Derivatives market in india

            INTRODUCTION: Among all the innovations that have flooded the international financial markets, financial derivatives occupy the driver's seat. These specialized instruments facilitate the shuffling and redistribution of the risks that an investor faces. Thus aids in the process of diversifying ones portfolio. The volatility in the equity markets over the past years has resulted in greater use of equity derivatives. The volume of the exchange traded equity futures and options in most of the mature markets have seen a significant growth. It goes beyond that the local derivative in the emerging markets have witnessed widespread use of the derivative instrument for a variety of reasons. This continuous growth and development by the emerging market participants has resulted in capital inflows as well as helped the investors in risk protection through hedging. Derivatives trading commenced in India in June 2000 after SEBI granted the approval to this effect in May 2000. SEBI permitted the derivative trading on two stock exchanges, i.e. and BSE, and NSE, their clearing house/corporation to commence trading and settlement in approved derivative contracts. Begin with SEBI’s approved trading in index futures contracts based on S&P CNX Nifty Index and BSE-30 (Sensex) Index. This was followed by approval for trading in options based on these two indices and options on individual securities. The trading in index options commenced in June 2001 and trading in options on individual securities would commence in July 2000. While trading in futures of individual stocks started from November 2001. In June 2003, SEBI and/RBI approved the trading on interest rate derivative instruments only in NSE. Introduced trading of interest rate futures contracts on June 24, 2003 on 91-day Notional T-Bills and 10-year Notional 6% coupon bearing as well as zero coupon Bonds. Futures and Options were also introduced on CNX IT Index in August 2003. The total exchange traded derivatives witnessed a value of Rs.5, 423, 333 million during 2002-03 as against Rs. 1,038,480 million during the preceding year. While NSE accounted for about 99.5% of total turnover, BSE accounted for less than 1% in2002-03. The market witnessed higher trading levels from June 2001 with introduction of index options, and still higher volumes with the introduction of stock options in July 2001. In the year 2002 has been a remarkable year for the global derivatives market. This year witnessed NSE making huge strides and also moved upward in the global ranking. According to the Futures Industry Associations in the year 2002, NSE ranked 30th in the global futures and options volume, whereas it ranks 2nd in the world, in terms of stock futures. 1

2.   Securities and exchange Board of India (SEBI) signed a memorandum of understanding (MOU) with United States Commodity Futures Trading Commission (CFTC) in Washington on April 28, 2004. The MOU was signed by Mr. G. N. Bajpal, Chairman, SEBI and Mr. James E.Newsome, Chairman, CFTC. The MOU aims to strengthen communication channels and establish a framework for assistance and mutual cooperation between the two organizations. The MOU marks the beginning of greater collaboration between SEBI and CFTC too effectively Regulate and develop futures markets, in view of greater cross-border trade and cross- market linkages brought about by the globalization of financial markets. The two authorities intend to consult periodically about matters of mutual interest in order to promote cooperation and market Integrity and to further the protection of futures and options market participants. In furtherance of the objective of promoting the development of futures and options regulatory mechanisms would also provide technical assistance for development of futures markets in India. In India, the statutory, basis for regulating commodity futures’ trading is found in the Forward Contracts (Regulation) Act. 1952, which (apart from being an enabling enactment, laying down certain fundamental ground rules) created the permanent regulatory body known as the Forwards Markets Commission. This commission holds overall charge of the regulation of all forward contracts and carries out its functions through recognized association. Too much regulation and too little regulation are both bad in respect of these markets. Too much regulation will have a throttling effect and prevent the entry and growth of the market. Too little regulation will lead to lack of enough protection to investors and fear of failures in the market. The role of regulator has many objectives the purpose of regulation is to protect the interests of investors, infuse confidence in the market and prevents unfair trade practices. 2

3.    It foresees the difficulties facial to choose the underlying assets in the derivatives and to analyze the current scenario of Derivative markets in India 1.3-OBJECTIVES OF THE STUDY 1. To understand the concept and to study the current scenario of derivatives market in India. 2. To analyze whether the purposØ The study analyses Various Derivatives Used to Minimise Risk in Indian Capital Market. Ø1.2-STATEMENT OF PROBLEM e for which derivatives are used has been actually achieved or not 3. To study the purpose for which financial institutions adopt derivatives 4. To know pricing of derivatives. 5. To know about future of derivative trading in India 6. To find the growth of derivatives in India 7. To suggest suitable methods based on the observations of the study 1.4-Data collection: The study is exclusively based on secondary data. Secondary data is collected from various sources such as text books, reports, annual reports of various organisations , research articles, papers presented at various national and international seminars, conferences, workshops etc., Secondary data was also used to to conceptualise the term risk and the degree of risk involved. This apart of Websites of companies, Stock exchanges, NSE and BSE were used. Newspaper such as Economic Times, Business Line, Magazines such as Business World and Capital Market were also used. 3

4.    It gives the information about Forward, Future Option,Ø Derivative deals with equity, derivatives, mutual funds, etc. in this we are find out which is the once is best and analyze the customer awareness in derivatives Market and it also covers the recent changes in derivatives Market. Ø1.5-PLAN OF ANALYSIS TECHNIQUE The collected data has been carefully classified, tabulated and interpreted on the basis of which, tables, charts and graphs are drawn .Percentages are drawn from the tabulated frequencies and the data should be analyzed. The analysis of data helped in drawing inferences and better understanding, charts are plotted. 1.6-SCOPE OF THE STUDY  & swaps. It gives more concentrate on how Securities traded in derivative markets 1.7- LIMITATIONS OF THE STUDY The study was carried out only on secondary information and it is carried out only for a short period of three months hence the findings of the study cannot be generalized. 4

5.   Theoretical Review of Literature 2-DERIVATIVES With the opening of the economy to multinational and the adoption of the liberalized economic policies the economy is driven more towards the free market economy. The complex nature of the financial structuring is self involves the utilization of multicurrency transaction. It exposes the clients, particularly corporate clients to various risks such as exchange rate risk, interest risk, economic risk & political risk In the present state of the economy there is an imperative need for the corporate clients to protect their operating profits by shifting some of the uncontrollable financial risk to those who are able bear and manage them. Thus, risk management becomes a must for survival since there is a high volatility in the present’s financial markets In the context, derivatives occupy an important place as a risk reducing machinery. Derivatives are useful to reduce many of the risks. In fact, the financial service companies can play a very dynamic role in dealing with such risk. They can ensure that the above risks are hedged by using derivatives like forwards, futures, options, swaps In a broad sense, many commonly used instruments can be called derivatives since they derive their value from underlying assets. For instance, equity share its self is a derivatives, since it derives its value from the underlying assets. Similarly one takes an insurance against his house covering all risks DEFINITION Derivatives are the financial instruments, which derive their value from some other financial instruments, called the underlying. The foundation of all derivatives market is the underlying market, which could be spot market for gold, or it could be a pure number such as the level of the wholesale price index of a market price. A derivative is a financial instrument whose value depends on the Value of other basic underlying variables. “John c hull” 5

6.   According to the Securities Contract (Regulation) Act, 1956, derivatives include: • A security derived from a debt instrument, share, and loan whether secured or unsecured, risk instrument or contract for differences or any other form of Security. • A contract, which derives its value from the prices or index of prices of underlying securities. Therefore, derivatives are specialized contracts to facilitate temporarily for hedging which is protection against losses resulting from unforeseen price or volatility changes. Thus, derivatives are a very important tool of risk management. Derivatives perform a number of economic functions like price discovery, risk transfer and market completion. The simplest kind of derivative market is the forward market. Here a buyer and seller write a contract for delivery at a specific future date and a specified future price. In India, a forward market exists in the form of the dollar- rupee market. But forward market suffers from two serious problems; Counter party risk resulting in comparatively high rate of contract noncompliance And poor liquidity. Futures markets were invented to cope with these two difficulties of forward markets. Futures are standardized forward contracts traded on an organized stock exchange. In essence, a future contract is a derivative instrument whose value is derived from the expected price of the underlying security or asset or index at a pre-determined future date. Derivatives are financial contracts that are designed to create market price exposure to changes in an underlying commodity, asset or event. In general they do not involve the exchange or transfer of principal or title. Rather their purpose is to capture, in the form of price changes, some underlying price change or event. The term derivative refers to how the prices of these contracts are derived from the price of some underlying security or commodity or from some index, interest rate, exchange rate or event. Examples of derivatives include futures, forwards, options and swaps, and these can be combined with each other or traditional securities and loans in order to create hybrid instruments or structured securities 6

7.   2.1- Players of trading in Futures & Option The minimum quantity trade in is one market lot. The market lot is different for on NSE Derivatives stocks/index. Time to time list will keep changing CNXIT ICICI Oriental Bank NIFTY Infosys PNB ACC IOC Polaris Andhra Bank MTNL Ranbaxy Bajaj Auto ONGC Wipro Bank of Baroda Nalco REL Bank of India Tisco Union Bank BEL M&M TCS Bank of India Maruti Tata TEA HCL Tech Grasim Ind ITC BHEL IPCL RIL BPCL Hero Honda i-flex Canada Bank HDFC Bank HPCL Cipla HLL Tata Power GAIL Hindalco Gujarat Abuja 7

