Chapter-1

NEED FOR THE STUDY

The need for the study is felt as many as people in India are unaware of trading process in Stock Market. Difficulties like lack of easy access to the market, inadequacy of the market infrastructure, and the problems in locating the right intermediaries. Lack of guidance and ad ice inhabited the in estors from in esting in the Stock Market. !t least to ha e the basic knowledge about the important. !fter liberali#ation in $%%$, our stock market e"perienced drastic changes due to setting up S&'I in ())). Integration of market, new technology, in trading introduction of deri ati es trading, foreign participation etc these led to the de elopment of Stock Market. The actual process of deri ati es trading which immediate accesses on the market watch a ailable to the client in placing the orders for buying or selling of shares is to be known. *hat are the most important considerations while selecting a share+ Its past performance+ ,r its price+ ,r its olatility+ ,r its profit+ So how should one or more identify the buy or sell the shares and -., segment+ *e will walk through the in estment of stock market. -irst, one needs to think about one/s in estment golf rather than the performance or price or returns. If one is looking for a ery short period to more returns in the share market and deri ati es market. In this deri ati es market the risk control measurements the 0S11L has de eloped a comprehensi e risk containment mechanism for the -., segment. The emergence of the market for deri ati es products, most notably forward, futures and options can be traced back to the willingness of risk2a erse economic agent to guard themsel es against arious functions of the stock e"changes is ery

certainties arising out of the fluctuations in asset prices. 'y their nature, the financial markets are marked by a alidity.

ery

ery high degree of

The importance of deri ati e trading is traded on the e"change and those traded for one to one or o er the counter and another importance in the deri ati e trading is future . options.

OBJECTIVES OF THE STUDY

To study the basic trading terminology in -utures and ,ptions To study futures and options trading system in kotak securities To e aluate study the risks associated with the deri ati es trading. To analy#e the 0I-T3 -utures Inde" and 0I-T3 ,ptions Inde".

METHODOLOGY
The methodology implemented for the futures and options trading process is to sources of information to dealers and generals and books. 4sing these windows, the user can buy or sell the shares by placing the orders, quoting the price quantity of the shares. *atching the deri ati es trading line collects the information regarding the entire trading.

PRIMARY DATA
1ollecting the information from the head of the each department and from the staff working in those departments. Interacting with the operators at the compilers and at the clients trading in kotak securities limited. 5articipating in the mock trading conducted by deri ati es market in India.

SECONDARY DATA
6eferring the capital market 7dealers8 module published by 0S&/s certification in financial markets. 6eferring the deri ati es core module workbook published by 0S&/s certification in financial markets. The main secondary data is collected from arious Maga#ines like ,utlook Money and 'usiness Standard and 'usiness Dailies like &conomic Times, 'usiness Line etc.

LIMITATIONS
!s the sub9ect chosen comparati ely new one, the study suffers from certain limitations.
Stock &"change is an ocean and my study is an attempt to understand which a drop in the ,cean is. The acti ities in stock e"change and deri ati es market are ast and to understand all the acti ities is a difficult task, as there are only few persons who can pro ide information. To know the entire acti ities of stock e"change is ery difficult as it takes a long period to understand. Though the system, people and time were there, some

information regarding certain topics in stock trading was not collected due to non2a ailability of time to the key persons from their busy schedule. 'ecause of the comprehensi e nature of some information is not disclosed though sources of information are a ailable. The study may not be comprehensi e as the period of study is only for : weeks.

Chapter-2

Stock market
Stock markets are the secondary markets where trading in existing securities is done. Listing of new issues for investment and disinvestments by savers/investors takes p ace. !t imparts i"uidity or encashabi ity to stocks and shares. Stock exchange is a market in which securities are bought and so d and it is an essentia component of a deve oped capita market. #he securities contracts $%egu ation& 'ct( 1)*+( define stock exchange as fo ows, -it is an association( organi.ation or body of individua s( whether incorporated or not( estab ished for the purpose of assisting( regu ating and contro ing of business in buying( se ing and dea ing in securities/. ' stock exchange( thus imparts marketabi ity and i"uidity to securities(

encourages investments in securities and assists corporate growth. Stock exchanges are organi.ed and regu ated markets for various securities issued by corporate sector and other institutions.

Characteristics of stock exchange:

'n organi.ation in the form of an association or company ' governing body to supervise and contro its activities ' framework of ru es and regu ations ' common meeting p ace for purchasers and se ers 0n y members are a owed to conduct business in a stock exchange

Functions Of Stock Exchange:

1nsures i"uidity of capita 2rovides ready market for securities 3irects f ow of capita into profitab e channe s 1va uation of financia condition and prospects of isted firms 4aci ities specu ation

 2romotes and mobi i.es savings 2romotes industria growth and economic deve opment 2 atform for pub ic debt C earing house of business information

Benefits of stock exchange:

#he benefits of stock exchanges can be studied under the fo owing headings, I. Advantages to the companies: %eady market for securities !ncrease in price !ncrease in goodwi 'gent between companies and the investors II. Advantages to the investors: Safety of investment 5est use of capita 6ore co atera va ue 2ub ication of price ist of securities 2owerfu hedge against infraction III. Advantages to the society 7e pfu in industria i.ation !ncrease in rate of capita formation Savings are encouraged !nventive for efficiency 8overnment can raise funds for important pro9ects 2rovides a mirror to ref ect genera economic condition #here are stock exchanges in !ndia. #hey are :ationa Stock 1xchange( 5ombay Stock 1xchange( 5ang ore Stock 1xchange( 'hmedabad Stock 1xchange( Ca cutta Stock

1xchange( 3e hi Stock 1xchange( 7yderabad Stock 1xchange( 6adhya 2radesh Stock 1xchange( 6adras Stock 1xchange( Cochin Stock 1xchange( ;ttar 2radesh Stock 1xchange( 2une Stock 1xchange( Lidhiana Stock 1xchange( 8uwahati Stock 1xchange( 6anga ore Stock 1xchange( <adodara Stock 1xchange( %a9kopt Stock 1xchange( 5hubaneshwar Stock 1xchange( Coimbatore Stock 1xchange( =aipur Stock 1xchange( 6errut Stock 1xchange( 2atna Stock 1xchange( over the counter exchange of !ndia. #he most prominent among these are 5ombay stock exchange and :ationa Stock 1xchange.

Bom ay Stock Exchange:

!t was set up in the 1>?@. !t was organi.ed as vo untary non-profit making association of brokers to regu ate and protect their interests. !t has xxxxx companies isted. 'verage dai y turnover is %s. Axxxx crores. 6arket share of a !ndia e"uity trade is ?*B. !t ists companies with paid up capita of %s. @ crores or more. !t account for @CB of overa turnover of a the stock exchanges in the country. Strengths: 7uge investor base 4ami iarity of investors with 5SDs operation Large nationwide network of brokers and sub brokers. 12C yearDs experience in e"uity trading 1xpands its vast network to retain business !eaknesses: 6onopo y ent c out that is susceptib e to competition. Lack of transparency Lengthy sett ement period C ose c ub cu ture prevai s 8overnment preference for :ationa Stock 1xchanges

"ationa# Stock Exchanges:

!t was incorporated in :ovember 1))2 with an e"uity capita of %s. 2* crores and promoted among others by !35!( !C!C!( L!C( 8!C and its subsidiaries( commercia banks inc uding state bank of !ndia. !t has a sate ite based state-of-theEart networking and fu y automated screen based trading. !t has xxxxx- isted scrips. !t ists companies with paid up capita of %s. 1C crores or more. 3ai y turnover is xxxx crores.

Strengths:
#ransparency and :ationa reach 1"ua access to a members 8overnment patronage !nstitutiona patronage 2rovides avenue for investment trading 7i-tech infrastructure 4!!s more comfortab e with screen based trading Specu ation in derivatives F 4utures G 0ptions

!eaknesses:
:o track records Screen based trading is a new concept Short run concentration in 6umbai 5ack up infrastructure ike communication not in p ace 2rohibitive costs of entry for sma brokers ;ntested systems for arge vo umes of trade 5S1Ds estab ished system( its network of brokers and sub brokers ;neven track record of computeri.ation in !ndia. :ationa Stock 1xchange operates two segments name y who esa e debt market and capita market.

