INTRODUCTION

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 (1860-61) due to the share mania of the public,
the number of brokers dealing in shares increased. The brokers organized an informal
association in Mumbai named the Native stock and share brokers associations in 1875.
Increased activity in trade and commerce during the First World War and second
war resulted in an increase in the stock trading. Stock exchanges were established in
different centers like Chennai, Delhi, Nagpur, kanpur, Hyderabad and Banglore. The
growth of stock exchanges suffered a setback after the end of world war. Worldwide
depression affected them. Most of the stock exchanges in the early stages had a
speculative nature of working without technical strength. Securities and contract
regulation act, 1956 gave powers to the central government to regulate the stock
exchanges in Mumbai, Calcutta. Chennai, Ahmedebad, Delhi, Hyderabad and Indore
were recognized by SCR act. The Banglore stock exchange was recognized only in 1963.
Till recent past, floor trading took place in all stock exchanges. In the floor
trading system, the trade takes place through open outcry system during the official
trading hours. Trading posts are assigned the different securities where buy and sell
activities of securities took place. This system needs a face-to-face contact among the
traders and restricts the trading volume. The speed of the new information reflected on
the prices was rather slow. The deals were also not transparent and the system favoured
the brokers rather than the investors.

The setting up of NSE and OTCEI with the screen based trading facility resulted
in more and more stock exchanges turning towards the computer based trading. Bombay
stock exchange introduced the screen based trading system in 1995, which is known as
BOLT (Bombay On-line Trading System).

HISTORY OF DERIVATIVES
Early forward contracts in US addressed merchants concerns about ensuring that there
were buyers and sellers for commodity. However, "credit risk" remained a serious
problem. To deal with this problem, a group of Chicago businessmen formed the Chicago
board of trade (CBOT) in 1848. The primary intention of the CBOT was to provide a
centralized location in known in advance for buyers and seller to negotiate forward
contracts. In 1865, the CBOT went one step further and listed the first "exchange traded"
derivatives contracts in the US; these contracts were called "future contracts". In 1919,
Chicago butter and egg board, a spin-off of CBOT, was reorganized to allow future
trading. Its name was changed to Chicago mercantile exchange (CME). The CBOT and
the CME remain the two largest organized future exchanges, indeed two largest
"financial" exchange of any kind in world of today. The first stock index futures contracts
were traded at Kansas City board of trade. Currently the most popular stock index future
contract in the world is based on S&P 500 index, traded on CME. During mid eighties,
financial future became the most active derivative instruments generating much time
more the commodity future. Index futures, future on T-bills and Euro-Dollar future are
the three most popular future contracts traded today. Either popular international
exchange that trade derivatives is, OTB in - Germany, SGX in Singapore, TIFFE in Japan,
MATIF in France, EUREX etc.

1995

Securities laws (amendment) ordinance which withdrew the

prohibitions on options in securities

1996

NSE submitted proposal for introduction of derivatives.

November 1996

SEBI set up L.C. Gupta committee to develop appropriate regulatory

framework for derivatives.

March 1998

L.C. Gupta committee submitted report

June 1998

SEBI set up Prof. J.R.Verma committee to recommend majors for

risks containment in the Indian derivatives market.

4 July 1998

Securities Contract (Regulation) amendment bill was introduced in

Lok Sabha.

10 July 1998

The bill was referred to the standing committee on finance

October 1998

Prof. J.R.Verma committee submitted report

March 1999

SCF submitted its report

July 1999

RBI gave permission for OTC forward rate agreements and interest
rate swaps.

December 1999

Securities Contract Regulation (amendment) bill was converted into

an act

May 2000

SEBI to gave final approval for derivatives trading to NSE and BSE.

9June 2000

Trading of Sensex futures commenced at BSE

12 June 2000

Trading of Nifty futures commenced at NSE

4 June 2001

Trading of Index options commenced at NSE

July 2001

Trading of stock options commenced at NSE

November 2001 Trading of stock future commenced at NSE

June 2003
Trading of interest rate future commenced at NSE
GLOBAL DERIVATIVES INDUSTRY: A CHRONOLOGY

1.3 INTRODUCTION TO DERIVATIVES

The emergence of the market for derivative products, most notably forwards,
futures and options, can be traced back to the willingness of risk-averse economic agents
to guard themselves against uncertainties arising out of fluctuations in asset prices. By
their very nature, the financial markets are marked by a very high degree of volatility.
Through the use of derivative products, it is possible to partially or fully transfer price
risks by lockingin asset prices. As instruments of risk management, these generally do
not influence the fluctuations in the underlying asset prices. However, by locking-in asset
prices, derivative products minimize the impact of fluctuations in asset prices on the
profitability and cash flow situation of risk-averse investors.

1.3.1 DERIVATIVES DEFINED

Derivative is a product, 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 equity, forex, commodity or any other asset. For
example, wheat farmers may wish to sell their harvest at a future date to eliminate the
risk of a change in prices by that date. Such a transaction is an example of a derivative.
The price of this derivative is driven by the spot price of wheat which is the underlying.
In the Indian context the Securities Contracts (Regulation) Act, 1956 (SC(R) A)
defines Derivative to include
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.

2.

A contract which derives its value from the prices, or index of prices, of
underlying securities.

Derivatives are securities under the SC(R) A and hence the trading of derivatives
is governed By the regulatory framework under the SC(R) A.

1.3.2 PRODUCTS, PARTICIPANTS AND FUNCTIONS

Derivative contracts have several variants. The most common variants are forwards,
futures, Options and swaps. The following three broad categories of participants hedgers, speculators, and arbitrageurs trade in the derivatives market. Hedgers face risk
associated with the price of an asset. They use futures or options markets to reduce or
eliminate this risk. Speculators wish to bet on future movements in the price of an asset.
Futures and options contracts can give them an extra leverage; that is, they can increase
both the potential gains and potential losses in a speculative venture. Arbitrageurs are in
business to take advantage of a discrepancy between prices in two different markets. If,
for example, they see the futures price of an asset getting out of line with the cash price,
they will take offsetting positions in the two markets to lock in a profit. The derivatives
market performs a number of economic functions. First, prices in an organized
derivatives market reflect the perception of market participants about the future and lead
the prices of underlying to the perceived future level.
The prices of derivatives converge with the prices of the underlying at the
expiration of the derivative contract. Thus derivatives help in discovery of future as well
as current prices. Second, the derivatives market helps to transfer risks from those who
have them but may not like them to those who have an appetite for them. Third,
derivatives, due to their inherent nature, are linked to the underlying cash markets. With
the introduction of derivatives, the underlying market witnesses higher trading volumes
because of participation by more players who would not otherwise participate for lack of

an arrangement to transfer risk. Fourth, speculative trades shift to a more controlled

environment of derivatives market. In the absence of an organized derivatives market,
speculators trade in the underlying cash markets. Margining, monitoring and surveillance
of the activities of various participants become extremely difficult in these kind of mixed
markets. Fifth, an important incidental benefit that flows from derivatives trading is that
it acts as a catalyst for new entrepreneurial activity.
The derivatives have a history of attracting many bright, creative, well-educated
people with an entrepreneurial attitude. They often energize others to create new
businesses, new products and new employment opportunities, the benefit of which are
immense. Finally, derivatives markets help increase savings and investment in the long
run. Transfer of risk enables market participants to expand their volume of activity.

