A study on Options Market in India

Abstract

Dr. L. C. Gupta to head a committee of 24 members charged with developing a regulatory framework for derivatives trading in India. The Committee on Derivatives Trading and Regulation issued its report on March 17, 1998, in which it recommended that derivatives be categorised as securities and subject to the regulations already in place for the trading of such instruments. In response, SEBI formed a new panel in June 1998, with Prof. J.R. Verma as its head, to provide concrete suggestions. The panel covered such topics as the margining system, initial margin fees, membership criteria, net worth norms, deposit obligations, and real-time position monitoring. In June 2000, SEBI authorised equity derivatives trading on the BSE and the NSE. Nifty and Sensex index futures trading began for the first time in June of 2000. Options on equities indices began trading in June 2001, followed by options on individual stocks in July 2001. Futures contracts for specific stocks were made available in November 2001. Derivatives trading in India started in 1875 when the Bombay Cotton Trading Association began offering futures contract trading. By the turn of the century (1900), India had become a preeminent futures trading centre internationally. However, the government legally banned cash settlement and commodities options trading when India gained its independence in 1952. The founding of the National Electronics Commodity Exchange in the year 2000 led to the end of this ban. The Bombay Stock Exchange had been open for business for almost a century at that point. While the BSE did provide Badla trading (a kind of forward trading), sophisticated derivatives trading did not begin until after 2001. Futures trading on the CNX Nifty index was launched on the NSE on June 12, 2000.