HISTORY OF STOCK EXCHANGE IN INDIA
The origin of the stock exchanges in India can be traced back to the later half of 
19th century, after the American Civil war (1!"#!1$ due to the share mania of the %ublic,
the number of brokers dealing in shares increased& The brokers organi'ed an informal
association in umbai named ) the *ative stock and share brokers associations+ in 1-&
Increased activity in trade and commerce during the .irst /orld /ar and second
war resulted in an increase in the stock trading& 0tock exchanges were established in
different centers like Chennai, elhi, *ag%ur, kan%ur, 2yderabad and 3anglore& The
growth of stock exchanges suffered a setback after the end of world war& /orldwide
de%ression affected them& ost of the stock exchanges in the early stages had a
s%eculative nature of working without technical strength& 0ecurities and contract
regulation act, 19-! gave %owers to the central government to regulate the stock 
exchanges in umbai, Calcutta& Chennai, Ahmedebad, elhi, 2yderabad and Indore
were recogni'ed by 0C4 act& The 3anglore stock exchange was recogni'ed only in 19!5&
Till recent %ast, floor trading took %lace in all stock exchanges& In the floor 
trading system, the trade takes %lace through o%en outcry system during the official
trading hours& Trading %osts are assigned the different securities where buy and sell
activities of securities took %lace& This system needs a face#to#face contact among the
traders and restricts the trading volume& The s%eed of the new information reflected on
the %rices was rather slow& The deals were also not trans%arent and the system favoured
the brokers rather than the investors&
 
The setting u% of *06 and 7TC6I with the screen based trading facility resulted
in more and more stock exchanges turning towards the com%uter based trading& 3ombay
stock exchange introduced the screen based trading system in 199-, which is known as
378T (3ombay 7n#line Trading 0ystem$&
HISTORY OF DERIVATIVES
6arly forward contracts in 0 addressed merchants concerns about ensuring that there
were buyers and sellers for commodity& 2owever, :credit risk: remained a serious
 %roblem& To deal with this %roblem, a grou% of  Chicago businessmen formed the Chicago
 board of trade (C37T$ in 1;& The %rimary intention of the C37T was to %rovide a
centrali'ed location in known in advance for buyers and seller to negotiate forward
contracts& In 1!-, the C37T went one ste% further and listed the first :exchange traded:
derivatives contracts in the 0< these contracts were called :future contracts:& In 1919,
Chicago butter and egg board, a s%in#off of C37T, was reorgani'ed to allow future
trading& Its name was changed to Chicago mercantile exchange (C6$& The C37T and
the C6 remain the two largest organi'ed future exchanges, indeed two largest
:financial: exchange of any kind in world of today& The first stock index futures contracts
were traded at =ansas City board of trade& Currently the most %o%ular stock index future
contract in the world is based on 0>? 500 index, traded on C6& uring mid eighties,
financial future became the most active derivative instruments generating much time
more the commodity future& Index futures, future on T#bills and 6uro#ollar future are
the three most %o%ular future contracts traded today& 6ither %o%ular international
exchange that trade derivatives is, 7T3 in # @ermany, 0@ in 0inga%ore, TI..6 in Ba%an,
ATI. in .rance, 646 etc&
 
 %rohibitions on o%tions in securities
199! *06 submitted %ro%osal for introduction of derivatives&
 *ovember 199! 063I set u% 8&C& @u%ta committee to develo% a%%ro%riate regulatory
framework for derivatives&
 arch 199 8&C& @u%ta committee submitted re%ort
Bune 199 063I set u% ?rof& B&4&erma committee to recommend maDors for   risks containment in the Indian derivatives market&
; Buly 199 0ecurities Contract (4egulation$ amendment bill was introduced in 8ok 0abha&
1" Buly 199 The bill was referred to the standing committee on finance
7ctober 199 ?rof& B&4&erma committee submitted re%ort
arch 1999 0C. submitted its re%ort
Buly 1999 43I gave %ermission for 7TC forward rate agreements and interest
rate swa%s&
ecember 1999 0ecurities Contract 4egulation (amendment$ bill was converted into
an act
ay E""" 063I to gave final a%%roval for derivatives trading to *06 and 306&
9Bune E""" Trading of 0ensex futures commenced at 306
1E Bune E""" Trading of *ifty futures commenced at *06
; Bune E""1 Trading of Index o%tions commenced at *06
Buly E""1 Trading of stock o%tions commenced at *06
 *ovember E""1 Trading of stock future commenced at *06
Bune E""5 Trading of interest rate future commenced at *06
GLOBAL DERIVATIVES INDUSTRY: A CHRONOLOGY 
1.3 INTRODUCTION TO DERIVATIVES
 
The emergence of the market for derivative %roducts, most notably forwards,
futures and o%tions, can be traced back to the willingness of risk#averse economic agents
to guard themselves against uncertainties arising out of fluctuations in asset %rices& 3y
their very nature, the financial markets are marked by a very high degree of volatility&
Through the use of derivative %roducts, it is %ossible to %artially or fully transfer %rice
risks by lockingFin asset %rices& As instruments of risk management, these generally do
not influence the fluctuations in the underlying asset %rices& 2owever, by locking#in asset
 %rices, derivative %roducts minimi'e the im%act of fluctuations in asset %rices on the
 %rofitability and cash flow situation of risk#averse investors&
1.3.1 DERIVATIVES DEFINED
erivative is a %roduct, whose value is derived from the value of one or more basic
variables, Called bases (underlying asset, index, or reference rate$, in a contractual
manner& The underlying asset can be eGuity, forex, commodity or any other asset& .or 
exam%le, wheat farmers may wish to sell their harvest at a future date to eliminate the
risk of a change in %rices by that date& 0uch a transaction is an exam%le of a derivative&
The %rice of this derivative is driven by the s%ot %rice of wheat which is the )underlying+&
In the Indian context the 0ecurities Contracts (4egulation$ Act, 19-! (0C(4$ A$
defines )erivative+ to include F 
1& A security derived from a debt instrument, share, loan whether secured or 
unsecured, risk instrument or contract for differences or any other form of 
security&
E& A contract which derives its value from the %rices, or index of %rices, of 
underlying securities&
 
erivatives are securities under the 0C(4$ A and hence the trading of derivatives
is governed 3y the regulatory framework under the 0C(4$ A&
 1.3.2 PRODUCTS, PARTICIPANTS AND FUNCTIONS
erivative contracts have several variants& The most common variants are forwards,
futures, 7%tions and swa%s& The following three broad categories of %artici%ants #
hedgers, s%eculators, and arbitrageurs trade in the derivatives market& 2edgers face risk 
associated with the %rice of an asset& They use futures or o%tions markets to reduce or 
eliminate this risk& 0%eculators wish to bet on future movements in the %rice of an asset&
.utures and o%tions contracts can give them an extra leverage< that is, they can increase
 both the %otential gains and %otential losses in a s%eculative venture& Arbitrageurs are in
 business to take advantage of a discre%ancy between %rices in two different markets& If,
for exam%le, they see the futures %rice of an asset getting out of line with the cash %rice,
they will take offsetting %ositions in the two markets to lock in a %rofit& The derivatives
market %erforms a number of economic functions& .irst, %rices in an organi'ed
derivatives market reflect the %erce%tion of market %artici%ants about the future and lead
the %rices of underlying to the %erceived future level&
The %rices of derivatives converge with the %rices of the underlying at the
ex%iration of the derivative contract& Thus derivatives hel% in discovery of future as well
as current %rices& 0econd, the derivatives market hel%s to transfer risks from those who
have them but may not like them to those who have an a%%etite for them& Third,
derivatives, due to their inherent nature, are linked to the underlying cash markets& /ith
the introduction of derivatives, the underlying market witnesses higher trading volumes
 