8.   2.2-DERIVATIVES IN INDIA A derivative is a security or contract designed in such a way that its price is derived from the price of an underlying asset. For instance, the price of a gold futures contract for October maturity is derived from the price of gold. Changes in the price of the underlying asset affect the price of the derivative security in a predictable way. The term derivatives can simply be understood as those items that do not have their own independent values. Rather they have derived values. Derivatives have a significant place in finance and risk management. A Derivative is financial instrument whose pay-off is derived from some other asset which is called an underlying asset. Evolution of derivatives In the 17th century, in Japan, the rice was been grown abundantly; later the trade in rice grew and evolved to the stage where receipts for future delivery were traded with a high degree of standardization. This led to forward trading. In 1730, the market received official recognition from the “Tokugawa Shogunate” (the ruling clan of shoguns or feudal lords). The Dojima rice market can thus be regarded as the first futures market, in the sense of an organized exchange with standardized trading terms. The first futures markets in the Western hemisphere were developed in the United States in Chicago. These markets had started as spot markets and gradually evolved into futures trading. This evolution occurred in stages. The first stage was the starting of agreements to buy grain in the future at a pre-determined price with the intension of actual delivery. Gradually these contracts became transferable and over a period of time, particularly delivery of the physical produce. Traders found that the agreements were easier to buy and sell if they were standardized in terms of quality of grain, market lot and place of delivery. This is how modern futures contracts first came into being. The Chicago Board of Trade (CBOT) which opened in 1848 is, to this day the largest futures market in the world. 8

9.   2.3 Kinds of financial derivatives 1) Forwards 2) Futures 3) Options 4) Swaps 1) Forwards A forward contract refers to an agreement between two parties, to exchange an agreed quantity of an asset for cash at a certain date in future at a predetermined price specified in that agreement. The promised asset may be currency, commodity, instrument etc, In a forward contract, a user (holder) who promises to buy the specified asset at an agreed price at a future date is said to be in the ‘long position’. On the other hand, the user who promises to sell at an agreed price at a future date is said to be in ‘short position’. 2) Futures A futures contract represents a contractual agreement to purchase or sell a specified asset in the future for a specified price that is determined today. The underlying asset could be foreign currency, a stock index, a treasury bill or any commodity. The specified price is known as the future price. Each contract also specifies the delivery month, which may be nearby or more deferred in time. The undertaker in a future market can have two positions in the contract: - a) Long position is when the buyer of a futures contract agrees to purchase the underlying asset. b) Short position is when the seller agrees to sell the asset. Futures contract represents an institutionalized, standardized form of forward contracts. They are traded on an organized exchange, which is a physical place of trading floor where listed contract are traded face to face. A futures trade will result in a futures contract between 2 sides- someone going long at a negotiated price and someone going short at that same price. Thus, if there were no transaction costs, futures trading would represent a ‘Zero sum game’ what one side wins, which exactly match what the other side loses. 9

10.                      Copper. Of the petroleum products, only heating oil, crude oil and gasoline is traded. c) Interest rate futures contract These contracts are traded on treasury bills, notes, bonds, and banks certification of deposit, as well as Eurodollar. d) Foreign exchange futures contract These contracts are trade in the British Pound, the Canadian Dollar, the Japanese Yen, the Swiss Franc and the Deutsche Mark. Contracts are also listed on French Francs, Dutch Guilders and the Mexican Peso, but these have met with only limited success. 1) Options An option contract is a contract where it confers the buyer, the right to either buy or to sell an underlying asset (stock, bond, currency, and commodity) etc. at a predetermined price, on or before a specified date in the future. The price so predetermined is called the ‘Strike price’ or ‘Exercise price’. Depending on the contract terms, an option may be exercisable on any date during a specified period or it may be exercisable only on the final or expiration date of the period covered by the option contract. 10Ø platinum and Ø silver, Ø gold, ØTypes of futures contracts a) Agricultural futures contracts: These contracts are traded in grains, oil, livestock, forest products, textiles and foodstuff. Several different contracts and months for delivery are available for different grades or types of commodities in question. The contract months depend on the seasonality and trading activity. b) Metallurgical futures contract:- This category includes genuine metal and petroleum contracts. Among the metals, contracts are traded in

11.                     Option instruments a) Call Option A Call Option is one, which gives the option holder the right to “buy” an underlying asset at a pre-determined price. b) Put Option A put option is one, which gives the option holder the right to “sell” an underlying asset at a pre-determined price on or before the specified date in t Writer In an option contract, the seller is usually referred to as “writer”, since he is said to write the Contract. If an option can be excised on any date during its lifetime it is called an American Option. However, if it can be exercised only on its expiration date, it is called an European Option.  Option Premium In return for the guaranteeing the exercise of an option at its strike price, the option seller or writer charges a premium, which the buyer usually pays upfront. Under favorable circumstances the buyer may choose to exercise it. Alternatively, the buyer may be allowed to sell it. If the option expires without being exercised, the buyer receives no compensation for the premium paid.  he future. c) Double Option A Double Option is one, which gives the Option holder both the right to “buy” and “sell” Underlying asset at a pre-determined price on or before a specified date in the future. 2) SWAPS A SWAP transaction is one where two or more parties exchange (swap) one pre- determined Payment for another. There are three main types of swaps:- a) Interest Rate swap An Interest Rate swap is an agreement between 2 parties to exchange interest obligations or Receipts in the same currency on an agreed amount of notional principal for an agreed period of time. 11

12.                     b) Currency swap A currency swap is an agreement between two parties to exchange payments or receipts in One currency for payment or receipts of another. c) Commodity swap A commodity swap is an arrangement by which one party (a commodity user/buyer) agrees to Pay a fixed price for a designated quantity of a commodity to the counter party (commodity producer/seller), who in turn pays the first party a price based on the prevailing market price (or an accepted index thereof) for the same quantity. Derivatives are financial instruments whose values depend on the values of other, more basic underlying assets. Exchange traded financial derivatives were introduced in India in June 2000 at the two major stock exchanges, NSE and BSE. Derivatives are used by : 1. Hedgers: For protecting against adverse movement. Hedging is a mechanism to reduce price risk inherent in open positions. Derivatives are widely used for hedging. A Hedge can help lock in existing profits. Its purpose is to reduce the volatility of a portfolio, by reducing the risk. 2. Speculators: To make quick fortune by anticipating/forecasting future market movements. Hedgers wish to eliminate or reduce the price risk to which they are already exposed. Speculators, on the other hand are those class of investors who willingly take price risks to profit from price changes in the underlying. While the need to provide hedging avenues by means of derivative instruments is laudable, it calls for the existence of speculative traders to play the role of counter-party to the hedgers. It is for this reason that the role of speculators gains prominence in a derivatives market. 3. Arbitrageurs: To earn risk-free profits by exploiting market imperfections. Arbitrageurs profit from price differential existing in two markets by simultaneously operating in the two different markets. 12

13.                     2.4 DERIVATIVE MARKET IN INDIA An important step towards introduction of derivatives trading in India was the Promulgation of the Securities Laws (Amendment) Ordinance, 1995, which lifted the Prohibition on "options in securities" (NSEIL, 2001). However, since there was no Regulatory framework to govern trading of securities, the market could not develop. SEBI Set up a committee in November 1996 under the chairmanship of Dr. L.C. Gupta to Develop appropriate regulatory framework for derivatives trading. The committee suggested that if derivatives could be declared as "securities" under SCRA, the appropriate regulatory framework of "securities" could also govern trading of derivatives. SEBI also set up a group under the chairmanship of Prof. J.R. Varma in 1998 to recommend risk containment measures for derivatives trading. The Government decided that a legislative amendment in the securities laws was necessary to provide a legal framework for derivatives trading in India. Consequently, the Securities Contracts (Regulation) Amendment Bill 1998 was introduced in the LokSabha on 4th July 1998 and was referred to the Parliamentary Standing Committee on Finance for examination and report thereon. The Bill suggested that derivatives may be included in the definition of "securities" in the SCRA whereby trading in derivatives may be possible within the framework of that Act. The said Committee submitted the report on 17th March 1999. The Committee was of the opinion that the introduction of derivatives, if implemented, with proper safeguards and risk containment measures, will certainly give a fillip to the sagging market, result in enhanced investment activity and instill greater confidence among investors/participants. The Committee was of the view that since cash settled contracts could be classified as "wagering agreements" which can be null and void under Section 30 of the Indian Contracts Act, 1872, and since index futures are always cash settled, such futures contracts can be entangled in legal controversy. The Committee, therefore, suggested an overriding provision as a matter of abandoned caution- "Notwithstanding anything contained in any other Act, contracts in derivatives as per the SCRA shall be legal and valid". Further, since Committee was convinced that stock exchanges would be better equipped to undertake trading in derivatives in sophisticated environment it would be prudent to allow trading in derivatives by such stock exchanges only. The Committee, therefore, suggested a clause- "The derivative shall be traded and settled on stock exchanges and clearing houses of the stock exchanges, respectively in accordance with the rules and bye-laws of the stock exchange". The Proposed Bill, which 13

