almost all the fields it operates. Elixir Consultants Computer share
Limited is India’s largest Registrar and Transfer Agent with a client base of nearly 500 blue chip
corporate, managing over 2crore accounts. Elixir Consultants Stock Brokers Limited, member of
National Stock Exchange of India and the Bombay Stock Exchange, ranks among the top 5 stock
brokers in India. With over 6, 00,000 active accounts, it ranks among the top 5 Depositary
Participant in India, registered with NSDL and CDSL. Elixir Consultants COM trade, Member of
NCDEX and MCX ranks among the top 3 commodity brokers in the country. Elixir Consultants
Insurance Brokers is registered as a Broker with IRDA and ranks among the top 5 insurance agent
in the country. Registered with AMFI as a corporate Agent, Elixir Consultants is also among the
top Mutual Fund mobilize with over Rs.5, 000crores under management. Elixir Consultants Realty
Services, which started in 2006, has quickly established itself as a broker who adds value, in the
realty sector. Elixir Consultants Global offers niche off shoring services to clients in the US.
Elixir Consultants has 575 offices over 375 locations across India and overseas at Dubai and New
York. Over 9,000 highly qualified people staff Elixir Consultants.
Organization:
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Elixir Consultants was started by a group of five chartered accountants in 1979. The partners
decided to offer, other than the audit services, value added services like corporate advisory
services to their clients. The first firm in the group, Elixir Consultants Consultants Limited was
incorporated on 23rd July, 1983. In a very short period, it became the largest Registrar and
Transfer Agent in India. This business was spun off to form a separate joint venture with Computer
share of Australia, in 2005. Elixir Consultants’s foray into stock broking began with marketing
IPO, in 1993. Within a few years, Elixir Consultants began topping the IPO procurement league
tables and it has consistently maintained its position among the top 5. Elixir Consultants was
among the first few members of National Stock Exchange, in 1994 and became a member of The
Stock Exchange, Chennai in 2001. Dematerialization of shares gathered pace in mid-90s and Elixir
Consultants was in the forefront educating investors on the advantages of their shares. Today Elixir
Consultants is among the top 5 Depositary Participant in India.
While the registry business is a 50:50 Joint Venture with Computer share of Australia, we have
equity participation by ICICI Ventures Limited and Barings Asia Limited, in Elixir Consultants
Stock Broking Limited. For a snapshot of our organization structure, please click here.
Elixir Consultants has always believed in adding value to services it offers to clients. A top-notch
research team based in Chennai and Chennai supports its employees to advise clients on their
investment needs. With the information overload today, Elixir Consultants’s team of analysts help
investors make the right calls, be it equities, mf, insurance. On a typical working day Elixir
Consultants:
* Has more than 25,000 investors visiting our 575 offices

* Publishes / broadcasts at least 50 buy / sell calls
* Attends to 10,000+ telephone calls
* Mails 25,000 envelopes, containing Annual Reports, dividend cheques / advises, allotment /
refund advises
* Executes 150,000+ trades on NSE / BSE
* Executes 50,000 debit / credit in the depositary accounts
* Advises 3,000+ clients on the investments in mutual funds
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In 1982, a group of Chennai-based practicing Chartered Accountants started Elixir Consultants
Consultants Limited with a capital of Rs.1, 50,000 offering auditing and taxation services initially.
Later, it forayed into the Registrar and Share Transfer activities and subsequently into financial
services. All along, Elixir Consultants's strong work ethic and professional background leveraged
with Information Technology enabled it to deliver quality to the individual.
A decade of commitment, professional integrity and vision helped Elixir Consultants achieve a
leadership position in its field when it handled the largest number of issues ever handled in the
history of the Indian stock market in a year. Thereafter, Elixir Consultants made inroads into a host
of capital-market services,
-Corporate and retail-, which proved to be a sound business.
Today, Elixir Consultants has access to millions of Indian shareholders, besides

companies, banks, financial institutions and regulatory agencies. Over the past one and half
decades, Elixir Consultants has evolved as a veritable link between industry, finance and people. In
January 1998, Elixir Consultants became the first Depository Participant in Andhra Pradesh. An
ISO 9002 company, Elixir Consultants's commitment to quality and retail reach has made it
an integrated financial services company.
CORPORATE FINANCE Recognized as a leading merchant banker in the country, we are

registered with SEBI as a Category I merchant banker. This reputation was built by capitalizing on
opportunities in corporate consolidations, mergers and acquisitions and corporate restructuring,
which have earned us the reputation of a merchant banker. Raising resources for corporate or
Government Undertaking successfully over the past two decades have given us the confidence to
renew our focus in this sector.
Our quality professional team and our work-oriented dedication have propelled us to offer value-
added corporate financial services and act as a professional navigator for long term growth of our
clients, who include leading corporate, State Governments, foreign institutional investors, public
and private sector companies and banks, in Indian and global markets.
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We have also emerged as a trailblazer in the arena of relationships, both at the customer and trade
levels because of our unshakable integrity, seamless service and innovative solutions that are tuned
to meet varied needs. Our team of committed industry specialists, having extensive experience in
capital markets, further nurtures this relationship.
Our financial advice and assistance in restructuring, divestitures, acquisitions, de-mergers, spin-
offs, joint ventures, privatization and takeover defense mechanisms have elevated our relationship
with the client to one based on unshakable trust and confidence.
Elixir Consultants Computer share Private Limited is a joint venture between Computer share,
Australia and Elixir Consultants Consultants Limited, India in the registry management services
industry.
Computer share, Australia is the world’s largest and only global share registry providing financial
market services and technology to the global securities industry.
Elixir Consultants Corporate and Mutual Fund Share Registry and Investor Services business,
India's No. 1 Registrar and Transfer Agent and rated as India's "Most Admired Registrar" for its
overall excellence in volume management, quality processes and technology driven services.
Corporate Profile
Elixir Consultants Computer share came into existence with the coming together of two stalwarts –
Computer share on the global scale and Elixir Consultants in the Indian domestic markets. The
50:50 ventures would bring together global capabilities and local expertise in carrying forward the
legacy of comprehensive registry management services in India and across the globe.
Computer share has over 6000 experienced professionals, Computers hare operates in five
continents, providing services and solutions to listed companies, investors, employees, exchanges
and other financial institutions while Elixir Consultants has handled over 675 issues as Registrar to
Issues servicing over 16 million investors from multiple locations across India.
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Elixir Consultants Computer share is all geared up to establish a new paradigm in service delivery
driven by benchmark operations management practices, the highest quality standards and state-of-
the-art technology to service its clients and the investor community at large. The rapid
developments in the Indian securities market infrastructure, regulatory environment and
internationalization of the Indian economy provides outstanding opportunities for us to leverage on
each others capabilities to provide cross border transactions and a larger service portfolio to our
foreign multinational as well as Indian multinational clients.
The combination of local knowledge and global expertise with technological innovations is going
to mark the emergence of a fully integrated services provider with cross border capabilities.
Products & Services
Elixir Consultants Computer share is the largest share registry and transfer agency in the country
and provides unmatched registry management services to corporate clients. Our service gamut
includes Initial Public Offers (IPO) processing, share holder servicing, effecting corporate actions,
investor information services and host of technology enabled services to facilitate efficient and
effective service delivery.
Corporate Share and Mutual Fund Registry Services
Elixir Consultants Computer share is the largest share registry and transfer agency in the
country and provides unmatched registry management services to corporate clients. Our service
gamut includes Initial Public Offers (IPO) processing, share holder servicing, effecting corporate
actions, investor information services and host of technology enabled services to facilitate efficient
and effective service delivery.
Elixir Consultants Computer share manages over 16 million investor accounts and focuses on
innovative product and service offerings to our clients and the investor population to match
investor expectations and reaffirm our leadership position in the industry.
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Our two decade long association with the financial industry and capital market services has helped
us understand the nuances of the business and has reinforced our commitment in managing people,
processes and technology for share registry services. We are driven by our strong values, sharp
focus and undying passion for service and continue to delivery investor delight through our
enduring client responsiveness and shareholder satisfaction efforts.
We take pride in being the trusted and responsible representatives of our clients in serving the
investor and will forever strive to compliment client businesses by delivering the highest level of
service using our expertise in our domain, the use of technology and innovations to redefine the
service paradigm.
Transaction Processing Services
The pillar of our service repertoire is our capability to deliver services that are hall marked for their
accuracy, timeliness and relevance. Information is available through various delivery channels and
clients and investors abreast of happenings.We have established service standards for all activities
which have become benchmarks in the industry.
Investor Communication Services
Communication; be it from the client to the shareholder or from the investor to the company is
listened to and responded to with utmost urgency. Turnaround times for each communication be it
transactional, investor information or corporate actions and announcements happen on time.
Clients have the option to couple their marketing efforts with communications that go out to the
shareholder thereby fostering company - investor relationships.
Technology Enabled Services
67
We have invested in technology and developed state of the art applications and service delivery
mechanisms to exploit the advantages of technology as a tool and enabler to the business.
• Automated Back Office Processing
• Internet Based Online Transactions Services
• Web Forms and E-Mail Based Contact Centers
• IVR and Agent Based and Call Centre Services
• Online Reporting and Management
Elixir Consultants’s Achievements
 Largest mobilize of funds as per PRIME DATABASE