1.3.3 TYPES OF DERIVATIVES

The most commonly used derivatives contracts are forwards, futures and options . Here
we take a brief look at various derivatives contracts that have come to be used.
Forwards: A forward contract is a customized contract between two entities, where
settlement takes place on a specific date in the future at todays pre-agreed price.
Futures: A futures contract is an agreement between two parties to buy or sell an asset at
a certain time in the future at a certain price. Futures contracts are special types of
forward contracts in the sense that the former are standardized exchange-traded contracts.

Options: Options are of two types

Calls and Puts: Calls give the buyer the right but not the obligation to buy a given
quantity of the underlying asset, at a given price on or before a given future date.
Puts give the buyer the right, but not the obligation to sell a given quantity of the
underlying asset at a given price on or before a given date.

1.3.4 DERIVATIVES MARKET AT NSE

The derivatives trading on the exchange commenced with S&P CNX Nifty Index
futures on June 12, 2000. The trading in index options commenced on June 4, 2001 and
trading in options on individual securities commenced on July 2, 2001. Single stock
futures were launched on November 9, 2001. The index futures and options contract on
NSE are based on S&P CNX Nifty Index. Currently, the futures contracts have a
maximum of 3-month expiration cycles. Three contracts are available for trading, with 1
month, 2 months and 3 months expiry. A new contract is introduced on the next trading
day following the expiry of the near month contract.

1.3.5 TRADING MECHANISM

The futures and options trading system of NSE, called NEAT-F&O trading
system, provides a fully automated screenbased trading for Nifty futures & options and
stock futures & options on a nationwide basis and an online monitoring and surveillance
mechanism. It supports an anonymous order driven market which provides complete
transparency of trading operations and operates on strict pricetime priority. It is similar
to that of trading of equities in the Cash Market (CM) segment. Two types of users access
the NEAT-F&O trading system. The Trading Members(TM) have access to functions
such as order entry, order matching, order and trade management. It provides tremendous
flexibility to users in terms of kinds of orders that can be placed on the system. Various

conditions like Good-till-Day, Good-till-Cancelled, Good till-Date, Immediate or Cancel,

Limit/Market price, Stop loss, etc. can be built into an order. The Clearing Members
(CM) use the trader workstation for the purpose of monitoring the trading member(s) for
whom they clear the trades. Additionally, they can enter and set limits to positions, which
a trading member can take.

1.3.6 CLEARING AND SETTLEMENT

NSCCL undertakes clearing and settlement of all deals executed on the NSEs
F&O segment. It acts as legal counterparty to all deals on the F&O segment and
guarantees settlement.

1.3.7 CLEARING
The first step in clearing process is working out open positions or obligations of
members. ACMs open position is arrived at by aggregating the open position of all the
TMs and all custodial participants clearing through him, in the contracts in which they
have traded. A TMs open position is arrived at as the summation of his proprietary open
position and clients open positions, in the contracts in which they have traded. While
entering orders on the trading system, TMs are required to identify the orders, whether
proprietary (if they are their own trades) or client (if entered on behalf of clients).
Proprietary positions are calculated on net basis (buy-sell) for each contract. Clients
positions are arrived at by summing together net (buy-sell) positions of each individual
client for each contract. A TMs open position is the sum of proprietary open position,
client open long position and client open short position.

1.3.8 SETTLEMENT

All futures and options contracts are cash settled, i.e. through exchange of cash.
The underlying for index futures/options of the Nifty index cannot be delivered. These
contracts, therefore, have to be settled in cash. Futures and options on individual
securities can be delivered as in the spot market. However, it has been currently mandated
that stock options and futures would also be cash settled. The settlement amount for a
CM is netted across all their TMs/clients in respect of MTM, premium and final exercise
settlement. For the purpose of settlement, all CMs are required to open a separate bank
account with NSCCL designated clearing banks for F&O segment.

1.4 INTRODUCTION TO FUTURES AND OPTIONS

In recent years, derivatives have become increasingly important in the field of
finance. While futures and options are now actively traded on many exchanges, forward
contracts are popular on the OTC market.

1.4.1 INTRODUCTION TO FUTURES

Futures markets were designed to solve the problems that exist in forward
markets. A futures Contract is an agreement between two parties to buy or sell an asset at
a certain time in the Future at a certain price. But unlike forward contracts, the futures
contracts are standardized and exchange traded. To facilitate liquidity in the futures
contracts, the exchange specifies certain standard features of the contract. It is a
standardized contract with standard underlying Instrument, a standard quantity and
quality of the underlying instrument that can be delivered,(or which can be used for
reference purposes in settlement) and a standard timing of such settlement. A futures
contract may be offset prior to maturity by entering into an equal and opposite
Transaction. More than 99% of futures transactions are offset this way.

The standardized items in a futures contract are:

Quantity of the underlying
Quality of the underlying

1.4.2 FUTURES TERMINOLOGY

Spot price: The price at which an asset trades in the spot market.

Futures price: The price at which the futures contract trades in the futures market.
Contract cycle: The period over which a contract trades. The index futures contracts on
the NSE have one-month, two-months and three-months expiry cycles, which expire on
the last Thursday of the month. Thus a January expiration contract expires on the last
Thursday of January and a February expiration contract ceases trading on the last
Thursday of February. On the Friday following the last Thursday, a new contract having a
three-month expiry is introduced for trading.
Expiry date: It is the date specified 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.
Contract size: The amount of asset that has to be delivered less than one contract. For
instance, the contract size on NSEs futures market is 200 Nifties.
Basis: In the context of financial futures, basis can be defined as the futures price minus
the spot price. There will be a different basis for each delivery month for each contract. In
a normal market, basis will be positive. This reflects that futures prices normally exceed
spot prices.