14.                      Other interest rate derivatives include swaps on government bond benchmarks Currency derivatives is dominated by forward market though options are picking up 2.5-DERIVATIVES PRODUCTS LEGALLY PERMITTED TO BE TRADED IN INDIAN 1. Equity Derivatives (Index/stock futures/options) - Legally permitted to be traded through stock exchanges approved by SEBI 2. Commodity Trading - Commodity futures are permitted. Commodity futures permitted only for trading in commodities approved by the Government in Commodity Exchanges recognized by Forward Markets Commission. Option contracts in commodities trading are not permitted. 3. Foreign Exchange Derivatives - Forward Contracts as approved by RBI permitted to be transacted by Banks and other approved foreign-exchange dealers. 4. OTC rupee derivatives in the form of Forward Rate Agreements (FRAs)/Interest Rate Swaps (IRS) - These were introduced by RBI in India in July 1999 in terms powers vested with it Foreign Exchange Management Act, 2000. These derivatives enable banks, pr— OIS is based on the overnight call money benchmark, NSE Mibor — The market for Overnight Index Swaps (OIS) is the most active interest rate derivative — FII’s are very active in the equity derivative markets in India . Retail presence is also high in the equity derivative market Interest Rate and Currency Derivatives in India — Equity index options are the most widely traded options contract in the exchange — Equity index futures are the most widely traded futures contract while single stock futures on the whole contribute to a larger percentage of the traded volumes —incorporated the recommendations of the said Parliamentary Committee, was finally enacted in December 1999. Equity Derivatives in India imary dealers (PDs) and all-India financial institutions (FIs) to hedge interest 14

15.                     5. Rate risk for their own balance sheet management and for market-making purposes. Banks/PDs/FIs can undertake different types of plain vanilla FRAs/IRS. Swaps having explicit/implicit option features such as caps/floors/collars are not permitted now. 6. Exchange Traded Interest Rate Derivatives were introduced by RBI/SEBI during June, 2003. These can be traded through stock exchanges by primary dealers subject to conditions stipulated by RBI. OTC Rupee derivatives are presently not permitted. 2.6-CATEGORIES OF DERIVATIVES TRADED IN INDIA 1. Commodities Futures for Coffee, Oil Seeds, Oil (Castor, Palmolein), Pepper, Cotton, Jute and Jute Goods are traded in the Commodities Futures. Forward Markets Commission regulates the trading of commodities futures. 2. Index futures based on Sensex and Nifty Index are also traded under the supervision of SEBI. 3. RBI has permitted Banks, FIs and PDs to enter into forward rate agreement (FRAs)/interest rate swaps in order to facilitate hedging of interest rate risks and ensuring orderly development of the derivatives market 4. NSE became the first exchange to launch trading in options on individual securities. Trading in options on individual securities commenced from July 2, 2001. Option contracts are American style and cash settled and are available on 41 securities stipulated by the Securities & Exchange Board of India (SEBI) 5. NSE commenced trading in futures on individual securities on November 9, 2001. The futures contracts are available on 41 securities stipulated by the Securities & Exchange Board of India (SEBI).BSE also has started trading in individual stock options & futures (both Index & Stocks) around the same time as NSE. 15

16.                     2.7-Trading Strategies of Derivatives • Buy downside put as insurance when long stocks • Sell upside call to collect premium when upside is limited • Buy call spread expecting limited upside • Buy put spread expecting limited downside • Buy strangle or straddle expecting volatility ahead • Synthetic short – buy put sell call • Most PMs buy options not sell Trading Strategies Buy Straddle • Buy both ATM call and put • Max gain: unlimited • Max loss: time decay (theta) • Buy gamma and kappa, pay theta • Short dated straddle – buy more gamma • Long dated straddle – buy more kappa Trading Strategies Buy strangle • Buy both OTM call and put • Max gain: unlimited • Max loss: time decay, theta • You buy gamma and kappa, earn theta • Short dated strangle – buy more gamma • Long dated strangle – buy more kappa • Diversify your risk comparing to straddle and cheaper 16

17.                      Expecting more upside 17ü Synthetic short – buy put sell call Buy call option ü Buy strangle or straddle expecting volatility ahead ü Buy put spread expecting limited downside ü Buy call spread expecting limited upside ü Sell upside call to collect premium when upside is limited ü Buy downside put as insurance when long stocks üTrading Strategies John Murphy is a very popular author, columnist, and speaker on the subject of StockCharts.com is very glad to include his trading in our educational material. If you find this information useful, please visit the Murphy Morris web site for additional examples of John's insight.

18.                      Derivative Instruments include: Forward Contracts Futures Contracts Salam Contracts Swap Contracts Option Contracts (CallÚ Derivative Instruments are instruments at which their values are derived from the value of an underlying physical or financial assets Ú Expecting limited downside 2.8-Derivative Based Instruments nSell put option  & Put) Combination &  Participation in risk and reward is an important feature of Islamic financeÚ Derivative Instruments are mainly used as risk management tools ÚEmbedded Contracts  &  Management of risk is an integral part of Islamic mode of financing 18Úinvestments

19.                      Call Options are mainly traded in the organized exchanges and to some degree in the OTC markets 19Ú A Call Option buyer usually uses this instrument to insure or hedge the cost of the needed raw materials or the maximum price he/she wants to pay for the purchase of an asset Ú Call Option buyer thinks the asset price will rise and the seller thinks the opposite Ú When the Call is exercised the seller is obliged to sell the asset at the strike price Ú The seller of a Call Option (short position holder) has no obligations to sell the asset until the Call is exercised by the Option buyer Ú A Call Option is not an obligation Ú Call Options are contracts at which the owner of the Call (buyer or long position holder) after paying a premium (option premium) to the seller of the Call, gains the right but not the obligation to buy a given asset with a specific quality at a specific price (strike price) at or until a specific date (strike date). ÚCall Options

20.                     Long Call Option Long Call Value Break-Even Price Underlying Asset Price 20

21.                      Put Options are contracts at which the owner of the Put (buyer or long position holder) after paying a premium (option premium) to the seller of the Put, gains the rightÚShort Call Option Value Break-Even Price Underlying Asset Price Short Call Put Options:   Put Options are mainly traded in the organized exchanges and to some degree in the OTC markets 21Ú A Put Option buyer usually uses this instrument to insure or hedge the income resulting from the sale of an asset or the minimum price he/she receives from the sale of an asset Ú Put Option buyer thinks the asset price will fall and the seller thinks the opposite Ú When the Put is exercised the seller is obliged to buy the asset at the strike price Ú The seller of a Put Option (Short Position holder) has no obligations to buy the asset until the Put is exercised by the Option buyer Ú A Put Option is not an obligation Úbut not the obligation to sell a given asset with a specific quality at a specific price (strike price) at or until a specific date (strike date).

22.                     Long Put Option Long Put Value Break-Even Price Underlying Asset Price 22

23.                     Short Put Option Break-Even Price Value Short Put Underlying Asset Price • An option gives its owner the right to buy or sell an underlying asset on or before a given date at a fixed price. • Option belong to a broader class of assets called contingent claims • The most popular model for pricing options is the block-scholes model which was published in 1973 the year in which the Chicago board of options exchange the first organized options exchange in the world was also setup – it was a rare occurrence in the field of finance when a seminal theoretical breakthrough coincided with a major institutional development. 23

24.                     HOW OPTIONS WORK • The options to buy is a call option & the option to sell is a put options • The options holder is the buyer of the option & the option writer is the seller of the option. • The fixed price at which the option holder can buy &  Call option put option • ATM exercise price=market price exercise price=market price • ITM exercise priceØsell the underlying asset is called the striking price. • The date when the option expires is referred to as the expiration date. • The act of buying or selling the underlying asset as per the option contract is called exercising the option. • Options traded on an exchange are called exchange-traded options. • Options are said to be 1. ATM-At The Money 2. ITM-In The Money 3. OTM-Out of The Money <market price exercise price>market price • OTM exercise price>market price exercise price<market price • The value of an option if it were to expire immediately is called its intrinsic value. • The excess of the market price of any option over its intrinsic value is called the time value of the option. • Exchange traded options are standardized in terms of quantity cycle, expiration date, strike prices, type of option, & mode of settlement. 24

25.                     2.9-EQUITY OPTIONS IN INDIA There are two popular types of equity options index options and options on individual securities. Types of Equity Option • Bombay Stock Exchange • National Stock Exchange INDEX OPTION: Index options are options on stock market indices. Currently the most popular index options option in India is the option on the S&P CNX Nifty which is traded on the NSE. The salient features of this contract are as follows 1. The contract size is 200 times the underlying index. 2. The options contracts have a maximum of three month trading cycle • Near month • Next month • Far month A new contract will be introduced on the next trading day 3. It is a European style option contract 4. The expiry day is the last Thursday of the expiry month or previous trading day if the last Thursday is a trading holiday 5. The contract is cash settled. The settlement is done a day after the expiry day based on the expiration price as may be decided by the exchange. 25