$. !%& '!ho#esa#e de t market( segment:

#he H36 segment or the money market as it is common y referred to( is a faci ity for institutions and corporate bodies to enter into high va ue transactions in instruments such as government securities( treasury bi s( pub ic sector units $2S;& bonds( commercia paper( certified of deposit. 0n the H36 segment( there are two types of entities. #rading members who can either trade on their account or on beha f of their c ients inc uding participants. Hhi e participants are the organi.ations direct y responsib e for sett ement of trades who sett e trades executed on their own account and on beha f of those c ients who are not direct participants.

). Capita# market segment:

#he C6 segment covers trading in e"uities( convertib e debentures and retai trade in debt instrument ike non-convertib e debentures. Securities of medium and arge companies with nationwide investors base inc uding securities traded on other stock exchanges are traded the :S1. #he C6 segment has two sub segments name y Cash segment and derivatives segment.

I. Cash market segment:

Spot trading takes p ace in this market with no forward transactions. 5uying and se ing of scrips is done with various motives ike investment( specu ation and hedging. #he sett ement cyc e in this segment is #I2 days for payment and receipt of funds and de ivery.

II. %erivatives &arket Segment:

#rading in derivatives is done in this segment. ' derivative security is a financia contract whose va ue is derived from the va ue of an under ying asset. #he under ying asset can be e"uity( forex( commodity or any other asset #he securities contract $%egu ation& 'ct( 1)*+ $SC$%& '& defines Jderivative/ to inc ude1. ' security derived from a debt instrument( share( and oan whether secured or unsecured( risk instrument or contract for differences or any other form of security.

2.

' contract( which derives its va ue from the prices( or index of prices( of under ying securities. #he derivatives are securities under the SC$ r& ' and hence the trading of derivatives is governed by the regu atory framework

4unctions performed by derivatives markets 1. *rice discovery: #he market indicates what is ike y to happen and thus assist in better price discovery of the futures as we as current prices. 2. +isk transfer: 3erivatives instruments do not themse ves invo ve risk they redistribute the risk between the market participants. @. &arket comp#etion: Hith the introduction of derivatives the under ying market witnesses higher trading vo umes

Importance of derivatives:
1. 2rovide enhance yie d on assets 2. %educe finding costs by borrowers @. 6odify payment structure of asset to correspond to investorDs market views. K. %ef ects the perception of market participants about futures price of asset. *. !ncrease trading vo umes by increasing confidence of investors. +. Specu ative trades shifts to a more contro ed environment. ?. 'cts as a cata yst for new entrepreneuria activity >. 7e ps to increase saving and investment in the ong run and promoters economic deve opment as it depends on the rate of savings and investment. ). 7e ps to transfer the market risk i.e. ca ed hedging which is a protection against osses resu ting from unforeseen price and vo ati ity changes. #hus derivatives are a very important too of risk management.

,raders in derivatives market:

#here are three broad categories of participants in the derivatives market. #hey are as fo ows,

$. -edgers:
7edgers face risk associated with the price of an asset. #hey use futures or 0ptions markets to reduce or e iminate this risk. %isk associated with the f uctuation of commodity prices( foreign exchanges rates( stock prices can be reduced( and they are primari y used for purposes of managing risk by those managing funds.

). Specu#ation:
!f hedgers are the peop e who wish to avoid the price risk( specu ators are those who are wi ing to take such risk. #hey bet on future movements in the price of an asset. 3erivatives provide them an extra everage( i.e.( they can increase both the potentia gains and potentia osses in a specu ative venture. #hey may be $a& day traders or $b& position traders. #hey use fundamenta ana ysis and a so any other information avai ab e to form their opinions on the ike y price movements.

.. Ar itrageurs:
#hey thrive on market imperfections. 'n arbitrageur profit by trading a given commodity( or other item that se s for different prices in two different markets. #hey make simu taneous purchase of securities in one market where the price thereof is ow and sa e in a market where the price is comparative y higher. 'rbitrage may be $a& over space or $b& over time

,ypes of derivatives
#he most common y used derivatives contracts are forwards( futures and 0ptions 1. FO+!A+%: ' forward contract is a customi.ed contract between two entities where sett ement takes p ace on a specific date in the futures at todayDs pre agreed price.

2. F/,/+E: ' futures contract is an agreement between two parties to buy or se an asset at a certain time in the future at certain price. #hese are standardi.ed exchanges traded contracts. @. O*,IO"S, 'n 0ptions gives the ho der of the option the right to do something. #he ho der does not have to exercise this right. 0ptions may be ca option or put options. 3epending on this maturity the options may be c assified as, a( !arrants F onger dated options having maturity of in year and are genera y traded over the counter ( 0eaps F ong-term e"uity anticipation securities are options having maturities of unto three years. c( Baskets F options on portfo io of under ying asset. #he under ying asset is usua y a moving average or a basket of assets ike index options. 1. S!A*S, #hese are private agreements between two parties to exchanger cash f ows in the future according to a pre-arranged formu a. A( Interest +ates ,o S2aps, these entai swapping on y the interest re ated cash f ows between the parties in the same currency. B( Currency S2aps: these entai swapping both principa and interest between the parties( with the cash f ows in one direction being in a different currency than those in the opposite direction.

%E+I3A,I3ES &A+4E, %erivatives in India

#he concept of derivatives is not a ien in !ndia. #rading in standard derivatives such a forward( futures and options is a ready prevent in !ndia and has a ong history.

%erivatives in commodities:
Commodity for2ards 5 4orward trading is a owed in six commodities name y turmeric( b ack pepper( coffee( 7essian( castor seed oi . :ow a so in potatoes and cotton. Commodity Futures F #he first commodity futures exchange was setup in 1>?* in 6umbai as the 5ombay Cotton #raders association. ' c earinghouse for sett ement of these trades was setup 1)1>. #he government of !ndia has approved new exchanges in the recent past( which indicates that( the government if !ndia does not consider this type of trading to be harmfu within proper regu atory framework. !n commodity markets there is no resistance from the users or market participants to provide in commodity 4utures or foreign exchange markets.

%erivatives in E6uity &arket:

#he native share and stock brokers association( which is now as 5ombay stock exchange was estab ished in 1>?*. the concept of 0ptions existed in it as ear y as in 1>)>. #i recent y the comp ex strategies of 0ptions were being traded in many exchanges with indigenous name ike te9i-mandi( 9ota-phatak( bhav-bhav at different p aces in !ndia. !ndex 4utures trading commenced in =une 2CCC in the 5S1Ds sensex and :S1Ds SG2 C:A :!4#L. 4utures in securities commenced in =une 2CC1 0ptions on index commenced in =une 2CC1 and options on individua stocks commenced in =u y 2CC1. a deferra products of the cash segment ike the 5ad a and 'L56 were discontinued =u y which paved the way for introduction of numerous derivative products to bring the !ndian markets in ine with internationa financia markets.

!nterest rate derivatives were introduced in 2CC@. S15! setup four committees to deve op the hedging mechanism thereby the derivatives. 1. <arme pane on 5ad a. 2. 2ate committee on forward trading. @. 8upta committee on derivatives. K. Sodhani group on derivatives in foreign exchange market. 3erivatives are described as red-hot instrument since they are high y specu ative in nature. 8iven the investing preferences of banks and insurance companies derivatives market are bond to remain narrow( sha ow and eft at the mercy of market manipu ators and specu ators. 3erivatives provide many services. 6any peop e fee that they meet the market need and can be hand ed safe y in spite of their comp exity. 5ut there are other peop e who have warned against them because of their contribution to destabi i.ation( vo ati ity and financia excesses. #he various criticisms against derivatives are, 1. Specu#ative "ature: #rading vo umes in derivatives us a ways in many mu tip es of the va ue of under ying assets and with no actua de ivery it eads to more specu ative and gamb ing propensities in some peop e. 2. Increase In +isk: Studies show that derivatives may not increase the tota risk if appropriate and effective regu atory framework is created but it wou d certain y not resu t in reduction in risk as three wou d be an emergence of new types of risk the management of which may be more intractab e. @. %isp#acement effect: #he expansion of derivatives market may reduce the vo ume of business on the new issue market( which may create difficu ties fir the corporates( particu ar y the re ative y sma er and newer ones in raising fresh capita . K. Increased regu#atory urden: #he growth of derivatives increased the regu atory $supervisory& burden( regu atory concerns and regu atory costs in the economy.