Cost of carry: The relationship between futures prices and spot prices can be
summarized in terms of what is known as the cost of carry. This measures the storage cost
plus the interest that is paid to finance the asset less the income earned on the asset.
Initial margin: The amount that must be deposited in the margin account at the time a
futures contract is first entered into is known as initial margin.
Marking-to-market: In the futures market, at the end of each trading day, the margin
account is adjusted to reflect the investors gain or loss depending upon the futures
closing price. This is called Markingtomarket.
Maintenance margin: 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 expected to top up the margin account to the initial margin level before trading
commences on the next day.

1.4.3 INTRODUCTION TO OPTIONS

In this section, we look at the next derivative product to be traded on the NSE,
namely options. Options are fundamentally different from forward and futures contracts.
An option gives the Holder of the option the right to do something. The holder does not
have to exercise this right. In contrast, in a forward or futures contract, the two parties
have committed themselves to doing something. Whereas it costs nothing (except margin
requirements) to enter into a futures contract, the purchase of an option requires an up
front payment.

1.4.3.1 OPTION TERMINOLOGY

Index options: These options have the index as the underlying. Some options are
European while others are American. Like indexing futures contracts, indexing options
contracts are also cash settled.
Stock options: Stock options are options on individual stocks. Options currently trade on
over 500stocks in the United States. A contract gives the holder the right to buy or sell
shares at the specified price.
Buyer of an option: The buyer of an option is the one who by paying the option
premium buys the right but not the obligation to exercise his option on the seller/writer.
Writer of an option: The writer of a call/put option is the one who receives the option
premium and is thereby obliged to sell/buy the asset if the buyer exercises on him.
There are two basic types of options, call options and put options.
Call option: A call option gives the holder the right but not the obligation to buy an asset
by a certain date for a certain price.
Put option: put option gives the holder the right but not the obligation to sell an asset
by a certain date for a certain price.
Option price: Option price is the price, which the option buyer pays to the option seller.
It is also referred to as the option premium.
Expiration date: The date specified in the options contract is known as the expiration
date, the exercise date, the strike date or the maturity.
Strike price: The price specified in the options contract is known as the strike price or
the exercise price.

American options: American options are options that can be exercised at any time up to
the expiration Date. Most exchange-traded options are American.
European options: European options are options that can be exercised only on the
expiration date itself. European options are easier to analyze than American options, and
properties of an American option are frequently deduced from those of its European
counterpart.

1.4.4 DISTINCTION BETWEEN FUTURES AND OPTIONS

Futures Options
Exchange traded, with novation same as futures.
Exchange defines the product same as futures.
Price is zero; strike price moves Strike price is fixed, price moves.
Price is zero Price is always positive.
Linear payoff Non linear payoff.
Both long and short at risk only short at risk.

OBJECTIVES OF THE STUDY

1.

To study the mechanism of F&O Trading.

2.

To determine the perception of brokers regarding benefits of F&O Trading to the

health of stock market.

3.

To suggest measures for improving the volume of F&O Trading in Ludhiana.

Chapter II

REVIEW OF LITERATURE
This chapter deals with the studies and researches carried by different authors and
analyst. Though there are very few studies conducted on Derivatives attempt has been
made to compile all the related studies.
Curly & Bear (1988) have discussed in detail the mechanics of option trading. The
variables affecting the option contract are striking price, duration of contract and the
premium. The amount of premium depends upon expectations of writers and buyers with
regards to price behavior of the stock. Call & put option may be interchanged by process
called conversion. Conversion provides an arbitrage mechanism that insures parity
between put and call premium for the same stock.
Smith (1990) has highlighted the various terms used in the future contract and Option
contract. In practice stock options are seldom exercised. Instead, on the expiration date,
the option holders sell their options back to the option writers, thereby extinguishing the
contract at a price reflecting the value of the contract if it were exercised. The number of
outstanding options fluctuates daily; as same investors write new options and others close
their posit ion. The total amount of contracts outstanding is called the 'open interest'.
Chandra (1992) has highlighted that carry forward transactions that is found only in
India fuels a great deal of speculative activity. With the help of BadIa finance,transactions
can be carried forward indefinitely and this facility seems to create a feeling among
operators that if the price movement is not in their favour during a particular period they
can carry forward the transaction to the next period, so on and so forth, in the hope that

future price movement will be to their advantage. He has suggested considering hope that
future price movement will be to their advantage. He has suggested considering the
introduction of Future and Option trading with a well-defined commitment that cannot be
shifted temporarily in the hope of favorable market movement.
Gupta (1994) believes that the existence or Future and Option actually increase the
nation's welfare. This will enable the investor to find a set or financial claims, which are
consistent with his or her preferences, thus inducing the investor to make additional
investments. He has emphasized that it is high time that option trading is launched in
Indian stock exchanges. Future and Option trading result in a regulated form of
Speculation, which is both socially and economically desirable.
Anjaria (1996) has highlighted the major reason behind SEBIS dislike for the Badla
system is its view that the Badla facility causes large and undue variations in share prices.
The author has pointed that while curbing excessive speculation is an understandable
regulatory objective, the objective is sought to be attained by creating orderly and healthy
markets that both facilitates and yet monitor speculation, so that rule breakers can be
punished. Future and option trading -will neither does not eliminate speculation nor can
they replace the functions of the Badla system.
Barva (1996) has pointed that the SEBl's resolve to abolish Badla so as to eliminate
speculation in the market is based on unsound logic. To reduce speculation and default in
payment SEBI must ensure that operators in the market deposit adequate margins.
However, SEBI should first popularize option and future trading that will lead to natural
death of Badla transaction.

Dhokla (1997) has illustrated how the present trading system tends to favour either the
Bulls or the Bears depending on the technical positions in the market and how investors
are taken for ride. This has prompted the SEBI to suggest that there should be switch over
to an option and future market. The author has described that there is a small options
market in India that has been in existence for more than two decades. This Unofficial
market is called jota Phatak.
Rangarajan (1997) has explained the merits and demerits of the BadIa system and has
pointed out the role of speculators in Indian stock exchanges. According to the author
Badla system and the derivatives instruments such as future and option are not
comparable. Badla transaction can be bent a little but here and there to make it resemble
the option mechanism. The major advantage of the option market is that it segregates
genuine investor and speculator, with the cash market open only to the former and the
option market only to the latter.
Sharma (1998) has described in detail the mechanism of option trading and has
emphasized that SEBl, brokers and others regulatory bodies are not sure whether the
introduction of option trading in the Indian market will be a stabilizing or destablishing
experience.
Sriram (1998) has explained the difference between the European call and American
call. I f the holder of the call can exercise the option only on the expiration date.it is
referred to as on European call. I f the holder of the call is permitted to exercise the call
on any date prior to the expiration date. it is called an American call. If option trading is
to be introduced in the Indian stock market we must understand the pricing mechanism of
the options.