26.                     Futures & Forward contract forward future 1.traded on phone 1.traded in a competitive arena 2.self-regulating 2.regulated by authority like the exchange 3.tailor made sizes 3.standardised sizes 4.delivary on any date and as per the 4.delivary on specific dates fixed before requirements of the party hand 5.settlements on the due date 5.settlement on a daily basis 6.Margins are not required 6.mergins are required 26

27.                     3- INDUSTRY PROFILE The growth of financial sector in India at present is nearly 8.5% per year. The rise in the growth of the economy. The financial policies and the monetary policies are able to stable growth rate. The reforms, pertaining to the monetary policies and the macroeconomic policies over the last five years has influenced the Indian economy to the core. However global economic activity decelerated towards the end of the calendar year resulting in investment concerns on account of the sub-prime crisis in the US and other developed nations. Naturally the effects of this slowdown spilled over into developing economies also and we are looking ahead with some degree of concern over the prospects in the near future. The economic environment and prospects of India got the attention of global investors and the FII inflows continued even in the current financial year. The net FII investors peaked at USD 7 billion in September 2007. The increased liquidity combined with excellent performance of the corporate sector helped growth of equity market significantly. The Sensex touched the peak level of 21,206 in the month of January 2008. As a resulted volume in the market also went up to unprecedented level. The combined daily market turnover touched the record level of Rs 1 lakh crore for the first time in the history of capital market. The average daily turnover in the cash segment of NSE which was 7,812 crore in the year 2006-07 crossed was Rs 20,000 crore in October, 2007. Similarly the average volume in the derivative segment which was Rs 29,543 crore in 2006-07 reached a high of Rs 83,348 crore in October 2007. There has been a considerable increase in other areas of the industry such as mutual funds. IPOs and insurance products also, 612 mutual fund schemes were launched during the year against 413 last year. In recent days economic collapsed in variation of the foreign investors fund main effect of the Indian economy in 2008-2009 the Bombay Stock Exchange (BSE) the Sensex was 13,400 in the month of 13th july 2009 . In other side National Stock Exchange (NSE) 3,974 is in the same month of 2009 . However the market witnessed deep corrections in the end of January 2009 as a fall out of sub-prime crisis and related economic concerns in 27

28.                     the US. Consequently volumes went down below half of the peak and the index corrected by more than 30% from its peak level. The dark clouds caused by global events and its possible impact on Indian economy continue to cast a shadow on the outlook of the markets in the near future. However global economic activity decelerated towards the end of the calendar year resulting in investment concerns on account of the sub-prime crisis in the US and other developed nations. Naturally the effects of this slowdown spilled over into developing economies also and we are looking ahead with some degree of concern over the prospects in the near future. The economic environment and prospects of india got the attention of global investors and the FII inflows continued even in the current financial year. The net FII investors peaked at USD 7 billion in September 2007. The increased liquidity combined with excellent performance of the corporate sector helped growth of equity market significantly. The Sensex touched the peak level of 21,206 in the month of January 2008. As a resulted volume in the market also went up to unprecedented level. The combined daily market turnover touched the record level of Rs 1 lakh crore for the first time in the history of capital market. The average daily turnover in the cash segment of NSE which was 7,812 crore in the year 2006-07 crossed was Rs 20,000 crore in October, 2007. Similarly the average volume in the derivative segment which was Rs 29,543 crore in 2006-07 reached a high of Rs 83,348 crore in October 2007. There has been a considerable increase in other areas of the industry such as mutual funds. IPOs and insurance products also , 612 mutual fund schemes were launched during the year against 413 last year. In recent days economic collapsed in variation of the forign investors fund main effect of the Indian economy in 2008-2009 the Bombay Stock Exchange (BSE) the sensex was 13,400 in the month of 13th july 2009 . In other side National Stock Exchange (NSE) 3,974 is in the same month of 2009 . However the market witnessed deep corrections in the end of January 2009 as a fall out of sub-prime crisis and related economic concerns in the US. Consequently volumes went down below half of the peak and the index corrected by more than 30% from its peak 28

29.                     level. The dark clouds caused by global events and its possible impact on Indian economy continue to cast a shadow on the outlook of the markets in the near future. 3.1- COMPANY PROFILE 3.1a- Background and Inception of the company Mr.C.J.George and Mr.Ranajit Kanjilal founded Geojit as a partnership firm in the year 1987 in 1993. Mr.Ranajit kanjilal retired from the firm and Geojit became a proprietary concern of Mr. C.J.George. In 1994, it became a public limited company by the name Geojit securities Ltd. The Kerala state industrial Development Corporation Ltd. (KSIDC),IN 1995, became a co-promoter of Geojit by acquiring 24% stake in the company, the only instance in india of a government entity participating in the equity of a stock broking company. 22yearsof history in Indian Capital Market Geojit BNP Paribas has 22 years of in-depth broking experience in the Indian Capital Market. More than 4.5 lakh clients and over Rs 5,400 crores (as of 31st Mar.’09) in Assets Under Management reflect the trust reposed in our expertise. Pioneer in Online Trading in Feb. 2000 In the year 2000, Geojit BNP Paribas pioneered the simple concept of providing individuals with the facility to trade online. This revolution has given the company the first mover advantage in online trading. As a creative innovator, Geojit BNP Paribas uses advanced technology in online trading to meet client requirements such as customized online trading platforms and many other services. Strong Shareholders Geojit BNP Paribas is backed by strong shareholders. In 2007, global banking major BNP Paribas joined the company’s other major shareholders - Mr. C.J.George, KSIDC (Kerala State Industrial Development Corporation) and Mr.Rakesh Jhunjhunwala – when it took a stake to become the single largest shareholder. Wide range of products Geojit BNP Paribas offers a wide range of trading and investment products and solutions. Certified financial advisors help clients to arrive at the right financial solution to meet 29

30.                     their individual needs. The wide range on offer includes - Equities | Derivatives | Currency Futures | Custody Accounts | Mutual Funds | Life Insurance &  Trade the way that you want to by selecting from multiple channel options- Internet, Phone or Branch. First mover advantage Geojit BNP Paribas through its first mover advantage in different areas has been the first to serve investors with its innovative offerings. 1st to launch internet trading in the year 2000. 1st to launch integrated internet trading system for cash and derivative segments in the year 2002. 1st Indian stock broking company to commence domestic retail broking operations in any foreign country. 1st in the industry to have a global player offering its name thereby creating Geojit BNP Paribas. 30ü Branch trading ü Phone, ü Internet, üGeneral Insurance | IPOs | Portfolio Management Services | Property Services | Margin Funding | Loans against Shares Learn the craft You too can develop your trading skills by availing of the effective guidance by our research department. We offer-Daily mails delivered to our client’s mailbox on market conditions and recommendations Technical analysis of BSE 200 Index scrip’s Free monthly investment magazine Services of professionally qualified executives at 500 offices across India. Our strong research ideas have been instrumental in converting our clients into successful traders. Multichannel service-

31.                     1st to launch exclusive branches for women in 2005. Wide range of fund options Geojit BNP Paribas gives you the option to choose from the 700 plus Mutual Fund schemes offered by over 35 Asset Management companies such as • SBI Mutual Fund, • Reliance Mutual Fund, • Franklin Templeton India Mutual Fund, • Tata Mutual Fund, • Sundaram BNP Paribas Mutual Fund, • Fidelity Mutual Fund, and • HDFC Mutual Fund. 3.1b-Geojit Securities is now Geojit BNP Paribas Financial services Mumbai March 13 BNP Paribas S.A. has become the single largest shareholder in Geojit Financial Services Ltd through a preferential allotment of 5.68 crore shares and 2.28 crore warrants. Geojit will now be rechristened `Geojit BNP Paribas Financial Services Ltd.' The allotments follow shareholders' approval at the Extra Ordinary General Meeting held on November 22, 2006 and other statutory approvals, the company informed the BSE. BNP Paribas will acquire 27.18 per cent stake in the company at Rs 26 per share and after the conversion of warrants into shares within 18 months at the same price, will increase its holding to 34.35 per cent. BNP Paribas will make an open offer for acquiring an additional 20 per cent stake in Geojit. The price for the open offer has not yet been decided, said Mr Olivier Le Grand, Head of BNP Paribas Personal Investors. Shares of Geojit Financial Services rose 5.21 per cent to close at Rs 38.35 on the BSE. However, even post-open offer there are no plans to delist Geojit from the stock exchanges, said Mr. C.J. George, Managing Director, Geojit Financial Services Ltd. 31

32.                     The promoters' stake in Geojit will come down to around 30 per cent from around 45 per cent (going by BSE). For BNP Paribas the deal will cost around Rs 207 crore and the fund infusion will be done in stages. It will fund expansion of business in the Middle East, branch expansion in India and strengthen the distribution of financial products. The company will continue to be managed by the current team with Mr George as the Managing Director. Three members from BNP Paribas will be nominated on the board, namely Mr Olivier Le Grand, Mr. Frederic Amoudru - Chief executive and Country Manager of BNP Paribas in India and Mr. Rousseau - Head of BNP Paribas Securities, Asia. "By joining the global network of BNP Paribas, Geojit will be in a position to serve the large Indian population living outside India, apart from gaining knowledge from BNP Paribas' position as the market leader in online brokerage in continental Europe," said Mr George. Geojit wants to become a strong distribution platform for brokerage and savings products, increase margin lending in equities, develop institutional business and strengthen the business of Geojit Technologies Ltd. 32