3erivatives diminish the abi ity of governments to determine( inf uence exchange rates( interest rates( money supp y etc.( in their own economics. *. Insta i#ity of the financia# system: 3erivatives increase risk not on y for their users but a so for the who e system. #he fears of micro and macro financia crisis have ba ooned with the growth of derivatives. !t a so eads to erosion of credit standards as competition in the market p ace increases. +. *rice Insta i#ity: 3erivatives cause wi d f uctuations in assets price by disrupting the markets for those assets. #hey widen the range of f uctuations in the prices of hedge contracts beyond what is warranted by the demand and supp y conditions. #hey he p in price stabi i.ation in the proper y organi.ed( competitive and we regu ated markets.

Chapter7.

,he 4otak &ahindra 8roup

Motak 6ahindra is one of !ndiaNs eading financia institutions( offering comp ete financia so utions that encompass every sphere of ife. 4rom commercia banking( to stock broking( to mutua funds( to ife insurance( to investment banking( the group caters to the financia needs of individua s and corporates. #he group has a net worth of over %s.?( 1CC crore and emp oys over @(CCC emp oyees in its various businesses. Hith a presence in *) cities in !ndia and offices in :ew Lork( London( 3ubai and 6auritius( it services a customer base of over *(CC(CCC. Motak 6ahindra has internationa partnerships with 8o dman Sachs $one of the wor dNs argest investment banks and brokerage firms&( 4ord Credit $one of the wor dNs argest dedicated automobi e financiers& and 0 d 6utua $a arge insurance( banking and asset management cong omerate&. #he Motak 6ahindra 8roup was born in 1)>* as Motak Capita 6anagement 4inance Limited. ;day Motak( Sidney '. '. 2into and Motak G Company promoted this company. !ndustria ists 7arish 6ahindra and 'nand 6ahindra took a stake in 1)>+( and thatNs when the company changed its name to Motak 6ahindra 4inance Limited.Since then itNs been a steady and confident 9ourney to growth and success.

,-E 9O/+"E: SO FA+ ...

4E: 8+O/* CO&*A"IES A"% ,-EI+ B/SI"ESSES

4otak &ahindra Bank

The Kotak Mahindra Groups flagship company, Kotak Mahindra Finance Ltd which was established in 1 !", was con#erted into a bank $ Kotak Mahindra %ank Ltd in March &''( becoming the first )ndian company to con#ert into a %ank* )ts banking operations offers a central platform for customer relationships across the groups #arious businesses* The bank has a presence in the +ommercial ,ehicles, -etail Finance, +orporate %anking and Treasury and has recently entered the .ousing Finance segment*

4otak &ahindra Capita# Company

Motak 6ahindra Capita Company Limited $M6CC&( !ndiaNs premier !nvestment 5ank and a 2rimary 3ea er $23& approved by the %5!( is a strategic 9oint venture between Motak 6ahindra 5ank Limited and the 8o dman Sachs 8roup( LL2. M6CCNs core business areas inc ude 1"uity !ssuances( 6ergers G 'c"uisitions( Structured 4inance and 'dvisory Services( 4ixed !ncome Securities and 2rincipa 5usiness.

4otak Securities
4otak Securities 0td.; a strategic <oint venture et2een 4otak &ahindra

Bank 0imited and the 8o#dman Sachs 8roup; 00*.; is one of India=s #argest rokerage and securities distri ution house in India. Over the years 4otak Securities has een one of the #eading investment roking houses catering to the needs of oth institutiona# and retai#s investor categories 2ith presence a## over the country through franchisees and co7ordinators. 4otak Street 7 the retai# arm of 4otak Securities 0td.; offers on#ine 'through 222.kotakstreet.com/ and offline ser#ices
well0researched e1pertise and financial products to the retail in#estors*

4otak &ahindra *rimus

4otak &ahindra *rimus 0imited '4&*( is a <oint venture et2een 4otak &ahindra Bank 0td and Ford Credit Internationa# Inc.; '/SA( formed to finance a## non7Ford passenger vehic#es. 4&* is one of the country>s #eading p#ayers in car finance and is focused to financing and supporting automotive and automotive re#ated manufacturers; dea#ers and retai# customers.

4otak &ahindra Asset &anagement Company

Motak 6ahindra 'sset 6anagement Company $M6'6C&( a subsidiary of Motak 6ahindra 5ank( is the asset manager for Motak 6ahindra 6utua 4und $M664&. M664 manages funds in excess of %s KCCC crores and offers schemes catering to investors with varying risk- return profi es. !t was the first fund house in the country to aunch a dedicated gi t scheme investing on y in government securities.

4otak &ahindra O#d &utua# 0ife Insurance 0imited

Motak 6ahindra 0 d 6utua Life !nsurance Limited is a 9oint venture between Motak 6ahindra 5ank Ltd. and 0 d 6utua p c. Motak Life !nsurance he ps customers to take important financia decisions at every stage in ife by offering them a wide range of innovative ife insurance products( to make them financia y independent.

F/,/+ES A"% O*,IO"S ,+A%I"8 S:S,E&:

!n kotak securities the futures and options trading systems in :S1 ca ed :1'# -4G 0 trading system provides a fu y automated screen - based trading for :ifty futures ? options on a nationa wide basis as we as on ine monitoring and survei ance mechanism. !t supports an order driven market and provides comp ete transparency of trading operations. !t is simi ar to that of trading of e"uities in the cash market segment. #he software for the 4G0 market has been deve oped to faci itate efficient and transparent trading in futures and options instruments. Meeping in view the fami iarity of trading numbers with the current capita market trading system( modifications have been performed in the existing capita market trading system so as to make it suitab e for trading futures and options.

,ypes of derivatives traded in "ifty

S&P CNX Nifty - Futures And Options

Mini derivative contracts

- Futures And Options

CNX Nifty Junior

- Futures And Options

CNXIT

- Futures And Options

CNX 1

- Futures And Options

!AN" Nifty

- Futures And Options

Nifty Midcap #

- Futures And Options

S&P CNX $efty Individua% Securities

- Futures And Options - Futures And Options

Management Structure

4O,A4 8+O/*
Motak 6ahindra 5ank Ltd. Motak 6ahindra 2rimus Ltd. Motak 6ahindra 'sset 6anagement Co. Ltd. 06 Motak 6ahindra Life !nsurance Co. Ltd.

Motak Securities Ltd. Motak Securities Ltd. - !nstitutiona Motak 6ahindra Capita Co. Ltd.

4O,A4 SEC/+I,IES
Motak Securities :eeds :o !ntroduction 's !ndiaDs Largest Stock broking house and it is a so the eader as far as primary market distribution goes. Motak securities td. has been formed by a strategic 9oint venture between Motak 6ahindra bank and 8o dman Sachs( a eading internationa investment banking and broking firm. ' corporate member of the 5S1 and :S1( Motak securities is a so a depository participant with the nationa securities depository imited $:S3L& and the centra depository service imited $C3SL& for trading and sett ement of demateria i.ed shares. Motak securities cater exc usive y to your share trading G investment re"uirements. !t provides you that pedesta ( where you as a investor can take contro of a your investing needs. 'midst a the uncertainties today( it had become imperative to take contro of your financia assets. Hith ot of externa factors affecting the vo ati ity of the market( it is important to channe i.e your investments in an organi.ed fashion. #he virtua wor d of kotakstreet provides you that pedesta ( where you as an investor can take contro of a your investing needs.

Motakstreet( the retai arm of Motak Securities( caters exc usive y to your stock broking and investment re"uirements. Motak Securities needs no introduction as one of the argest stock broking houses in the country and a eading distributor of primary market offerings. Motak Securities imited is a 9oint venture between Motak 6ahindra 5ank and 8o dman Sachs( the internationa investment banking and brokerage firm. #he company raised over %s. 1)CCC crore in the primary market in 1)))-2CCC a one( and this is twice the amount raised by its c osest competitor. !n the secondary market( the broking turnover of Motak was %s. KCCCC crore p us during 2CCC-2CC1.