an arrangement to transfer risk& .ourth, s%eculative trades shift to a more controlled
environment of derivatives market& In the absence of an organi'ed derivatives market,
s%eculators trade in the underlying cash markets& argining, monitoring and surveillance
of the activities of various %artici%ants become extremely difficult in these kind of mixed
markets& .ifth, an im%ortant incidental benefit that flows from derivatives trading is that
it acts as a catalyst for new entre%reneurial activity&
The derivatives have a history of attracting many bright, creative, well#educated
 %eo%le with an entre%reneurial attitude& They often energi'e others to create new
 businesses, new %roducts and new em%loyment o%%ortunities, the benefit of which are
immense& .inally, derivatives markets hel% increase savings and investment in the long
run& Transfer of risk enables market %artici%ants to ex%and their volume of activity&
1.3.3 TYPES OF DERIVATIVES
The most commonly used derivatives contracts are forwards, futures and o%tions & 2ere
we take a brief look at various derivatives contracts that have come to be used&
ForwardsH A forward contract is a customi'ed contract between two entities, where
settlement takes %lace on a s%ecific date in the future at todays %re#agreed %rice&
F!r"sH A futures contract is an agreement between two %arties to buy or sell an asset at
a certain time in the future at a certain %rice& .utures contracts are s%ecial ty%es of 
forward contracts in the sense that the former are standardi'ed exchange#traded contracts&
 
Ca&&s a%d P!sH Calls give the buyer the right but not the obligation to buy a given
Guantity of the underlying asset, at a given %rice on or before a given future date&
?uts give the buyer the right, but not the obligation to sell a given Guantity of the
underlying asset at a given %rice on or before a given date&
 1.3.' DERIVATIVES (ARKET AT NSE
The derivatives trading on the exchange commenced with 0>? C* *ifty Index
futures on Bune 1E, E"""& The trading in index o%tions commenced on Bune ;, E""1 and
trading in o%tions on individual securities commenced on Buly E, E""1& 0ingle stock 
futures were launched on *ovember 9, E""1& The index futures and o%tions contract on
 *06 are based on 0>? C* *ifty Index& Currently, the futures contracts have a
maximum of 5#month ex%iration cycles& Three contracts are available for trading, with 1
month, E months and 5 months ex%iry& A new contract is introduced on the next trading
day following the ex%iry of the near month contract&
1.3.) TRADING (ECHANIS(
  The futures and o%tions trading system of *06, called *6AT#.>7 trading
system, %rovides a fully automated screenFbased trading for *ifty futures > o%tions and
stock futures > o%tions on a nationwide basis and an online monitoring and surveillance
mechanism& It su%%orts an anonymous order driven market which %rovides com%lete
trans%arency of trading o%erations and o%erates on strict %riceFtime %riority& It is similar 
to that of trading of eGuities in the Cash arket (C$ segment& Two ty%es of users access
the *6AT#.>7 trading system& The Trading embers(T$ have access to functions
such as order entry, order matching, order and trade management& It %rovides tremendous
 
conditions like @ood#till#ay, @ood#till#Cancelled, @ood till#ate, Immediate or Cancel,
8imitJarket %rice, 0to% loss, etc& can be built into an order& The Clearing embers
(C$ use the trader workstation for the %ur%ose of monitoring the trading member(s$ for 
whom they clear the trades& Additionally, they can enter and set limits to %ositions, which
a trading member can take&
1.3.* C+EARING AND SETT+E(ENT
 *0CC8 undertakes clearing and settlement of all deals executed on the *06s
.>7 segment& It acts as legal counter%arty to all deals on the .>7 segment and
guarantees settlement&
1.3. C+EARING
The first ste% in clearing %rocess is working out o%en %ositions or obligations of 
members& ACs o%en %osition is arrived at by aggregating the o%en %osition of all the
Ts and all custodial %artici%ants clearing through him, in the contracts in which they
have traded& A Ts o%en %osition is arrived at as the summation of his %ro%rietary o%en
 %osition and clients o%en %ositions, in the contracts in which they have traded& /hile
entering orders on the trading system, Ts are reGuired to identify the orders, whether 
 %ro%rietary (if they are their own trades$ or client (if entered on behalf of clients$&
?ro%rietary %ositions are calculated on net basis (buy#sell$ for each contract& Clients
 %ositions are arrived at by summing together net (buy#sell$ %ositions of each individual
client for each contract& A Ts o%en %osition is the sum of %ro%rietary o%en %osition,
client o%en long %osition and client o%en short %osition&
1.3.- SETT+E(ENT
 
All futures and o%tions contracts are cash settled, i&e& through exchange of cash&
The underlying for index futuresJo%tions of the *ifty index cannot be delivered& These
contracts, therefore, have to be settled in cash& .utures and o%tions on individual
securities can be delivered as in the s%ot market& 2owever, it has been currently mandated
that stock o%tions and futures would also be cash settled& The settlement amount for a
C is netted across all their TsJclients in res%ect of T, %remium and final exercise
settlement& .or the %ur%ose of settlement, all Cs are reGuired to o%en a se%arate bank 
account with *0CC8 designated clearing banks for .>7 segment&
 1.' INTRODUCTION TO FUTURES AND OPTIONS
In recent years, derivatives have become increasingly im%ortant in the field of 
finance& /hile futures and o%tions are now actively traded on many exchanges, forward
contracts are %o%ular on the 7TC market&
1.'.1 INTRODUCTION TO FUTURES
.utures markets were designed to solve the %roblems that exist in forward
markets& A futures Contract is an agreement between two %arties to buy or sell an asset at
a certain time in the .uture at a certain %rice& 3ut unlike forward contracts, the futures
contracts are standardi'ed and exchange traded& To facilitate liGuidity in the futures
contracts, the exchange s%ecifies certain standard features of the contract& It is a
standardi'ed contract with standard underlying Instrument, a standard Guantity and
Guality of the underlying instrument that can be delivered,(or which can be used for 
reference %ur%oses in settlement$ and a standard timing of such settlement& A futures
contract may be offset %rior to maturity by entering into an eGual and o%%osite
 
