Recent Reforms and Developments in Derivative Markets Derivatives are contracts whose value is derived from underlying assets such as stocks, bonds, commodities, currencies, or interest rates. Derivatives trading was first introduced in 1848 in Chicago and came to India in the 1950s, gaining momentum after liberalization in 1991. Key developments include the introduction of exchange-traded derivatives in 2000, commodity derivatives in 2003, and currency futures in 2008. Recent reforms by SEBI include strengthening risk management frameworks for exchanges in 2015, allowing derivatives trading at IFSCs in 2016, and introducing options contracts in gold on MCX in 2017.

1. Recent Reforms
&
Developments
In Derivative Market
Presentation by
Abdulkarim khanapuri
MB161001
Presentation for
Dr. N Maruti Rao

2. Derivatives
A derivative is a security with a price that is dependent upon or
derived from one or more underlying assets. The derivative itself
is a contract between two or more parties based upon the asset
or assets. Its value is determined by fluctuations in the
underlying asset. The most common underlying assets
include stocks, bonds, commodities, currencies, interest
rates and market indexes

3. Developments
◊ First introduced in Chicago Board of Trade in 1848 for contracts in
commodities.
◊ Commodities futures trading in India was initiated long back in 1950.
◊ Instrument got momentum after the liberalization (1991).
◊ The first step towards introduction of derivatives trading in India was t
he
promulgation of the Securities Laws (Amendment) Ordinance, 1995.
◊ SEBI set up a 24–member committee under the Chairmanship
of Dr.L.C.Gupta on November 18, 1996.
◊ The committee submitted its report on March 17, 1998 prescribing
necessary pre–conditions for introduction of derivatives trading in
India.
◊ The committee recommended that derivatives should be declared as

4. ◊ SEBI also set up a group in June 1998 under the Chairmanship of
Prof.J.R.Varma, to recommend measures for risk containment in
derivatives market in India.
◊ The (SCRA) was amended in December 1999 to include derivatives
within the ambit of ‘securities’ and the regulatory framework were
developed for governing derivatives trading.
◊ In July 1999, Derivatives trading commenced in India.
◊ Exchange Traded Derivatives introduced in June 2000 in NSE & BSE.
◊ On 2nd July, 2001 NSE became the first exchange to introduce options
on Individual
◊ Commodity derivatives started in MCX, NMCE & NCDEX in 2003.
◊ Index futures (2000), Index options (2001) as well as stock futures and
options (2001) are traded.
◊ Short and long-term interest rate futures were introduced in 2003, but
withdrawn in 2006; in 2009 they were re-introduced.

5. ◊ Currency futures introduced in 2008 and trade in NSE, BSE and MCX.
◊ Interest rate swaps, currency swaps, forward rate agreements and credit
derivatives traded in the over- the –counter market.

6. ◊ 29 September 2015: SEBI introduces new eligibility and net worth norms for
registration of members of commodity derivatives exchanges. The norms
were made similar to those required for dealing in equities and all
were required to meet the eligibility criteria by 28 September 2016.
◊ 01 October 2015: SEBI introduces tighter risk management framework for
national commodity derivatives exchanges in terms of assets to set up an
exchange, margin requirements, net worth criteria, base minimum capital,
settlement guarantee fund and so on . The norms were made similar to
required by equity exchanges and were supposed to be implemented by 01
January 2016.
◊ 26 November 2015: SEBI issues timelines for all commodity exchanges to
comply with various requirements of SCRA, including norms on
corporatization and demutualization, clearing and settlement, regulatory
net worth, ownership, governance, formation of various exchange-level
committees, delisting, dematerialization of securities and so on.
Reforms

7. ◊ 17 March 2016: SEBI allows trading in commodity derivatives at
Financial Services Centres (IFSC). Stock exchanges operating in IFSC
permitted to deal in commodity derivatives.
◊ 11 August 2016: SEBI mandates annual system audit of stock brokers and
trading members of national commodity derivatives exchanges.
◊ 02 September 2016: SEBI directs exchanges to adopt stronger spot price
polling mechanism for commodities and enhance disclosures related to
such mechanism.
◊ 7 September 2016: SEBI stipulates first trading day limit and daily price
limits for trading in non-agri commodity derivatives.
◊ 20 September 2016: SEBI prescribes tighter norms for commodity futures
be eligible to be traded on exchanges on a continuous basis. Stricter norms
with regards to modification of contracts introduced to prevent abrupt
changes in contract terms or sudden discontinuation of futures contracts.
Sebi orders exchanges not to modify anything in a continuously trading
contract without prior information and a SEBI approval.
◊ 26 September 2016: SEBI strengthens investor protection fund norms for
commodity bourses.

8. ◊ June 21 2017: Regulator SEBI allowed alternative investment funds
hedge funds to invest in commodity derivatives, in a move to deepen the
market and boost liquidity.
◊ June 21 2017: Regulatory fees for P-notes by offshore derivative instrument.
(Sebi) proposes to levy a $1,000 fee on foreign portfolio investors (FPIs) for
each participatory note (P-Note)
◊ Oct 2017: Finance minister Arun Jaitley launched an option’s contract in
gold on the (MCX)