100 mark project TYBFM.docx

“Evolution of Indian Financial Markets”

Bachelor of Commerce Financial Markets Semester V 

(2014-15)

Submitted by 

 Yash Hiraadai

Roll No. 13

1

H.R. !"##$%$ "& !"''$R!$  $!"N"'!S 123* +.,. Road* !hurhate* 'umbai / 400 020.

“Evolution of Indian Financial Markets” $u%mitted %&   'ash Hiranandani Hiranandani

Bachelor of Commerce Financial Markets In Partial Fulfllment o the requirements

Semester V For the Award o Degree o Bachelor o  Commerce  Financial !ar"ets !ar "ets

Roll No - 13 H.R. !"##$%$ "& !"''$R!$  $!"N"'!S 123* +.,. Road* !hurhate* 'umbai / 400020

H.R COLLEE OF COMMERCE !"# ECO"OMIC$ 2

123* +.,. Road* !hurhate* 'umbai / 400020

CER(IFIC!(E

(his is to certif& that $hri 'ash Hiranandani of  B.Com.)Financial Markets $emester * +,-/) ,-0 1 has successfull& com2leted the 2ro3ect on ,)-4),-/ under the 5uidance of 6rofessor Meena #esai.

6rinci2al

6ro3ect uide

Internal E7aminer

E7ternal E7aminer

#ECL!R!(IO"

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I8 'ash $an3a& Hiranandani the student of  B.Com.) Financial Markets Markets $emester $emester * +,-/ ) ,-01 here%& declare that I have com2leted the 6ro3ect on ,)-4),-/.

(he information su%mitted is true and ori5inal to the %est of m& kno9led5e.

$i5nature of the $tudent

"ame of the $tudent:  'ash Hiranandani

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Introduction

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,

Mone& and Ca2ital Market -

;

#evelo2ment of

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Indian Financial Market /

6ro%lems and

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$olutions

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E7ecutive $ummar& 

&iaial 'arets are the heart ad soul o ay atios eoomy. he eoomi health o a outry is deedat o the erormae o these iaial marets suh as $uities 'arets* !ommodities 'arets* &ore 'arets et. hese marets ha6e eisted sie as ar as ba as the 17008s. 6estors trade o these marets ad the marets are ilueed  by these ati6ities. ati6ities.  this ro9et ro9et  ha6e oused o the roress these marets ha6e made o6er the years* eseially i reet times.  ha6e oused o maily o the ollo:i marets; •

!aital 'arets; Sto marets ad
•

!ommodity 'arets

•

'oey 'arets

•

+eri6ati6es 'arets; &utures 'arets

•

surae 'arets

•

&orei $hae 'arets

he dia iaial setor has uderoe radial trasormatio trasormatio o6er the 1==0s. Reorms ha6e altered the orai>atioal struture* o:ershi o:ershi atter ad domai o oeratios o istitutios ad iused ometitio i the iaial setor. his has ored iaial istitutios to reositio themsel6es i order to sur6i6e ad ro:. he etesi6e roress i teholoy has eabled marets to raduate rom outdated systems to moder busiess roesses* brii about a siiiat redutio i the seed o eeutio o trades ad i trasatio osts. &

his ro9et also omares these marets i the ast ad ouses o the haes made o6er the years i these marets ad ho: these imro6emets ha6e bettered the umbers ad eiiey o the iaial setor i dia.

Research Methodolo5& @sed

1.  soe soe to amily amily member memberss :ho ha6e ha6e had eeri eeriee ee i the the iaial marets ad too their oiios ito osideratio as they ha6e see the haes tae by the o6ermet :he it omes to the marets ad also the eets o these modiiatios. 2.  also researhed ad :et throuh aers aers ublished by eerts eerts o the dia &iaial System. 3. ,et throuh throuh old old artiles artiles i busies busiesss e:saers e:saers.. 4. ,et throuh throuh oii oiial al ubliatio ubliatios s by NS$* NS$*
Introduction '

dia &iaial 'aret hels i romoti the sa6is o the eoomy heli to adot a eeti6e hael to trasmit 6arious iaial oliies. he dia iaial setor is :ell-de6elo :ell-de6eloed* ed* ometiti6e* eiiet ad iterated to ae all shos.  the dia iaial maret there are 6arious tyes o iaial roduts :hose ries are determied  by the umerous umerous buyers ad sellers i the the maret. he he other determiat ator o the ries o the iaial roduts is the maret ores o demad ad suly. he 6arious other tyes o dia marets hel i the utioi o the :ide dia iaial setor.