 First ISO - 9002 Certified Registrar in India
 A Category- I -Merchant banker.
 A Category- I -Registrar to Public Issues.
 Ranked as “The Most Admired Registrar" by MARG.
 Handled the largest- ever Public Issue - IDBI
 Handled over 500 Public issues as Registrars.
 Handling the Reliance Account which accounts for nearly 10 million account holders
 First Depository Participant from Andhra Pradesh.
Elixir Consultants Consultants have also acted as

 Arrangers
 Co-Managers
 Registrars for issues
For a number of highly reputed companies
Debt issues handled by Elixir Consultants Securities Ltd
68
Elixir Consultants has secured over Rs.500crore through the following debt issues.
 Andhra Pradesh Road Development Corporation Ltd
 ICICI Bonds ( Private Placement)
 ICICI Bonds – 96
 ICICI Bonds – 97- I
 ICICI Bonds – 97 – II
 ICICI Safety Bonds March 98.
 IDBI Bonds 96.
 IDBI Flexi Bonds I
 IDBI Flexi Bonds II
 IDBI Flexi Bonds III
 Kerala State Electricity Board
 Krishna Bhagya Jala Nigam Ltd
 Power Finance Corporation Ltd
 Andhra Pradesh Water Resources Development Corporation
 Andhra Pradesh State Electricity Board
Retailing of Government Securities
The Reserve Bank of India has been actively trying to promote retailing of Government securities.
First, a system of primary dealers and satellite dealers was set up and liquidity support from the
RBI has been made available to them. Secondly, the RBI announced special liquidity support for
dedicated gilt funds. However, not much interest has been evinced in this channel so far. Thirdly,
banks are now allowed to freely buy and sell Government Securities on an outright basis and retail
Government securities to non-bank clients, without any restriction on the period between sale and
purchase. Fourthly, with a view to enabling dematerialization of securities of retail holders,
institutions such as National Securities Depository Ltd. (NSDL), Stock Holding Corporation of
India Limited (SHCIL) and National Securities Clearing Corporation Ltd. (NSCCL) have been
allowed to open SGL Accounts with the RBI.
Strengthening Dealers System
69
The RBI has recently enlarged the number of Primary Dealers (PD) from 6 to 13 by announcing
'in-principle' agreement to register 7 PD. The addition of 7 more PD is expected to increase
activities in terms of liquidity and depth both in the primary and secondary markets.
Investment in Central Government Securities by FII
To widen the participants in the debt market, including Government securities, foreign institutional
investors have also been permitted to operate, though such participation within the overall ceilings
on external commercial borrowings.
Ready Forward Transactions
In our market, two types of repose are currently in operation - inter bank repo including Primary
Dealers (PD) and the RBI repot which is used for absorption/injection of liquidity. After the
irregularities in securities transactions in 1992, inter bank repos are permitted under regulated
conditions with eligible participants and instruments being generally restricted and now expanded
gradually.
Developments in the Debt Market
The development in the in Indian debt market in the recent past is very aggressive after the
government reforms. Some of the reasons are as follows:
 Sound legal framework
 Strong regulation and supervision
 Market Infrastructure for Trading and Settlement
 Retailing of government securities
PRE LIBERALISATION POST LIBERALISATION

SCENARIO SCENARIO
70
Instrument The plain vanilla bond was Bonds with complex features
the most popular instrument are gaining in importance
Interest rates Stable administrated interest Volatile and market-

rates prevailed determined interest rates
have come into vogue
Number of players Few players Many players
Reference rate No reference A reference rate is gradually
emerging
Method of analysis Investor used simplest Investors have begun
measures like current yield calculating more precise
and years to maturity and measures like yield to
followed ad hoc thumb rules. maturity and duration and are
applying more scientific
methods
Nature of market Large highly illiquid There is sign of increasing
liquidity
CHANGING COMPLEXTION OF DEBT MARKET IN INDIA

Business growth and prospect in the Wholesale and Retail Debt Markets
Business growth in the WDM segment
The following table clearly explains the year on year growth and the relevant data that
supports for analysis. They are as follows:
Market Net Traded Average Daily Average Trade

Number of
Year Capitalization Value Value Size
Trades
(Rs.crores) (Rs.crores) (Rs.crores) (Rs.crores)
71
1994-1995 158,181 1,021 6,781.15 30.41 6.64
1995-1996 209,783 2,991 11,867.68 40.78 3.97
1996-1997 292,772 7,804 42,277.59 145.28 5.42
1997-1998 343,191 16,821 111,263.28 377.16 6.61
1998-1999 411,470 16,092 105,469.13 364.95 6.55
1999-2000 494,033 46,987 304,216.24 1,034.75 6.47
2000-2001 580,835 64,470 428,581.51 1,482.98 6.65
2001-2002 756,794 144,851 947,191.22 3,277.48 6.54
2002-2003 864,481 167,778 1,068,701.54 3,598.32 6.37
2003-2004 1,192,090 166,826 1,155,790.99 4,679.32 6.93
BUSINESS GROWTH IN THE WDM SEGMENT
The following graph explains the growth in the market capitalization in the past years from 94-95
to 2009-2004
GROWTH IN MARKET CAPITALIZATION