Luantity of the underlying
Luality of the underlying
1.'.2 FUTURES TER(INO+OGY
  S#o! #r$/"0 The %rice at which an asset trades in the s%ot market&
F!r"s #r$/"0 The %rice at which the futures contract trades in the futures market&
Co%!ra/! //&"0 The %eriod over which a contract trades& The index futures contracts on
the *06 have one#month, two#months and three#months ex%iry cycles, which ex%ire on
the last Thursday of the month& Thus a Banuary ex%iration contract ex%ires on the last
Thursday of Banuary and a .ebruary ex%iration contract ceases trading on the last
Thursday of .ebruary& 7n the .riday following the last Thursday, a new contract having a
three#month ex%iry is introduced for trading&
 E#$r da!"0 It is the date s%ecified in the futures contract& This is the last day on which
the contract will be traded, at the end of which it will cease to exist&
 Co%!ra/! s$"0 The amount of asset that has to be delivered less than one contract& .or 
instance, the contract si'e on *06s futures market is E"" *ifties&
4as$s0 In the context of financial futures, basis can be defined as the futures %rice minus
the s%ot %rice& There will be a different basis for each delivery month for each contract& In
a normal market, basis will be %ositive& This reflects that futures %rices normally exceed
s%ot %rices&
 
Cos! o5 /arr0 The relationshi% between futures %rices and s%ot %rices can be
summari'ed in terms of what is known as the cost of carry& This measures the storage cost
 %lus the interest that is %aid to finance the asset less the income earned on the asset&
I%$!$a& 6ar7$%0 The amount that must be de%osited in the margin account at the time a
futures contract is first entered into is known as initial margin&
 (ar8$%79!o96ar8"!0 In the futures market, at the end of each trading day, the margin
account is adDusted to reflect the investors gain or loss de%ending u%on the futures
closing %rice& This is called arkingFtoFmarket&
 (a$%!"%a%/" 6ar7$%0 This is somewhat lower than the initial margin& This is set to
ensure that the balance in the margin account never becomes negative& If the balance in
the margin account falls below the maintenance margin, the investor receives a margin
call and is ex%ected to to% u% the margin account to the initial margin level before trading
commences on the next day&
1.'.3 INTRODUCTION TO OPTIONS
In this section, we look at the next derivative %roduct to be traded on the *06,
namely o%tions& 7%tions are fundamentally different from forward and futures contracts&
An o%tion gives the 2older of the o%tion the right to do something& The holder does not
have to exercise this right& In contrast, in a forward or futures contract, the two %arties
have committed themselves to doing something& /hereas it costs nothing (exce%t margin
reGuirements$ to enter into a futures contract, the %urchase of an o%tion reGuires an u%F 
front %ayment&
 1.'.3.1 OPTION TER(INO+OGY
I%d" o#!$o%s0 These o%tions have the index as the underlying& 0ome o%tions are
6uro%ean while others are American& 8ike indexing futures contracts, indexing o%tions
contracts are also cash settled&
S!o/8 o#!$o%s0 0tock o%tions are o%tions on individual stocks& 7%tions currently trade on
over -""stocks in the nited 0tates& A contract gives the holder the right to buy or sell
shares at the s%ecified %rice&
4"r o5 a% o#!$o%0 The buyer of an o%tion is the one who by %aying the o%tion
 %remium buys the right but not the obligation to exercise his o%tion on the sellerJwriter&
:r$!"r o5 a% o#!$o%0 The writer of a callJ%ut o%tion is the one who receives the o%tion
 %remium and is thereby obliged to sellJbuy the asset if the buyer exercises on him&
T;"r" ar" !wo <as$/ !#"s o5 o#!$o%s, /a&& o#!$o%s a%d #! o#!$o%s.
Ca&& o#!$o%0 A call o%tion gives the holder the right but not the obligation to buy an asset
 by a certain date for a certain %rice&
 P! o#!$o%0  %ut o%tion gives the holder the right but not the obligation to sell an asset
 by a certain date for a certain %rice&
O#!$o% #r$/"0 7%tion %rice is the %rice, which the o%tion buyer %ays to the o%tion seller&
It is also referred to as the o%tion %remium&
E#$ra!$o% da!"0 The date s%ecified in the o%tions contract is known as the ex%iration
date, the exercise date, the strike date or the maturity&
S!r$8" #r$/"0 The %rice s%ecified in the o%tions contract is known as the strike %rice or 
the exercise %rice&
 
A6"r$/a% o#!$o%s0 American o%tions are o%tions that can be exercised at any time u% to
the ex%iration ate& ost exchange#traded o%tions are American&
Ero#"a% o#!$o%s0 6uro%ean o%tions are o%tions that can be exercised only on the
ex%iration date itself& 6uro%ean o%tions are easier to analy'e than American o%tions, and
 %ro%erties of an American o%tion are freGuently deduced from those of its 6uro%ean
counter%art&
.utures 7%tions
6xchange traded, with novation same as futures&
6xchange defines the %roduct same as futures&
?rice is 'ero< strike %rice moves 0trike %rice is fixed, %rice moves&
?rice is 'ero ?rice is always %ositive&
8inear %ayoff *on linear %ayoff&
 
1& To study the mechanism of .>7 Trading&
E& To determine the %erce%tion of brokers regarding benefits of .>7 Trading to the
health of stock market&
 
C;a#!"r II
REVIE: OF +ITERATURE
This cha%ter deals with the studies and researches carried by different authors and
analyst& Though there are very few studies conducted on erivatives attem%t has been
made to com%ile all the related studies&
Cr& > 4"ar ?1@--  have discussed in detail the mechanics of o%tion trading& The
variables affecting the o%tion contract are striking %rice, duration of contract and the
 %remium& The amount of %remium de%ends u%on ex%ectations of writers and buyers with
regards to %rice behavior of the stock& Call > %ut o%tion may be interchanged by %rocess
called conversion& Conversion %rovides an arbitrage mechanism that insures %arity
 between %ut and call %remium for the same stock&
S6$!; ?1@@B has highlighted the various terms used in the future contract and 7%tion
contract& In %ractice stock o%tions are seldom exercised& Instead, on the ex%iration date,
the o%tion holders sell their o%tions back to the o%tion writers, thereby extinguishing the
contract at a %rice reflecting the value of the contract if it were exercised& The number of 
outstanding o%tions fluctuates daily< as same investors write new o%tions and others close
their %osit ion& The total amount of contracts outstanding is called the Mo%en interestM&
C;a%dra ?1@@2 has highlighted that carry forward transactions that is found only in
India fuels a great deal of s%eculative activity& /ith the hel% of 3adIa finance,transactions
can be carried forward indefinitely and this facility seems to create a feeling among
o%erators that if the %rice movement is not in their favour during a %articular %eriod they
 
future %rice movement will be to their advantage& 2e has suggested considering ho%e that
future %rice movement will be to their advantage& 2e has suggested considering the
introduction of .uture and 7%tion trading with a well#defined commitment that cannot be
shifted tem%orarily in the ho%e of favorable market movement&
G#!a ?1@@' believes that the existence or .uture and 7%tion actually increase the
nationMs welfare& This will enable the investor to find a set or financial claims, which are
consistent with his or her %references, thus inducing the investor to make additional
investments& 2e has em%hasi'ed that it is high time that o%tion trading is launched in
Indian stock exchanges& .uture and 7%tion trading result in a regulated form of 
0%eculation, which is both socially and economically desirable&
A%ar$a ?1@@* has highlighted the maDor reason behind 063I0 dislike for the 3adla
system is its view that the 3adla facility causes large and undue variations in share %rices&
The author has %ointed that while curbing excessive s%eculation is an understandable
regulatory obDective, the obDective is sought to be attained by creating orderly and healthy
markets that both facilitates and yet monitor s%eculation, so that rule breakers can be
 %unished& .uture and o%tion trading #will neither does not eliminate s%eculation nor can
they re%lace the functions of the 3adla system&
4ara ?1@@* has %ointed that the 063lMs resolve to abolish 3adla so as to eliminate
s%eculation in the market is based on unsound logic& To reduce s%eculation and default in
 %ayment 063I must ensure that o%erators in the market de%osit adeGuate margins&
2owever, 063I should first %o%ulari'e o%tion and future trading that will lead to natural
death of 3adla transaction&
 