Avadhani (1999) has focused that speculation on the stock market is an accepted 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 Badla is to be phased out, bank money should be made available to brokers
on commercial terms and trading on margins should be allowed. The objective of SEBI is
replacing Badla by Future and Options can be achieved by planned process of Reforms,
which will also quicken deliveries and improve liquidity.
Chugh (2000) has described that the Indian stock market is characterized by high price
volatility and is driven more oy sentiment and less by financial performance indicators
and has resulted in increasing risk exposure of market participants. At present the market
offers no risk hedge instrument that allows the investor to manage and minimize their
risks. The solution to the above problem is to permit futures and option trading on Indian
stock exchanges. Many investors would be willing to pay for hedging the risk of price
change, which gets shifted to the writer of the option. The success of an Organized future
and option exchange would, however, require a careful selection of underlying securities,
appointment of a number of market makers for each underlying security and
standardization of the terms of option contracts.
Gupta (2000) has emphasized that a widely held belief in India is that forward trading is
indispensable for maintaining market liquidity. There is a misconception that the
introduction of future and option will solve the problem of liquidity arising from the
restriction of carry forward. These derivatives have nothing to contribute to cash market
resupposes the implementation of certain market reforms such as capital adequacy norms
and stricter adherence to settlement systems that the broker may not easily accept and it is

difficult to introduce system overnight.

Patherya (2000) has described that options and future are perfect hedge instrument but
by abolishing Badla, we may be heading for a market that is more volatile than the
present system. In addition to this liquidity in a share having than in a share without the
Badla facility. The development of a future market may perhaps take time, even the
French took 10 years to develop a futures market. All three instruments must operate
simultaneously which is likely to result in a market synergy.
Verma (2002) has pointed out that SEBI and the officials of Ministry of Finance are in a
hurry to substitute Badla system with future and option trading before it is established in
India. The main reason behind this is pressure exerted by Asian Development Bank,
which has agreed to provide assistance to India for capital market Reforms.
Dhigra (2004) has pointed out that Derivatives Product has emerged as a perfect hedging
devices against fluctuations in commodity prices. These offer organizations the
opportunity to break financial risks into smaller components to best meet specific risk
management objectives. These tools are important to necessitate its users to understand
the intended function and the safety precautions before being put to use for the benefit of
the society at large.
Agarwal (2004) has pointed out new concept of Credit Derivatives, which offers many
benefits and has growth potential in India. The focus is on banks and financial institutions
which have had no exposure to Credit Derivatives in past. He also pointed out upon key
features of the Draft Guidelines of the Reserve Bank of India on Credit Derivatives.

SCOPE OF STUDY
The study is limited to Ludhiana only. Major consideration for choosing Ludhiana is
that I belong to Ludhiana.

RESEARCH DESIGN
Research Design is a pattern or an outline of a research project workings. It is a
statement of only essential elements of study those provides basic guidelines for details
of project. The present research is a descriptive research because it describes behavior of
individual as group.

DATA COLLECTION
Both primary and secondary data will be collected. Secondary data information
was collected from various journals, Books, Internet sites and Reports. For collecting
primary data, Structured Questionnaire was designed.

SAMPLE DESIGN
Universe
All the brokers listed on LSE who are trading in Futures and Options in Ludhiana.
Population
It consisted of brokers of LSE in Ludhiana
Sampling Unit
Any Broker who was dealing in LSE who are trading in Futures
and Options in Ludhiana.

Sample Size
It consisted of 50 brokers as respondents.
Sampling Technique
The selection of respondents was done on the basis of convenience sampling
(Non- Probability).

DATA ANALYSIS AND INTERPRETATION

Data had gathered from primary and secondary sources, next step was to proceed
toward the drawing of conclusions by logical inference. Till this stage those data were
only responses which were incapable of interpretation until converted in to significant
statistical information. Tabulation of data was done to present data into a easily
understandable form. Percentages were used to analyze the data collected. In addition to
summarizing data in a tabular form, data was presented graphically to obtain significant
insights. Bar diagrams and pie charts were used to represent the information.

LIMITATIONS OF THE STUDY

Followings were the limitations of the study:
The small sample size taken at convenience basis might have affected the results of the
study.
Some of the units in the sample may not be the true representation of the population.
The findings of this study were based on the expressed opinions of the respondents.
Since this is an opinion survey, personal bias may have crept in, due to the respondents
tendency to rationalize their views.
Best effort were made to incorporate all important variables in the study, yet chances of
some of the variables not appearing in the study are not ruled out.

CHAPTER IV

TRADING MECHANISM
Under this head we will take a brief look at the trading system for NSEs futures
and options market.

FUTURES AND OPTIONS TRADING SYSTEM

The futures & options trading system of NSE, called NEAT-F&O trading system,
provides a Fully automated screen-based trading for Nifty futures & options and stock
futures & options on a nationwide basis as well as an online monitoring and surveillance
mechanism. The software for the F&O market has been developed to facilitate efficient
and transparent trading in futures and options instruments.

ENTITIES IN THE TRADING SYSTEM

There are four entities in the trading system. Trading members, clearing members,
professional clearing members and participants.

TRADING MEMBERS:
Trading members are members of NSE. They can trade either on their own
account or on behalf of their clients including participants. The exchange assigns a
Trading member ID to each trading member. Each 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. Each user of a trading member must be registered with the
exchange and is assigned an unique user ID. The unique trading member ID functions as
a reference for all orders/trades of different users. This ID is common for all users of a
particular trading member. It is the responsibility of the trading member to maintain
adequate control over persons having access to the firms User IDs.

CLEARING MEMBERS:
Clearing members are members of NSCCL. They carry out risk management
activities and confirmation/inquiry of trades through the trading system.

PROFESSIONAL CLEARING MEMBERS:

A professional clearing member is a clearing member who is not a trading
member. Typically, banks and custodians become professional clearing members and
clear and settle for their trading members.

PARTICIPANTS:

A participant is a client of trading members like financial institutions. These

clients may trade through multiple trading members but settle through a single clearing
member.

BASIS OF TRADING
The NEAT F&O system supports an order driven market, wherein orders match
automatically. Order matching is essentially on the basis of security, its price, time and
quantity. All quantity fields are in units and price in rupees. The lot size on the futures
market is for 200 Nifties. The exchange notifies the regular lot size and tick size for each
of the contracts traded on this segment from time to time. When 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
passive and goes and sits in the respective outstanding order book in the system.

CORPORATE HIERARCHY
In the F&O trading software, a trading member has the facility of defining a
hierarchy amongst users of the system. This hierarchy comprises corporate manager,
branch manager and dealer.