 ,hat does the dia &iaial maret omrise omrise o? t tals tals about the rimary maret* &+s* alterati6e i6estmet otios* bai ad isurae ad the esio setors* asset maaemet semet as :ell.  ,ith all these elemets i the the dia &iaial maret* it haes haes to be oe o the oldest aross the lobe ad is deiitely the astest ro:i ad best amo all the iaial marets o the emeri eoomies. he history o dia aital marets sas ba 200 years* aroud the ed o the 17th etury. t :as at this time that dia :as uder the rule o the $ast dia !omay. he aital maret o dia iitially de6eloed aroud 'umbai@ :ith aroud 200 to 250 seurities broers artiiati i ati6e trade duri the seod hal o the 1=th etury.

he iaial maret i dia at reset is more ad6aed tha may other setors as it beame orai>ed as early as the 1=th etury :ith the seurities ehaes i 'umbai* Ahmedabad ad Bolata.  the early 1=C0s* the umber o seurities ehaes i dia beame eiht iludi 'umbai* Ahmedabad ad Bolata. Aart rom these three

(

ehaes* there :as the 'adras* Baur* +elhi*
he dia &iaial 'arets a be di6ided ito the !aital'aret !aital'aret ad the 'oey 'aret as sho: i the diaram belo: 

ME!"I" OF MO"E' M!RAE(:) )

 A moey maret maret is a maret maret or borro:i borro:i ad ledi ledi o shortshortterm uds. t deals i uds ad iaial istrumets ha6i a maturity  eriod o oe day to oe year. t is a mehaism throuh :hih shorts hortterm uds are loaed or borro:ed ad throuh :hih a lare art o iaial trasatios o a artiular outry or o the :orld are leared. t is dieret rom sto maret. t is ot a sile maret but a olletio o marets or se6eral istrumets lie all moey maret* !ommerial bill maret et. he Reser6e
6L!'ER$ OF MO"E' M!RAE( :)  moey maret trasatios o lare amout ad hih 6olume tae lae. t is domiated by small umber o lare layers.  moey maret the layers are ;-%o6ermet* R<* +&H (+isout ad iae House o dia)
F@"C(IO"$ OF MO"E' M!RAE( :) 1*

1) t aters to the short-term iaial eeds o the eoomy. 2) t hels the R< i eeti6e imlemetatio o moetary oliy. 3) t ro6i ro6ides des meha mehaism ism to ahie6 ahie6ee euili euilibr brium ium bet:e bet:ee e demad demad ad suly o short-term   uds. 4) t hels i alloatio o short term uds throuh iter-ba trasatios trasatios ad moey maret   strumets. 5) t also ro6ides uds i o-ilatioary :ay to the o6ermet to meet its deiits. C) t ailitates eoomi de6elomet. de6elomet.

$(R@C(@RE OF I"#I!" MO"E' M!RAE(

I.

Or5anised $ector Of Mone& Market :) "raised 'oey 'aret is ot a sile maret* it osist o umber

o marets. he most imortat eature o moey maret istrumet is that it is liuid. t is haraterised by hih deree o saety s aety o riial. &ollo:i are the istrumets :hih are traded i moey maret

1)

!all Ad Notie 'oey 'aret ;-

he maret or etremely short-eriod is reerred as all moey maret. Gder all moey maret* uds are trasated o o6eriht 11

 basis. he artiiats artiiats are mostly mostly bas. hereore hereore it is also alled ter
2)

reasury
R< o behal o %o6ermet o dia. At reset three tyes o treasury  bills are issued throuh autios* autios* amely =1 day* day* 172 day ad3C4day treasury bills. State o6ermet does ot issue ay treasury bills. terest is determied by maret ores. reasury bills are a6ailable or a miimum amout o Rs. 25*000 ad i multiles o Rs. 25*000. Deriodi autios are held or their ssue. -bills are hihly liuid* readily a6ailable@ there is absee o ris o deault.  dia -bills ha6e arro: maret ad are ude6eloed. 12