D;o8&a ?1@@ has illustrated how the %resent trading system tends to favour either the
3ulls or the 3ears de%ending on the technical %ositions in the market and how investors
are taken for ride& This has %rom%ted the 063I to suggest that there should be switch over 
to an o%tion and future market& The author has described that there is a small o%tions
market in India that has been in existence for more than two decades& This nofficial
market is called Dota ?hatak&
Ra%7araa% ?1@@ has ex%lained the merits and demerits of the 3adIa system and has
 %ointed out the role of s%eculators in Indian stock exchanges& According to the author 
3adla system and the derivatives instruments such as future and o%tion are not
com%arable& 3adla transaction can be bent a little but here and there to make it resemble
the o%tion mechanism& The maDor advantage of the o%tion market is that it segregates
genuine investor and s%eculator, with the cash market o%en only to the former and the
o%tion market only to the latter&
S;ar6a ?1@@-  has described in detail the mechanism of o%tion trading and has
em%hasi'ed that 063l, brokers and others regulatory bodies are not sure whether the
introduction of o%tion trading in the Indian market will be a stabili'ing or destablishing
ex%erience&
Sr$ra6 ?1@@- has ex%lained the difference between the 6uro%ean call and American
call& I f the holder of the call can exercise the o%tion only on the ex%iration date&it is
referred to as on 6uro%ean call& I f the holder of the call is %ermitted to exercise the call
on any date %rior to the ex%iration date& it is called an American call& If o%tion trading is
to be introduced in the Indian stock market we must understand the %ricing mechanism of 
the o%tions&
 
Aad;a%$ ?1@@@ has focused that s%eculation on the stock market is an acce%ted fact of 
life the world over& It reflects the mood of the market and the stock market being the
window of the economy, the investors should look to this mood rather than the facts of an
economy& If 3adla is to be %hased out, bank money should be made available to brokers
on commercial terms and trading on margins should be allowed& The obDective of 063I is
re%lacing 3adla by .uture and 7%tions can be achieved by %lanned %rocess of 4eforms,
which will also Guicken deliveries and im%rove liGuidity&
C;7; ?2BBB has described that the Indian stock market is characteri'ed by high %rice
volatility and is driven more oy sentiment and less by financial %erformance indicators
and has resulted in increasing risk ex%osure of market %artici%ants& At %resent the market
offers no risk hedge instrument that allows the investor to manage and minimi'e their 
risks& The solution to the above %roblem is to %ermit futures and o%tion trading on Indian
stock exchanges& any investors would be willing to %ay for hedging the risk of %rice
change, which gets shifted to the writer of the o%tion& The success of an 7rgani'ed future
and o%tion exchange would, however, reGuire a careful selection of underlying securities,
a%%ointment of a number of market makers for each underlying security and
standardi'ation of the terms of o%tion contracts&
G#!a ?2BBB has em%hasi'ed that a widely held belief in India is that forward trading is
indis%ensable for maintaining market liGuidity& There is a misconce%tion that the
introduction of future and o%tion will solve the %roblem of liGuidity arising from the
restriction of carry forward& These derivatives have nothing to contribute to cash market
resu%%oses the im%lementation of certain market reforms such as ca%ital adeGuacy norms
 
difficult to introduce system overnight&
Pa!;"ra ?2BBB has described that o%tions and future are %erfect hedge instrument but
 by abolishing 3adla, we may be heading for a market that is more volatile than the
 %resent system& In addition to this liGuidity in a share having than in a share without the
3adla facility& The develo%ment of a future market may %erha%s take time, even the
.rench took 1" years to develo% a futures market& All three instruments must o%erate
simultaneously which is likely to result in a market synergy&
V"r6a ?2BB2 has %ointed out that 063I and the officials of inistry of .inance are in a
hurry to substitute 3adla system with future and o%tion trading before it is established in
India& The main reason behind this is %ressure exerted by Asian evelo%ment 3ank,
which has agreed to %rovide assistance to India for ca%ital market 4eforms&
D;$7ra ?2BB' has %ointed out that erivatives ?roduct has emerged as a %erfect hedging
devices against fluctuations in commodity %rices& These offer organi'ations the
o%%ortunity to break financial risks into smaller com%onents to best meet s%ecific risk 
management obDectives& These tools are im%ortant to necessitate its users to understand
the intended function and the safety %recautions before being %ut to use for the benefit of 
the society at large&
A7arwa& ?2BB' has %ointed out new conce%t of Credit erivatives, which offers many
 benefits and has growth %otential in India& The focus is on banks and financial institutions
which have had no ex%osure to Credit erivatives in %ast& 2e also %ointed out u%on key
 
SCOPE OF STUDY
The study is limited to 8udhiana only& aDor consideration for choosing 8udhiana is
that I belong to 8udhiana&
RESEARCH DESIGN
4esearch esign is a %attern or an outline of a research %roDect workings& It is a
statement of only essential elements of study those %rovides basic guidelines for details
of %roDect& The %resent research is a descri%tive research because it describes behavior of 
individual as grou%&
DATA CO++ECTION
3oth %rimary and secondary data will be collected& 0econdary data information
was collected from various Dournals, 3ooks, Internet sites and 4e%orts& .or collecting
 %rimary data, 0tructured Luestionnaire was designed&
SA(P+E DESIGN
U%$"rs"
All the brokers listed on 806 who are trading in .utures and 7%tions in 8udhiana&
Po#&a!$o%
Sa6#&$%7 U%$!
Any 3roker who was dealing in 806 who are trading in .utures
and 7%tions in 8udhiana&
 
Sa6#&$%7 T"/;%$"
The selection of res%ondents was done on the basis of convenience sam%ling
(*on# ?robability$&
DATA ANA+YSIS AND INTERPRETATION
ata had gathered from %rimary and secondary sources, next ste% was to %roceed
toward the drawing of conclusions by logical inference& Till this stage those data were
only res%onses which were inca%able of inter%retation until converted in to significant
statistical information& Tabulation of data was done to %resent data into a easily
understandable form& ?ercentages were used to analy'e the data collected& In addition to
 
.ollowings were the limitations of the studyH
The small sam%le si'e taken at convenience basis might have affected the results of the
study&
0ome of the units in the sam%le may not be the true re%resentation of the %o%ulation&
The findings of this study were based on the ex%ressed o%inions of the res%ondents&
0ince this is an o%inion survey, %ersonal bias may have cre%t in, due to the res%ondents
tendency to rationali'e their views&
3est effort were made to incor%orate all im%ortant variables in the study, yet chances of 
 