Market capitalization in Crores
1200000
1000000
800000
600000 Series 1
400000
200000
0
2002- 2003- 2004- 2005- 2006- 2007- 2008-
03 04 05 06 07 08 09
72
GROWTH IN MARKET CAPITALISAITON
The above graph explains that market capitalization is considerably increasing in the WDM
segment after the reforms made by the government in the WDM.
The following graph explains the number of trades through NSE in the past years from 94-95 to
2009-2010.
GROWTH IN NUMBER OF TRADES
The above graph explains the growth in the number of trades over the year. The trade has been
drastically increases compared to the pre reform stage.
The following graph explains the growth in trade value over the period of ten years.
TRADED VALUE
Traded Value in Crores
1200000
1000000
800000
600000 Series 1
400000
200000
0
2002- 2003- 2004- 2005- 2006- 2007- 2008-
03 04 05 06 07 08 09
73
GROWTH IN TRADE VALUE
The above graph clearly explains that the trade value is increasing over the period as compared to
the pre and post reform announced by the government.
Business growth in RDM segment
The following table clearly explains the month on month growth and the relevant data that
supports for analysis. They are as follows:
Traded Value
Month / Year No of trades Traded quantity
(Rs.lakhs)
Jan-2004 17 11,810 14.83
Dec-2009 24 7,110 9.15
Nov-2009 18 1,010 1.30
Oct-2009 6 3,190 4.01
Sep-2009 16 8,700 11.20
Aug-2009 24 7,460 10.41
Jul-2009 45 7,740 10.55
Jun-2009 48 11,320 14.52
May-2009 56 15,500 19.91
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Apr-2009 108 38,540 49.53
Mar-2009 136 45,710 54.15
Feb-2009 104 30,170 35.67
Jan-2009 293 177,220 219.97
BUSINESS GROWTH IN RDM SEGMENT
The following graphs indicate the performance in the last one year:
NUMBER OF TRADES
250
No of Trades
200
150
100
Series 1
50
0
20 AY
08 R
08 N
AN
20 OV
20 SEP
20 UL
20 JA
A
-M
-M
-J
-J
-N
-
-
08
08
09
08
08
20
20
Months
NUMBER OF TRADES
The above graph states clearly that the trade size has been drastically decreased over the
period. It has decreased from nearly 300 to 25 in the last month.
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TRADED QUANTITY
250
Traded Quantity
200
150
Series 1
100
50
0
20 A Y
R
AN
AN
V
EP
20 UL
A
O
-M
-S
-M
-J
-J
-J
-N
09
08
08
08
08
08
08
20
20
20
20
20
Months
TRADED QUANTITY
The above graph states the traded quantity on y axis. It is sizably reduced in the past I year
from 150000 to 15000.
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Traded Value in Crores TRADED VALUE
1200000
1000000
800000
600000 Series 1
400000
200000
0
2002- 2003- 2004- 2005- 2006- 2007- 2008-
03 04 05 06 07 08 09
TRADED VALUE
The traded value has decreased in the last few months from 225lakhs to 15lakhs.
Reasons for decline in the trading in the RDM segment
The retail trading in government securities is proving to be a non-starter and retail volumes have
declined drastically since the beginning of Jan 2009. The reasons are:-
(i) The bond market has traditionally been an institutional market. Investing in bonds
requires analyzing bond yield curve. The retail investors are at a disadvantageous
position vis-à-vis institutional investors who posses more analytical skills to analyze
price trends of bonds.
(ii) In today's scenario the government securities cannot be a substitute for wide range of
small savings instruments such as National Savings Certificate, Kisan Vikas Patra or
Post office savings bank deposits. Investors willing to take some risk and or value
liquidity have gone into debt mutual funds. These mutual funds invest in a range of
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fixed income instruments including gilts (app. 20% of the total corpus). Thus the retail
investor has already acquired gilt through an indirect route.
(iii) The primary dealers are not enthusiastic about dealings in low value individual
transactions given the costs and minimal commission.
(iv) It is imperative that awareness about the debt market needs to be created among the
retail investors for trading to thrive.
(v) Accessibility to G-secs is also not easy as compared to other products offered by Banks
and Post Office.
(vi) In today's scenario when yields are at the bottom the retail market in gilt cannot be a
prudent investment for individuals.
The following measures in the retail debt market will improve the scope / future prospects
(i) Government should put some regulatory restrictions on institutional players to offload odd lots
in the market. As small investors have to pay a premium it does not become investor friendly.
(ii) G-Secs are not investment products but rather a safe avenue to park the funds.
(iii) For the retail trade in gilt to take off, there should be no tax on the dedicated gilt funds.
Individual investor’s income from gilts should also be totally tax-free.
Government should give up its obsession with low interest rates. To conclude we may say that
while the platform for retail gilt trading has been built with meticulous care, the overall
environment. The option could be to launch retail gilt with floating interest rates may be even with
a floor rate. Better still would be an inflation linked bond targeted only at the individuals. If banks
are persuaded to sell G-Secs to individuals and others across the counters through their more than
60000 branches it will be easier to develop an extensive retail market for G-Secs.
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INDIAN TRADE MARKET
Government Securities- G-Secs are issued by the Reserve Bank of India on behalf of the
Government of India. Normally the dated government securities have a period of 1 year to 30
years. These are sovereign instruments generally bearing a fixed interest rate with interest’s
payable semi-annually and principle as per schedule. For shorter term, RBI issues Treasury Bills
which are discounted papers. At present T-Bills are issued for 91 days, 182 days & 364 days. G-
Secs provide risk free (credit risk) return to investors. Corporate Bonds- Corporate Bonds are
issued by public sector undertakings and private corporations for a wide range of tenors normally
up to 15 years although some corporate have also issued perpetual bonds. Compared to
government bonds, corporate bonds generally have a higher risk of default. This risk depends, of
course, upon the particular corporation issuing the bond, the current market conditions, the
industry in which it is operating and the rating of the company. Corporate bond holders are
compensated for this risk by receiving a higher yield than government bonds.
Certificate of Deposit- CDs are negotiable money market instruments issued in demat form or as a
Usance Promissory Notes. CDs issued by banks should have a maturity of not less than seven days
and not more than one year. Financial Institutions are allowed to issue CDs for a period between 1
year and up to 3 years. CDs normally give a higher return than Bank term deposit. CDs are rated
by approved rating agencies (e.g. CARE, ICRA, CRISIL, and FITCH) which considerably enhance
their tradability in secondary market. CDs are issued in denominations of Rs.1 Lac and in the
multiples of Rs. 1 Lac thereafter.Commercial Papers a CP is a short term security (7 days to 365
days) issued by a corporate entity (other than a bank), at a discount to the face value. One can
invest in CP starting from a minimum of 5lacs (face value) and multiples thereof. CP is rated by
approved rating agencies (e.g. CARE, ICRA, CRISIL, and FITCH). CP normally gives a higher
return than fixed deposits & CDs. We deal in investment grade CP only. CP can be traded in the
secondary market, depending upon demand. An element of credit risk is attached to CP.
SBI DFHI deals in all these instruments and can help you invest in them. Please see our homepage.
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Debt Instruments India
Debt Instruments are obligations of issuer of such instrument as regards certain future cash flow
representing Interest & Principal, which the issuer would pay to the legal owner of the Instrument.
They can also be said to be tradable form of loans.
Debt Instruments are of various types like Bonds, Debentures, Commercial Papers, Certificates of
Deposit, Government Securities (G secs) etc. The Government Securities (G-Secs) market is the
oldest and the largest component of the Indian debt market in terms of market capitalization,
trading volumes and outstanding securities. The G-Secs market plays a vital role in the Indian
economy as it provides the benchmark for determining the level of interest rates in the country
through the yields on the government securities which are treated as the risk-free rate of return in
any economy. The reserve Bank of India has permitted Primary Dealers, Banks and Financial
Institutions in India to do transactions in debt instruments among themselves or with non-bank
clients. Debt instruments provide fixed return declared as coupon rate. Retail investors would have
a natural preference for fixed income returns and especially so in the current situation of increasing
volatility in the financial markets. Now, retail investors are also showing keen interest in Debt
Instruments particularly in the Central Government Securities (G-secs).For an individual investor
G-secs are one of the best investment options as there is zero default risk and lower volatility in
case of G-secs. SBI DFHI is a major player in G-Secs market and widely deals in other debt
instruments also.
The distinguishing factors of the Debt Instruments are as follows:-
1) Issuer class
2) Coupon bearing / Discounted
3) Interest Terms
4) Repayment Terms (Including Call / put etc.)
5) Security / Collateral / Guarantee
SBI DFHI Ltd. has several options like SBI DFHI Invest, SBI DFHI Trade and SBI DFHI Invest
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Plus (details available on website) through which investors can participate in the G-Sec and
Corporate Debt Market.
Equity Trading India
The Indian Equity Market is also popularly known as the share market. The forces moving the
market depend mainly on monsoons, global funds flowing into equities and the performance of
various companies.
The Indian Equity Market is almost wholly dominated by two major stock exchanges - National
Stock Exchange of India Ltd. (NSE) and The Bombay Stock Exchange (BSE). The benchmark
indices of the two exchanges - Nifty of NSE and Sensex of BSE are closely followed. The two
exchanges also have an F&O (Futures and options) segment for trading in equity derivatives
including the indices. The major players in the Indian Equity Market are Mutual Funds, Financial
Institutions and FII representing mainly Venture Capital Funds and Private Equity Funds.
All trading on the Indian bourses is carried out in dematerialized form. Shares held in physical
form remain illiquid and cannot be sold in the market by any investor since there is no liquidity for
physical stocks. Furthermore, SEBI has mandated that securities be sold only in dematerialized
form in the T+2 rolling settlement systems. SEBI has also mandated that all IPO’s be traded
compulsorily in the dematerialized form
Indian Equity Market at present is a lucrative field for investors. Indian stocks are profitable not
only for long and medium-term investors but also the position traders, short-term swing traders and
also very short term intra-day traders. In India as on December 30, 2009, market capitalization
(BSE 500) at US$ 1638 billion was 150 per cent of GDP, matching well with other emerging
economies and selected matured markets.
Derivatives Trading India