1. CORPORATE MANAGER:

The term Corporate manager is assigned to a user placed at the highest level in a
trading firm. Such a user can perform all the functions such as order and trade h related

activities, receiving reports for all branches of the trading member firm and also all
dealers of the firm. Additionally, a corporate manager can define exposure limits for the
branches of the firm.

2. BRANCH MANAGER:
The branch manager is a term assigned to a user who is placed under the
corporate manager. Such a user can perform and view order and trade related activities
for all dealers under that branch.

3. DEALER:
Dealers are users at the lower most level of the hierarchy. A Dealer can perform
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. Below given
cases explain activities possible for specific user categories:
1.

Clearing member corporate manager: He can view outstanding orders,

previous trades and net position of his client trading members by putting the TM
ID (Trading member identification) and leaving the Branch ID and and Dealer ID
blank.

2.

Clearing member and trading member corporate manager: He can view

(a)

Outstanding orders, previous trades and net position of his client trading members
by putting The TM ID and leaving the Branch ID and the Dealer ID blank.

(b)

Outstanding orders, previous trades and net positions entered for himself by
entering his own TM ID, Branch ID and User ID. This is his default screen.

(c)

Outstanding orders, previous trades and net position entered for his branch by
entering his TM ID and Branch ID fields.

(d)

Outstanding orders, previous trades, and net positions entered for any of his
users/dealers by Entering his TM ID, Branch ID and user ID fields.

3.

Clearing member and trading member dealer: He can only view requests
entered by him.

4.

Trading member corporate manager: He can view

(a)

Outstanding requests and activity log for requests entered by him by entering his
own Branch and User IDs. This is his default screen.

(b)

Outstanding requests entered by his dealers and/or branch managers by either

entering the Branch and/or User IDs or leaving them blank.

5.

Trading member branch manager: He can view

(a)

Outstanding requests and activity log for requests entered by him by entering his
own Branch and User IDs. This is his default screen.

(b)

Outstanding requests entered by his users either by filling the User ID field with a
specific user or leaving the User ID field blank.

6.

Trading member dealer: He can only view requests entered by him.

ORDER TYPES AND CONDITIONS

The system allows the trading members to enter orders with various conditions
attached to them as per their requirements. These conditions are broadly divided into the
following categories:
*

Time conditions

Price conditions

Other conditions
Several combinations of the above are allowed thereby providing enormous

flexibility to the users. The order types and conditions are summarized below.

TIME CONDITIONS
* Day order: 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 till canceled (GTC): A GTC order remains in the system until the user cancels it.

Consequently, it spans 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. Each
day counted is a calendar day inclusive of holidays.
* Good till days/date (GTD): A GTD order allows the user to specify the number of

days/date till which the order should stay in the system if not executed. The maximum

days allowed by the system are the same as in GTC order. At the end of this day/date, the
order is cancelled from the system.
* Immediate or Cancel (IOC): An IOC 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. Partial match is possible for the order, and the unmatched portion of the order is
cancelled immediately.

PRICE CONDITION
Stop loss: This facility allows the user to release an order into the system, after the
market price of the security reaches or crosses a threshold price e.g. if for stoploss buy
order, the trigger is 1027.00, the limit price is 1030.00 and the market (last traded) price
is 1023.00, then this order is released into the system once the market price reaches or
exceeds 1027.00. This order is added to the regular lot book with time of triggering as the
time stamp, as a limit order of 1030.00.

OTHER CONDITIONS
Market price: Market orders are orders for which no price is specified at the time the
order is entered (i.e. price is market price). For such orders, the system determines the
price.
Trigger price: Price at which an order gets triggered from the stoploss book.
Limit price: Price of the orders after triggering from stoploss book.
Pro: Pro means that the orders are entered on the trading members own account.
Cli: Cli means that the trading member enters the orders on behalf of a client. Carrying
cost in percentage terms.

PLACING ORDERS ON THE TRADING SYSTEM

For both the futures and the options market, while entering orders on the trading
system, members are required to identify orders as being proprietary or client orders.
Proprietary orders should be identified as Pro and those of clients should be identified
as Cli. Apart from this, in the case of Cli trades, the client account number should also
be provided. The futures market is a zero sum game i.e. the total number of long in any
contract always equals the total number of short in any contract. The total number of
outstanding contracts( long/short) at any point in time is called the Open interest. This
Open interest figure is a good indicator of the liquidity in every contract.

MARKET SPREAD/COMBINATION ORDER ENTRY

The NEAT F&O trading system also enables to enter spread/combination trades. This
enables the user to input 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.

BASKET TRADING
In order to provide a facility for easy arbitrage between futures and cash markets,
NSE introduced basket-trading facility. Figure 10.4 shows the basket-trading screen. This
enables the generation of portfolio offline order files in the derivatives trading system and

its execution in the cash segment. A trading member can buy or sell a portfolio through a
single order, once he determines its size.

FUTURES AND OPTIONS MARKET INSTRUMENTS

The F&O segment of NSE provides trading facilities for the following derivative
instruments:
1.

Index based futures

2.

Index based options

3.

Individual stock options

4.

Individual stock futures

CHARGES
The maximum brokerage chargeable by a TM in relation to trades effected in the
contracts admitted to dealing on the F&O segment of NSE is fixed at 2.5% of the contract
value incase of index futures and 2.5% of notional value of the contract [(Strike price +
Premium)* Quantity] in case of index options, exclusive of statutory levies.
The transaction charges payable by a TM for the trades executed by him on the F&O
segment are fixed at Rs.2 per lakh of turnover (0.002%)(each side) or Rs.1lakh annually,
whichever is higher. The TMs contribute to Investor Protection Fund of F&O segment at
the rate of Rs.10 per crore of turnover (0.0001%)(each side).

CHAPTER V

RESULTS AND DISCUSSION

Data Analysis is an attempt to organize and summarise data in order to increase
results, usefulness in such a manner that enables the researcher to relate critical points
with the study objectives.
This chapter analyses and discusses the primary data collected from Brokers
through Structured Questionnaire. The analysis of data has been done with the help of
appropriate statistical techniques. Survey was conducted on the Brokers who were listed
in LSE.The survey was conducted to determine the perception of brokers regarding
benefits of F&O Trading to the health of stock market.

5.1 DURATION OF WORKING PERIOD AS A BROKER IN LSE

All the Brokers were asked about how long they have been working at LSE as a
Broker.90% brokers were working in LSE for a period of more than 8 years and new
Brokers were not coming into Stock Market due to high ticket price and regulations of
SEBI.

5.2 LEVEL OF ACTIVITY

All the Brokers were asked level of activity in terms of Frequency per month
(times) and Dealings (Rs). But no broker was interested in giving views on information
that was related to personal income and dealings that are hidden from Income Tax
Authorities.