CHAPTER IV
TRADING (ECHANIS(
nder this head we will take a brief look at the trading system for *06s futures
and o%tions market&
FUTURES AND OPTIONS TRADING SYSTE(
The futures > o%tions trading system of *06, called *6AT#.>7 trading system,
 %rovides a .ully automated screen#based trading for *ifty futures > o%tions and stock 
futures > o%tions on a nationwide basis as well as an online monitoring and surveillance
mechanism& The software for the .>7 market has been develo%ed to facilitate efficient
and trans%arent trading in futures and o%tions instruments&
ENTITIES IN THE TRADING SYSTE(
There are four entities in the trading system& Trading members, clearing members,
 %rofessional clearing members and %artici%ants&
 
TRADING (E(4ERS0 
Trading members are members of *06& They can trade either on their own
account or on behalf of their clients including %artici%ants& The exchange assigns a
Trading member I to each trading member& 6ach trading member can have more than
one user& The number of users allowed for each trading member is notified by the
exchange from time to time& 6ach user of a trading member must be registered with the
exchange and is assigned an uniGue user I& The uniGue trading member I functions as
a reference for all ordersJtrades of different users& This I is common for all users of a
 %articular trading member& It is the res%onsibility of the trading member to maintain
adeGuate control over %ersons having access to the firms ser Is&
C+EARING (E(4ERS:
Clearing members are members of *0CC8& They carry out risk management
activities and confirmationJinGuiry of trades through the trading system&
PROFESSIONA+ C+EARING (E(4ERS:
A %rofessional clearing member is a clearing member who is not a trading
member& Ty%ically, banks and custodians become %rofessional clearing members and
clear and settle for their trading members&
 PARTICIPANTS:
 
  A %artici%ant is a client of trading members like financial institutions& These
clients may trade through multi%le trading members but settle through a single clearing
member &
4ASIS OF TRADING
The *6AT .>7 system su%%orts an order driven market, wherein orders match
automatically& 7rder matching is essentially on the basis of security, its %rice, time and
Guantity& All Guantity fields are in units and %rice in ru%ees& The lot si'e on the futures
market is for E"" *ifties& The exchange notifies the regular lot si'e and tick si'e for each
of the contracts traded on this segment from time to time& /hen any order enters the
trading system, it is an active order& It tries to find a match on the other side of the book&
If it finds a match, a trade is generated& If it does not find a match, the order becomes
 %assive and goes and sits in the res%ective outstanding order book in the system&
CORPORATE HIERARCHY
In the .>7 trading software, a trading member has the facility of defining a
hierarchy amongst users of the system& This hierarchy com%rises cor%orate manager,
 branch manager and dealer&
1. CORPORATE (ANAGER0 
 
activities, receiving re%orts for all branches of the trading member firm and also all
dealers of the firm& Additionally, a cor%orate manager can define ex%osure limits for the
 branches of the firm&
2. 4RANCH (ANAGER :
  The branch manager is a term assigned to a user who is %laced under the
cor%orate manager& 0uch a user can %erform and view order and trade related activities
for all dealers under that branch&
3. DEA+ER :
 ealers are users at the lower most level of the hierarchy& A ealer can %erform
view order and trade related activities only for oneself and does not have access to
information on other dealers under either the same branch or other branches& 3elow given
cases ex%lain activities %ossible for s%ecific user categoriesH
1. C&"ar$%7 6"6<"r /or#ora!" 6a%a7"r0  2e can view outstanding orders,
 %revious trades and net %osition of his client trading members by %utting the T
I (Trading member identification$ and leaving the 3ranch I and and ealer I
 blank&
2. C&"ar$%7 6"6<"r a%d !rad$%7 6"6<"r /or#ora!" 6a%a7"r : 2e can view
(a$ 7utstanding orders, %revious trades and net %osition of his client trading members
 
(b$ 7utstanding orders, %revious trades and net %ositions entered for himself by
entering his own T I, 3ranch I and ser I& This is his default screen&
(c$ 7utstanding orders, %revious trades and net %osition entered for his branch by
entering his T I and 3ranch I fields&
(d$ 7utstanding orders, %revious trades, and net %ositions entered for any of his
usersJdealers by 6ntering his T I, 3ranch I and user I fields&
3. C&"ar$%7 6"6<"r a%d !rad$%7 6"6<"r d"a&"r : 2e can only view reGuests
entered by him&
'. Trad$%7 6"6<"r /or#ora!" 6a%a7"r0  2e can view
(a$ 7utstanding reGuests and activity log for reGuests entered by him by entering his
own 3ranch and ser Is& This is his default screen&
(b$ 7utstanding reGuests entered by his dealers andJor branch managers by either 
entering the 3ranch andJor ser Is or leaving them blank&
). Trad$%7 6"6<"r <ra%/; 6a%a7"r: 2e can view
(a$ 7utstanding reGuests and activity log for reGuests entered by him by entering his
own 3ranch and ser Is& This is his default screen&
 (b$ 7utstanding reGuests entered by his users either by filling the ser I field with a
s%ecific user or leaving the ser I field blank&
 
ORDER TYPES AND CONDITIONS
The system allows the trading members to enter orders with various conditions
attached to them as %er their reGuirements& These conditions are broadly divided into the
following categoriesH
0everal combinations of the above are allowed thereby %roviding enormous
flexibility to the users& The order ty%es and conditions are summari'ed below&
TI(E CONDITIONS
Da ord"r0 A day order, as the name suggests is an order that is valid for the day on
which it is entered& If the order is not executed during the day, the system cancels the
order automatically at the end of the day&
Good !$&& /a%/"&"d ?GTC0  A @TC order remains in the system until the user cancels it&
ConseGuently, it s%ans trading days, if not traded on the day the order is entered& The
maximum number of days an order can remain in the system is notified by the exchange
from time to time after which the order is automatically cancelled by the system& 6ach
day counted is a calendar day inclusive of holidays&
Good !$&& dasda!" ?GTD0  A @T order allows the user to s%ecify the number of 
 
