Page 24 - DMGT513_DERIVATIVES_AND_RISK_MANAGEMENT

Unit 2: Evolution of Derivatives in India

Government Securities Regulation Act 2007 Notes

Government Securities Regulations, 2007 have been made by the Reserve Bank of India to carry
out the purposes of the Government Securities Act.
The Government Securities Regulations, 2007 provides for transfer of Government securities
held in different forms. Government security held in the form of Government Promissory
Notes is transferable by endorsement and delivery. A bearer bond is transferable by delivery
and the person in possession of the bond shall be deemed to be the holder of the bond.
Government securities held in the form of Stock Certificate, Subsidiary General Ledger account
including a constituent Subsidiary General Ledger Account) & Bond Ledger Account are
transferable, before maturity, by execution of forms – III, IV & V respectively appended to the
Government Securities Regulations.
Government securities held in subsidiary general ledger account including a constituents'
subsidiary general ledger account or bond ledger account, shall also be transferable by execution
of a deed in an electronic form under digital signature.
A person unable to write, execute or endorse a document, may apply to the Executive Magistrate
to execute the document or make endorsement on his behalf after producing sufficient
documentary evidence about his identity and satisfying the Executive Magistrate that he has
understood the implications of such execution or endorsement.

Self Assessment

Fill in the blanks:
6. All futures transactions in the ……………..are regulated by the Commodity Futures Trading
Commission (CFTC).
7. The derivatives exchange/segment should have a separate governing council and
representation of trading/clearing members shall be limited to a maximum of ……….of
the total members of the governing council.
8. The exchange shall have minimum ……..members.
9. The minimum contract value shall not be less than ………….

2.3 Traders in Derivates Markets

Those who trade or participate in derivative/underlying security transaction may be broadly
classified into three categories:

1. Hedgers (Those who desire to off-load their risk exposure on a position)
2. Speculators (Those willing to absorb risk of hedgers for a cost)
3. Arbitragers (Those who wish to have riskless gain in the transaction of hedgers and
speculators)

Example: Suppose Mr. A is currently possessing 50 shares of SBI currently trading at
1,000 per share. Mr. A has purchased those at 950 before 3 months. Mr. A has 3 possibilities
or courses of actions: to sell now, wait for further appreciation of price, hedge the long position
(holds shares) and pay a small price for that. If Mr. A sells now, he is just like any other investor

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