33.                     3.2- Nature of the Business A Geojit securities limited /Geojit Financial BNP service limited is the holding company for the subsidieries .The principal subsidieries include: Geojit Financial BNP Services limited Geojit Credits (p) Geojit Commodities Geojit financial services & limited limited management Limited Geojit Technologies (p) Geojit Financial Distribution Limited (p) Limited 33

34.                     Sigma system International FZ LLC Area of operation STATES No of Branches Andhra Pradesh 39 Bihar 1 Chandigarh 1 Chaattisgarh 1 Goa 1 Gujarat 23 Haryana 3 Jammu & Kashmir 1 Karnataka 62 Kerala 121 Madhya Pradesh 7 Maharashtra 54 Delhi 12 Panjab 4 Rajasthan 6 Tamilnadu 94 Uttar Pradesh 15 Uttaranchal 1 West Bengal 7 TOTAL 453 34

35.                     OWNERSHIP PATTERN Sl No. Category of share holders Total no of % to Total shares shares 1 Indian individuals 45,606,760 21.82% 2 Indian bodies corporate 20,000,000 9.57% 3 Foreign bodies corporate 56,804,870 27.18% 4 Mutual funds 7,568,040 3.62% 5 Foreign institutional investors 6,001,465 2.87% 6 Non institutional bodies corporate 8,189.114 3.92% 7 Non institutional Individuals 26,587,130 12.72% 8 Trust 525 0.06% 9 Directors & their relatives 29,362,000 14.05% 10 Nonresident Indians 6,617,951 3.17% 35

36.                     11 Overseas Corporate Bodies 300 0.045 12 Clearing members 1,823,211 0.87% 13 Hindu undivided families 429,504 0.21% TOTAL 208,990,870 100% 3.3 Vision and Mission Statement VISION To be a leading financial and commodities intermediary for individual and institutional clients from india and overseas Company will continually strive to raise the product and service standard by intelligent application of technology and processes MISSION Company understands and respects customer needs to consistently deliver total quality solutions through constant skills up gradation Company believes that there culture helps to attract and retain the best talent Company upholds uncompromising ethical standards and strives to maintain a distinctive identity in public mind through innovation and quality Company is committed to achieve profitable progress, consistently. Company freely shares investment experience across all ages and strata of society to encourage wise investment for a better future. 36

37.                     CODE OF CONDUCT FOR THE DIRECTORS AND SENIOR OFFICERS As per Clause 49 of the Listing Agreement with the Stock Exchanges, it shall be obligatory for the Board of Directors of all listed Companies to lay down a code of conduct for all Board members and senior management of the Company in order to ensure good Corporate Governance. I. CORPORATE GOVERNANCE Corporate governance is about commitment to values and about ethical business conduct. It is about how an organization is managed. This includes its corporate and other structures, its culture, its policies and the manner in which it deals with various stakeholders. Accordingly, timely and accurate disclosure of information regarding the financial situation, performance, ownership and governance of the company, is an important part of corporate governance. This improves public understanding of the structure, activities and policies of the organization. Consequently, the organization is able to attract investors, and to enhance the trust and confidence of the stakeholders. We believe that sound corporate governance is critical to enhance and retain investor trust. Accordingly, we always seek to attain our performance rules with integrity. The Board extends its fiduciary responsibilities in the widest sense of the term. Our disclosures always seek to attain the best practices in international corporate governance. We are also responsible to enhance long term shareholder value and respect minority rights in all our business decisions. II. INTRODUCTION OF CODE (Preamble) This Code of Ethics for Directors and Senior Executives (the “Code”) helps to maintain the standards of business conduct for Geojit BNP Paribas Financial Services Limited (the “Company”) and ensures compliance with legal requirements particularly of Companies Act, SEBI Regulations and the Listing Agreement with Stock Exchanges. The purpose of the Code is to deter wrongdoing and promote ethical conduct. The matters covered in this Code are of utmost importance to the Company, our shareholders and our business partners. Further, these are essential so that we can conduct our business in accordance with our stated values. The Code is applicable to the following persons, referred to as “Officers” : • Directors of the Company • Our Senior Management • Members of the Board of Subsidiary Company Ethical business conduct is critical to our business. Accordingly, Officers are expected to read and understand this Code, uphold these standards in day-to-day activities, and comply with all applicable laws, rules and regulations, the Geojit BNP Paribas Code of Conduct, Service rules and all applicable policies and procedures adopted by the Company that govern the conduct of its employees. 37

38.                     Because the principles described in this Code are general in nature, Officers should also review the Company’s other applicable policies and procedures. Officers should sign the acknowledgment form at the end of this Code and return the form to the HR department indicating that they have received, read and understood, and agree to comply with the Code. The signed acknowledgement form should be available with officers concerned. Each year, as part of their annual review, Officers will be asked to sign an acknowledgement indicating their continued understanding and adherence of the code. III. HONEST AND ETHICAL CONDUCT We expect all Officers to act in accordance with highest standards of personal and professional integrity, honesty and ethical conduct, while working on the Company’s premises, at offsite locations where the Company’s business is being conducted, at Company sponsored business and social events, or any other place where Officers are representing the Company. We consider honest conduct to be conduct that is free from fraud or misrepresentation or deception. We consider ethical conduct to be conduct conforming to the accepted professional standards of conduct. Ethical conduct includes ethical handling of actual or apparent conflicts of interest between personal and professional relationships. This is discussed in more detail in Section IV below. IV. CONFLICTS OF INTEREST an Officer’s duty to the Company demands that he or she avoids and discloses actual and apparent conflicts of interest. A conflict of interest exists where the interests or benefits of one person or entity conflict with the interests or benefits of the Company. Examples include: A. Employment/Outside employment: With regard to the employment with the Company, Officers are expected to devote their full attention to the business interests of the Company. Officers are prohibited from engaging in any activity that interferes with their employment with the Company. Our policies prohibit Officers from accepting simultaneous employment with suppliers, customers, developers or competitors of the Company, or from taking part in any activity that enhances or supports a competitor’s position. Additionally, Officers must disclose to the Company’s Audit Committee, any interest that they have that may conflict with the business of the Company. B. Outside directorships: It is a conflict of interest to serve as a director of any company that competes with the Company. Officers must first obtain approval from the Company’s audit committee before accepting a directorship. 38

39.                     C. Business Interests: If an Officer is considering investing in any customer, supplier, developer or competitor of the Company, he or she must first take care to ensure that these investments do not compromise on their responsibilities to the Company. Our policy requires that Officers first obtain approval from the Company’s Audit Committee before making such an investment. Many factors should be considered in determining whether a conflict exists, including the size and nature of the investments, the Officer’s ability to influence the Company’s decisions, his or her access to confidential information of the Company or of the other company, and nature of the relationship between the Company and the other company. At the time of application for approval, full facts of the proposed investment shall be placed before the Committee. D. Related parties: As a general rule, Officers should avoid conducting Company’s business with a relative, or have business in which a relative is associated in any significant role. A relative means and includes spouse, children, parents, grandparents, grandchildren, aunts, uncles, nieces, nephews, cousins, step relationships, and in-laws. Subject to the rules and regulation, the Company discourages the employment of relatives of Officers in key positions or assignments within the same department. Further, the Company prohibits the employment of such individuals in positions that have a financial dependence or influence (e.g. an auditing or control relationship, or a supervisor/subordinate relationship). Every employee drawing a monthly salary of Rs.10,000/- or more shall disclose whether he is a relative or not of any of our directors. E. Payments or gifts from others: Under no circumstance the Officers shall accept any offer, payment, promise to pay, or authorisation to pay any money, gift, or anything of value from customers, vendors, consultants, etc., that is perceived as intended, directly or indirectly, to influence any business decision, any act or failure to act, any commitment of fraud, or opportunity for the commitment of any fraud. Inexpensive gifts, infrequent business meals, celebratory events and entertainment, provided that they are not excessive or create an appearance of impropriety, do not violate this policy. Questions regarding whether a particular payment or gift violates this policy are to be directed to Finance Department. Gifts given by the Company to suppliers or customers should be appropriate to the circumstances and should never be of a kind that could create an appearance of impropriety. The nature and cost must always be accurately recorded in the Company’s books and records. F. Corporate opportunities: Officers may not exploit for their own personal gain, opportunities that are discovered through the use of corporate property, information or position, unless the opportunity is disclosed fully in writing to the Company’s Board of Directors and the Board declines to pursue such opportunity. 39