!ommerial
3)

!ommerial
moey maret istrumets :ith lo: ris. A bill o ehae is dra: by a seller o the buyer to mae aymet :ithi a ertai eriod o time. %eerally* the maturity eriod is o three moths. !ommerial bill a be resold a umber o times duri the usae eriod o bill. he ommerial bills are urhased ad disouted by ommerial bas ad are redisouted by iaial istitutios lie $' bas* S+<* +< et.  dia* the ommerial bill maret is 6ery muh uderde6eloed. R< is tryi to de6elo the bill maret i our outry. R< ha6e itrodued a io6ati6e istrumet o: as E+eri6ati6e .Gsae Dromissory Notes* :ith a 6ie: to elimiate mo6emet o aers ad to ailitate multile redisouti.

4)

!ertiiate " +eosits (!+s) ;!+s are issued by !ommerial bas ad de6elomet iaial

istitutios. !+s are useured* eotiable romissory otes issued at a disout to the ae 6alue. he sheme o !+s :as itrodued i 1=7= by R<. he mai urose :as to eable the ommerial bas to raise uds rom maret. At reset* the maturity eriod o !+s raes rom 3 moths to 1 year. hey are issued i multiles o Rs. 25 lah sub9et to a miimum si>e o Rs. 1 rore. !+s a be issued at disout to ae 6alue. 1#

hey are reely traserable but oly ater the lo-i-eriod o 45 days ater the date o issue.  dia the si>e o !+s maret is uite small.  1==2* R< allo:ed our iaial istitutios !!* +<* &! ad R< to issue !+s :ith a maturity eriod o. oe year to three years.

5)

!ommerial !ommerial Daers (!D) ; !ommerial Daers :ereitrodued i Iauary 1==0. he

!ommerial Daers a be issued by listed omay :hih ha6e :ori aital o ot less tha Rs. 5 rores. hey ould be issued i multile o Rs. 25 lahs. he miimum si>e o issue bei Rs. 1 rore. At reset the maturity eriod o !Ds raes bet:ee J days to 1 year. !Ds are issued at a disout to its ae 6alue ad redeemed at its ae 6alue. C)

'oey 'aret 'utual &uds ('''&s) ; A Sheme o o '''&s :as itrodued itrodued by R< R< i 1==2. he oal :as

to ro6ide a additioal short-term a6eue to idi6idual i6estors.  No6ember 1==5 R< made the sheme more leible. he eisti uidelies allo: bas* ubli iaial istitutios ad also ri6ate setor istitutios to set u '''&s. he eili o Rs. 50 rores o the si>e o '''&s stiulated earlier* has bee :ithdra:. '''&s are allo:ed to issue uits to ororate eterrises ad others o ar :ith other mutual uds. Resoures mobilised by '''&s are o: reuired to be i6ested i all moey* !+* !Ds* !ommerial
1$

J)

he Reo 'aret @Reo :as itrodued i +eember 1==2. Reo is a reurhase

areemet. t meas selli a seurity uder a areemet to reurhase it at a redetermied redetermied date ad rate. Reo trasatios are aeted  bet:ee bas bas ad iaial istitutios ad amo amo ba themsel6es* themsel6es* R< also udertae Reo.  No6ember 1==C* R< itrodued Re6erse Reo. t meas buyi a seurity o a sot basis :ith a ommitmet to resell o a or:ard basis. Re6erse Reo trasatios are aeted :ith sheduled ommerial  bas ad rimary rimary dealers. dealers.  'arh 2003* to broade the Reo maret* R< allo:ed N<&!s* 'utual &uds* Housi &iae ad !omaies ad surae !omaies to udertae R$D" trasatios.