A derivative is a financial instrument which derives its value from the value of the underlying asset
/ variable. Its value changes with change in the value of the underlying asset/variable. The
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underlying asset/variable can be securities, commodities, bullion, index of prices, currency, live
stock or anything else even weather. Derivatives are generally used to hedge risk but can also be
used for speculative purposes.
The different types of derivatives include forwards, futures, options, swaps etc. It is said that
derivatives in the form of Futures Contracts on cotton were traded in India as far back as 1875.
Forward contract is a contract to trade in a particular asset (which may be a security, currency,
commodity, etc.) at a particular price on a pre-specified date. Currency forward contracts are very
popular OTC contracts in India.
Forward Rate Agreement (FRA) is an agreement to lend / borrow money for a specified period on
a notional Principal on a particular date in the future at a rate that is determined today. It is an
agreement where both parties agree to deal at a particular interest rate for a specific period decided
beforehand for a predetermined amount. It is like a forward contract where the underlying is a loan
or deposits both notional. FRA is OTC contracts.
Futures are standardized forward contracts that are traded on an exchange and where the counter-
party (the party with which the contract has been signed) is the exchange itself. Equity Futures are
actively traded on the country’s stock exchanges and currency futures have recently been
introduced in India.
Options are contracts where one party(buyer) has the right but not the obligation to trade or engage
in a transaction in a particular asset / underlying / variable at a particular price (called strike price)
on a pre-determined date/dates or in a particular time interval. Options are available as OTC
products and as exchange-traded products. Options have many variations. Equity options are
actively traded on the stock exchanges in India.
Interest rate swaps are normally agreements where one side pays the counterparty a particular
interest rate (floating) and the other side pays an interest rate (fixed or floating based on some
other benchmark). Arising from these are Overnight index swaps that are actively traded in Indian
markets. These are swaps where the floating rate is an overnight rate (such as NSE MIBOR) and
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the fixed rate is paid in return of the compounded floating rate over a certain period. SBI DFHI
also deals in Overnight interest rate swaps (OIS).
Bond Market India A debt market is also known as a ‘fixed income market’ as debt instruments
pay fixed returns. The Bond Market is part of the debt market. Debt markets are now considered an
alternative route to banking channels for finance.
Fixed Income securities offer a predictable stream of payments by way of interest and repayment
of principal at the maturity of the instrument. The debt securities are issued by the eligible entities
against the moneys borrowed by them from the investors on these instruments. Therefore, a lot of
debt securities also carry a fixed charge on the assets of the entity and generally enjoy a reasonable
degree of safety by way of the security of the fixed and/or movable assets of the company.
Some of the benefits to the investors in debt instruments are:
• The investors benefit by investing in fixed income securities as they preserve and increase their
invested capital and also ensure the receipt of regular interest income.
• The investors can even neutralize the default risk on their investments by investing in Govt.
securities, which are normally referred to as risk-free investments due to the sovereign guarantee
on these instruments.
• The prices of Debt securities display a lower average volatility as compared to the prices of other
financial securities and ensure the greater safety of accompanying investments.
• Debt securities enable wide-based and efficient portfolio diversification and thus assist in
portfolio risk-mitigation.
• Almost all debt instruments have a rating assigned to them by a Rating Agency which enables the
investor to choose his degree of risk and corresponding returns.
Do you know the impact of the debt market on the economy?

The Asian financial crisis in the 1990s stressed the importance of a fully active debt market; the
lack of which aggravated the crisis. For a developing economy like India, debt markets are crucial
sources of capital funds. The debt market in India is amongst the largest in Asia. It includes
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government securities, public sector undertakings, other government bodies, financial institutions,
banks and companies.
How do the debt markets impact the economy?
• Opportunity for investors to diversify their investment portfolio.

• Higher liquidity and control over credit.
• Better corporate governance.
• Improved transparency because of stringent disclosure norms and auditing requirements.
• Less risk compared to the equity markets, encouraging low-risk investments. This leads to inflow
of funds in the economy.
• Increased funds for implementation of government development plans. The government can raise
funds at lower costs by issuing government securities.
•Implementation of a monetary policy.
• Reduced role of banks and political intervention in use of funds, as banks have to follow norms
laid down by the central bank.
Gsecs India
Government Securities are securities issued by the Government for raising a public loan or as
notified in the official Gazette. They consist of Government Promissory Notes, Bearer Bonds,
Stocks or Bonds held in Bond Ledger Account. They may be in the form of Treasury Bills or
Dated Government Securities.
Mostly Government Securities are interest bearing dated securities issued by RBI on behalf of the
Government of India. GOI uses these funds to meet its expenditure commitments. These securities
are generally fixed maturity and fixed coupon securities carrying semi-annual coupon. Since the
date of maturity is specified in the securities, these are known as dated Government securities, e.g.
8.24% GOI 2018 is a Central Government security maturing in 2018, which carries a coupon of
8.24% payable half yearly.
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Features of Government Securities
1) Issued at face value