40.                     G. Interested Contracts: Except with the consent of the Board of Directors of the Company, any of the Director or his relative or a firm in which a director or his relative is a partner, any other partner in such a firm, or a private company of which the director is a member or director shall enter into any contract with the Company for sale, purchase or supply of goods, materials or services, or for underwriting the subscription of any shares in or debentures of the Company except for purchase or sale of goods for market price or such contracts which either party regularly trades or does business. For any clarification in this regard, the officers are requested to contact to the Finance Department / Secretarial Department / Legal Department. H. Whistle Blower Policy: Employees who came across any unethical or improper practice (not necessarily a violation of law) shall be free to approach the Audit Committee without necessarily informing their supervisors. All officers are requested to inform their subordinates about their this right through an effective manner. For any clarification in this regard please contact Finance Department / Secretarial Department / Legal Department. I. Other Situations: It would be impractical to attempt to list all possible situations. If a proposed transaction or situation raises any questions or doubts, please contact Finance Department. 3.4 ACHIVEMENT AND AWARDS The company crossed the following milestone to reach its present position as a leading retail broking house in India. 1986 Geojit became the member of the Cochin stock exchange. 1994 The Kerala state industrial development corporation an arm of the government of Kerala became a co promoter of the company by acquiring 24% equity stake in Geojit financial services ltd. Based on the evaluation report of this is the only venture in India where a state owned development institution is participating in the equity of a stock broking company. Geojit became a corporate broking house. 1995 40

41.                     Geojit comes out with a small initial public offer of rs-95 million which was oversubscribed by 15 million and KSIDC equity stake comes down to 17%. Geojit become a member of the NSE and installs its first trading terminal in Cochin, Kerala. 1996 The company launches portfolio management services after obtaining required registratration from SEBI. 1997 Geojit become a depository participant under national depository securities depository ltd (NSDL) and begins providing depository services through its branches. 1999 Geojit becomes a member of the BSE In MUMBAI and activities Bombay Online Trading in different branches. The customer’s base of Geojit crosses the 50000 mark 2000 Geojit become the first broking firm in the country to offer online trading facility. The then SEBI chairman, Mr.D.R.Mehta the facility on 1-2-2000 Commences Derivative Trading after obtaining registration as a clearing and trading member in NSE. 2001 Geojit’s customer base crosses 100,000 Become Indian first DP to launch depository transaction through Internet. The company issues bonus shares in the ratio of 1:1 41

42.                     2002 Geojit ties up with Met life for the marketing 7 distribution of insurance products across the country. The company becomes the first online brokerage house to launch integrated internet trading system for both cash and derivative segments. 2003 Geojit commodities ltd, a wholly owned subsidiary of Geojit became member of National Multi commodity exchange ltd. National commodity Exchange ltd. Geojit raises more than Rs-100 million through issue of preferential shares. 2005 Barjeel Geojit Securities LLC becomes a member of Dubai Gold Commodity Exchange. Customer base of Geojit croses 2,50,000 Geojit reach speeds through a network of more than 300 branches. The company gets listed on NSE of India ltd. The company implements Employees stock option scheme. The company opens a first of its kind all woman’s branch in Cochin. 2006 Geojit launches Internet Trading on Reuters TIB Mercury platform. 2007 42

43.                     On 13-3-2007 the formation of geojit BNP Paribas Financial Services ltd. was announced in Mumbai and Paris. Through a preferential allotment BNP Paribas had taken 27% stake in Geojit which will eventually increases to 34.35% .with the final step the French banking major has become the largest share holder in Geojit Financial services Ltd. With presence in more than 85 countries the bank has a headcount of more than 1,38,000. 3.5WORK FLOW MODEL Geojit a member of NSE & BSE has a network of over 450 branches in India and abroad, rendering quality equity trading services. Geojit not only has a strong offline presence but also provides automated online trading services. Geojit also provides a call & trade facility to its customers wherein they can place and track their orders through our dedicated call centre Desk. Geojit’s retail spread caters to the need of individuals investors Trading in equities is made simple, safe and interesting with smart advice from the research desk through daily SMS alerts, market pointers , periodical research reports stock recommendations and customer meets organised frequently. There are 3 types of trading platform offered by Geojit bnp financial for its customer SILVER PLATINUM 43 GOLD

44.                     1) SILVER: Silver platform is browser based solution where in one can enquire and get the stock prices market depth, etc. For each scrip at a time. Minimum brokerage concept does not apply for silver platform. 2) GOLD: This Platform is a web based solution and the customer can login to the trading platform from anywhere in the world. 3) PLATINUM: The platinum version acts as a virtual dealers terminal providing live up dates and confirmation. 44

45.                     3.4 - SWOT ANALYSIS STRENGTHS WEAKNE THREAT SS SWOT 45

46.                      It is listed on the BSEØ Geojit is a charter member of the financial planning standards board of India and is one of the largest brokers in the country. Ø Company continues to achieve cost efficiencies through the application of technology. Ø Geojit is one of the leading retail financial service companies in the country and in the Middle East with membership in NSE and BSE. ØOPPORTUNITIES STRENGTHS:  &  Wide number of products and services and also branches. 46Ø It follows corporate governance norms and adopts best management practices. Ø It has well experienced staff and good infrastructure. Ø It brand is popular and the brand image can be capitalized. Ø It launched branches exclusively for women investors. Ø It is a highly innovative company and among many industries first to its credit prominent is the launch of internal trading in 2000. Ø Geojit renders quality equity trading services. Ø It is the first Indian stock broking company to commence domestic retail brokerage operations in any foreign country through its joint venture Aloula Geojit. ØNSE and its market capitalization is over Rs.777.6 crores

47.                      Unable to market their productsØWEAKNESS:  &  Introduction of new instruments in the FØ Introduction of new products like mini derivative contracts and securities lending and borrowing scheme. Ø Phenomenal growth in secondary market volumes. Ø Increase the resource mobilization by mutual funds Ø The manifold increase in capital mobile station from the primary market. Ø Lack of efficient and effective strategies in attracting customers. OPPORTUNITIES: The India financial market has a vary high growth potential. The macro economic fundamental are sound to allow the economy to make rapid strides. Economic expansion will result in greater disposable incomes and larger number of investors. Ø Less number of branches in north India. Ø Unable to compete with the brokerage rates of their competitors. Ø Many of their competitors have significantly greater financial, technical, marketing and other resources than available to Geojit. Øservices more efficiently & Company is committed to achieve profitable progress consistently. 47Ø Company believes that their culture helps to attract and retain the best talent. Ø Growing India economy opens up huge market for stock broking companies. Ø Target the rural and sub urban areas. Ø Trapping new markets. ØO segment etc.

48.                      The stock broking industry has recently witnessed intense competition falling brokerage ratesØTHREATS:  &  Dependency on international market. 4-ANALYSIS AND INTERPRETATION OF DATA 48Ø Changes in government policies and regulation. Ø Changes in India political economic conditions. Ø Uncertainty in the market. Ø Competition from financial institution like banks investing firms etc. Ø Increased level of competition is a cause of concerns. Øthe entry of several big player.

49.                     The analysis and interpretation of data conducted in Geojit BNP Paribas financial services ltd Hassan, covers on overview of the Derivatives (F&O) segment month wise, product wise, trade wise, with traded value analysis Trend analysis supported by charts and Tables from the information collected during the project study Table 1: The following table showing the trading Contracts from Oct 2009 to Mar 2010 Particulars Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Marc-10 Stock Futures 14044526 13260546 11307332 12546679 10725789 12657646 Index Futures 13615447 15178552 13337833 12056359 13891843 14379982 Stock Options 1378569 1360703 1252898 1414178 1223627 1384453 Index Options 26671252 32965274 29525940 27084605 34588704 30199846 Graph:1 The following Graph Showing the Derivatives trading Contracts at NSE from Oct 2009 to Mar 2010 49

50.                     Derivatives Contracts 40000000 34588704 35000000 32965274 30199846 29525940 30000000 26671252 27084605 25000000 Stock Future 20000000 Index Future Stock Option 15178552 1500000014044526 13891843 14379982 Index Option m N 13260546 13337833 o n b u C e a c s r t f 12546679 12657646 13615447 11307332 1205635910725789 10000000 5000000 1378569 1360703 1252898 1414178 1223627 1384453 0 Oct/09 Nov/09 Dec/09 Jan/10 Feb/10 Mar/10 Analysis Above graph shows that stock future was 14044526 Contract on October 2009 where as it Increased to 30199846 Contracts in March 2010. Index Future in October 2009 was 13615447 Contracts and it decreased to 12657646 Contracts in the month of March 2010. Stock Option in October 2009 was 1378569 Contracts and it increased to 1384453 Contracts in the month of March 2010. And Index Option in October 2009 was 26671252 Contracts and it increased to 30199846 Contracts in the month of March 2010. Interpretation 50

51.                     It can be interpreted that The Index futures are having more trade value compare to stock Future. Index Option are having more trade value compare to stock options. From the October 2009 to March 2010 Number Contract decreased due to the market decline, economic exposure and Operational exposure Table: 2 The following table Showing the Number of Contracts And average daily Contracts from October-2009 to March-2010 Months Total Avg. Daily Trading Oct-2009 55709794 2932094 Nov-2009 62765075 3138254 Dec-2009 55424003 2639238 Jan-2010 53101821 2794833 Feb-2010 60429963 3021498 Mar-2010 58621927 2791521 Working Note Average Daily Trading = Total Contracts ------------------------------------------ No. Of trading days in month Oct-2008 =55709794/19=2932094 Nov-2009=62765075/20=3138254 Dec-2009=55424003/21=2639238 Jan-2010=53101821/19=2794833 Feb-2010=60429963/20=3021498 Mar-2010=58621927/21=2791521 Analysis The above table shows Number of Contracts from October-2009 to March -2010, 55709794, 62765075, 55424003, 53101821, 60429963, 58621927, respectively. Interpretation It can be interpreted that from October-2009 to November-2009 ontracts are increased (55709794 to 62765075). And in Nov-2009 to Mar-2010 it decreased (58621927) due to the market decline 51