7)

+isout Ad &iae House " dia (+&H)  1=77* +&H :as set u by R<. t is 9oitly o:ed by R<* ubli

setor bas ad all dia iaial istitutios :hih ha6e otributed to its aid u aital.t is layi a imortat role i de6eloi a ati6e seodary maret i 'oey 'aret strumets.  &ebruary 1==C* it :as aredited as a Drimary +ealer (D+). he +&H deals i treasury bills* ommerial bills* !+s* !Ds* short term deosits* all moey maret ad o6ermet seurities.

1%

@nor5anised $ector Of Mone& Market :) he eoomy o oe had erorms throuh oraised setor ad o other had i rural areas there is otiuae  otiuae o uoraised* iormal ad idieous setor. he uoraised moey maret mostly iaes short-term iaial eeds o armers ad small busiessme. he mai ostituets o uoraised moey maret are;-

1)

dieous
deosits ad i6e loas ad thereby oerate as bas. 
2)

'oey #eders ('#s) hey are those :hose rimary busiess is moey ledi. 'oey

ledi i dia is 6ery oular both i urba ad rural areas. terest rates are eerally hih. #are amout o loas are i6e or uroduti6e uroses. he oeratios o moey leders are romt* iormal ad leible. he borro:ers are mostly oor armers* artisas* etty traders ad maual :orers. "6er the years the role o moey leders has delied due to the ro:i imortae o oraised  bai setor. 1&

3)

No -
1.

!hit &uds !hit uds are sa6is istitutios. t has reular members :ho

mae eriodi subsritios to the ud. he beeiiary may be seleted  by dra:i o lots. !hit ud ud is more oular oular i Berala Berala ad amiladu. amiladu. Rbi has o otrol o6er the ledi ati6ities o hit uds.

2.

Nidhis ;Nidhis oerate as a id o mutual beeit or their members oly.

he loas are i6e to members at a reasoable reasoable rate o iterest. Nidhis oerate artiularly i South dia.

3.

#oa "r &iae !omaies

#oa omaies are oud i all arts o the outry. heir total aital osists o borro:is* deosits ad o:ed uds. hey i6e loas to retailers* :holesalers* artisas ad sel emloyed ersos. hey oer a hih rate o iterest alo :ith other ieti6es to attrat deosits. hey hare hih rate o iterest 6aryi rom 3CK to 47K .a.

1'

4.

&iae
hey are oud i all ma9or urba marets seially i loth* rai ad ommodity marets. hey at as middleme bet:ee leders ad  borro:ers.  borro:ers. hey hare ommissio or their ser6ies.

1(

FE!(@RE$ !"# #EFICIE"CIE$ OF I"#I!" MO"E' M!RAE( dia moey maret is relati6ely uderde6eloed uderde6eloed :he omared  :ith ad6aed marets marets lie Ne: Ne: Yor ad #odo #odo 'oey 'arets. 'arets. tsL mai eatures M deets are as ollo:s

1. +ihotomy; A ma9or eature eature o dia dia 'oey 'aret 'aret is the eistee eistee o dihotomy i.e. eistee o t:o marets; -"raised 'oey 'aret ad Goraised 'oey 'aret. "raised Setor osist o R<* !ommerial
2. #a " !o-ordiatio Ad teratio ;t is diiult or R< to iterate the oraised ad uoraised setor o moey maret. R< is ully eeti6e i oraised setor but uoraised maret is out o R<8s otrol. hus there is la o iteratio bet:ee 6arious sub-marets as :ell as 6arious istitutios ad aeies. here is less o-ordiatio bet:ee o-oerati6e o-oerati6e ad ommerial bas as :ell as State ad &orei bas. he idieous  baers ha6e their o: :ays :ays o doi busiess. busiess.

1)

3. +i6ersity  terest Rates ;here are dieret rates o iterest eisti i dieret semets o moey maret.  rural uoraised setors the rate o iterest are hih ad they dier :ith the urose ad borro:er. here are dierees i the iterest rates :ithi the oraised setor also. Althouh :ide dierees ha6e bee arro:ed do:* yet the eisti dierees do hamer the eiiey o moey maret.