Motak Securities is a corporate member of both the 5S1 and the :S1. !t is a so a depository participant with the :ationa Securities 3epository Limited $:S3L& for trading and sett ement of demateria i.ed shares. Motak Securities has the fo owing areas of business, Institutiona# Stock Broking: !t covers secondary market broking for foreign and !ndian institutiona investors in !ndian e"uities. !t a so has a specia research ce with sectora ana ysts. *rivate C#ient Services: #his is a specia investment division for high net-worth individua s( non-resident !ndian investors( trusts( corporates and banks. #his service is a so avai ab e at the 8roupNs offices in 3ubai and London. C#ient &oney &anagement: #his division provides portfo io management services to high net-worth individua s and corporates. #he expertise of Motak in research and stock broking gives it the right perspective to provide investment advisory services. +etai# distri ution: Motak Securities has a comprehensive retai distribution network( consisting of approximate y ?CCC agents( 1@ branches and over 2C franchisees across !ndia. #his network is used for the distribution and p acement of company fixed deposits( mutua funds( !nitia 2ub ic 0fferings( secondary debt and e"uity and sma savings schemes. %epository Services: Motak Securities is a depository participant with the :ationa Securities 3epository Limited $:S3L& for trading and sett ement of demateria i.ed shares. Since we are a so in the broking business( investors who use our depository services get a dua benefit. #hey can use our brokerage services to execute transactions and our depository services to sett e them. !f you have been waiting to experience the kind of exc usive service en9oyed by arge institutiona investors( Motak Street signa s the end of your ong waitO So go ahead and en9oy an investing experience of a new kind.

A !I%E +A"8E OF *+O%/C,S

S-A+ES
' Motak security is a corporate member of the :S1( 5S1 and 0#C1!. =ust ca or wa k into any of our offices across !ndia to transact in shares or bui ds up your portfo io.

%E+I3A,I3ES7O*,IO"S?F/,/+ES
#he e"uity dea er at any of our out ets wi be happy to offer you insights into the wor d of derivatives. 7e wi he p you tack e market vo ati ity and he p you minimi.e risks.

&A+8I" ,+A%I"8 FACI0I,:

Lou can pay an upfront margin of 9ust *CB and everage that to buy and ho d shares.

S-A+ES 0E"%I"8 ? BO++O!I"

1arn on your id e shares. 2 ace your shares with Motak securities( an intermediary of the security- ending scheme. Lour shares wou d be ent out to borrowers( earning you fee income.

I" %E*,- E@/I,: +ESEA+C' Motak security has a "ua ity research wing. #his wing is invo ved with macroeconomic studies( and industry and company specific e"uity research. #he research teamDs inputs are avai ab e to investors as, a& 3ai y trading ca s b& Puarter y investment picks c& Long term investment picks a based on the fundamenta of a particu ar company and the industry as a who e.

I",E+"E, S-A+E ,+A%I"8

Motak street.com is the !nternet arm of Motak securities and offers investor the convenience of trading( buying and se ing on ine( at 222.kotakstreet.com

*O+,FO0IO &A"A8E&E", SE+3ICE

Motak securities is a registered portfo io manager with sebi. He manage portfo io on beha f of c ients with a discretionary and non-discretionary right. #his service is for investor who may not have the time to manage their stock investment or for those who re"uire the professiona service of our team of export

%E*OSI,O+: SE+3ICES
Motak securities is a depository participant with the :S3LG C3SL. He open demat account for c ients( which he p( convert physica certificates into e ectronic ba ances in a account that is maintained with us.

*+I&A+: ? SECO"%A+: %EB,

He offer primary debt instrument ike %5! bonds and various taxab e and tax saving bonds. Motak Securities a so buys and se s secondary debt instrument ike government securities( 2S; bonds( etc.( for both individua investor and corporates.

&/,/A0

F/"%S;

FIAE%

%E*OSI,S

I"I,IA0

*/B0IC

OFFE+I"8S 'I*Os(
Motak securities is a distribution house for a the mutua funds and fixed deposits of various manufacturing companies and non-banking financia institutions. He offer schemes to investors with different investment ob9ectives and varying risk profi es. Motak securities a so offer investors the faci ity of investing on the potentia y ucrative !20 market.

Chapter71

FUTURES

' 4utures contract is a contract to buy or se a stated "uantity of a commodity or a financia c aim at a specified price at a future specified date. #he parities to the futures have to buy or se the asset regard ess of what happens to its va ue during the intervening period or what sha be the price on the date for which the contract is fina i.ed.

F/,/+E %E0I3E+: CO",+AC,

Hhere the physica de ivery of the asset is s ated for a future date and the payment to be made as agreed( it is future de ivery contract. 7owever in practice a futures are sett ed by offsetting futures contract. !f a

particu ar futures is not sett ed by the party himse f then it wi be sett ed by the exchange at a specified price and the difference is payab e by or to the party. #he basic motive for futures is not the actua de ivery but the hedging for futures risk or specu ation. 4utures can be of two types,

$: CO&&O%I,: F/,/+ES:
#hese inc ude a wide range of agricu ture products and other commodities ike oi ( gas inc uding precious meta s ike go d( si ver.

): FI"A"CIA0 F/,/+ES:
#hese inc ude financia c aims such as shares( debentures( treasury bonds( and share index( foreign exchanges. 4utures are traded at the organi.ed exchange on y. #he exchange provides the counter-party guarantee through its c earinghouse and different types of margins system. Some of the centers where futures are traded are Chicago board of trade( #okyo stock exchange.

F/,/+ES ,E+&I"BO0O8::
Spot price: #he price at which an asset trades in the spot market. Futures price: #he price at which the futures contract in the market. Contract cyc#e: #he period over which a contract trades. #he index futures contract on the :S1 has one-month( two-month( three-month expiry cyc es( which expire on the ast #hursday of the month. 0ne the 4riday fo owing the ast #hursday a new contract having ' three-month expiry is introduced for trading. Expiry date: !t is the date specified in the 4utures contract at the end of which it wi cease to exist. Contract SiBe: #he amount of asset that has to be de ivered under one contract. 4or 1x, #he contract si.e on :S1Ds 4utures market is 2CC :ifity. Initia# &argin: #he amount that must be deposited the margin account at the time a 4utures contract is first entered into is known as initia margin. &arking to &arket: 't the end of each trading day( the margin account is ad9usted to ref ect the investorDs gain or oss depending upon the 4utures c osing price. #his is ca ed marking to market. &aintenance &argin: #his is set to ensure that the ba ance in the margin account never becomes negative. !f the ba ance in the margin account fa s be ow the maintenance margin( the investor receives a margin ca and is expected to top up the margin account to the initia margin eve before trading commences on the next day. *ay off for Futures: #he pay off is the ike y profit or oss wou d accrue to a market participant with change in the price of under ying asset. 4utures contract have iner pay offs. !t means the osses as we as profits for the buyer and the se er of a futures contract are un imited.

*ay off for uyer of futures: #ong futures:

#he pay off for person who buys a futures contract is simi ar to the pay off for a person who he d on asset. 7e has a potentia y un imited upside as we as a potentia y un imited downside. 1.g., 'n investor buys nifty futures when the index is at 1@2C. !f the index goes up( his futures position starts making profit. !f the index fa s his futures position starts showing osses.

*rofit

C 0oss

$.)C

"ifty

*ay off for se##er of futures: short futures

#he pay off for a person who se s a futures contract is simi ar to the pay off for person who shorts an asset. 7e has a potentia y un imited upside as we as a potentia y un imited downside. 1.g., 'n investor se s nifty futures when the index is at 1@2C. !f the index goes down( his futures position starts making profit. !f the index rises( his futures position starts showing osses.

*rofit

$.)C 0oss

"ifty

%ivergence of futures and spot prices: #he basis the difference between the futures price and the current price is known as the basis. #hus basis E 4 F S Hhere 4 E futures price S E Spot price !n a norma market the futures price wou d be greater than spot price and therefore( the basis wi be positive( which in an inverted market( the basis is negative since the spot price exceeds the futures price in such a market. #he price of futures referred it the rate at which the futures contract wi be entered into. #he basis determinants of futures prices are, i& Spot rate ii& 0ther Carrying costs

#he cost of carrying depends upon the, i& #ime invo ved ii& %ate of !nterest iii& Storage Cost. 0bso escence( insurance cost and other costs incurred ti the de ivery date. 8enera y onger the time of maturity( the greater the carrying costs. 's the de ivery month approaches( the basis dec ines unti the spot and futures prices are approximate y the same. #his phenomenon is known as convergence.