2) No default risk as the securities carry sovereign guarantee.
3) Ample liquidity as the investor can sell the security in the secondary market
4) Interest payment on a half yearly basis on face value
5) No tax deducted at source
6) Can be held in D-mat form.
7) Rate of interest and tenor of the security is fixed at the time of issuance and is not subject to
change (unless intrinsic to the security like FRB).
8) Redeemed at face value on maturity
9) Maturity ranges from of 2-30 years.
10) Securities qualify as SLR investments (unless otherwise stated).
The dated Government securities market in India has two segments:
1) Primary Market: The Primary Market consists of the issuers of the securities, viz., Central and
Sate Government and buyers include Commercial Banks, Primary Dealers, Financial Institutions,
Insurance Companies & Co-operative Banks. RBI also has a scheme of non-competitive bidding
for small investors (see SBI DFHI Invest on our website for further details).
2) Secondary Market: The Secondary Market includes Commercial banks, Financial Institutions,
Insurance Companies, Provident Funds, Trusts, Mutual Funds, Primary Dealers and Reserve Bank
of India. Even Corporate and Individuals can invest in Government Securities. The eligibility
criteria are specified in the relative Government notification.
Auctions: Auctions for government securities are normally multiple- price auctions either yield
based or price based.
Yield Based: In this type of auction, RBI announces the issue size or notified amount and the tenor
of the paper to be auctioned. The bidders submit bids in term of the yield at which they are ready
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to buy the security. If the Bid is more than the cut-off yield then it’s rejected otherwise it is
accepted
Price Based: In this type of auction, RBI announces the issue size or notified amount and the tenor
of the paper to be auctioned, as well as the coupon rate. The bidders submit bids in terms of the
price. This method of auction is normally used in case of reissue of existing government securities.
Bids at price lower then the cut off price are rejected and bids higher then the cut off price are
accepted. Price Based auction leads to a better price discovery then the Yield based auction.
Underwriting in Auction: One day prior to the auction, bids are received from the Primary Dealers
(PD) indicating the amount they are willing to underwrite and the fee expected, The auction
committee of RBI then examines the bid on the basis of the market condition and takes a decision
on the amount to be underwritten and the fee to be paid. In case of devolvement, the bids put in by
the PD’s are set off against the amount underwritten while deciding the amount of devolvement
and in case the auction is fully subscribed, the PD need not subscribe to the issue unless they have
bid for it.G-Secs, State Development Loans & T-Bills are regularly sold by RBI through periodic
public auctions. SBI DFHI Ltd. is a leading Primary Dealer in Government Securities. SBI DFHI
Ltd gives investors an opportunity to buy G-Sec / SDL / T-Bills at primary market auctions of RBI
through its SBI DFHI Invest scheme (details available on website itself). Investors may also invest
in high yielding Government Securities through “SBI DFHI Trade” where “buy and sell price” and
a buy and sell facility for select liquid scrip in the secondary markets is offered.
Debt and equity
Securities are traditionally divided into debt securities and equities (see also derivatives).
Debt
Debt securities may be called debentures, bonds, deposits, notes or commercial paper depending
on their maturity and certain other characteristics. The holder of a debt security is typically entitled
to the payment of principal and interest, together with other contractual rights under the terms of
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the issue, such as the right to receive certain information. Debt securities are generally issued for a
fixed term and redeemable by the issuer at the end of that term. Debt securities may be protected
by collateral or may be unsecured, and, if they are unsecured, may be contractually "senior" to
other unsecured debt meaning their holders would have a priority in a bankruptcy of the issuer.
Debt that is not senior is "subordinated".
Corporate bonds represent the debt of commercial or industrial entities. Debentures have a long
maturity, typically at least ten years, whereas notes have a shorter maturity. Commercial paper is a
simple form of debt security that essentially represents a post-dated check with a maturity of not
more than 270 days.
Money market instruments are short term debt instruments that may have characteristics of deposit
accounts, such as certificates of deposit, and certain bills of exchange. They are highly liquid and
are sometimes referred to as "near cash". Commercial paper is also often highly liquid.
Euro debt securities are securities issued internationally outside their domestic market in a
denomination different from that of the issuer's domicile. They include Eurobonds and euro notes.
Eurobonds are characteristically underwritten, and not secured, and interest is paid gross. A Euro
note may take the form of euro-commercial paper (ECP) or euro-certificates of deposit.
Government bonds are medium or long term debt securities issued by sovereign governments or
their agencies. Typically they carry a lower rate of interest than corporate bonds, and serve as a
source of finance for governments. U.S. federal government bonds are called treasuries. Because
of their liquidity and perceived low risk, treasuries are used to manage the money supply in the
open market operations of non-US central banks.
Sub-sovereign government bonds, known in the U.S. as municipal bonds, represent the debt of
state, provincial, territorial, municipal or other governmental units other than sovereign
governments.
Supranational bonds represent the debt of international organizations such as the World Bank, the
International Monetary Fund, regional multilateral development banks and others.
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Equity
An equity security is a share of equity interest in an entity such as the capital stock of a company,
trust or partnership. The most common form of equity interest is common stock, although
preferred equity is also a form of capital stock. The holder of equity is a shareholder, owning a
share, or fractional part of the issuer. Unlike debt securities, which typically require regular
payments (interest) to the holder, equity securities are not entitled to any payment. In bankruptcy,
they share only in the residual interest of the issuer after all obligations have been paid out to
creditors. However, equity generally entitles the holder to a pro rata portion of control of the
company, meaning that a holder of a majority of the equity is usually entitled to control the issuer.
Equity also enjoys the right to profits and capital gain, whereas holders of debt securities receive
only interest and repayment of principal regardless of how well the issuer performs financially.
Furthermore, debt securities do not have voting rights outside of bankruptcy. In other words,
equity holders are entitled to the "upside" of the business and to control the business
Hybrid
Hybrid securities combine some of the characteristics of both debt and equity securities.
Preference shares form an intermediate class of security between equities and debt. If the issuer is
liquidated, they carry the right to receive interest and/or a return of capital in priority to ordinary
shareholders. However, from a legal perspective, they are capital stock and therefore may entitle
holders to some degree of control depending on whether they contain voting rights.
Convertibles are bonds or preferred stock which can be converted, at the election of the holder of
the convertibles, into the common stock of the issuing company. The convertibility, however, may
be forced if the convertible is a callable bond, and the issuer calls the bond. The bondholder has
about 1 month to convert it, or the company will call the bond by giving the holder the call price,
which may be less than the value of the converted stock. This is referred to as a forced conversion.
Equity warrants are options issued by the company that allow the holder of the warrant to purchase
a specific number of shares at a specified price within a specified time. They are often issued
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together with bonds or existing equities, and are, sometimes, detachable from them and separately
tradable. When the holder of the warrant exercises it, he pays the money directly to the company,
and the company issues new shares to the holder.
Warrants, like other convertible securities, increases the number of shares outstanding, and are
always accounted for in financial reports as fully diluted earnings per share, which assumes that all
warrants and convertibles will be exercised.
The securities markets
Primary and secondary market
In the U.S., the public securities markets can be divided into primary and secondary markets. The
distinguishing difference between the two markets is that in the primary market, the money for the
securities is received by the issuer of those securities from investors, typically in an initial public
offering transaction, whereas in the secondary market, the securities are simply assets held by one
investor selling them to another investor (money goes from one investor to the other). An initial
public offering is when a company issues public stock newly to investors, called an "IPO" for
short. A company can later issue more new shares, or issue shares that have been previously
registered in a shelf registration. These later new issues are also sold in the primary market, but
they are not considered to be an IPO but are often called a "secondary offering". Issuers usually
retain investment banks to assist them in administering the IPO, obtaining SEC (or other regulatory
body) approval of the offering filing, and selling the new issue. When the investment bank buys
the entire new issue from the issuer at a discount to resell it at a markup, it is called a firm
commitment underwriting. However, if the investment bank considers the risk too great for an
underwriting, it may only assent to a best effort agreement, where the investment bank will simply
do its best to sell the new issue.
In order for the primary market to thrive, there must be a secondary market, or aftermarket which
provides liquidity for the investment security, where holders of securities can sell them to other
investors for cash. Otherwise, few people would purchase primary issues, and, thus, companies
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and governments would be restricted in raising equity capital (money) for their operations.
Organized exchanges constitute the main secondary markets. Many smaller issues and most debt
securities trade in the decentralized, dealer-based over-the-counter markets.
In Europe, the principal trade organization for securities dealers is the International Capital Market
Association. In the U.S., the principal trade organization for securities dealers is the Securities
Industry and Financial Markets Association, which is the result of the merger of the Securities
Industry Association and the Bond Market Association. The Financial Information Services
Division of the Software and Information Industry Association (FISD/SIIA) represents a round-
table of market data industry firms, referring to them as Consumers, Exchanges, and Vendors.
Public offer and private placement
In the primary markets, securities may be offered to the public in a public offer. Alternatively, they
may be offered privately to a limited number of qualified persons in a private placement.
Sometimes a combination of the two is used. The distinction between the two is important to
securities regulation and company law. Privately placed securities are not publicly tradable and
may only be bought and sold by sophisticated qualified investors. As a result, the secondary
market is not nearly as liquid as it is for public (registered) securities.
Another category, sovereign debt, is generally sold by auction to a specialized class of dealers.
Listing and OTC dealing
Securities are often listed in a stock exchange, an organized and officially recognized market on
which securities can be bought and sold. Issuers may seek listings for their securities in order to
attract investors, by ensuring that there is a liquid and regulated market in which investors will be
able to buy and sell securities.
Growth in informal electronic trading systems has challenged the traditional business of stock
exchanges. Large volumes of securities are also bought and sold "over the counter" (OTC). OTC
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dealing involves buyers and sellers dealing with each other by telephone or electronically on the
basis of prices that are displayed electronically, usually by commercial information vendors such
as Reuters and Bloomberg.
There are also euro securities, which are securities that are issued outside their domestic market
into more than one jurisdiction. They are generally listed on the Luxembourg Stock Exchange or
admitted to listing in London. The reasons for listing Eurobonds include regulatory and tax
considerations, as well as the investment restrictions.
Market
London is the centre of the euro securities markets. There was a huge rise in the euro securities
market in London in the early 1980s. Settlement of trades in euro securities is currently effected
through two European computerized clearing/depositories called Euro clear (in Belgium) and Clear
stream (formerly Cede bank) in Luxembourg.
The main market for Eurobonds is the Euro MTS, owned by Borsa Italiana and Euro next. There
are ramp up market in Emergent countries, but it is growing slowly.
Physical nature of securities
Certificated securities
Securities that are represented in paper (physical) form are called certificated securities. They may
be bearer or registered.
Bearer securities
Bearer securities are completely negotiable and entitle the holder to the rights under the security
(e.g. to payment if it is a debt security, and voting if it is an equity security). They are transferred
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by delivering the instrument from person to person. In some cases, transfer is by endorsement, or
signing the back of the instrument, and delivery.
Regulatory and fiscal authorities sometimes regard bearer securities negatively, as they may be
used to facilitate the evasion of regulatory restrictions and tax. In the United Kingdom, for
example, the issue of bearer securities was heavily restricted firstly by the Exchange Control Act
1947 until 1953. Bearer securities are very rare in the United States because of the negative tax
implications they may have to the issuer and holder.
Registered securities
In the case of registered securities, certificates bearing the name of the holder are issued, but these
merely represent the securities. A person does not automatically acquire legal ownership by having
possession of the certificate. Instead, the issuer (or its appointed agent) maintains a register in
which details of the holder of the securities are entered and updated as appropriate. A transfer of
registered securities is affected by amending the register.
Non-certificated securities and global certificates
Modern practice has developed to eliminate both the need for certificates and maintenance of a
complete security register by the issuer. There are two general ways this has been accomplished.
Non-certificated securities
In some jurisdictions, such as France, it is possible for issuers of that jurisdiction to maintain a
legal record of their securities electronically.
In the United States, the current "official" version of Article 8 of the Uniform Commercial Code
permits non-certificated securities. However, the "official" UCC is a mere draft that must be
enacted individually by each of the U.S. states. Though all 50 states (as well as the District of
Columbia and the U.S. Virgin Islands) have enacted some form of Article 8, many of them still
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appear to use older versions of Article 8, including some that did not permit non-certificated
securities.
In the U.S. today, most mutual funds issue only non-certificated shares to shareholders, though
some may issue certificates only upon request and may charge a fee. Shareholders typically don't
need certificates except for perhaps pledging such shares as collateral for a loan.
Global certificates, book entry interests, depositories
In order to facilitate the electronic transfer of interests in securities without dealing with
inconsistent versions of Article 8, a system has developed whereby issuers deposit a single global
certificate representing all the outstanding securities of a class or series with a universal
depository. This depository is called The Depository Trust Company, or DTC. DTC parent,
Depository Trust & Clearing Corporation (DTCC), is a non-profit cooperative owned by
approximately thirty of the largest Wall Street players that typically act as brokers or dealers in
securities. These thirty banks are called the DTC participants. DTC, through a legal nominee, owns
each of the global securities on behalf of all the DTC participants.
All securities traded through DTC are in fact held, in electronic form, on the books of various
intermediaries between the ultimate owner, e.g. a retail investor, and the DTC participants. For
example, Mr. Smith may hold 100 shares of Coca Cola, Inc. in his brokerage account at local
broker Jones & Co. brokers. In turn, Jones & Co. may hold 1000 shares of Coca Cola on behalf of
Mr. Smith and nine other customers. These 1000 shares are held by Jones & Co. in an account with
Goldman Sachs, a DTC participant, or in an account at another DTC participant. Goldman Sachs
in turn may hold millions of Coca Cola shares on its books on behalf of hundreds of brokers