4. Seasoality " 'oey 'aret ;'aret  ;dia dia ariu ariultu lture re is busy busy duri duri the erio eriod d No6em No6ember ber to Iue Iue resulti i hea6y demad or uds. +uri this eriod moey maret suers rom 'oetary Shortae resulti i hih rate o iterest. +uri sla seaso rate o iterest alls s there are lety ouds a6ailable. R< has tae stes to redue the seasoal lutuatios* but still the  6ariatios eist. eist.

5. Shortae " &uds ; d dia ia 'o 'oey ey 'ar 'aret et dem demad ad o orr u uds ds e eee eeds ds the su suly ly.. here is shortae o uds i dia 'oey 'aret a aout o 6arious ators lie iadeuate bai ailities* lo: sa6is* la o bai habits* eistee o arallel eoomy et. here is also 6ast amout o   bla moey i the outry :hih ha6e aused shortae o uds. 2*

Ho:e6e Ho: e6er* r* i re reet et ye years ars de6 de6elo elome met t o ba bai i  has im imro ro6ed 6ed the mobilisatio o uds to some etet.

C.  Absee " "raised "raised
J. adeuate
21

C!6I(!L M!RAE( !aital maret is a maret :here buyers ad sellers eae i trade o iaial seurities lie bods* stos* et. he buyiMselli is udertae by artiiats suh as idi6iduals ad istitutios.

!aital marets hel haelise surlus uds rom sa6ers to istitutios  :hih the i6est i6est them ito roduti6e roduti6e use. %eerally* %eerally* this this maret trades mostly i lo-term seurities. !aital maret osists o rimary marets ad seodary marets. Drimary marets deal :ith trade o e: issues o stos ad other seurities* :hereas seodary maret deals :ith the ehae o eisti or re6iously-issued seurities. Aother imortat di6isio i the aital maret is made o the basis o the ature o seurity traded* i.e. sto maret ad bod maret.

!aital maret i ay outry osists o euity ad the debt marets.  ,ithi the debt maret there there are o6t seurities seurities ad the ororate ororate bod bod maret. &or de6eloi outries* a liuid ororate bod maret a lay a ritial role i suorti eoomi de6elomet as t sulemets the bai system to meet ororate setor8 reuiremets or lo-term aital i6estmet ad asset reatio. t ro6ides a stable soure o iae :he the euity maret is 6olatile.

22

 A :ell strutures strutures ororate ororate bod maret maret a ha6e imliatios imliatios o moetary oliy o a outry as bod marets a ro6ide rele6at iormatio about riss to rie stability  +esite raidly trasormi iaial setor ad a ast ro:i eoomy diaLs ororate bod maret remais uderde6eloed. t is still domiated by the lai 6ailla ba loas ad o6t seurities. he domiae o euities ad bai system a be aued rom the at that sie 1==C* diaLs sto maret aitalisatio aitalisatio as a eretae o %+D has ireased to 107K rom 32.1K* :hile the bai setorLs s etorLs ratio to %+D has rise rom 4C.3K to J7.2K i 2007.  otrast* the bod marets re: to a modest 43.4 eret o %+D rom 21.3 eret. " this ororate bods aout or aroud 3.2K o %+D ad o6ermet bod maret aouts or 37.3K o %+D. dia8s o6ermet bod maret stads ahead o most $ast-Asia emeri marets but most o it is used as a soure o iai the deiit. he si>e o the dia ororate debt maret is 6ery small i omariso :ith ot oly de6eloed marets* but also some o the emeri maret eoomies i Asia suh as 'alaysia* hailad ad !hia

2#

Characteristics and features o6atio ad a Dlethora o otios; "6er time reat io6atios ha6e bee :itessed i the ororate bod issuaes* lie loati rate istrumets* o6ertible bods* allable (ut-able) bods* >ero ouo bods ad ste-redem ste-redemtio tio bods. his has brouht a 6ariety that aters to a :ider ustomer base ad hels them maitai strie a ris-retur balae.