days allowed by the system are the same as in @TC order& At the end of this dayJdate, the
order is cancelled from the system&
I66"d$a!" or Ca%/"& ?IOC0  An I7C order allows the user to buy or sell a contract as
soon as the order is released into the system, failing which the order is cancelled from the
system& ?artial match is %ossible for the order, and the unmatched %ortion of the order is
cancelled immediately&
 PRICE CONDITION
S!o# &oss: This facility allows the user to release an order into the system, after the
market %rice of the security reaches or crosses a threshold %rice e&g& if for sto%Floss buy
order, the trigger is 1"E&"", the limit %rice is 1"5"&"" and the market (last traded$ %rice
is 1"E5&"", then this order is released into the system once the market %rice reaches or 
exceeds 1"E&""& This order is added to the regular lot book with time of triggering as the
time stam%, as a limit order of 1"5"&""&
OTHER CONDITIONS
 (ar8"! #r$/"0 arket orders are orders for which no %rice is s%ecified at the time the
order is entered (i&e& %rice is market %rice$& .or such orders, the system determines the
 %rice&
Tr$77"r #r$/"0 ?rice at which an order gets triggered from the sto%Floss book&
+$6$! #r$/"0 ?rice of the orders after triggering from sto%Floss book&
 Pro0 ?ro means that the orders are entered on the trading members own account&
 C&$0 Cli means that the trading member enters the orders on behalf of a client& Carrying
cost in %ercentage terms&
 P+ACING ORDERS ON THE TRADING SYSTE(
.or both the futures and the o%tions market, while entering orders on the trading
system, members are reGuired to identify orders as being %ro%rietary or client orders&
?ro%rietary orders should be identified as N?ro and those of clients should be identified
as NCli& A%art from this, in the case of NCli trades, the client account number should also
 be %rovided& The futures market is a 'ero sum game i&e& the total number of long in any
contract always eGuals the total number of short in any contract& The total number of 
outstanding contracts( longJshort$ at any %oint in time is called the )7%en interest+& This
7%en interest figure is a good indicator of the liGuidity in every contract&
(ARKET SPREADCO(4INATION ORDER ENTRY
The *6AT .>7 trading system also enables to enter s%readJcombination trades& This
enables the user to in%ut two or three orders simultaneously into the market& These orders
will have the condition attached to it that unless and until the whole batch of orders finds
a counter match, they shall not be traded&
4ASKET TRADING
In order to %rovide a facility for easy arbitrage between futures and cash markets,
 
its execution in the cash segment& A trading member can buy or sell a %ortfolio through a
single order, once he determines its si'e&
FUTURES AND OPTIONS (ARKET INSTRU(ENTS
The .>7 segment of *06 %rovides trading facilities for the following derivative
instrumentsH
;& Individual stock futures
CHARGES
The maximum brokerage chargeable by a T in relation to trades effected in the
contracts admitted to dealing on the .>7 segment of *06 is fixed at E&-K of the contract
value incase of index futures and E&-K of notional value of the contract P(0trike %rice Q
?remium$O LuantityR in case of index o%tions, exclusive of statutory levies&
The transaction charges %ayable by a T for the trades executed by him on the .>7
segment are fixed at 4s&E %er lakh of turnover ("&""EK$(each side$ or 4s&1lakh annually,
whichever is higher& The Ts contribute to Investor ?rotection .und of .>7 segment at
 
RESU+TS AND DISCUSSION
ata Analysis is an attem%t to organi'e and summarise data in order to increase
results, usefulness in such a manner that enables the researcher to relate critical %oints
with the study obDectives&
This cha%ter analyses and discusses the %rimary data collected from 3rokers
through 0tructured Luestionnaire& The analysis of data has been done with the hel% of 
a%%ro%riate statistical techniGues& 0urvey was conducted on the 3rokers who were listed
in 806&The survey was conducted to determine the %erce%tion of brokers regarding
 
).1 DURATION OF :ORKING PERIOD AS A 4ROKER IN +SE
All the 3rokers were asked about how long they have been working at 806 as a
3roker&9"K brokers were working in 806 for a %eriod of more than years and new
3rokers were not coming into 0tock arket due to high ticket %rice and regulations of 
063I&
).2 +EVE+ OF ACTIVITY
All the 3rokers were asked level of activity in terms of .reGuency %er month
(times$ and ealings (4s$& 3ut no broker was interested in giving views on information
that was related to %ersonal income and dealings that are hidden from Income Tax
Authorities&
).3 INFOR(ATION A4OUT THE SEG(ENT IN :HICH 4ROKERS DEA+.
All the 3rokers were asked in which segment they deal in and their views were
re%resented in Table *o&-&5 as under 
Ta<&" No. ).3
0%ot -" (1""$
Segments
   N   o  .   o    f    B   r  o    k   e   r  s
Number of Brokers
.rom the above Table and @ra%h, it showed that all the 3rokers deal in 0%ot,
.utures as well as 7%tions& In 806, all the 3rokers not only deal in 0%ot arket but also
in .utures and 7%tions also& The reason for Trading in both segment is high %rofits in
.>7 but also large number of investors invests still in s%ot market&
).' INFOR(ATION A4OUT THE RO+E OF 4ROKERS IN F>O TRADING
All the 3rokers were asked whether they act as a broker only to investors or they
invests in securities on %ersonal basis also and there views are re%resented as under in
Table -&;
Ta<&" No.).'
Ro&" o5 4ro8"rs $% F>O Trad$%7 N6<"r o5 4ro8"rs A7"
3roker to investors only 5 (!$
?ersonal Investment by 3rokers ;5 (!$
3oth ; ($
Broker to
investors only
Role of Brokers
   N   u   m    b   e   r   o    f    B   r  o    k   e   r  s
Number of Brokers
.rom the above Table and @ra%h, it is clear that ;5 3rokers (i&e&!K$ invest in
securities on %ersonal basis sim%ly because of 8ess *o& 7f investors in .>7 Trading and
it involves huge investments while only 5 3rokers (!K$ invests on behalf of investors and
; 3rokers (K$ invests on %ersonal basis as well as a 3roker to investor&
).) INFOR(ATION A4OUT THE SEG(ENT IN :HICH (OST+Y
DERIVATIVES ARE TRADED
All the 3rokers were asked about in which ostly erivatives Are Traded and
there views are re%resented as under in Table -&-
Ta<&" No.).)
.utures 5" (!"$
Segments
   N   u   m    b   e   r   o    f    B   r  o    k   e   r  s
Number of Brokers
.rom the above Table and @ra%h, it is clear that 5" 3rokers (!"K$ Trade in
.utures because in .utures most of the re%uted com%anies are involved and its has maDor 
share of investors dealing in .utures, 1E 3rokers (E;K$ trade in o%tions because of its ill
liGuid nature of Calls ?ut and only 3rokers (1!K$ trade in both .utures and 7%tions&
).* INFOR(ATION A4OUT TRADING IN F>O HAS INCREASED +EVE+ OF
ACTIVITY
All the 3rokers were asked whether Trading in .>7 0egment has increased the
level of activity in res%ect to .reGuency %er month (Times$ and ealings (4s$& 3ut the
3rokers were not ready to %rovide such information as it was related to %ersonal data and
were avoiding telling in order to hide information from Income Tax Authorities&
). INFOR(ATION REGARDING 4ENEFITS OF F>O TRADING TO :HICH
KIND OF (ARKET P+AYERS
All the 3rokers were asked regarding whether .>7 Trading is beneficial for 
 
(ar8"! P&a"rs N6<"rs o5 4ro8"rs A7"
Arbitrageurs (1;$
2edgers 5- ("$
Market Players
   N   u   m    b   e   r   o    f    B   r  o    k   e   r  s
Numbers of Brokers
.rom the above Table and @ra%h, it shows that .>7 Trading is beneficial to
arket ?layer like 2edgers where 5- 3rokers ("K$ had recommended its beneficial
 because .>7 is suitable for them to reduce risk as they face risk associated with %rice of 
an asset, 3rokers (1;K$ said its 3eneficial for Arbitrageurs because they can take
advantage of a discre%ancy between %rices of two different markets, ! 3rokers (1EK$
said its beneficial for 0%eculators because .utures will hel% these market %layers to bet on
 
