Page 30 - DCOM510_FINANCIAL_DERIVATIVES

Unit 2: Derivatives Market in India

2.3.1 Functioning of Derivative at BSE Notes

The Derivatives Trading at BSE takes place through a fully automated screen-based trading
platform called Derivatives Trading and Settlement System (DTSS).The DTSS is designed to
allow trading on a real-time basis. In addition to generating trades by matching opposite orders,
the DTSS also generates various reports for the member participants.

Order Matching Rules

Order Matching takes place after order acceptance wherein the system searches for an opposite
matching order. If a match is found, a trade is generated. The order against which the trade has
been generated is removed from the system. In case the order is not exhausted further matching
orders are searched for and trades generated till the order gets exhausted or no more match-able
orders are found. If the order is not entirely exhausted, the system retains the order in the
pending order book. Matching of the orders is in the priority of price and timestamp. A unique
trade-id is generated for each trade and the entire information of the trade is sent to the relevant
Members.

Order Conditions

The derivatives market is order driven i.e. the traders can place only orders in the system.
Following are the order types allowed for the derivative products. These order types have
characteristics similar to the ones in the cash market.
Limit Order: An order for buying or selling at a limit price or better, if possible. Any
unexecuted portion of the order remains as a pending order till it is matched or its duration
expires.
Market Order: An order for buying or selling at the best price prevailing in the market at
the time of submission of the order.
There are two types of Market Orders:
Partial Fill Rest Kill (PF): This execute the available quantity and kill any unexecuted
portion.
Partial Fill Rest Convert (PC): This execute the available quantity and convert any
unexecuted portion into a limit order at the traded price.
Stop Loss: An order that becomes a limit order only when the market trades at a specified
price.

All orders have the following attributes:
Order Type (Limit/Market PF/Market PC/Stop Loss)
Asset Code, Product Type, Maturity, Call/Put and Strike Price
Buy/Sell Indicator

Order Quantity
Price
Client Type (Proprietary/Institutional/Normal)

Client Code

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