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Financial Derivatives
Notes The clearing corporation/house should have capabilities to segregate initial margins
deposited by clearing members for trades on their own account and on account of his
client. The clearing corporation/house will hold the clients’ margin money in trust for the
client purposes only and should not allow its diversion for any other purpose.
The clearing corporation/house should have a separate Trade Guarantee Fund for the
trades executed on derivative exchange/segment.
Self Assessment
Fill in the blanks:
1. Financial derivatives markets in India are regulated and controlled by the
………………………
2. Currencies include options and ………………………
3. Commodity futures markets are regulated in India by ………………………
2.2 Derivatives Market at NSE (including Turnover)
National Stock Exchange was established in 1993 to encourage stock exchange reform through
system modernisation and competition. The reach of NSE has been extended to twenty one cities
of which six cities do not have stock exchanges of their own. By end 1996, NSE planned to extend
its network cities across the country. It is an electronic screen based system where members
have equal access and equal opportunity of trade irrespective of their location in different parts
of the country as they are connected through a satellite network.
The system helps to integrate the national market and provide a modem system with a complete
audit trial of all transactions. Instantaneous matching of trades effectively prevents circular
trading which has been one of the mechanisms of pre-rigging. A member’s office located anywhere
in the country is connected to the central computer through very small aperture terminals
(VASTs). Today, all stock exchanges in India follow screen-based trading system.
NSE was the first stock exchange in the country to provide nation-wide order-driven, screen-
based trading system. NSE model was gradually emulated by all other stock exchanges in the
country.
Did u know? India’s experience with the equity derivatives market has been extremely
positive. The derivatives turnover on the NSE has surpassed the equity market turnover.
The turnover of derivatives on the NSE increased from ` 23,654 million in 2000–2001 to
` 292,482,211 million in 2010–2011, and reached ` 157,585,925 million in the first half of
2011–2012. The average daily turnover in this market segment on the NSE was ` 1,151,505
million in 2010–2011 compared to ` 723,921 in 2009–2010.
2.2.1 NEAT Trading System
The trading system at NSE known as the National Exchange for Automated Trading (NEAT)
system is an anonymous order-driven system and operates on a strict price/time priority. It
enables members from across the country to trade simultaneously with enormous ease and
efficiency. NEAT has lent considerable depth in the market by enabling large number of members
all over the country to trade simultaneously and consequently narrowed the spreads significantly.
A single consolidated order book ‘for each stock displays, on a real time basis, buy and sell
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