4ENEFITED THE STOCK (ARKET.
All the 3rokers were asked regarding to what extent .>7 Trading has benefited
the stock market and there views are re%resented as under in
Ta<&" ).-
Increase in olume of Trading ;5 (!$
4eduction in olatility 1 (!$
2edge against risk 5 ($
Increase in ?ayoffs E (;$
0 10 20 30 40 50
     n   (   r  e   a   s   e
   i  n    *   o
   +    i  s    k    l  e   s   s
   ,   a   r   k   e
   f   f  s
   k   e   r   s
Number of Brokers
.rom the Above Table and @ra%h, the maDor benefit driven from .>7 Trading is
the olume of Trading has increased considerably which is indicated by nearly .>7
Trading dominates !"K to "K ca%ital market as recommended by ;5 3rokers& .>7
Trading has benefited the 0tock market by hedging against risk, which will benefit the
3uyers and 0ellers as recommended by 5 3rokers& 7nly E 3rokers said .>7 would
 benefit in increasing ?ayoffs and 13roker each for 4eduction in volatility and 4isk 8ess
arket&
IN CAPITA+ (ARKET
All the 3rokers were asked whether %ercentage of .>7 Trading in Ca%ital arket
 
3etween - to 1""K ;- (9"$
3etween -" to -K - (1"$
3etween E- to -"K "
45
Bet-een #5 to
Percentage #e$el
   N   o  .   o    f    B   r  o    k   e   r  s
Brokers
.rom the Table and @ra%h it shows that in Ca%ital arket .>7 Trading
 %ercentage 8evel is ex%ected to increase& ;- 3rokers (9"K$ recommended that in near 
future around about - to 1""K Trading would be in .>7 0egment, while - 3rokers
(1"K$ recommended Trading would be between -" to -K&
).1B INFOR(ATION A4OUT I(PACT OF F>O TRADING ON INDIAN
ECONO(Y
All the 3rokers were asked about im%act of .>7 Trading on Indian 6conomy and
 
Connectivity with International Ca%ital arket 5 !
0afer Ca%ital arket 1" E"
4estore Investors Confidence 1 E
Increase in Investment by .II0 5E !;
ore Avenues .or Indian Investors ; ($
Total -" (1""$
Gra#; No.).1B
.rom the above Table and @ra%h it shows that .>7 Trading will result in more
investment by .II0, which is highlighted by 5E 3rokers (!;K$ who said that .II0 will be
making more investment in .>7 0egment, 1" 3rokers said that it will give more 0afer 
Ca%ital arket, ; 3rokers said that .>7 Trading will result in more avenues for Indian
Investors, 5 3rokers said that .>7 Trading will result in more connectivity with
international ca%ital market and1 3roker said that .>7 Trading will result in restoring
investors confidence&
3
10
1
32
4
   0   o   n   n   e   (
   t   i  v    i   t  y
  -    i   t   !
   t   i  o   n   a
   l
   ,   o   r  e
   F   o   r
   k   e   r   s
INVESTORS
All the 3rokers were asked /hether .II0 would have edge over Indian Investors
and there views were re%resented as under in
Ta<&" No.).11
Brokers
.rom above Table and @ra%h, -" 3rokers (1""K$ agreed that .II0 would have
edge over Indian Investors because of the reason of %osition limit s%ecified for .II0,
which benefits them&
:HETHER INVESTORS SHOU+D TRADE IN F>O SEG(ENT
 
All the 3rokers were asked whether they will recommend investors to trade in
.>7 0egment in near future and all -" 3rokers said Ses they will recommend investors
to trade in .>7 because main reason is it involves low investments with high returns,
also its traded in recogni'ed stock exchange and is more secure and less risky not like
3adla 0ystem&
).13 INFOR(ATION A4OUT SHORTCO(INGS IN F>O TRADING
All the 3rokers were asked about whether they find any shortcomings in .>7
Trading and there views are re%resented as under in Ta<&" ).13
S;or! Co6$%7s 4ro8"rs A7"
Ses ;- (9"$
 *o - (1"$
Total -" (1""$
Gra#; No.).13
0
10
20
30
40
50
S(ortcoming
   N   u   m    b   e   r   o    f    B   r  o    k   e   r  s
Brokers
 
short comings in .>7 Trading while - 3rokers (1"K$ didnt find any short comings in
.>7 Trading&
Fa/!ors R"s#o%s$<&" For S;or! Co6$%7s ?Ta<&" No.).13a
S;or! /o6$%7s 4ro8"rs A7"
8arge lot si'e ;" ("$
Trading Cycle too short "
Tenure %eriod too short "
fixed
E (;$
   /   a   r  %   e
   l  o    t
  s    !   o   r   t
Factors
Brokers
 
0i'e maDor 0hortcoming in .>7 Trading, while 3rokers find Call ?uts having ill liGuid
nature and only E 3rokers find 6x%iry date should not be fixed&
).1' INFOR(ATION A4OUT (EASURES SUGGESTED 4Y 4ROKERS TO
INCRERASE VO+U(E OF F > O TRADING IN +UDHIANA.
All the 3rokers were asked to suggest some measures to increase volume of .>7
Trading in 8udhiana and there views are re%resented as under in
Ta<&" No.).1'
8ot si'e should reduce ;" ("$
0e%arate 6xchange for .>7 - (1"$
Tenure %eriod to increase
/ot sie s!oul'
O"erational #e$el
   N   o  .   o    f    B   r  o    k   e   r  s
Brokers
Suggestions
   S   e   m    i  n   a   r  s
   1    i  s   (   u   s   s    i  o
  n   s
   /   e   (    t  u   r  e   s
   P   a   m   p    !    l  e    t
  s   N   e   -   s
!ommunication #e$el
   N   o  .   o    f    B   r  o    k   e   r  s
Brokers
.rom the Above Table and @ra%h, it shows some measures recommended by
3rokers at o%erational level were %ertaining to ;" 3rokers were in favour of 8ot si'e
should decrease, - 3rokers were in favour of more scri% of re%uted com%anies and -
3rokers were in favour of se%arate exchange for .>7&easures suggested at
 
while 1" suggested guest lectures and - 3rokers suggested 0eminars to be held&
CHAPTER VI
SU((ARY AND CONC+USION
As human nature marked by individual variations, so is his %erce%tion& This was
 basically descri%tive research conducted by using a structured Guestionnaire to collect the
relevant data on 3rokers %erce%tion regarding benefits of .>7 Trading towards the
health of stock market and measures to increase volume of .>7 Trading in 8udhiana&
The basic aim of this study was to determine the %erce%tion of 3rokers regarding
 