Dreeree or ri6ate laemet;

 dia* issuers ted to reer Dri6ate Dlaemet o6er ubli issue as aaist GSA :here ma9ority o ororate  ororate bods are ublially issued.  dia :hile ri6ate laemet re: C.23 times to Rs. C24C1.70 rores i 2000-01 sie 1==5-=C* the orresodi irease i ubli issues o debt has bee merely 40.=5 eret rom the 1==5-=C le6els.his leads to a ruh i maret liuidity. A umber o ators are resosible or suh reeree. &irst* the omaies a a6oid the lethy issuae roedure or ubli issues. Seod is the lo: ost  ost o ri6ate laemet. hird* the amouts that a be raised throuh ri6ate laemets are tyially larer. &ourth* the struture o debt a be eotiated aordi to the eeds o the issuer. &ially* a ororate a eet to raise debt rom the maret at ier rates tha the D#R o bas ad iaial istitutios oly :ith a AAA rated aer. his limits the umber o etities that :ould id it roitable to eter the maret diretly. $6e thouh the listi o ri6ately laed bods has bee made madatory* a 2$

roer sreei mehaism is missi to tae are o the uality ad trasarey issues o ri6ate laemet deals.

+omiae o iaial istitutios; he ubli issues maret has o6er the years bee domiated by iaial istitutios. he issuers :ho are the mai artiiats i other ororate bod marets (that is* ri6ate setor* o-iaial)* rereset rereset oly a small roortio o the ororate debt issues i the dia maret. 'ost o the ri6ately laed bods (:hih are about =0K o the total issue o ororate bods) are issued by the iaial ad the ubli setor.

eiiet seodary maret; &urther the seodary maret or o-so6erei debt* eseially ororate aer still remais laued by ieiieies. he rimary roblem is the total la o maret mai i these seurities* :hih oseuetly leads to oor liuidity. he biest i6estors i this semet o the maret* amely #!* G reer to hold these istrumets to maturity* thereby holdi the suly o aer i the maret. he listed ororate bods also trade o the ,holesale +ebt Semet o NS$.
2%

#E*ELO6ME"( OF I"#I!" FI"!"CI!L M!RAE($

 As all the &iaial 'arets 'arets i dia toether toether orm the dia &iaial 'arets* all the &iaial 'arets o Asia toether orm the Asia &iaial 'arets@ lie:ise all the &iaial 'arets o all the outries o the :orld toether orm the %lobal &iaial 'arets. &iaial 'arets deal :ith tradi (buyi ad selli) o iaial seurities (stos ad bods)* ommodities (6aluable metals or ood rais)* ad other ehaeable ad 6aluable items at miimum trasatio osts ad maret eiiet ries. &iaial 'arets a be domesti or iteratioal. he %lobal &iaial 'arets :or as a siiiat istrumet or imro6ed liuidity. &iaial 'arets a be ateori>ed ito si tyes; •

!aital 'arets; Sto marets ad
•

!ommodity 'arets

•

'oey 'arets

2&

•

+eri6ati6es 'arets; &utures 'arets

•

surae 'arets

•

&orei $hae 'arets

 reoitio o the ritial role o the iaial marets* the iitiatio o the strutural reorms i the early 1==0s i dia also eomassed a roess o hased ad oordiated dereulatio ad liberalisatio liberalisatio o iaial marets. &iaial marets i dia i the eriod beore the early 1==0s :ere mared by admiistered iterest rates* uatitati6e eilis* statutory re-emtios* ati6e maret or o6ermet seurities* eessi6e reliae o etral ba iai* eed ehae rate* ad urret ad aital aout restritios. As a result o 6arious reorms* the iaial marets ha6e trasited to a reime haraterised by maret-determied iterest ad ehae rates* rie-based istrumets o moetary oliy* urret aout o6ertibility* o6ertibility* hased aital aout liberalisatio ad a autio-based system i the o6ermet seurities maret.