5.3 INFORMATION ABOUT THE SEGMENT IN WHICH BROKERS DEAL.

All the Brokers were asked in which segment they deal in and their views were
represented in Table No.5.3 as under
Table No. 5.3
Segments
Spot
Futures
Options
Total
Graph No.5.3

Number of Brokers
50
50
50
50

%Age
(100)
(100)
(100)
(100)

No. of Brokers

Segments of Dealings
60

50

50

50

40
Number of Brokers
20
0
Spot

Futures

Options

Segments

From the above Table and Graph, it showed that all the Brokers deal in Spot,
Futures as well as Options. In LSE, all the Brokers not only deal in Spot Market but also
in Futures and Options also. The reason for Trading in both segment is high profits in
F&O but also large number of investors invests still in spot market.

5.4 INFORMATION ABOUT THE ROLE OF BROKERS IN F&O TRADING

All the Brokers were asked whether they act as a broker only to investors or they
invests in securities on personal basis also and there views are represented as under in
Table 5.4

Table No.5.4
Role of Brokers in F&O Trading

Broker to investors only

Personal Investment by Brokers
Both
Total

Number of Brokers

% Age

3
43
4
50

(6)
(86)
(8)
(100)

Number of Brokers

Graph No.5.4
Role of Broker
50
40
30
20
10
0

43
4

3
Broker to
investors only

Personal
Investment by
Brokers

Number of Brokers

Both

Role of Brokers

From the above Table and Graph, it is clear that 43 Brokers (i.e.86%) invest in
securities on personal basis simply because of Less No. Of investors in F&O Trading and
it involves huge investments while only 3 Brokers (6%) invests on behalf of investors and
4 Brokers (8%) invests on personal basis as well as a Broker to investor.

5.5

INFORMATION ABOUT THE

SEGMENT IN

WHICH

MOSTLY

DERIVATIVES ARE TRADED

All the Brokers were asked about in which Mostly Derivatives Are Traded and
there views are represented as under in Table 5.5
Table No.5.5
F&O Segment
Futures
Options
Both
Total

Number of Brokers
30
12
8
50

Graph No. 5.5

% Age
(60)
(24)
(16)
(100)

Number of Brokers

F&O Trading Segment

40
30

30

20

12

10

Number of Brokers
8

0
Futures

Options

Both

Segments

From the above Table and Graph, it is clear that 30 Brokers (60%) Trade in
Futures because in Futures most of the reputed companies are involved and its has major
share of investors dealing in Futures, 12 Brokers (24%) trade in options because of its ill
liquid nature of Calls Put and only 8 Brokers (16%) trade in both Futures and Options.

5.6 INFORMATION ABOUT TRADING IN F&O HAS INCREASED LEVEL OF

ACTIVITY
All the Brokers were asked whether Trading in F&O Segment has increased the
level of activity in respect to Frequency per month (Times) and Dealings (Rs). But the
Brokers were not ready to provide such information as it was related to personal data and
were avoiding telling in order to hide information from Income Tax Authorities.

5.7 INFORMATION REGARDING BENEFITS OF F&O TRADING TO WHICH

KIND OF MARKET PLAYERS
All the Brokers were asked regarding whether F&O Trading is beneficial for
which kind of market players and there views are represented as under in Table No.5.7

Market Players
Arbitrageurs
Hedgers
Speculators
Traders
Total

Numbers of Brokers
7
35
6
2
50

% Age
(14)
(70)
(12)
(4)
(100)

Graph No.5.7

Number of Brokers

Market Players
35

40
30

Numbers of Brokers

20
10

0
Arbitrageurs

Hedgers

Speculators

Traders

Market Players

From the above Table and Graph, it shows that F&O Trading is beneficial to
Market Player like Hedgers where 35 Brokers (70%) had recommended its beneficial
because F&O is suitable for them to reduce risk as they face risk associated with price of
an asset, 7 Brokers (14%) said its Beneficial for Arbitrageurs because they can take
advantage of a discrepancy between prices of two different markets, 6 Brokers (12%)
said its beneficial for Speculators because Futures will help these market players to bet on
future price and 2 Brokers (4%) said its Beneficial for Traders.

5.8 INFORMATION REGARDING EXTENT TO WHICH F & O TRADING HAS

BENEFITED THE STOCK MARKET.
All the Brokers were asked regarding to what extent F&O Trading has benefited
the stock market and there views are represented as under in

Table 5.8
Benefits

Number of Brokers

% Age

Increase in Volume of Trading

43

(86)

Reduction in Volatility

(6)

Risk less Markets

Hedge against risk
Increase in Payoffs
Total

1
3
2
50

(10)
(8)
(4)
(100)

Graph No.5.8

50
40
30
20
10
0
Increase
in Payoffs

Hedge
against
risk

Risk less
Markets

Reduction
in
Volatility

Number of Brokers
Increase
in Volume
of Trading

No. of Brokers

Benefits of F&O Trading to Stock Market

Benefits

From the Above Table and Graph, the major benefit driven from F&O Trading is
the Volume of Trading has increased considerably which is indicated by nearly F&O
Trading dominates 60% to 70% capital market as recommended by 43 Brokers. F&O
Trading has benefited the Stock market by hedging against risk, which will benefit the
Buyers and Sellers as recommended by 3 Brokers. Only 2 Brokers said F&O would
benefit in increasing Payoffs and 1Broker each for Reduction in volatility and Risk Less
Market.

5.9 INFORMATION REGARDING PERCENTAGE LEVEL OF F&O TRADING

IN CAPITAL MARKET
All the Brokers were asked whether percentage of F&O Trading in Capital Market
is increasing or decreasing and there views are represented as under in

Table No. 5.9

% Age of Increase
Between 75 to 100%
Between 50 to 75%
Between 25 to 50%
Less Than 25%
Total

Brokers
45
5
0
0
50

% Age
(90)
(10)
(100)

Graph No.5.9

No. of Brokers

Percentage of F&O Trading In Capital Market

45

50
40
30
20
10
0

5
Between 75 to
100%

Between 50 to
75%

Brokers
0

Between 25 to
50%

Less Than 25%

Percentage Level

From the Table and Graph it shows that in Capital Market F&O Trading
percentage Level is expected to increase. 45 Brokers (90%) recommended that in near
future around about 75 to 100% Trading would be in F&O Segment, while 5 Brokers
(10%) recommended Trading would be between 50 to 75%.