52.                     Table 3: The following table showing the Derivatives Trading Volume at .NSE. From Oct-2009 TO Mar -2010 (in core) Particulars Oct-20 Nov-20 Dec-20 Jan-20 Feb-20 Mar-20 09 09 09 10 10 10 Stock 465829 438220 395954 444134 354485 413257 Futures Index 329610 363523 329496 298849 326871 292038 Futures Stock 45387 43666 42855 51454 41285 38467 Options Index 669591 816408 756677 695860 847236 753739 Options Graph:2 The following Graph Showing the Derivatives trading volume at NSE from Oct 2009 to Mar 201 52

53.                     Derivatives Trading Volume 900000 847236 816408 800000 756677 753739 695860 700000 669591 Stock Futures 600000 500000 465829 Index Futures 438220 444134 413257 395954 400000 363523 354485 m V R o u C e 329610 329496 s Stock Options r 326871 ) ( l 298849 292038 300000 Index 200000 Options 100000 45387 43666 42855 51454 41285 38467 0 Oct/09 Nov/09 Dec/09 Jan/10 Feb/10 Mar/10 Analysis Above graph shows that stock future Turnover was 4,65,829 crore on October 2009 Where as it decreased to 4,13,257 crore in March 2010. Index Future in October 2009 was 3,29,610 and it decreased to 2,92,038 in the month of March 2010. Stock Option in October 2009 was 45,387 crore and it decreased to 38,467 crore in the month of March 2010. And Index Option in October 2009 was 6, 69, 591 cores and it increased to 7,53,739 crore in the month of March 2010 Interpretation 53

54.                     It can be interpreted that The Stock Futures are having more trade value compare to Index Future. Index Option is having more trade value compare to stock options. From the October 2009 to March 2010 trade value decreased (except Index Option) due to the market decline, economic exposure and Operational exposure Graph: 4 The following Graph Showing the Derivatives trading volume at NSE of Nov 2009 Analysis Above graph shows that the Volume of Stock Future is 438220 crore (26.37%), Index Future is 363523 crore(21.88%), Stock Option is 45666 crore (2.63%) & Index Option is 816408 crore (49.12%) in the month of October Interpretation It can be interpreted The Stock Futures are having more trade value compare to Index Future. Index Option are having more trade value compare to stock options. 54

55.                     Graph:5 The following Graph Showing the Derivatives trading volume at NSE of Dec 2009 Analysis Above graph shows that the Volume of Stock Future is 395954 crore (25.97%) , Index Future is 329496 crore (21.61%), Stock Option is 42855 crore (2.81%) & Index Option is 756677 crore (49.61%) in the month of October Interpretation It can be interpreted that The Stock Futures are having more trade value compare to Index Future. Index Option are having more trade value compare to stock options. 55

56.                     Graph:6 The following Graph Showing the Derivatives trading volume at NSE of Jan 2010 Analysis Above graph shows that the Volume of Stock Future is 444134 crore (29.80%) , Index Future is 298849 crore (20.05%), Stock Option is 51454 crore (3.45%) & Index Option is 695860 crore (46.70%) in the month of October Interpretation It can be interpreted that The Stock Futures are having more trade value compare to Index Future. Index Option are having more trade value compare to stock options. Graph:7 The following Graph Showing the Derivatives trading volume at NSE of Feb 2010 56

57.                     Analysis Above graph shows that the Volume of Stock Future is 354485 crore (22.58%), Index Future is 326871 crore(20.82%), Stock Option is 41285 crore (2.63%) & Index Option is 847236 crore (53.97%) in the month of October Interpretation It can be interpreted that The Stock Futures are having more trade value compare to Index Future. Index Option are having more trade value compare to stock options. Graph:8 The following Graph Showing the Derivatives trading volume at NSE of Mar 2010 57

58.                     Analysis Above graph shows that the Volume of Stock Future is 413257 crore (27.60%), Index Future is 292038 crore (19.50%), Stock Option is 38467 crore (2.56%) & Index Option is 753739 crore (50.33%) in the month of October Interpretation It can be interpreted that the Stock Futures are having more trade value compare to Index Future. Index Option are having more trade value compare to stock options. 4.2-Growth of Derivative Market in India 58

59.                     Table: 5 the following table showing the Growth of the derivatives in India Index Futures Stock Index Stock Futures Options Options Year No. of Turnov No. of Turnov No. of Turnov No. of Turn contract er (Rs. contract er (Rs. contract er (Rs. contract over s cr.) s cr.) s cr.) s (Rs. cr.) 2009-1 1783068 393438 1455912 5195247 3413795 802796 1401627 50606 0 89 9 40 23 4 0 5.2 2008-0 2104281 357011 2215779 3479642 2120884 373150 1329597 22922 9 03 1 80 44 2 0 6.8 200 7-0 156598 38206 203587 754856 553660 13621 946063 3591 8 579 67 952 3 38 11 1 36.6 2006- 814874 25395 104955 383096 251574 79190 528331 1937 07 24 74 401 7 38 6 0 95 2005- 585378 15137 809054 2791 1293 338 5240 1802 06 86 55 93 697 5116 469 776 53 200 16 4-0 2163 772 4704 1484 3293 121 5045 88 5 5449 147 3066 056 558 943 112 36 200 130 21 3-0 1719 554 3236 593 1732 528 5583 72 4 1668 446 8842 9 414 16 071 07 200 10 2-0 2126 439 1067 286 4422 924 3523 01 3 763 52 6843 533 41 6 062 31 200 25 1-0 1025 214 1957 515 1759 376 1037 16 2 588 83 856 15 00 5 529 3 Graph:9 The following Graph Showing the Growth of Derivative Market In India(Turnover) 59

60.                     Analysis Above graph shows that the Growth of derivatives in India. Index Future Turnover was 2365 Crore on 2000-01 Where as it increased to 3934389 Crore in 2009-2010. Stock Future in 2001-2002was 51515 Crore and it increased to 5195247 Crore in the 60

61.                     2009-2010. Index Option in 2001-2002 was 3765 Crore and it increased to 8027964 Crore in the 2009-2010. And Stock Option in 2001-2002 was 25163 Crore and it increased to 506065.2 Crore in the 2009-2010. Interpretation It can be interpreted that in the 2000-2001 only Index Future are started & reaming Three Could not open i.e. (Stock Option, Stock Future and Index Option). In 2001-2002 starting all the Four Derivatives. In 2000 is very low turnover but after constantly increasing. In 2009-2010 Index Option having more trade value but 2007-2008 Stock Future is more Than the Index Option. And 2009-2010 good position & rapidly increasing the derivative Market in India. Graph:10 The following Graph Showing the Growth of Derivative Market In India(Contract) 61

62.                     Growth of Derivative Market 35000000 30000000 25000000 20000000 Index Future 15000000 Stock Future m N o n b u C e a Index Option c r t f 10000000 Stock Option 50000000 0 Year Analysis Above graph shows that the Growth of derivatives in India. Index Future was 90580 Contract on 2000-01 where as it Increased to 178306889 Contracts in 2009-2010. Stock Future in 2001-2002was 1957856 Contract and it increased to 145591240 62

63.                     Contract in the 2009-2010. Index Option in 2001-2002 was 175900 Contract and it increased to 341379523 Contract in the 2009-2010. And Stock Option in 2001-2002 was 1037529 Contract and it increased to 14016270 Contract in the 2009-2010. Interpretation In can be interpreted that in the 2000-2001 only Index Future are started & reaming Three Could not open i.e. (Stock Option, Stock Future And Index Option). In 2001-2002 starting all the Four Derivatives. in 2000 is very Less number of contract but after constantly increasing. And 2009-2010 good position & Rapidly increasing the derivative Market in India. 4.3-Comparative Analysis – World Exchanges 63

64.                     Table: 6 the following table showing the Top 10 Derivatives Exchanges ranked by Number of Contracts Traded and/or Cleared. Exchanges that operate under common ownership are combined. Rank Exchange 2008 Rank Exchange 2008 1 CME Group (includes CBOT and Nymex) * 3,277,645,351 2 Eurex (includes ISE) * 3,172,704,773 3 Korea Exchange 2,865,482,319 4 NYSE Euronext (includes all EU and US 1,675,791,242 markets) * 5 Chicago Board Options Exchange (includes 1,194,516,467 CFE) * 6 BM&F Bovespa * 741,889,113 7 Nasdaq OMX Group (includes all EU and US 722,107,905 markets) * 8 National Stock Exchange of India 590,151,288 9 JSE South Africa 513,584,004 10 Dalian Commodity Exchange 313,217,957 Graph: 11 The following Graph Showing the Top 10 Derivatives Exchanged in the World (2008) 64