*rice

Futures *rice

Spot price #ime

3a#uation of Futures *rices:

#he va uation of futures is done using the cost of carry mode . #he assumptions for pricing futures contracts as fo ows, i. #he markets are perfect. ii. #here are no transaction costs. iii. ' the assets are infinite y divisib e. iv. 5id-ask spreads do not exits so that it is assumed that on y one 2rice prevai s. v. #here are no restrictions on short se ing. ' so( short se ers get to use the fu proceeds of the sa es.

Costs Of Carry &ode#:

#he carry pricing mode stipu ates that the forward or 4utures price( defined as the va ue of one unit of the asset under ying the contract is e"ua to the sum of the spot price and the carrying cost uncured by buying and ho ding on to the de iverab e asset( ess the carry return which refers to the income( such as dividends on shares( which may accrue to the investor. 4 E S I Carrying Cost F Carry return 4ESIC 7ence 4utures on index, 4 E s $ I r &t Hhere 4 E 4uture 2rice( S E Spot 2rice( C E Carrying Cost( r E Cost of financing( t E #ime ti expiration. !n the above case we have used discrete compounding but if we use the concept of continuous compounding the above e"uation wou d be expressed us, 4 E s.ert where e E 2.?1>2>

r E Cost of financing $using continuous y compounded interest rate& 4utures on commodities 4 E s $ I r &t I C Hhere C E 7o ding cost on commodities 4utures when expected dividend yie d is given f E s$ I r F"&# Hhere " E 1xpected dividend yie d( # E ho ding period #he carrying costs of stock index 4utures may be ca cu ated as, Carrying Cost E !ndex <a ue x $financing costs F dividend yie d& x t Hhere is the time period from the share sett ement date to the maturity date of the futures contract. #he pricing mode gives an approximate idea about the future price. 5ut the price observed in the market is the market is the outcome of the price-discovery mechanism $demand F supp y princip e& and may differ from to so-ca ed true price.

Stock index futures:

' stock index represents the change in the va ue of a set of stocks which constitute the index. ' stock index number is the current re ative va ue of a weighted average of the prices of a pre-defined group of e"uities. !n a ong hedge the hedger buys futures contract when they have taken a short position on the cash asset. #he ong hedger faces the rise that prices may risk. !f a price

rise does not take p ace( the ong hedger wou d incur a oss in the cash good but wou d rea i.e gains on the ong futures position. Hhen the asset whose price is to be hedged does not exact y match with the asset under ying the futures contract so he d id ca ed as cross hedge. 7edge ratio is the number of future contract to buy or se per unit of the spot good position. 0ptima hedge ratio depends on the extent and nature of re ative price movement of the futures price and the cash good prices.

-ence the points to e noted are:

1. %e iab e re ationship exists between price change of spot asset and price change of futures contract. 2. Choice of data depends on the hedging hori.on. 4or a dai y hedge( dai y price changes can be taken. 5ut for onger periods take week y( bimonth y or month y charges do not take too ies tonic data ike 1 year( as it wou d give a distorted estimate of re ation between current and futures prices.

-edging using index futures:

1. Hhen the markets are expected to go up. $a& 0ong stock short index futures: 5uy se ect i"uid securities( which move with the index and se them at a ater date. $b& -ave funds #ong index futures: 5uy the entire index portfo io in their correct proportions and se it at a ater date. 2. Hhen the markets are expected to do down. $ c & Short stock #ong index futures: Se se ect i"uid securities( which move with the index and buy them at a ater date.

$d & -ave portfo#io; short index futures: Se the entire index portfo io in their correct proportions and buys it at a ater date. 1ven when a stock picker carefu y purchases stock his estimate may go wrong because the entire market moves against the estimate even though the under ying idea was correct. 7ence when a ong position is adopted on a stock one shou d se some amount of index future to hedge away his index exposure.

Bu##ish index #ong index futures:

Hhen you think the market index is going to rise you can make a profit by adopting a position on the index. #his cou d be after a good budget or good corporate resu ts. ;sing index 4utures an investor can JbuyD or Jsi D the entire index by trading on one sing e security. 7ence if you buy index 4utures you gain if the index rises and ose if the index fa s.

1. Bearish Index short index Futures:

Hhen you think the market index is going to fa you can make a profit by adopting a position on the index. on one sing e security. 7ence if you se index 4utures you gain if the index fa s and ose if the index rises. #o prevent arge price movements occurring because of -specu ative excess/ and to a ow the market to digest and information which is ike y to affect the futures prices in a significant way for most futures contract there are imits( $both minimum and maximum&( on the dai y movements of their prices. 1very futures contract has a minimum imit on trade-to-trade price changes( which is ca ed as tick say * paisa or 1C paisa. Simi ar y there wi be maximum imit on dai y #his cou d be after a bad budget or bad corporate resu ts( instabi ity. ;sing index 4utures an investor can JbuyD or Jse D the entire index by trading

price changes. :orma y trading on a contract stops one the contract is imit up or imit down. 7owever exchanges may change the imits when they fee appropriate.

O*,IO"S
0ptions are contracts( which provide the ho der the right to se or buy a specified "uantity of an under ying asset at a fixed price on or before the expiration of the options date. 0ptions provide a right and not the ob igation to buy or se . i( ,he ca## options: A ca option provides the ho der a right to buy specified assets at specified price on or before a specified date. ii( ,he put option: A put option provides to the ho der a right to se specified assets at specified price on or before a specified date.

Options may a#so e c#assified as:

i( American Options: !n the 'merican option( the option ho der can exercise the right to buy or se ( at any time before the expiration or on the expiration date. ii( European Options: !n the 1uropean option( the right can be exercised on y on the expiry date and not before. #he possibi ity of ear y exercise of right makes the 'merican option to be more va uab e than the 1uropean option to the option ho der. iii( "aked Options and covered Options: ' ca option is ca ed a covered

option if it is covered/written against the assets owned by the writer. !n case of exercise of the ca option by the option ho der( the option write can de iver the asset or the price differentia . 0ne the other hand( if the physica asset does not cover the option( it is known as naked option.

Option ,ermino#ogy:

Index Options: #hese options have index as the under ying Stock Options: #hese 0ptions are on individua stocks Buyer of an option: !n the one whom by paying the option premium buys the right but not the ob igation. #o exercise his option on the se er/ writer. !riter of an option: !s the one who receives the option premium and is thereby ob iged to se / buy the asset if the buyer exercise son him. Option price: !s the price whish the option buyer pay to the option se er. Exercise price: #he date specified in the options contract is known as the expiration date( the exercise date( the strike date or the maturity. Options premium: #he buyer of the option has to buy the right from the se er by paying an option premium. #he premium is a one-time non-refundab e amount for awaiting the right. !n case( the right is not exercised ater( the option writer does not refund the premium. In7the7money option: !f the actua price of the asset is more than the strike price of a ca option( then the ca is said to be in the money. #in the case of put options( if the strike price is more than the actua price then the put is said to be in the money. At the money option: !f the spot price is e"ua to the strike price the option is ca ed at the money. !t wou d ead to .ero cash f ow if it were exercised immediate y. Out of the money option: !f the spot price is ess than the strike price the ca option is said to be out of money. !n the case of Qput option if the strike price is ess than the actua price( then the put is said to be out of money.

Option pay offs:

#he optiona ity characteristics of options resu ts in a non- inear payoff for options. !t means that the osses for the buyer of an option are imited( however the profits are potentia y un imited. 4or a writer( the payoff is exact y the opposite. 7is profits are imited to the option premium( however his osses are potentia y un imited.

$. *ay off profi#e for uyer of ca## option:

#he profit/ oss that the buyer makes on the option depends on the spot price of the

under ying. 7igher the spot price than the strike price( more is the profit the makes. 7is oss is imited to the premium he paid for buying an option. 1.g., 'n
investor buys :ifty options when the index is at 122C. !f the index goes up( he profits. !f the index fa s he osses.