5.10 INFORMATION ABOUT IMPACT OF F&O TRADING ON INDIAN

ECONOMY
All the Brokers were asked about impact of F&O Trading on Indian Economy and
there views were represented as under in Table No.5.10

Table No.5.10
Impact
Connectivity with International Capital Market
Safer Capital Market
Restore Investors Confidence
Increase in Investment by FIIS
More Avenues For Indian Investors
Total

Number of Brokers
3
10
1
32
4
50

% Age
6
20
2
64
(8)
(100)

Graph No.5.10

32

4
More
Avenues
For Indian
Investors

10

Restore
Investors
Confidence

35
30
25
20
15
10
5
0

Connectivity
with
International
Capital

No. of Brokers

Impact of F&O Trading on Indian Economy

Number of Brokers

Impact

From the above Table and Graph it shows that F&O Trading will result in more
investment by FIIS, which is highlighted by 32 Brokers (64%) who said that FIIS will be
making more investment in F&O Segment, 10 Brokers said that it will give more Safer
Capital Market, 4 Brokers said that F&O Trading will result in more avenues for Indian
Investors, 3 Brokers said that F&O Trading will result in more connectivity with
international capital market and1 Broker said that F&O Trading will result in restoring
investors confidence.

5.11 INFORMATION ABOUT WHETHER FIIS HAVE EDGE OVER INDIAN

INVESTORS
All the Brokers were asked Whether FIIS would have edge over Indian Investors
and there views were represented as under in

Table No.5.11
Views
Agree
Disagree
Total

Brokers
50
0
50

% Age
(100)
(100)

Graph No.5.11
Views On FIIS

Brokers

60

50

40
Brokers

20
0

0
Agree

Disagree
Views

From above Table and Graph, 50 Brokers (100%) agreed that FIIS would have
edge over Indian Investors because of the reason of position limit specified for FIIS,
which benefits them.

5.12 INFORMATION BASED ON RECOMMENDATION GIVEN BY BROKERS

WHETHER INVESTORS SHOULD TRADE IN F&O SEGMENT

All the Brokers were asked whether they will recommend investors to trade in
F&O Segment in near future and all 50 Brokers said Yes they will recommend investors
to trade in F&O because main reason is it involves low investments with high returns,
also its traded in recognized stock exchange and is more secure and less risky not like
Badla System.

5.13 INFORMATION ABOUT SHORTCOMINGS IN F&O TRADING

All the Brokers were asked about whether they find any shortcomings in F&O
Trading and there views are represented as under in Table 5.13

Short Comings
Yes
No
Total

Brokers
45
5
50

% Age
(90)
(10)
(100)

Graph No.5.13

Number of Brokers

Short comings in F&O Trading

50
40
30
20
10
0

Brokers

Yes

No
Shortcoming

From the above Table and Graph, it shows that 45 Brokers (90%) had find certain

short comings in F&O Trading while 5 Brokers (10%) didnt find any short comings in
F&O Trading.
Factors Responsible For Short Comings (Table No.5.13a)

Short comings
Large lot size
Calls Puts ill liquid nature
Trading Cycle too short
Tenure period too short
Margins should decrease
Expiry date should not be
fixed
Total

Brokers
40
8
0
0
0
2

% Age
(80)
(16)

50

(100)

(4)

Factors Contributing to Shortcomings

40
0

Margins
should
decrease

Trading
Cycle too
short

50
40
30
20
10
0

Large lot
size

Number of Brokers

Graph No. 5.13a

Factors

From the above Table and Graph, it shows that 40 Brokers had find Large Lot

Brokers

Size major Shortcoming in F&O Trading, while 8 Brokers find Call Puts having ill liquid
nature and only 2 Brokers find Expiry date should not be fixed.

5.14 INFORMATION ABOUT MEASURES SUGGESTED BY BROKERS TO

INCRERASE VOLUME OF F & O TRADING IN LUDHIANA.
All the Brokers were asked to suggest some measures to increase volume of F&O
Trading in Ludhiana and there views are represented as under in

Table No.5.14
Measures (Operational level)
Lot size should reduce
More Scrip of reputed companies
Separate Exchange for F&O
Tenure period to increase
Total
(Communication Level)
Seminars
Discussions
Guest Lectures
Pamphlets
News
Events
Total

Brokers
40
5
5

% Age
(80)
(10)
(10)

50
Brokers
5
35
10

(100)

50
Graph No.5.14

(100)

(10)
(70)
(20)

No. of Brokers

Suggestions
50
40
30
20
10
0

40
Brokers
5
Lot size should
reduce

More Scrip of
Separate Exchange
reputed companies
for F&O

Tenure period to
increase

Operational Level

40
30
20
10
0
Events

News

Pamphlet
s

Guest
Lectures

Discussio
ns

Brokers
Seminars

No. of Brokers

Suggestions

Communication Level

From the Above Table and Graph, it shows some measures recommended by
Brokers at operational level were pertaining to 40 Brokers were in favour of Lot size
should decrease, 5 Brokers were in favour of more scrip of reputed companies and 5
Brokers were in favour of separate exchange for F&O.Measures suggested at
communication level were 35 Brokers suggested More Discussions should take place,

while 10 suggested guest lectures and 5 Brokers suggested Seminars to be held.

CHAPTER VI

SUMMARY AND CONCLUSION

As human nature marked by individual variations, so is his perception. This was
basically descriptive research conducted by using a structured questionnaire to collect the
relevant data on Brokers perception regarding benefits of F&O Trading towards the
health of stock market and measures to increase volume of F&O Trading in Ludhiana.
The basic aim of this study was to determine the perception of Brokers regarding
benefits of F&O Trading to the health of Stock Market.

For the study, the population was the Brokers of LSE in Ludhiana City. A sample
of 50 Brokers was chosen of which all were trading in F&O Segment and convenience
sampling technique was used for selecting the respondents.
Both Primary and Secondary data were collected. Secondary data was collected in
form of information from various books, journals, reports etc. Primary data was collected
with the help of structured questionnaire after collection of data, stastical techniques
techniques like mean score, and percentage was used to analyze the data.

6.1 FINDINGS
All the Brokers were dealing in F&O Segment in which 86% Brokers invest in securities on
personal basis whereas only 6% Brokers trade on behalf of investors and only 8% deal in
both roles.
In F&O Trading, 80%Brokers trade in Futures while 10% in Options and 10% in both Futures
and Options. Brokers trade in Futures mainly it involves reputed firms and it is less
complicated then Options.
F&O Trading act as a risk hedging tool, so 80% Brokers had think that F&O Trading will benefit
market players like Hedgers.
75% Brokers said that F&O Trading has benefited the stock market by increase in volume of
trading in capital market. At present nearly F&O Trading dominates 70% of level of
capital market and it is expected to have nearly 90% shares in capital market.
32 Brokers said that FIIS will have large investments in F&O Segment.F&O Trading will also
bring safer capital market and provide more avenues for Indian investors.

