Page 200 - DMGT513_DERIVATIVES_AND_RISK_MANAGEMENT

Unit 14: Management of Derivatives Exposure

Notes

Task Make a report on trading mechanism of futures and options under NSE.

Self Assessment

Fill in the blanks:
13. The futures & options trading system of NSE, called …………..trading system.
14. Trading members are members of …………...
15. The ……………is the third window from the top of the screen which is always visible to
the user.
16. …………….enables the generation of portfolio offline order files in the derivatives trading
system and its execution in the cash segment.

14.7 Summary

 The futures prices of different assets like commodities, foreign exchanges and securities
are influenced by various factors which are not common for all such assets. For example,
futures prices of foreign currencies may be determined by different factors as different for
determination of futures prices of food grains and vegetables.
 According to L C Gupta Committee Report on Derivatives, at the time of introduction of
Derivatives Contracts on any underlying the value of the contract should be at least
` 2 lakhs.
 The maximum brokerage chargeable by a trading member in relation to trades affected in
the contracts admitted to dealing on the F&O segment of NSE is fixed at 2.5%of the contract
value in case of index futures and stock futures.

 Risk Vision is central to a financial institutions risk management function providing a
consolidated view of risk exposures across multiple systems, incorporating both the trading
and banking book.

 Non-financial firms need to watch out for three main risks when using derivatives. The
following are the key risks associated with the derivative trading:
(a) Market risk

(b) Basic risk
(c) Credit or Counterparty risk
 Market risk is the possibility that the value of the derivative will change.

 The futures & 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 as well as an online monitoring and surveillance mechanism.

 There are four parties/entities in the trading system. They are Trading members, clearing
members, professional clearing members and participants.
 The market watch window is the third window from the top of the screen which is always
visible to the user.

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