Page 27 - DMGT513_DERIVATIVES_AND_RISK_MANAGEMENT

Derivatives & Risk Management

Notes 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.
13. The clearing corporation/house should have a separate Trade Guarantee Fund for the
trades executed on derivative exchange/segment.

Task Make a comparison between Indian derivatives market with the US Derivatives
market.

Self Assessment

Fill in the blanks:
13. Derivative trading to take place through an on ………….trading system.

14. The derivative segment of the exchange would have a separate ………………..
15. The clearing corporation/house will establish facilities for ……………… for swift
movement of margin payments.

2.5 Summary

 The most notable of development in the history of secondary segment of the Indian stock
market is the commencement of derivatives trading in June, 2000.

 India has been trading derivatives contracts in silver, gold, spices, coffee, cotton and oil
etc. for decades in the grey market.
 Recently futures contracts in various commodities were allowed to trade on exchanges.

 All futures transactions in the United States are regulated by the Commodity Futures
Trading Commission (CFTC), an independent agency of the United States Government.
 SEBI set up a 24-member committee under the chairmanship of Dr.L.C.Gupta on November
18, 1996 to develop appropriate regulatory framework for derivatives trading in India,
submitted its report on March 17, 1998.
 Hedgers are those traders who wish to eliminate price risk associated with the underlying
security being traded.
 Speculators include those who willing to absorb risk of hedgers for a cost.
 Arbitrage is the process of simultaneous purchase of securities or derivatives in one
market at a lower price and sale thereof in another market at a relatively higher price.

2.6 Keywords

Arbitrage: Arbitrage is the process of simultaneous purchase of securities or derivatives in one
market at a lower price and sale thereof in another market at a relatively higher price.
Government Securities: 'Government security' means a security created and issued by the
Government for the purpose of raising a public loan or for any other purpose as may be notified
by the Government in the Official Gazette.
Hedgers: Hedgers are those traders who wish to eliminate price risk associated with the underlying
security being traded.

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