According to the results of this study F&O Trading will have rapid increase in future as per the
Brokers but it will have slow growth rate in Ludhiana city since investors have very less
knowledge.
Brokers have recommended that investors will be encouraged to trade in F&O Trading.

6.2 SUGGESTIONS
F&O Trading will now dominate the stock market, so Broker should encourage investors
to trade in securities by adopting F&O Trading.
In order to increase volume of F&O Trading, Lot size should be reduced so major
segment of Indian society i.e. small saving class comes under F&O trading.
More reputed companies should be listed and separate exchange of F&O should be
established.
Seminars, Guest Lectures, Discussions should be held to promote awareness among the
local investors.
Investors should trade in F&O Segment as they will get more investment avenues and it
is risk less market as compared to Badla System.
Separate exchange should be opened for various F&O Segment like Commodity
Exchanges should be opened.

REFERENCES
Agarwal, A.K.2004.Credit Derivatives: A Concept Note, The Chartered Accountant.
11(3): 982-984
Anjaria, D.C. 1996. BadIa versus future and options. The Economic Times, New Delhi,
Sep 6, p. 14
Avadhani, V.A. 1999. Misadventure with stock exchange reforms - The investors guide.
The Economic Times, New Delhi, Jun 27, p . 13
Barva, S. 1996. Badla,Speculation and SEBI. The Economic Times, New Delhi, Oct 1.
p.5
Chandra, P. 1992. The Indian Capital Market: Pathways of Development. Charted
Financial Analyst, 5(4): 6
Chugh, A.K. 2000. Future and Options. The Tribune, April 25. p.16
Curley, A.J. and Bear, M.R. 1988. Investment Analysis and Management. New York,
Harper & Row publishers, p. 370 - 382

Dhingra, G.2004.Understanding of Financial Derivatives, The Chartered Accountant.

11(3): 976-980
Dhokla, S. 1997. Time to take stock of options. The ET, New Delhi, May 6, p .7
Gupta, R.1994. Option trading: A primer and a proposal. Charted Secretary, 22(10): 883887
Gupta, L.C. 2000. Roots of stock market illiquidity. The ET, New Delhi, May 27, p. 6
Patherya, M.2000. Badla must continue, but with checks and balances. The ET, New
Delhi, January 30, p. 9

Rangarajan, S.1997. Whether BadIa system, I. The ET, New Delhi, November 15, p. 14
Sharma, R.1998. More option in the future. The ET, New Delhi, November 26, p. 5
.

Smith, Gary. 1990. Investment. Loudon: Scott. Foresman, p. 5

Sriram, K.l998. Option based financial instrument, Charted Financial Analyst. 8(3): 19
-25
Verma, J.R. 2002. Future and options- A Hasty Move. The ET, New Delhi, p. 6
www.derivativesindia.com
www.economictimeslinvestorguide.com
www.financialexpresslarticles.com
www. nse/derivativeslfuture.com

Project Report
On

A STUDY OF WORKING OF STOCK EXCHANGE IN

LUDHIANA CITY

Submitted
in partial fulfilment of the requirements
for the award of the
Master degree in Commerce
For the
Session 2009-10

Submitted By:
Anuradha
Class : M.Com.I
Enrol No.: 24963

CERTIFICATE
Certified that the Project Report entitled A STUDY OF WORKING OF
STOCK EXCHANGE IN LUDHIANA CITY submitted by Gaytri Jain
is her own work and has been done under my supervision.
It is recommended that this Project Report be placed before the examiner for
evaluation.

Name

: Shelja Anand

Designation: Lecturer in Commerce in Arya College

(Women Sec.), Ludhiana

ACKNOWLEDGEMENT
This would be a small to acknowledge people who have
helped me in the completion of the project.
One person without whom nothing would actually have
been possible is my project guide Shelja Anand. She has given me
hope and encouragement when I had last before starting my project.
She has actually driven me to the right track. Without her help I would
have done anything. From the bottom of my heart I thank her to let me
my project come true.

Gaytri Jain
Enrol. No.16809

DEPARTMENT OF CORRESPONDENCE STUDIES

PANJAB UNIVERSITY, CHANDIGARH
PROFORMA FOR PROJECT APPROVAL
Name of the Student

Gaytri Jain

Address of the Student

242-D, Rajguru Nagar, Ludhiana.

Enrolment Number

16809

Title of Project

Working of Stock Exchange in

Ludhiana City.

Name and official address of

Supervisor

Shelja Anand (Lecturer)

Arya College Women Sec. Ldh.

Designation

Lecturer

Qualification of Supervisor

B.Com, M.Com

Experience

12 years

Signature of Student

Signature of Supervisor

Date: ____________

Date _______________

-------------------------------------------------------------------------------------------For Office use only

Synopsis

Approved/ Not approved

Supervisor

Approved/ Not approved

Remarks if any

____________________

Signature of Coordinator/ Course Leader

Date: ______________

TABLE OF CONTENT
Chapter 1.

Introduction

History of Stock Exchange of India

History of Derivative

SYNOPSIS
FOR

THE STUDY OF WORKING OF STOCK EXCHANGE

IN

LUDHIANA CITY

INTRODUCTION

STOCK EXCHANGE IN INDIA

Stock market is one of the major segment of financial system of country.
It is an organization for the purpose of assisting and regulating the business of buying,
selling or dealing in securities (Trading). It acts as a platform where buyers and sellers of
securities fulfill their needs and mediator is a broker, who ensures payment for the seller
and ownership of securities for the buyers of the securities. It is effort of all the stock
exchanges that in these transactions both the parties (buyers and sellers) get a fair deal.
For this purpose regulatory bodies an well as legal enactments play a significant role. In
India SEBI (Securities and Exchange Board of India), The Securities Contract
(Regulations) Act 1956, The Depositors Act 1996 and Companies Act 1956 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 (1860-61) due to the share mania of the public,
the number of brokers dealing in shares increased. The brokers organized an informal
association in Mumbai named the Native stock and share brokers associations in 1875.
Till recent past, floor trading took place in all stock exchanges. In the floor
trading system, the trade takes place through open outcry system during the official
trading hours. Trading posts are assigned the different securities where buy and sell
activities of securities took place. This system needs a face-to-face contact among the
traders and restricts the trading volume.

CONTENTS

Chapter 1. Introduction
History of Stock Exchange of India
History of Derivative
Introduction of Derivative
Introduction of Future and Options
Objective of Study
Chapter 2. Review of Literature
Chapter 3. Research Methodology
Chapter 4. Trading Mechanism

Chapter 5. Result and Discussion

Chapter 6. Summary and Conclusion
Chapter 7. References (Bibliography)