65.                     Analysis Above graph shows that the Top 10 derivatives Exchanges in the World. The CME Group was more Exchanged and 1st Rank in the World Eurex is 2nd Rank in the World Korea Exchange, NYSE Euronext, markets)*, Chicago Board Options Exchange, BM&F Bovespa *, Nasdaq OMX Group are 3rd, 4th, 5th, 6th & 7th Respectively. National Stock Exchange of India (NSE) 8th Ranked in the World. And JSE South Africa, Dalian Commodity Exchange was 9th&10th respectively. 65

66.                     Interpretation It can be interpreted that in the 2008 The NSE Turnover is 59,01,51,288 Crore but CME Group turnover is 3,277,645,351 Crore. Big difference between both, According to this data NSE got 8th Rank & CME Group got 1st Rank Table: 7 The following table showing the Comparative analysis of the Traded Value in the F&O Segment with the Cash Segment: From Spt-2009 to Feb-2010 months Cash Segment F&O Segment Spt-20 365063 1388378 09 Oct-20 362969 1510417 09 Nov-20 324477 1661816 09 Dec-20 292900 1524982 09 Jan-20 338443 1490297 10 Feb-20 245143 1569877 10 Graph:12 The following Graph Showing the Traded Value in the F&O Segment with the Cash Segment: 66

67.                     Analysis Above graph shows that Cash Segment Turnover was 365063 crore on September 2009 where as it decreased to 245143 crore in Feb 2010.F&O Segment was 1388378 Crore on September 2009. Whereas it increased to 1569877 Crore in Feb 2010 Interpretation It can be interpreted that The F&O Segment are having more trade value compare to Cash Segment. Because F&O have more Flexible . 4.4-FUTURES SEGMENT 67

68.                     Table: 8 the following table showing the Top 5 Traded Symbols on February 2010 Symbols Turnover (Rs Percentage Cr) (%) NIFTY 275349 42.29 BANKNIFTY 24027 3.69% MINIFTY 13219 2.03% TATAMOTORS 12471 1.92% TATASTEEL 18357 2.82% OTHERS 307555 47.25% Graph :13 The following Graph Showing the FUTURES SEGMENT of Top 5 Traded Symbols on February 2010 68

69.                     50.00% 47.25% 45.00% 42.29% 40.00% 35.00% Sales 30.00% 25.00% 20.00% Column1 15.00% 10.00% 5.00% 0.00% 3.69% 2.03% 1.92% 2.82% Analysis Above graph shows that Top 5 Traded Symbols on Feb 2010. NIFTY Turnover was 275349 crore (42.29%), BANKNIFTY was 24027 (3.69%), MININIFTY was 13219 (2.03), TATAMOTORS was 12471(1.92%), TATASTEEL was 18357 (2.82%), & 0THERS was 307555 (47.25%). Interpretation It can be interpreted that The NIFTY are having more trade value compare to others The F&O are more traded in NSE. Other Four Symbols are important role in the Future Market Table: 9 the following table showing the Top 5 Symbols by Open Interest (number of contracts) on February 2010 69

70.                     Symbols Number of Percentage (%) Contract NIFTY 642864 34.65% MINIFTY 79006 4.26% RELIANCE 49335 2.66% BHARTIARITEL 44162 2.38% ICICIBANK 37054 2.00% OTHERS 1003022 54.06% Graph:14 The following Graph Showing the Top 5 Symbols by Open Interest (number of contracts) on February 2010 70

71.                     120000000.00% 100000000.00% 80000000.00% Number of % 60000000.00% Contracts 40000000.00% 20000000.00% 34.65% 54.06% 0.00% 2.00% 2.66% 2.38% 4.26% Analysis Above graph shows that Top 5 Traded Symbols by open Interest on Feb 2010. NIFTY was 642864 (34.65%), MININIFTY was 79006 (4.26%), RELIANCE was 49335 (2.66%), BHARTIARTEL was 44162(2.38%), ICICI was 37054 (2%) & 0THERS was 1003022 (54.06%). Interpretation It can be interpreted that The NIFTY are having more trade value compare to others Other Four Symbols are important role in the Future Market 4.5-OPTIONS SEGMENT 71

72.                     Table:10 The following table showing the Top 5 Traded Symbols on February 2010 Symbols Turnover (Rs Percentage (%) CR) NIFTY 8216393.57 95.26% TATASTEEL 5764.04 0.65% RELIANCE 4717.45 0.53% HINDALCO 3474.30 0.39% UNITECH 2815.05 0.32% OTHERS 25356.67 2.85% Graph:15 The following Graph Showing the OPTIONS SEGMENT of Top 5 Traded Symbols on February 2010 72

73.                     120.00% 100.00% 95.26% 80.00% NIF TY TA TA S TE E L 60.00% R E L IA NC E HINDA L C O UNITE C H 40.00% O THE R S 20.00% 0.65% 0.53% 0.39% 0.32% 2.85% 0.00% NIF TY R E L IA NC E UNITE C H Analysis Above graph shows that Top 5 Traded Symbols on Option Segment Feb 2010. NIFTY was 95.26%, TATASTEEL was 0.65%, RELIANCE was O.53%, HINDALCO 0.39% , UNITECH was O.32% & 0THERS was 2,85%. Interpretation It can be interpreted that The NIFTY are having more trade value compare to others. The most of the people prefer Nifty Reason is less flexibility. The Nifty are important Role in the Option Segment Table:11 The following table showing the Top 5 Symbols by Open Interest (number of contracts) on February, 2010 Call Options 73

74.                     Symbols Number of Percentage Contracts (%) NIFTY 1394840 88.48% RELIANCE 23486 1.49% BHARTIARTEL 16283 1.03% SBIN 9956 0.63% NTPC 9326 0.59% OTHERS 122520 7.77% Graph:16 The following Graph showing the Showing the Top 5 Symbols by Open Interest (number of contracts) on February, 2010 Call Option 100.00% 88.48% 88.48% 80.00% S ales 60.00% 40.00% 20.00% 7.77% 7.77% 1.49% 1.03% 0.63% 0.59% 1.49% 1.03% 0.63% 0.00% 0.59% C olumn1 NIF TY S B IN Analysis Above graph shows that Top 5 Traded Symbols by Option Segment (CALL OPTION) Feb 2010. NIFTY was 1394840 (88.48%), RELIANCE was 23486 (1.49%), BHARTIARTEL was 16283 (1.03%), SBIN 9956 (0.63%), NTPC was 9326 (0.59%) & 0THERS was 122520 (7.77%). 74

75.                     Interpretation It can be interpreted that The NIFTY are having more trade value ( MORE THAN 75%) compare to others. The most of the people prefer Nifty Reason is Less flexibility. the Nifty are important Role in the Option Segment Table:12 The following table showing the Top 5 Symbols by Open Interest (number of contracts) on February 2010 Put Option Symbols Number of Contract Percentage (%) NIFTY 1488288 95.43% SBIN 8663 0.56% BHARTIARTIEL 7811 0.50% ICICIBANK 4863 0.31% RELIANCE 4766 0.31% OTHERS 45176 2.90% Graph:17 The following Graph Showing the Top 5 Symbols by Open Interest (number of contracts) on February, 2010 Put Option 75

76.                     120.00% 95.43% 100.00% S ales 80.00% 60.00% 40.00% C olumn1 20.00% 0.00% NIF TY IC IC IB A NK 0.31% 0.31% 0.50% 0.56% 2.90% Analysis Above graph shows that Top 5 Traded Symbols by Option Segment (PUT OPTION) Feb 2010. NIFTY was 1488288 (95.43%), SBIN was 8663(0.56%), BHARTIARTEL was 7811 (0.50%), ICICI 4863 (0.31%), RELIANCE was 4766 (0.31%) & 0THERS was 45176 (2.90%). Interpretation It can be interpreted that The NIFTY are having more trade value (MORE THAN 75%) compare to others. The most of the people prefer Nifty Reason is Less flexibility. The Nifty are important Role in the Option Segment 5-FINDINGS The study revealed following findings Initial stage of the growth of the contracts was slow because the derivatives trading were introduced in the year 2000. In the initial stage people did not give importance to derivatives. Later there was a rapid growth from 2005-2010 76

1. Hedging strategies like future and options are essential as the FOREX market is volatile in nature. 2. The market factors includes government policies, natural calamities, demand and supply of commodities in the market etc are the major determinants of price fluctuations in the market 3. Buying futures contracts is less risky than buying stocks. Thus, on a risk-adjusted basis they outperform stocks by a significant margin 4. Buying option ( call & put ) is always better choice than the selling option (put &call) because when we buy the call option loss is limited & profit is unlimited 5. In January 2003, the Security and Exchanged Board of India (SEBI) cleared the way for mutual funds to trade derivatives. 6. In the month of March the daily Average is decreased from the 78493 to 71309 due to decline in economic activity 7. Indian Currency derivatives are traded only in Over the Counter (OTC) 8. In the month of March the F&O Segment turnover is More than the Cash Segment turnover 9. The NSE was Top 8th Derivatives Exchanged in the world. in 2008-2009.
5.1-CONCLUSION Derivatives are the instrument s which are quite new to the Indian financial market. Although the financial derivatives market is gaining momentum, the growth rate is repaid.