2'

Mone& market

he Reser6e
eiiet* stable ad liuid moey maret by reati a a6ourable oliy e6iromet throuh aroriate istitutioal haes* istrumets* teholoies ad maret raties. Aordily* the all moey maret  :as de6eloed de6eloed ito rimarily rimarily a iter-ba iter-ba maret* :hile eourai other maret artiiats to mirate to:ards ollateralised semets o the maret* thereby ireasi o6erall maret iterity.  lie :ith the ob9eti6e o :idei ad deeei o the moey maret ad imarti reater liuidity to the maret or ailitati eiiet rie diso6ery* e: istrumets* suh as ollateralised ledi ad borro:i obliatios (!<#")* ha6e bee itrodued. 'oey maret istrumets suh as maret reo ad !<#" ha6e ro6ided a6eues or o-bas to maae their short-term liuidity mismathes ad ailitated the trasormatio trasormatio o the all moey maret ito a ure iter ba maret. &urthermore* issuae orms ad maturity roiles o other moey maret istrumets suh as ommerial aer (!D) ad ertiiate o deosits (!+s) ha6e bee modiied o6er time to eourae :ider artiiatio :hile strethei the trasmissio o oliy sials aross the 6arious maret semets. he abolitio o ad ho reasury
!leari !ororatio !ororatio o dia #imited (!!#) as a etral outerarty. he uradatio o aymet system teholoies has also eabled maret artiiats to imro6e their asset liability maaemet. All these measures ha6e  Ater the adotio adotio o the the ull-leded ull-leded #A& i Iue 2000* 2000* all rates* i eeral* :itessed a delii tred u to 2004-05. he istitutio o #A& has also eabled the Reser6e
ma9or :eaesses ame to the ore. &irst :as the la o a sile oliy rate* as the oerati oliy rate alterated bet:ee reo duri deiit liuidity situatio ad re6erse reo rate duri surlus liuidity oditio. Seod :as the la o a irm orridor* as the eeti6e o6eriht iterest rates died (rose) belo: (abo6e) the re6erse reo (reo) rate i etreme surlus (deiit) oditios. Reoisi these shortomis* a e: oerati roedure :as ut i lae i 'ay 2011. hese are the ey eatures o the e: oerati roedure. &irst* the  :eihted a6erae a6erae o6eriht all all moey rate rate :as eliitly eliitly reoised reoised as the oerati taret o moetary oliy. Seod* the reo rate :as made the oly oe ideedetly 6aryi oliy rate. hird* a e: 'arial Stadi &aility ('S&) :as istituted uder :hih sheduled ommerial bas (S!
alterati bet:ee the reo ad the re6erse reo rates* ad maes sialli o moetary oliy stae more aurate. hird* 'S& ro6ides a saety 6al6e aaist uatiiated liuidity shos. &ourth* a ied iterest rate orridor set by 'S& rate ad re6erse reo rate* redues uertaity ad ommuiatio diiulties ad hels ee the o6eriht a6erae all moey rate lose to the reo rate.

Sie 'ay 2011* the liuidity oditios a be broadly di6ided ito three distit hases.  Ater eerally eerally remaii remaii :ithi the Reser6e Reser6e oe duri the irst hase duri 'ay/"tober 2011* the liuidity deiit rossed the oe er et o N+# le6el duri No6ember 2011 to Iue 2012. his lare liuidity deiit :as maily aused by ore iter6etio ad ireased di6eree bet:ee redit ad deosit ro:th. he deiit oditios :ere urther ara6ated by ritioal ators lie the build-u o o6ermet ash balaes :ith the Reser6e
Seod* the reo rate ad :eihted all rate are ar more losely alied uder the e: oerati roedure tha earlier@ imlyi imro6ed #2

trasmissio o moetary oliy i terms o mo6emet i all moey maret iterest rate

hird* the all moey rate i tur is obser6ed to be better alied :ith other moey maret iterest rates ater the imlemetat imlemetatio io o e: oerati roedure tha beore  As a result o o 6arious reorm reorm measures* measures* the moey maret i dia dia has uderoe siiiat trasormatio i terms o 6olume* umber o istrumets ad artiiats ad de6elomet o ris maaemet raties.  lie :ith the shits i oliy emhasis* 6arious semets o the moey maret ha6e auired reater deth ad liuidity. he rie diso6ery roess has also imro6ed. he all moey maret has bee trasormed ito a ure iter-ba maret* :hile other moey maret istrumets suh as maret reo ad !<#" ha6e de6eloed to ro6ide a6eues to o-bas or maai their short-term liuidity mismathes. he moey maret has also beome more eiiet as is releted i the arro:i o the bid-as sread i o6eriht rates. he abolitio o ad ho reasury
##

ireased sharly. he o6erall moey maret o: is muh larer relati6e to %+D tha a deade ao.