*rofit

"et pay off on ca## '*rofitD#oss(

*remium

$))C

"ifty

0oss

). *ay off profi#e for 2riter of ca## option:

#he profit/ oss that the buyer makes on the option depends on the spot of the under ying. Hhatever is the buyerDs profit is the se erDs oss. 7igher the spot price more is the oss he makes. !f upon expiration the spot price of the under ying is ess than the strike price( the buyer ets his option expire unexercised and the writer gets to keep the premium. 1.g., 'n investor se er nifty options when the index is at 122C. !f the index goes up( he osses

*rofit

C *remium 0oss

$))C

"ifty

.. *ayoff profi#e for uyer of put option:

#he profitR oss that the buyer makes on the option depends on the spot price of the under ying. !f upon expiration( the price is be ow the strike price( he makes a profit. Lower the spot price more is the profit he makes. 7is oss in this case is the premium he paid for buying the option. 1x. 'n investor buys nifty options when the index is at 122C. !f the index goes up he ooses. *rofit

$))C *remium

"ifty

0oss

1.

*ayoff profi#e for 2riter of put option:

#he profit/ oss that the se er makes on the option depends on the spot price of the

under ying. !f upon expiration the spot price happens to be be ow the strike price( the buyer wi exercise the option on the writer. !f upon expiration the spot price of the under ying is more than the strike price( the buyer ets his option expire un-exercised and the writer gets to keep the premium. 1.g., 'n investor se s nifty options when the index is 122C. !f the index goes up he profits.

*rofit

C
$))C "ifty

0oss

%ifferences et2een futures and Options:

F/,/+ES 1. !t invo ves ob igation 2. :o premium is payab e @. Linear payoff moves *. 5oth ong and short at risk more re ative y profits and osses O*,IO"S !t invo ves right 2remium is payab e :on- inear payoff 0n y short at risk ;ncertainty ting in cash f ows is Loss of option ho der is option write is ess

K. 2rice is .ero( strike price Strike price id fixed( price moves

+. ;ncertainty in cash f ows is re ative y imited to the ?. 5oth parties have un imited premium paid but gains are un imited profit of imited to the premium received but oss is un imited

3a#uation of option:
0ptions cannot be va ued in terms of the series of inf ows and outf ows( re"uired rate of return and the time pattern of inf ows and outf ows. !n these terms because 0ptions have characteristics that make them different from the securities. #he va uation of an option depends upon a number of factors re ating to the under ying asset and the financia market.

Effect of %ifferent factors on the va#uation of Options

S.no. 4actor 1. 2. @. K. *. +. !ncrease in va ue under ying asset 1xtent of vo ati ity in va ue !ncreases of asset !ncrease in rate of interest Longer expiration time !ncrease in rate of interest 3ecreases !ncreases !ncreases !ncreases !ncreases 3ecreases !ncreases !ncreases Ca option va ue of !ncreases 2ut option va ue 3ecreases

!ncrease in !ncome from 3ecreases asset

RISK MANAGEMENT Four steps i ris! "# #$e"e t%

4nderstand the nature of arious risks. Define a risk management policy for the organi#ation and

quantifying ma"imum risk that organi#ation is willing to take if quantifiable. Measure the risks if quantifiable and enumerate otherwise. 'uild internal control mechanism to control and monitor all risks.

Step&' U (erst# ( Ris!s

6isks can be classified into three categories. 5rice or Market 6isk 1ounter party or 1redit 6isk ,perating 6isks

Pri)e Ris!s
This is the risk of loss due to change in market prices. 5rice risk can increase further due to Market Liquidity 6isk, which arises when large percentage of the market, instrument of issue. Such a large position could be potentially illiquid and be capable of being replaced or hedged out at the current market assumed to carry e"tra risk. alue and as a result may be

Cou ter p#rt* Ris!s

This is the risk of loss due to a default of the 1ounter party in honoring its commitment in a transaction 71redit 6isk8. If the 1ounter party is situated in another country, this also in ol es 1ountry 6isk,

which is the risk of the 1ounter party not honoring its commitment because of the restrictions imposed by the go ernment though counter party itself is capable to do so.

De#+i $ Ris!
Dealing risk is the sum total of all unsettled transaction due for all dates in future. If the 1ounter party goes bankrupt on any day, all unsettled would ha e to be redone in the market at the current rates. The loss would be the differenced between the original contract rate and the current rates. Dealing risk is therefore limited to only the mo ement in the prices and is measured as a percentage of the total e"posure.

Sett+e"e t Ris!
Settlement risk is the risk of 1ounter party defaulting on the day of the settlement. The risk in this case would be $)); of the e"posure if the corporate gi es the current market rates. alue before recei ing alue from the 1ounter party. In addition the transaction would ha e to be redone at

Oper#ti $ Ris!s
,perational risk is the risk that the organi#ation may be e"posed to financial loss either through human error, mis9udgment, negligence and malfeasance, or through uncertainty, misunderstanding and confusion as to responsibility and authority. -ollowing are the different kinds of operating risks<

Legal 6egulatory &rrors . ,missions -rauds

1ustodial Systems

Le$#+
Legal risk is the risk that the organi#ation will suffer financial loss either because contracts or indi idual pro isions thereof a re unenforceable or inadequately documented, or because the precise relationship with the 1ounter party is unclear.

Re$u+#tor*
6egulatory risk is the risk of doing a transaction, which is not as per the pre ailing rules and laws of the country.

Errors , O"issio s
&rrors . ,missions are not uncommon in financial

operations. These may relate to price, amount and buy=sell side or settlement instructions.

alue date, currency,

Fr#u(s
Some e"amples of frauds are< -ront running 1ircular trading 4ndisclosed 5ersonal trading Insider trader 6outing deals to select brokers

Custo(i#+
1ustodial risk is the loss of prime documents due to theft, fire, water, termites etc. This risk is enhanced when the documents are in transit-

System
System risk is due to significant deficiencies in the design or operation of supporting system< or inability of systems to de elop quickly enough to meet rapidly e ol ing user requirements< or establishment transmission inter ention. of of a data great and many which di erse, require incompatible considerable system manual configuration, which cannot be effecti ely linked by the automated

Step& . De/i e Ris! Po+i)ies

Decide the basic risk policy that the organi#ation wants to ha e. This may ary from taking no risk 7co er all8 to taking high risks 7open all8. Most organi#ations would fall somewhere in between the two e"tremes. 6isk and reward go hand in hand.

Cost Ce ter 0s- Pro/it Ce ter

! cost center approach looks at e"posure management as insurance against ad erse mo ements. ,ne is not looking for optimi#ation of cost or reali#ation but meeting certain budgeted or targeted rates. In a profit center approach, the business is taking deliberate risks to make money out of price mo ements.

Step&1 Ris! Me#sure"e t

There are a number of different measures of price or market risk, which is mainly, based on historical and current market Stress Testing, back Testing, etc. alues e"amples and >alue at 6isk 7>!68, 6e aluation, modeling, simulation,

Step&2 Ris! Co tro+ Co tro+ o/ Pri)e Ris!

5osition limits are established to control the le el of price or market risk taken by the organi#ation. Di ersification is used to reduce systematic risk in a gi en portfolio.

Co tro+ o/ Cre(it Ris!

1redit limits are established for each counter party both Dealing 6isk and Settlement risk separately depending upon the risk perception of the 1ounter party.

Co tro+ o/ Oper#ti $ Ris!

1stab ishment of an effective and efficient interna contro structure over the trading and sett ement activities( as we as imp ementing a time y over and accurate management information system $6.!.S&

NSE RISK CONTROL MEASURES

The salient features of risk containment mechanism for the -., segment de eloped by The 0ational Securities 1learing 1orporation Limited 70S11L8 are< $. *hene er a Trading Member7TM8 e"ceeds the limits, it stops that particular TM from further trading. (. ! member is alerted of his position to enable him to ad9ust his e"posure or bring in additional capital. ?. The most critical component of risk containment mechanism for -., segment is the margining system and on2line position monitoring. The actual position monitoring and margining is carried out on2line through 5arallel 6isk Management System 756ISM8. 56ISM uses S5!0 7Standard 5ortfolio !nalysis of 6isk8 system for the purpose of computation of on2line margins, based on the parameters defined by S&'I.

