A project report on

STUDY OF DERIVATIVES IN INDIAN STOCK MARKET

PERIOD (2009-2012)

Submitted to

_______________________________________________________

__________________________________________________________

Nashik

In partial fulfillment of the Requirement of the award of the degree

Of

Master of Business Administration (MBA-Finance)

By:

__________________________________________________

Under The Guidance of

Through

The Coordinator

Study Centre Code: _________

CERTIFICATE

This is to certify that the project report entitled on

“STUDY OF DERIVATIVES IN INDIAN STOCK MARKET PERIOD

(2009-2012)” for the Academic Year 2010-2012

Submitted to the School of Commerce and Management, Yashwantrao

Chavan Maharashtra Open University, Nashik in partial fulfillment of the

requirement for the award of Degree of Master of Business Administration

(MBA) is original work carried out by

__________________________________________________ with

PRN-2010017002887675 under my guidance. The matter embodied in this

project is genuine work done by the student and has not been submitted to

this University or any other University/Institute for the partial fulfillment of

the required study.

Date:

Place:

DECLARATION

I, __________________________________________________, the student

of MBA-Finance, completed project on

“STUDY OF DERIVATIVES IN INDIAN STOCK MARKET”

PERIOD (2009-2012), for the Academic Year 2010-2012.

The information provided in this project is my original work and is being

submitted in partial fulfillment for the award of Master’s Degree in Business

Administration of __________________________________________.

This report has not been submitted earlier either to this or to any other

University or Institution for the fulfillment or the requirement of a course of

study. The information given in this project is true to the base of my

knowledge.

MR.. __________________________________________________

Student

Date: 13/10/2012

Place: Nashik

ACKNOWLEDGEMENT

For any success, you require hard work and genuine efforts, but it is incomplete

without innumerable blessings, support, and sincere guidance.

I especially thank my Guide and Mentor Dr. Sunil Joshi for all the support,

motivation, and technical guidance he provided throughout the duration without

which my aim would have been incomplete.

I am indeed grateful to all professors and staff from Bhonsla Military College,

with whom I had the opportunity to interact. I am also thankful to Mrs.

Kochargaonkar (principal) and Mr. Sawant (Coordinator YCMOU MBA) as

without their cooperation and blessings, the work I had undertaken was not

possible at all.

I thank to all staff of the DMS group who interacted with me and provided all the

information necessary for the concluding work.

I am also very thankful to my family members and my friends who have been

extremely supportive throughout this journey.

E X E C U T I V E S U M M A R Y

Financial markets are, by nature, extremely volatile and hence the risk factor

is major concern for financial agents. As uncertainty about future goes

down, volatility is expected to go down; however as mentioned earlier, the

response/ reaction time becomes shorter, volatility is expected to increase.

To reduce the risk, the concept of derivatives comes into picture. Last

decade was one of the eventful decades in the Indian markets. In India, the

emergence and growth of derivatives market is relatively a recent

phenomenon. Since its inception in June 2000, derivatives market has

exhibited exponential growth both in terms of volume and number of traded

contracts.

On one side, just a few derivatives disaster stories were enough to bring

entire business of derivatives under the limelight, make every one worry

about unknown risk associated with derivatives, and elevate derivatives into

mysterious ‘something’; while on the other side, there were people who

started understanding the derivatives and used the derivatives for hedging

and mitigating the risks while adding liquidity to the markets.

This study attempts to discuss the genesis of derivatives, trading by tracing

its historical developments, types of traded derivatives products, regulation

and policy developments, trend and growth, future prospects and challenges

of derivative market in India. The study also covered the myths carried by

the general investors as well as the traders.

INDEX

Chapter-1

INTRODUCATION 1

1.1 Objectives of the project.

1.2 Selection of the topic for the study.

1.3 Objectives of the study.1.4 Research methodology.

1.5 Scope of the study.

1.6 Limitations of the project.

Chapter-2

PROFILE OF THE ORGANIZATION 7

2.1 Historical background of DMS.

2.2 Organizational flowchart of DMS.

2.3 Product and services offered by the organization.

Chapter-3

DERIVATIES IN INDIA AND RECENT DEVELOPMENT

MAINLY SINCE YEAR 2009 14

3.1 Approval for derivative trading.

3.2 Derivative market at NSE.

3.3 Major developments since year 2009.

3.4 Trading mechanism.

3.5 Membership criteria.

3.6 Turnover.

3.7 Clearing and settlement.

3.8 Definition.

3.9 Features.

3.10 Economic role of derivatives.

3.11 Basis of classification of derivatives.

3.12 Type of derivatives.

3.13 Derivative products.

3.13-1 Futures.

3.13-2 Options.

3.14 Associated risks with derivatives.

3.15 Advantages and disadvantages.

3.16 Participants in the derivatives markets.

Chapter-4

ANALYSIS AND INTERPRETATION OF THE DATA 46

4.1 Practical Illustrations:

4.2 Interpretation.

Chapter-5

CONCLUSION OF THE STUDY 59

Chapter-6

RECOMMENDATIONS AND SUGGESTIONS 61

6.1 Ten commandments of futures & options trading.

APPENDICES/ BIBLIOGRAPHY 64

WEBLIOGRAPHY….

list of graphs Page No

1. Long future 28

2. Short future 29

3. Long call 34

4. Long call 35

5. Short call 37

6. Long put 38

7. Short put 40

Organizational Flowchart 11

Table 1: Derivative in India: A Chronology 15

NSE Derivatives Segment Turnover (in cr.) 18