similar to Jones & Co. Each day, the DTC participants settle their accounts with the other DTC
participants and adjust the number of shares held on their books for the benefit of customers like
Jones & Co. Ownership of securities in this fashion is called beneficial ownership. Each
intermediary holds on behalf of someone beneath him in the chain. The ultimate owner is called
the beneficial owner. This is also referred to as owning in "Street name".
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Among brokerages and mutual fund companies, a large amount of mutual fund share transactions
take place among intermediaries as opposed to shares being sold and redeemed directly with the
transfer agent of the fund. Most of these intermediaries such as brokerage firms clear the shares
electronically through the National Securities Clearing Corp. or "NSCC", a subsidiary of DTCC.
Other depositories: Euro clear and Clear stream
Besides DTC, two other large securities depositories exist, both in Europe: Euro clear and Clear
stream.
Divided and undivided security
The terms "divided" and "undivided" relate to the proprietary nature of a security.
Each divided security constitutes a separate asset, which is legally distinct from each other security
in the same issue. Pre-electronic bearer securities were divided. Each instrument constitutes the
separate covenant of the issuer and is a separate debt.
With undivided securities, the entire issue makes up one single asset, with each of the securities
being a fractional part of this undivided whole. Shares in the secondary markets are always
undivided. The issuer owes only one set of obligations to shareholders under its memorandum,
articles of association and company law. A share represents an undivided fractional part of the
issuing company. Registered debt securities also have this undivided nature.
Fungible and non-fungible security
The terms "fungible" and "non-fungible" relate to the way in which securities are held.
If an asset is fungible, this means that if such an asset is lent, or placed with a custodian, it is
customary for the borrower or custodian to be obliged at the end of the loan or custody
arrangement to return assets equivalent to the original asset, rather than the specific identical asset.
In other words, the redelivery of fungibles is equivalent and not in specie. In other words, if an
owner of 100 shares of IBM transfers custody of those shares to another party to hold them for a
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purpose, at the end of the arrangement, the holder need simply provide the owner with 100 shares
of IBM which are identical to that received. Cash is also an example of a fungible asset. The exact
currency notes received need not be segregated and returned to the owner.
Undivided securities are always fungible by logical necessity. Divided securities may or may not
be fungible, depending on market practice. The clear trend is towards fungible arrangements.
MIBOR (Chennai Inter-Bank Offer Rate)
The Committee for the Development of the Debt Market that had studied and recommended the
modalities for the development for a benchmark rate for the call money market, Accordingly, NSE
had developed and launched the NSE Chennai Inter-bank Bid Rate (MIBID) and NSE Chennai
Inter-bank Offer Rate (MIBOR) for the overnight money market on June 15, 1998. The success of
the Overnight NSE MIBID MIBOR encouraged the Exchange to develop a benchmark rate for the
term money market. NSE launched the 14-day NSE MIBID MIBOR on November 10, 1998 and
the longer term money market benchmark rates for 1 month and 3 months on December 1, 1998.
The MIBID/MIBOR rate is used as a bench mark rate for majority of deals struck for Interest Rate
Swaps, Forward Rate Agreements, Floating Rate Debentures and Term Deposits.
Fixed Income Money Market and Derivative Association of India (FIMMDA) have been in the
forefront for creation of benchmarks that can be used by the market participants to bring
uniformity in the market place. To take the process of development further, FIMMDA and NSEIL
have taken the initiative to co-brand the dissemination of reference rates for the Overnight Call and
Term Money Market using the current methodology behind NSE – MIBID/MIBOR. The product
was rechristened as 'FIMMDA-NSE MIBID/MIBOR'. The 'FIMMDA-NSE MIBID/MIBOR' is
now jointly disseminated by FIMMDA as well as NSEIL through their websites and other means
and simultaneous dissemination of the information would be as per international practice.
95
Debt to Equity Ratio
Definition: The Debt to Equity Ratio measures how much money a company should safely be able
to borrow over long periods of time. It does this by comparing the company's total debt (including
short term and long term obligations) and dividing it by the amount of owner's equity (which is
explained in part 26.) For now, you only need to know that the number can be found at the bottom
of the balance sheet. You'll actually calculate the debt to equity ratio in segment two when we look
at real balance sheets.)
The result you get after dividing debt by equity is the percentage of the company that is indebted
(or "leveraged"). The normal level of debt to equity has changed over time, and depends on both
economic factors and society's general feeling towards credit. Generally, any company that has a
debt to equity ratio of over 40 to 50% should be looked at more carefully to make sure there are no
liquidity problems. If you find the company's working capital, and current / quick ratios drastically
low, this is is a sign of serious financial weakness
Long Term Debt
The amount of long term debt on a company's balance sheet is crucial. It refers to money the
company owes that it doesn't expect to pay off in the next year. Long term debt consists of things
such as mortgages on corporate buildings and / or land, as well as business loans.
A great sign of prosperity is when a balance sheet shows the amount of long term debt has been
decreasing for one or more years. When debt shrinks and cash increases, the balance sheet is said
to be "improving". When it's the other way around, it is said to be "deteriorating". Companies
with too much long term debt will find themselves overwhelmed with interest payments, a risk of
having too little working capital, and ultimately, bankruptcy. Thankfully, there is a financial tool
that can tell you if a business has borrowed too much money.
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What Does Debt Fund Mean?
An investment pool, such as a mutual fund or exchange-traded fund, in which core holdings are
fixed income investments, A debt fund may invest in short-term or long-term bonds, securitized
products, money market instruments or floating rate debt. The fee ratios on debt funds are lower,
on average, than equity funds because the overall management costs are lower.
The main investing objectives of a debt fund will usually be preservation of capital and generation
of income. Performance against a benchmark is considered to be a secondary consideration to
absolute return when investing in a debt fund.
Any debt instrument that can be bought or sold between two parties and has basic terms defined,
such as notional amount (amount borrowed), interest rate and maturity/renewal date. Debt
securities include government bonds, corporate bonds, CDs, municipal bonds, preferred stock,
collateralized securities (such as CDO, CMO, GNMA) and zero-coupon securities.
The interest rate on a debt security is largely determined by the perceived repayment ability of the
borrower; higher risks of payment default almost always lead to higher interest rates to borrow
capital.
Investopedia explains Debt Security
Most debt securities are traded over-the-counter, with much of the trading now conducted
electronically. The total dollar value of trades conducted daily in the debt markets is much larger
than that of stocks, as debt securities are held by many large institutional investors as well as
governments and non-profit organizations.
Debt securities on the whole are safer investments than equity securities, but riskier than cash.
Debt securities get their measure of safety by having a principal amount that is returned to the
lender at the maturity date or upon the sale of the security. They are typically classified and
grouped by their level of default risk, the type of issuer and income payment cycles.
97
an avid investor is concerned about the sluggish growth in the net asset value (NAV) of debt
schemes vis-à-vis the NAV of most equity funds. In fact, considering the not-so-encouraging
growth in debt schemes, Desai preferred an equity scheme to a debt one. And there are quite a lot
of investors who share Desai’s concern and prefer investing in equity schemes.
More so, taking into account the ‘herd-mentality’ mode of investing, it is perceived that debt
schemes occupy only a secondary position in the various avenues of mutual funds investment. So,
why is it that debt schemes, which have less but a relatively constant flow of income, are “the
least-preferred mode of mutual funds investment”, when it comes to returns?
FE Investor analyzed what debt scheme investments entail, various strategies used in these
schemes for making monies, their performances, and delved more into what’s in store for investors
looking at investing in these schemes, apart from the returns perspective.
Ideally, debt funds are of three types via income/bonds, liquid/money market and gilts schemes.
Income/bond schemes invest in long- and medium-term instruments like corporate bonds,
debentures, fixed deposits, while liquid/money market schemes invest in instruments having short-
term period like treasury bills, commercial paper, call money and repos.
Gilt funds invest in sovereign papers issued by the central government and the state governments.
The maturity period in these funds are medium- and long-term depending upon an investor’s
goals? There are other plans, too, like monthly income plans (MIP) wherein every month a fixed
amount is invested of which approximately 20% is allocated to equity and the remaining to debt.
A fixed maturity plan (FMP) is a close-ended scheme, and has an exit load, if redeemed, before the
maturity period. Such schemes can have a maturity period of three months to three years. It selects
an instrument, which corresponds with its maturity period. For instance, if the maturity of a
scheme is one year, then the scheme will invest in instruments having one-year maturity. As the
instrument will have a fixed interest rate payable on quarterly/half-yearly basis, the NAV will be
on interest accrual basis.
98
Ideally, investments in the equity markets are fraught with uncertainties and volatility. And hence,
these factors nullify a constant flow of returns, which debt schemes, to a certain extent, guarantee.
And this being true of the current market scenario, there is a growing shift towards debt schemes.
Hence, in order to secure the hard-earned money, the investment is protected through proper asset
allocation of 60:40 between debt and equity. And this also depends upon the investor’s goals and
risk-taking capacity.
Also, if one sees an opportunity where super-normal profits are generated in an equity scheme, one
tends to get attracted towards it. This is what we witnessed in the last three years in the equity
market. And there is no harm in it.
However, to consolidate a portfolio, one has to focus on retaining the income generated through
equity, considering their high-risk nature. And this way, one can reduce the equity component and
increase the debt exposure gradually. Investing in debt funds will give a steady income without
destroying the capital.
Tax arbitrage
A potent reason behind investing in debt funds is the tax benefit. Specifically, this is termed as ‘tax
arbitrage’. Investing in debt attracts tax but in a different manner. Opting for dividend option in
liquid/money market schemes attracts net dividend distribution tax of 28.325% and the remaining
debt schemes (like gilt, income/bonds) attract 14.16% tax in the hands of mutual funds. Hence, tax
is paid on behalf of investors by the mutual fund company.
On fixed deposit, the interest earned is taxable in your hands at 33.99%. But for a liquid fund the
tax is 28.325%. Therefore, the difference in tax rate between fixed deposit and liquid fund is
5.665%. But in actuality one receives more than this. The net tax comes to 22.09% instead of
28.325%.
99
To show the exact benefit, we will have two instances of liquid funds. The first instance is where
tax is levied in the hands of the holder and other is tax levied in the hands of the mutual funds
company. In the first instance, both the fixed deposit and liquid fund holder is getting a return of
Rs100. So, after deducting the tax, net income for fixed deposit and liquid funds will be Rs66.01
and Rs71.675 respectively. Therefore the tax benefit is Rs5.665, as mentioned above. In the second
instance, where the tax is deducted by the mutual fund in case of liquid fund, the tax will be
deducted not on Rs100 but on the amount of dividend distributed to the holders, which is
Rs77.927. So, the taxable amount will be Rs22.09 on Rs77.927. Rs100, which is the overall
income for the fixed deposit and liquid fund, now, the net tax benefit is Rs33.99 - Rs22.09, which
works out to Rs11.92. This is only in the case of liquid funds.
The tax on other debt schemes is 14.16%, which is even lesser and it widens the arbitrage
opportunity for the investors.
HNI and corporate, who want a tax benefit plus liquidity, can use the arbitrage opportunity. And
for these, rather than keeping the surplus in a savings account (at 3.5%) or current account (no
interest) or fixed deposits which have a lock-in period, liquid/money market funds are better
options. As investor incomes fall under the 30% tax slab, saving a tax on that amount is significant
in value.
Also, investors who want to invest for the medium- or long-term can go in for FMP as dividend
distribution tax (DDT) is less than the income tax in case of fixed deposits. If an investor chooses
the growth option, then the tax implication is very different. There are two types of tax structures:
long-term capital gains tax (LTCG) and short-term capital gains tax (STCG). The time period for
STCG is less than one year and the returns are taxed at 33.99%.
In LTCG, the period considered is more than one year. The tax can be calculated in two ways. A
tax rate of 10% flat is imposed on the income earned. The other is 20% tax on the basis of
indexation. Indexation is the process by which inflation is taken into account when computing the
tax liability. The tax rate of 20% is calculated on the differential amount between the income and
indexation amount.
100
While these are the caveats and the technicalities involved in debt schemes, it is also equally
important to note how these funds have performed. The reason being on the basis of their
performances, the significance of these observations will come to the surface and also be verified.
Best performer
The returns on the funds depend on the maturity profile. And hence, in order to differentiate the
best performers in debt schemes, we have divided their performances according to their maturity
profiles. For instance, non-convertible debentures give higher interest than commercial paper as
the former is for the medium- and long-term and the latter is for short and medium term
instruments.
Now, looking at the rising interest rates in the... past, for more than one year, gilt funds have not
performed up to the mark. It is noteworthy to specify this, as the rules of the game have changed
over the last 2-3 years. There was a time when government securities (G-secs) with a 10-year
benchmark yield to maturity (YTM) were moving in the range of 5-6%.
But currently, G-secs are moving at YTM of 7.5-8%. The returns on gilt funds depend on the bond
prices. If bond prices are decreasing, then the returns on them will decline over a period of time.
But there are gilt funds that have reasonably performed well.
After looking at the performances, it is seen that in the last one year, short-term or liquid funds
have been the best performers among all the categories, considering returns generated by the
majority of the schemes in this category. The schemes generated a return in the range of 7.5-8%. In
this the majority of the funds are allocated to call money, repos, commercial paper (CP), certificate
of deposit (CD), fixed deposit (FD), etc. Medium- and long-term funds invest in bonds, non-
convertible debentures and fewer amounts in CP and CD. These have generated a return in the
range of 7%-7.5%.
101
Looking ahead
Though the last credit policy announced by the RBI did not make any changes in key interest rates,
there is a buzz regarding a further hike in cash reserve ratio (CRR), which can put further pressure
on banks. There are mixed reactions by fund managers over the trend of interest rates. In this
situation, where interest rates could remain stable or can decline a little, selecting a lucrative debt
fund is difficult. Advises Ramanathan K, head-fixed income, ING Vysya Asset Management,
“Investors with a time period of one to three years can go for FMP, They can stay away from
investing in gilts for some time, looking at the uncertainty in interest rates in the near future”
Debt funds offer tremendous scope for most investors. One can get liquidity, and most importantly,
a regular flow of income. However, it has a risk attached as compared to fixed deposits. But
considering the benefit of tax arbitrage and the imposition of penalty on withdrawal before
maturity in fixed deposits, liquid funds are a better option, though returns in both fixed deposits
and liquid funds are more or less the same. On the other hand, FMP are relatively less risky than
income
102
CHAPTER 4
SUMMARY, CONCLUSION AND SUGGESTION
103
4.1 SUMMARY
 MOSERBAER has the maximum Beta when compared to other companies, so investing
in MOSERBAER will carry high risk.
 Volatility of MOSERBAER company is more so it will produce high output when