NSE&SPAN

The ob9ecti e of 0S&2S5!0 is to identify o erall risk in a portfolio of all futures and options contracts for each member. The system treats futures and options contracts uniformly while at the same time recogni#ing the unique e"posures associated with options portfolios, like e"tremely deep out 2of2 the 2money short positions and inter2 month risk. Its o er2riding ob9ecti e is to determine the largest loss that a portfolio might reasonably be e"pected to suffer from one day to the ne"t day based on %%; >a6 methodology. S5!0 considers uniqueness in The financial soundness of the members is the key to risk 0S11L charges an upfront margin It specifies the initial margin requirements for each management.

futures=options contract on a daily basis. It also follows >alue2!t 6isk 7>a68 based margining through S5!0. The open position of the members are marked to market based on contract settlement price for each contract. The on2line position monitoring system generates alerts whene er a 1M reaches a position limit set up by 0S11L.

Chapter-*

&ovement of "IF,: futures from C17CE7CF to CG7CE7CF

3ate Kth 6ay C) *th 6ayC) +th 6ayC) ?th 6ayC) >th 6ayC)

0pen @(*>C.CC @(+K2.2C @(++*.CC @(+*>.CC @(+)?.?C

C ose @(++C.+* @(++).?C @(+@).1C @(+>*.@C @(+2?.1C

Interpretation : #he above graph represents the :ifty position in index option for the month of the 4irst week of 6ay C). He can observe in the graph( the highest of opening price is @(+)?.?C on >th 6ay and the owest is @(+K2.2C on *th 6ay( the highest of c osing is @(+2?.1C on >th 6ay

&ovement Cf "IF,: futures from $$7CE7CF to $E7CE7CF

3ate 11th may C) 12th may C) 1@th may C) 1Kth may C) 1*th may C) , 0pen @+*2.?* @**C.CC @?C1.CC @*?C.CC @+2*.+C C ose @***.)C @+)2.K* @+@).CC @+C*.2* @+>*.>*

Interpretation : #he above graph represents the :!4#L future in index option for the second week C> mayC). He can observe in the graph the highest Cf opening price is @(?C1 on 1@th may and the owest is @(**C on 12 th may the highest Cf c osing is @+)2.K* on 12th may and owest is @(***.)C on 11thmay C)

3750 3700 3650 3600 3550 3500 3450 $$7CE7CF to $E7 CE7CF
OPEN CLOSE

&ovement of "IF,: Futures from $G7CE7CF to ))7CE7CF

3ate 1>th 6ay C) 1)th 6ayC) 2Cth 6ayC) 21st 6ayC) 22nd 6ayC)

0pen K(C*K.K* K(+2C.CC K(@CC.CC K(2*+.CC K(2CC.CC

C ose K(C@>.)C K.@K@.*C K.2)?.*C K(22).CC K(2+1.2C

Interpretation : #he above graph represents the :ifty position in index future for the month of the #hird week of 6ay C). He can observe in the graph( the highest of opening price is K(+2C on1)th 6ay. #he owest is K(C*K.K* on 1>th may highest of c osing is K(@K@.*C on 1) th 6ay and the highest of c osing is K(@K@.*C on 1)th 6ay and the owest is K(C@>.)C on 1>th 6ay.

2344 2844 2744 2244 2144 2.44 2'44 2444 1644 1544 1344
$G7CE7CF to ))7CE7CF

OPEN CL OS E

&ovement of "IF,: Futures from )E7CE7CF to )F7CE7CF

3ate 2*th 6ay C) 2+th 6ayC) 2?th 6ayC) 2>th 6ayC) 2)th 6ayC)

0pen K(2*C K(2K* K(1)> K(2>* K(@+2

C ose K(2*@.@C K.122.2C K.2)K.1* K(@@+.2* K(K*1.>C

Interpretation :
#he above graph represents the :ifty position in index future for the month of the 4ourth week of 6ay C). He can observe in the graph( the highest of opening price is K(@+2 on2)th 6ay and the owest is K(1)> on 2?th 6ay #he highest c osing is K(K*1.>C on 2)th 6ay and the owest is K(122.2C on 2+th 6ay

27 44 22 44 21 44 2. 44 2' 44 24 44 16 44
)E7CE7CF to )F7CE7CF

OPEN CL OS E

&ovement of "IF,: Futures from C$7CH7CF to CE7CH7CF

3ate 1st =une C) 2nd =unC) @rd =un C) Kth =unC) *th =un) 0pen K(*C*.CC K(*+K.)* K(**?.*C K(*2*.CC K(++*.CC C ose K(*KK.1C K(*@@.C* K(*KC.** K(*>*.2C K(*)+.>*

Interpretation :
#he above graph represents the :ifty position in index future for the month of the 4irst week of =un C). He can observe in the graph( the highest of opening price is K(++* on *th =un and the owest is K(*C* on 1st =un #he highest c osing is K(*)+.>* on *th =un and the owest is K(*@@.C* on 2nd 6ay.

&ovement of "IF,: Futures from CG7CH7CF to $)7CH7CF

3ate >th =une C) )th =unC) 1Cth =un C) 11th =unC) 12th =un) 0pen K(*+2.CC K(KC>.CC K(*>1.1* K(++2.CC K(++2.2* C ose K(KKC.+* K(**).@C K(++K.?* K(+K>.CC K(*)@.@C

Interpretation :
#he above graph represents the :ifty position in index future for the month of the Second week of =une C). He can observe in the graph( the highest of opening price is K(++2.2* on 12th =une and the owest is K(KC> on )th =une

#he highest c osing is K(++K.?* on 1C th =une and the owest is K(KKC.+* on > th =une

3ate 1*th =un C) 1+th =un C) 1?th =un C) 1>th =un C) 1)th =un C)

0pen K(*K>.CC K(KKC.CC K(*C+.CC K(@@K.CC K(@C1.CC

C ose K*C+.** K(*@K.1* K(@+*.?C K(2?C.>* K(@@@.2*

&ovement of "IF,: Futures from $E7CH7CF to $F7CH7CF

Interpretation :
#he above graph represents the :ifty position in index future for the month of the third week of =une C). He can observe in the graph( the highest of opening price is K(*K> on 1*th=une and the owest is K(@C1 on 1)th =une #he highest c osing is K(*@K.1* on 1+th =une and the owest is K(2?Con 1>th =une.

4600 4550 4500 4450 4400 4350 4300 4250 4200 4150 4100

OPEN CLOSE

$E7CH7CF to $F7CH7CF

&ovement of "IF,: Futures from ))7CH7CF to )H7CH7CF

3ate 22nd =un C) 2@rd =un C) 2Kth =un C) 2*th =un C) 2+th =un C)

0pen K(@*).)C K(1+C.CC K(2?*.CC K(@*?.1C K(@21.CC

C ose K(2K*.+* K(2*K.K* K(@C).CC K(2*).?C K(@>+.+C

Interpretation :

#he above graph represents the :ifty position in index future for the month of the fourth week of =une C). He can observe in the graph( the highest of opening price is K(@*).)C on 22 nd =une and the owest is K(1+C on 2@rd =une #he highest c osing is K(@C).CC on 2Kth =une and the owest is K(2K*.+*on 22nd =une.

227 4 224 4 217 4 214 4 2.7 4 2.4 4 2'7 4 2'4 4 247 4 244 4 OPEN CL OS E

))7CH7CF to )H7CH7CF

&ovement Cf "IF,: options from C17CE7CF to CG7CE7CF

3ate Kth may C) *th may C) +th may C) ?th may C) >th may C)

0pen >K.KC *+.CC 1)>.CC C 1CC

C ose >>.** K?.CC 2C>.CC 2+2.@C 11>.)*

Interpretation : #he above graph represents the :!4#L position for the first week may C) we can observe in the graph the highest C> opening price is 1)> on + th

may and the highest C> opening price is 1)> on + th may and the owest is C on ?th may. #he highest c osing price is 2+2.@C on ?th may and the owest is K? on *th may.

144 .74 .44 '74 '44 74 4 OP E N C L OS E

C17CE7CF to CG7CE7CF

&ovement Cf "IF,: options from $$7CE7CF to $E7CE7CF

3ate 11th may C) 12th may C) 1@th may C) 1Kth may C) 1*th may C) 0pen ?.CC @C.CC K).CC 2*.CC 1C*.CC C ose ).>* 1).KC *?.+C 2C.1C >*.>C

Interpretation : #he above graph represents the :!4#L position in index option for the second week C> mayC). He can observe in the graph the highest C> opening price is 1C* on 1* th may and the owest is ? on 11 th may the highest C> c osing is *?.+C on 1@th may and owest is ).>* on 11th may C).

