Page 29 - DCOM507_STOCK_MARKET_OPERATIONS

Stock Market Operations

Notes 2001, the market capitalization ratio stood at 23.1 and this has significantly increased to 64.26%
at the end of September 2011.
Similarly, the liquidity of the market can be gauged by the turnover ratio which equals the total
value of shares traded on a country’s stock exchange divided by stock market capitalization.
Turnover Ratio is a widely used measure of trading activity and measures trading relative to the
size of the market.

Did u know? As per the Standard and Poor’s Global Stock Market Fact Book 2011, India
ranked 7th in terms of Market Capitalization and 10th in terms of Total Traded Value in
stock exchanges.

2.2.3 Derivatives Market

Trading in derivatives of securities commenced in June 2000 with the enactment of enabling
legislation in early 2000. Derivatives are formally defined to include: (a) a security derived from
a debt instrument, share, loan whether secured or unsecured, risk instrument or contract for
differences or any other form of security, and (b) a contract which derives its value from the
prices, or index of prices, or underlying securities. Derivatives trading in India are legal and
valid only if such contracts are traded on a recognised stock exchange, thus precluding OTC
derivatives.
Derivatives trading commenced in India in June 2000 after SEBI granted the approval to this
effect in May 2000. SEBI permitted the derivative segment of two stock exchanges, i.e. NSE and
BSE, and their clearing house/corporation to commence trading and settlement in approved
derivative contracts.

Example: To begin with, SEBI approved trading in index futures contracts based on S&P
CNX Nifty Index and BSE-30 (Sensex) Index. This was followed by approval for trading in
options based on these two indices and options on individual securities. The derivatives trading
on the NSE commenced with S&P CNX Nifty Index futures on June 12, 2000. The trading in S&P
CNX Nifty Index options commenced on June 4, 2001 and trading in options on individual
securities commenced on July 2, 2001. Single stock futures were launched on November 9, 2001.
In June 2003, SEBI-RBI approved the trading on interest rate derivative instruments.

The Mini derivative Futures & Options contract on S&P CNX Nifty was introduced for trading
on January 1, 2008 while the long term option contracts on S&P CNX Nifty were introduced for
trading on March 3, 2008.

Self Assessment

State whether the following statements are True or False
6. Trading in derivatives of securities commenced in June 2005 with the enactment of enabling
legislation in early 2000.
7. Derivatives are formally defined to include a security derived from a debt instrument,
share, loan whether secured or unsecured, risk instrument or contract for differences or
any other form of security.
8. Derivatives trading in India are legal and valid only if such contracts are traded on a
recognised stock exchange, thus precluding OTC derivatives.

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