compared to other companies, but it carries a lot of risk.
 Volatility Indian market is not constant and is varying over time.
 The investor can reduce his loss even if the market moves against his perception by
using stock options.
4.2 SCOPE OF THE SYSTEM
Options are financial instruments that provide a great deal of flexibility for the investor in making
investment decisions.Options trading has thrown up some great success stories in the world of high
finance. But it has also destroyed established traders and individuals.
Users have to; thus, exercise a certain amount of caution. Options are traded on a variety of
securities, including equities. Given the basic operations, investors have to understand certain key
terms. These are the critical factors that affect the price of an option.
It can be concluded that if the investor has a good perception about the market and the strategies
(Calculation of Beta and volatality) he will be able to make good return from the market . If the
investors change the strategies according to the fluctuations then only he will be able to make
profit with minimum possibility of loss since stock option is considered as a good tool to reduce
the possibility of loss in market if the market moves against his perception. From the Analysis and
the Interpretation it can be said that the Risk profile is the same across all the stock options. But
the findings are restricted as there are limitations of the study.
104
4.3 SUGGESTIONS
 Investing in HEROHONDA will be usefull as it has balance between Beta and volatility,.
 With a good perception of the market , investor can use Stock Options as a profit
making strategy.
 If the Beta value is less than one then it is a risk less investment. If Beta is more than one it
carries high risk with it and its better not to invest.
105
BIBLIOGRAPHY
 WWW.NSEINDIA.COM
 WWW.BSE.COM
 WWW.ECONOMICTIMES.COM
 WWW.ELIXIR CONSULTANTS.COM
 Prasanna Chandra, Inestment Analysis and Portfolio Management, TATA McGraw-Hill.
 Fischer and Jordan, Security Analysis and Portfolio Management, Prentice hall.
106