.or the study, the %o%ulation was the 3rokers of 806 in 8udhiana City& A sam%le
of -" 3rokers was chosen of which all were trading in .>7 0egment and convenience
sam%ling techniGue was used for selecting the res%ondents&
3oth ?rimary and 0econdary data were collected& 0econdary data was collected in
form of information from various books, Dournals, re%orts etc& ?rimary data was collected
with the hel% of structured Guestionnaire after collection of data, stastical techniGues
techniGues like mean score, and %ercentage was used to analy'e the data&
*.1 FINDINGS
All the 3rokers were dealing in .>7 0egment in which !K 3rokers invest in securities on
 %ersonal basis whereas only !K 3rokers trade on behalf of investors and only K deal in
 both roles&
In .>7 Trading, "K3rokers trade in .utures while 1"K in 7%tions and 1"K in both .utures
and 7%tions& 3rokers trade in .utures mainly it involves re%uted firms and it is less
com%licated then 7%tions&
.>7 Trading act as a risk hedging tool, so "K 3rokers had think that .>7 Trading will benefit
market %layers like 2edgers&
-K 3rokers said that .>7 Trading has benefited the stock market by increase in volume of 
trading in ca%ital market& At %resent nearly .>7 Trading dominates "K of level of 
ca%ital market and it is ex%ected to have nearly 9"K shares in ca%ital market&
5E 3rokers said that .II0 will have large investments in .>7 0egment&.>7 Trading will also
 
According to the results of this study .>7 Trading will have ra%id increase in future as %er the
3rokers but it will have slow growth rate in 8udhiana city since investors have very less
knowledge&
3rokers have recommended that investors will be encouraged to trade in .>7 Trading&
*.2 SUGGESTIONS
.>7 Trading will now dominate the stock market, so 3roker should encourage investors
to trade in securities by ado%ting .>7 Trading&
In order to increase volume of .>7 Trading, 8ot si'e should be reduced so maDor 
segment of Indian society i&e& small saving class comes under .>7 trading&
ore re%uted com%anies should be listed and se%arate exchange of .>7 should be
established&
0eminars, @uest 8ectures, iscussions should be held to %romote awareness among the
local investors&
Investors should trade in .>7 0egment as they will get more investment avenues and it
is risk less market as com%ared to 3adla 0ystem&
0e%arate exchange should be o%ened for various .>7 0egment like Commodity
6xchanges should be o%ened&
 
REFERENCES 
Agarwal, A&=&E"";&Credit erivativesH A Conce%t *ote, The Chartered Accountant &
11(5$H 9E#9;
AnDaria, &C& 199!& 3adIa versus future and o%tions& The Economic Times, *ew elhi,
0e% !, %& 1;
Avadhani, &A& 1999& isadventure with stock exchange reforms # The investors guide&
The Economic Times, *ew elhi, Bun E, % & 15
 %&-
Chandra, ?& 199E& The Indian Ca%ital arketH ?athways of evelo%ment&Charted
 Financial Analyst , )(;$H !
Chugh, A&=& E"""& .uture and 7%tions& The Tribune, A%ril E-& %&1!
Curley, A&B& and 3ear, &4& 19& Investment Analysis and anagement& *ew Sork,
2ar%er > 4ow %ublishers, %& 5" # 5E
 
11(5$H 9!#9"
hokla, 0& 199& Time to take stock of o%tions& The ET , *ew elhi, ay !, % &

@u%ta, 8&C& E"""& 4oots of stock market illiGuidity& The ET , *ew elhi, ay E, %& !
?atherya, &E"""& 3adla must continue, but with checks and balances& The ET , *ew
elhi, Banuary 5", %& 9
4angaraDan, 0&199& /hether 3adIa system, I& The ET , *ew elhi, *ovember 1-, %& 1;
0harma, 4&199& ore o%tion in the future& The ET , *ew elhi, *ovember E!, %& -
& 0mith, @ary& 199"& Investment& 8oudonH 0cott& .oresman, %& -
0riram, =&l99& 7%tion based financial instrument, Charted Financial Analyst & -(5$H 19
#E-
erma, B&4& E""E& .uture and o%tions# A 2asty ove& The ET , *ew elhi, %& !
www&derivativesindia&com
www&economictimeslinvestorguide&com
+UDHIANA CITY
0ubmitted
 in %artial fulfilment of the reGuirements for the award of the
aster degree in Commerce
CERTIFICATE
Certified that the ?roDect 4e%ort entitled )A STUDY OF :ORKING OF
STOCK EXCHANGE IN +UDHIANA CITYJ submitted by Ga!r$ =a$%
is her own work and has been done under my su%ervision&
It is recommended that this ?roDect 4e%ort be %laced before the examiner for 
evaluation&
D"s$7%a!$o%0 +"/!r"r $% Co66"r/" $% Ara Co&&"7"
?:o6"% S"/., +d;$a%a
ACKNO:+EDGE(ENT
This would be a small to acknowledge people who hae
helped me in the completion of the pro!ect"
#ne person without whom nothing would actually hae
been possible is my pro!ect guide  S#e$j% An%n!& She has gien me
hope and encouragement when $ had last before starting my pro!ect"
She has actually drien me to the right track" %ithout her help $ would 
hae done anything" From the bottom of my heart $ thank her to let me
my pro!ect come true"
 *ame of the 0tudent H @aytri Bain
Address of the 0tudent H E;E#, 4aDguru *agar, 8udhiana&
6nrolment *umber H 1!"9
8udhiana City&
0u%ervisor Arya College /omen 0ec& 8dh&
esignation H 8ecturer  
6x%erience H 1E years
0ignature of 0tudent 0ignature of 0u%ervisor  
 
4emarks if any H  
ateH  
H$s!or o5 S!o/8 E/;a%7" o5 I%d$a
H$s!or o5 D"r$a!$"
IN
STOCK EXCHANGE IN INDIA
0tock market is one of the maDor segment of financial system of country&
It is an organi'ation for the %ur%ose of assisting and regulating the business of buying,
selling or dealing in securities (Trading$& It acts as a %latform where buyers and sellers of 
securities fulfill their needs and mediator is a broker, who ensures %ayment for the seller 
and ownershi% of securities for the buyers of the securities& It is effort of all the stock 
exchanges that in these transactions both the %arties (buyers and sellers$ get a fair deal&
.or this %ur%ose regulatory bodies an well as legal enactments %lay a significant role& In
India 063I (0ecurities and 6xchange 3oard of India$, The 0ecurities Contract
(4egulations$ Act 19-!, The e%ositors Act 199! and Com%anies Act 19-! regulate stock 
exchange&
 
The origin of the stock exchanges in India can be traced back to the later half of 
19th century, after the American Civil war (1!"#!1$ due to the share mania of the %ublic,
the number of brokers dealing in shares increased& The brokers organi'ed an informal
association in umbai named ) the *ative stock and share brokers associations+ in 1-&
Till recent %ast, floor trading took %lace in all stock exchanges& In the floor 
trading system, the trade takes %lace through o%en outcry system during the official
trading hours& Trading %osts are assigned the different securities where buy and sell
activities of securities took %lace& This system needs a face#to#face contact among the
traders and restricts the trading volume&
CONTENTS
2istory of erivative
Introduction of erivative
7bDective of 0tudy
C;a#!"r 3. R"s"ar/; ("!;odo&o7
C;a#!"r '. Trad$%7 ("/;a%$s6
 
C;a#!"r *. S66ar a%d Co%/&s$o%
C;a#!"r . R"5"r"%/"s ?4$<&$o7ra#;