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Unit 2: Derivatives Market in India

price sensitive and web-enabled Foreign Exchange Market would emerge, which in turn Notes
would result in transactions that are complex to liquidate and time consuming to settle.
For the automated marketplace where information need looms large, lies the answer in
the form of such portals.
The success of these platforms would depend on a host of factors such as their automatic
execution, the method of providing prices to the users, the number of partnership
agreements that the portal has the number of banks it caters to, etc. The other important
feature will be their pricing engines. The quality of the pricing engine, its ability to handle
huge volume of transactions and the quality of transaction services, such as ease of
settlement, pre-trade information etc. will all determine their fate.
However, from the user’s point, the problem that emerges is would the cost of settling
with multiple counter parties (as opposed to just using one or two lead banks for FX
trading) come in the way of using a multiple price service? But the customers have been
working on integration with a single bank for long, these FX platforms should be attractive,
as they will only have to make one investment to access multitude of dealers.
However, for such electronic trading to gather momentum, users need to shift from
telephone-based to screen-based trading which would be a tough task. Then they are to be
persuaded to move to a single-dealer channel from the multi-dealer channel, which would
not be very difficult once the initial step is taken.
When the traditional and clerical jobs are automated by these electronic exchanges, sales
desk officers/client relationship managers would be left with more time to spend on
value added activities–delivering advice and information. Hence, these platforms could
go a long way in lowering cost and improving service quality.
Question:
Do you think that a web-enabled Foreign Exchange Market would revolutionise the forex
trading practices in the future? Elucidate with examples.
Source: Madhu Vij. “International Financial Management”. Excel Books (2010).

2.7 Summary

Derivatives markets in India can be broadly categorised into two markets namely; financial
derivatives markets and commodities futures markets.

The SEBI is authorised under the SEBI Act to frame rules and regulations for financial
futures trading on the stock exchanges with the objective to protect the interest of the
investors in the market.

NSE was the, first stock exchange in the country to provide nation-wide order-driven,
screen-based trading system.

The futures and options trading system of NSE, called NEAT-F&O trading system, provides
a fully automated screen-based trading for Nifty futures & options and stock futures &
options on a nationwide basis and an online monitoring and surveillance mechanism.

The Derivatives Trading at BSE takes place through a fully automated screen-based trading
platform called DTSS (Derivatives Trading and Settlement System).

The S & P CNX Nifty is a market capitalisation index based upon solid economic research.
It was designed not only as a barometer of market movement but also to be a foundation
of the new world like index futures, index options and index funds.

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