A Study On Volatality in BSE Sensex

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2.1 Analysis of the situation 21

3.1 Present conditions with special reference to the organization 61

Summary, Conclusion and Suggestion

In corporate hierarchy two types of managements are envisaged:

1.1 ORGANISATION PROFILE

Board of Directors and Supervisory Board

The Exchange’s organization, internal trading supervision, implementation of the Board’s

Committees for the representation of interests

Permitted Derivatives: - Contract Permitted Derivatives Contract is a derivative contract which is

Trading Member: - Trading Member is a member of Derivative Exchange.

Underlying Securities: - Means a security with reference to which a derivatives contract is

1. To have a basic knowledge about stock option.

1.6 PROCEDURE METHODOLOGY

Research will be conducted on ten companies.

The procedure adopted will be convenient sampling.

CALCULATION OF BETA AND VOLATALITY

Formula used for the calculation of Beta and Standard Deviation

Computation of Standard Deviation:

RATE OF RETURN = (Adj Close – Open) / Open*100

Beta = n. Σxy - (Σx) (Σy)

Stock Return (Y) = (Adj Close – Open) / Open*100

S & P CNX Market Stock

Chart showing both Stock return and Market return

Series 1: Market Return

Beta = 21* 43.101 - (2.402)(-42.336)

Chart showing both the market and stock returns of BAJAJAUTO

Series 2: Stock Return

ACC - From 1-3-2009 to 31-3-2009 - BETA AND VOLATILITY

Chart showing both Market return and Stock return of ACC

Series 1: Market Return

Series 2: Stock Return

Beta = n. Σxy - (Σx) (Σy)

Volatility = Standard Deviation of Return on ACC

HEROHONDA - From 1-3-2009 to 31-3-2009

S & P CNX Market Stock

Chart showing both Market Return and Stock Return of HEROHONDA

Series 1: Market Return

Series 2: Stock Return

Beta = n. Σxy - (Σx) (Σy)

Beta = 21* 17.046 - (2.402)(-0.558)

Volatility = Standard Deviation of Return on HEROHONDA

TATASTEEL - From 1-3-2009 to 31-3-2009

S & P CNX Market Stock

Chart showing both Market Returns and Stock Returns of TATASTEEL

Series 1: Market Return

Series 2: Stock Return

Beta = n. Σxy - (Σx) (Σy)

Beta = 21* 51.013- (2.402)(-9.027)

Volatility = Standard Deviation of Return on TATASTEEL

BETA AND VOLATILITY

S & P CNX Market Stock

Chart showing both Stock return and Market return

Series 1: Market Return

Series 2: Stock Return

Beta = n. Σxy - (Σx) (Σy)

Beta = 21* (-13.595) - (2.402)(8.117)

MOSERBAER - From 1-3-2009 to 31-3-2009

S & P CNX Market Stock

Chart showing both the market and stock returns of MOSERBAER

Series 1: Market Return

Series 2: Stock Return