Page 219 - DCOM510_FINANCIAL_DERIVATIVES

Financial Derivatives

Notes Depositories Act: The Depositories Act, 1996 provides for the establishment of depositories in
securities with the objective of ensuring free transferability of securities with speed, accuracy,
and security.
Margin: A margin is collateral that the holder of a financial instrument has to deposit to cover
some or all of the credit risk of their counterparty (most often their broker or an exchange).

Over-the-counter (OTC): Over-the-counter (OTC) or off-exchange trading is done directly
between two parties, without any supervision of an exchange.
Prevention of Money Laundering Act: The primary objective of this Act is to prevent money
laundering, and to allow the confiscation of property derived from or involved in money
laundering.

SEBI: The Securities and Exchange Board of India (SEBI) is the regulator for the securities market
in India. It was established on 12 April 1992 through the SEBI Act, 1992.
Securities Contracts (Regulation) Act: This Act provides for the direct and indirect control of
virtually all aspects of securities trading and the running of stock exchanges.
VaR Margin: VaR Margin is at the heart of margining system for the cash market segment.

13.7 Review Questions

1. What are the regulations for derivatives trading in India?
2. Write down the important recommendations made by the Dr. L. C. Gupta Committee on
the introduction of derivatives markets in India.

3. When and why L.C. Gupta committee was set up?
4. Write down the recommendations covered by J.R. Varma committee report.
5. Briefly discuss the role of SEBI in the Indian Derivatives Market?
6. Briefly explain the Securities Contracts (Regulation) Act.
7. Explain the margining system of recommended in J.R. Varma committee report.

8. What is volatility? Write down the several issues arise in the estimation of volatility.
9. “Even an accurate 99 percent “value at risk” model would give rise to end of day mark to
market losses exceeding the margin approximately once every six months.” Explain how?

Answers: Self Assessment

1. Commodities, financial 2. Five
3. SEBI 4. Prevention of Money Laundering Act, 2002
5. L.C. Gupta Committee 6. False
7. True 8. True

9. True 10. a. L.C. Gupta committee
11. b. 50 12. a. ` 300 lakh
13. d. NCFM 14. a. Securities Contracts (Regulation) Act, 1956
15. a. ` 3 Crore, 50 lakh

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