Emerging Trends of Derivative Trading In India

In: Journal of Global Economy, Band 4, Heft 2, S. 199-218

Abstract

Derivatives markets generally are an integral part of capital markets in developed as well as in emerging market economies. These instruments assist business growth by disseminating effective price signals concerning exchange rates, indices and reference rates or other assets and thereby render both cash and derivatives markets more efficient. These instruments also offer protection from possible adverse market movements and can be used to manage or offset exposures by hedging or shifting risks particularly during periods of volatility thereby reducing costs. By allowing for the transfer of unwanted risk, derivatives can promote more efficient allocation of capital across the economy, increasing productivity in the economy. Though the commodity features trading has been in existence since 1953 and certain OTC derivatives such as Forward Rate Agreements (FRAs) and Interest Rate Swaps (IRSs) were allowed by RBI through its guidelines in 1999, the trading in "securities" based derivatives on stock exchanges was permitted only in June 2000. The discussion that follows is mainly focused on "securities" based derivatives on stock exchanges.