'.4 '44 54 84 24 .4 4
$$7CE7CF to $E7CE7CF

OPEN CL OS E

&ovement Cf "IF,: options from $G7CE7CF to ))7CE7CF

3ate 11th may C) 12th may C) 1@th may C) 1Kth may C) 1*th may C) 0pen C >* 1*> K*.*C *2.2C C ose 1)@.?C 1K*.?* 121.C* K?.>C 2).@C

Interpretation : #he above graph represents the :!4#L position in index option for the third week C> mayC). He can observe in the graph the highest C> opening price is 1*> on 2Cth may and the owest is C on 1>th may the highest c osing price is 1)@.?C on 1>th may and owest is 2).@C on 22nd may C).

&ovement Cf "IF,: options from )E7CE7CF to )F7CE7CF 3ate 2*th may C) 2+th may C) 2?th may C) 2>th may C) 2)th may C) 0pen 1CC C C *C C C ose >).?* K2* 2CC C.1C **C.@*

Interpretation : #he above graph represents the nifty position in index option for the fourth week C> may C) we can observe in the graph( the highest C> opening price is 1CC on 2*th may and the owest is C the highest C> c osing is **C.@* on 2)th may and the owest is C.1C on 2)th may.

&ovement Cf "IF,: options from )E7CE7CF to )F7CE7CF

3ate 1st =un C) 2nd =un C) @rd =un C) Kth =un C) *th =un C) 0pen C C 1+C C 2>+.2* C ose 2CC 2)K.>C 1?+.2* @>@.KC 2?).K*

Interpretation : #he above graph represents the :!4#L position in index option for the first week of =une C> we can observe in the graph( the highest of opening price is 2>+.2* on *th =une and the owest is C. #he highest of c osing is @>@.KC on Kth =une and the owest is 1?+.2* on @rd =une.

&ovement of "IF,: option from CG7CH7CF to $)7CH7CF

3ate >th =un C) )th =un C) 1Cth =un C) 11th =un C) 12th =un C)

0pen )*-1* 1>C.CC @CC.CC 1K*.CC )1.CC

C ose 1*>.K* 11?.C* 2)?.C* 1@>.2* 1C>.>C

Interpretation : #he above graph represents the :ifty position in index option for the second week of =une C). He can observe in the graph( the highest of opening price is @CC on 1Cth =une and the owest is )1 on 12 th =une( the highest of c osing is 2)?.C* on 1Cth =une and the owest is 1C>.>C on 12th =une.

174 144 .74 .44 '74 '44 74 4

CG7CH7CF to $)7CH7CF

OP E N C L OS E

3ate 1*th =un C) 1+th =un C) 1?th =un C) 1>th =un C) 1)th =un C)

0pen >* *C 1CC >C +C

C ose )?.+* 2*.>* 1)?.** )K.1* KK.1C

&ovement of "IF,: option from $E7CH7CF to $F7CH7CF

Interpretation : #he above graph represents the :ifty position in index option for the #hird week of =une C). He can observe in the graph( the highest of opening price is >* on 1*th =une and the owest is *C on 1+th =une( the highest of c osing is 1)?.** on 1?th =une and the owest is 2*.>*.

3ate 22nd =un C) 2@rd =un C) 2Kth =un C) 2*th =un C) 2+th =un C)

0pen ?* 1KC 21@ C @1*

C ose 1@*.2* ??.K* 1K2 2C 2*2.?C

&ovement of "IF,: option from ))7CH7CF to )H7CH7CF

Interpretation : #he above graph represents the :ifty position in index option for the 4ourth week of =une C). He can observe in the graph( the highest of opening price is @1* on 2+th =une and the owest is C on 2*th =une( the highest of c osing is 2*2.?C on 2+th =une and the owest is 2C on 2*th =une.

Chapter7H

FINDINGS

The 0ifty -uture market in first week of the month may started with ow price and ended with high price due to boom. The 0ifty -uture market in second week of the month may started with ow price 'nd ended with high price due to boom. The 0ifty -uture market in third week of the month may started with ow price 'nd ended with high price due to boom. The 0ifty -uture market in fourth week of the month may started with ow price 'nd ended with high price due to boom. The 0ifty -uture market in first week of the month 9une started with ow price and ended with high price due to boom.

The 0ifty -uture market in second week of the month 9une started with ow price 'nd ended with high price due to boom. The 0ifty -uture market in third week of the month 9une started with high price 'nd ended with ow price due to recession. The 0ifty -uture market in fourth week of the month 9une started with ow price 'nd ended with high price due to boom.

 #he :ifty option market in first week of the month may started with ow price 'nd ended with high price due to boom. The 0ifty option market in second week of the month may

started with ow price 'nd ended with high price due to boom. The 0ifty option market in third week of the month may started with ow price 'nd ended with high price due to boom. The 0ifty option market in fourth week of the month may started with ow price 'nd ended with high price due to boom. The 0ifty option market in first week of the month 9une started with ow price 'nd ended with high price due to boom. The 0ifty option market in second week of the month 9une

started with ow price 'nd ended with high price due to boom. The 0ifty option market in third week of the month 9une started with high price 'nd ended with high price due to recession. The 0ifty option market in fourth week of the month 9une started with ow price 'nd ended with high price due to boom.

S/88ES,IO"S
Motak Securities Limited being one of the best stock broking companies in <isakhapatnam provides the necessary infrastructure and the best service to its c ients. 7ence the scope for improvement is very ess. 5ut the study has brought to ight few aspects where the company can improve its existing image and market.

3erivativesD being a new concept has ow eve of awareness among the investors. 7ence the company shou d organi.e seminars and if necessary c asses by experts to keep the investors abreast with the atest in futures G options. #he company needs to put greater emphasis on marketing activities. 5ecause of ower sa aries( the turnover rate of operators is high hence there are on y a few experienced operators. #he company shou d take steps to reduce the turnover. 1mp oyees of Motak Securities Limited shou d a so be provided fu know edge of 4 G 0 market and c asses must be conducted for them. Lot si.es of certain scrips are very arge which shou d be reduced to increase trading in these scrips.

SUMM R!
The past decade has a golden age of stock e"change of India. It is raised to dominate the future of corporate finance in India, thanks to the reforms in stock market. &arlier in the initial days of secondary market, deri ati es trading on stock e"change in India used to take place through open outcry without use of information technology for immediate matching or recording of trades. The need for the study is felt as many as people in India are aware of trading process in stock market. !fter liberali#ation in $%%$, our stock markets e"perienced drastic changes due to setting up S&'I in ())). Integration of market, new technology, in trading, introduction of deri ati es trading, foreign participation etc. These led to the de elopment of Stock Market. In order to carry out the deri ati es market, the company must be duly registered with S&'I and at present their number of securities Ltd. *ho deals with the deri ati es market in India. The emergence of the market for deri ati es products, most notably forwards, futures and options, can be traced back to the willingness of risk2a erse economic agents to guard themsel es against uncertainties arising out of fluctuations in asset prices. Deri ati e is a product whose alue is deri ed from the alue of one or more basic ariables called bases 7underlying asset, inde", or reference rate, in a contractual manner. The underlying asset can be equity, fore", commodity or any other asset. -or e"ample, wheat farmers may wish to sell their har est at a future date to eliminate the risk of a change in prices by the date. Such a transaction is an e"ample of a deri ati e. The price of this deri ati e is dri en by the spot price of wheat which is the @underlying@. In the Indian conte"t the Securities 1ontracts 76egulation8 !ct, $%AB include. ! security deri ed from a debt instrument, share and loan whether secured or unsecured, risk instrument or contract for 7S1768 !8 defines @ Deri ati e@ to

differences or any form of security. ! contract, which deri es its alue from the prices, or inde" of prices, underlying securities.

BIBLIOGRAPHY

BOOKS -inancial Deri ati es C S.L.Dupta I0T&60&T SIT&S w.w.w.nseindia.com w.w.w.bseindia.com www.deri ati esindia.com www.kotak securities.com