Ma3or #evelo2ments in Mone& Market since the 44-s

1. Abolitio o ad ho treasury bills i Aril 1==J 2. &ull leded #A& i Iue 2000. 3. !<#" or ororate  ororate ad o-ba artiiats itrodued i 2003 4. 'iimum maturity o !Ds shorteed by "tober 2004 5. Drudetial limits o eosure o bas ad D+s to allMotie maret i Aril 2005 C. 'aturity o !+s radually shorteed by Aril 2005 J. rasormatio o all moey maret ito a ure iter-ba maret by   Auust 2005 7. ,idei o ollateral base by mai state o6ermet seurities (S+#s) eliible or #A& oeratios sie Aril 200J =. "eratioalisatio o a sree-based eotiated system (N+S-!A##) or all dealis i the allMotie ad the term moey marets i Setember 200C. he reorti o all suh trasatios made omulsory throuh N+S-!A## i No6ember 2012.

#$

10. Reo i ororate bods allo:ed i 'arh 2010. 11. "eratioalisatio o a reorti latorm or seodary maret trasatios i !Ds ad !+s i Iuly 2010.

overnment securities and Ca2ital market

he Reser6e
 order to oster the de6elomet o the o6ermet seurities maret* it :as imerati6e to mirate rom a reime o admiistered iterest rates to a maret-orieted system. Aordily* i the early 1==0s* the Reser6e
maroeoomi maroeoom i ad moetary maaemet maaemet that has resulted i lo:er ilatio* lo:er ilatio eetatios* eetatios* ad rie stability has eabled the eloatio o the yield ur6e to maturities uto 30 years. &ially* the Reser6e e o the o6ermet seurities maret has ireased siiiatly o6er the years. #'

"e o the ey issues i the de6elomet o the maret or a better rie diso6ery is liuidity o seurities. t :as obser6ed that* o the ui6erse o  a lare umber o outstadi seurities* oly a e: seurities are ati6ely traded i the seodary maret. he Reser6e .* sheduled ommerial bas (S!
#(

 de6eloed eoomies* bod marets ted to be bier i si>e tha the euity maret. A :ell-de6eloed aital maret osists o both the euity maret ad the bod maret.  dia* euity marets are more oular ad ar de6eloed tha the debt marets. he dia debt maret is omosed o o6ermet bods ad ororat  ororatee  bods. Ho:e6er* Ho:e6er* the o6ermet o6ermet bods bods are redomiat (ostituti =2K o the 6olume) ad they orm the liuid omoet o the bod maret. A ati6e ororate bod maret is essetial or dia . he ororate bod maret is still at the aset stae. Althouh :e ha6e the larest umber o listed omaies o the aital maret* the share o ororate bods i %+D is merely 3.3K* omared to 10.CK i !hia 41.JK i Iaa* 4=.3K i Borea amo others. &urther* lose to 70K o ororate bods omrises ri6ately laed debt o ubli iaial istitutios. he seodary maret* thereore* has ot de6eloed ommesurately. houh there has bee a irease i the 6olumes* the tradi ati6ity is still s till eliible i the seodary marets.  :e loo at the ratio o seodary maret 6olume to rimary maret 6olume* the ratio is belo: 1 idiati 6ery lo: tradi ati6ity i the seodary maret.

"6er the ast e: years* some siiiat reorms ha6e bee udertae to de6elo the bod maret ad artiularly the ororate bod maret. he listi reuiremets or ororate debt ha6e bee simliied. ssuers o: eed to obtai rati rom oly oe redit rati aey ulie earlier. &urther* they are ermitted to struture debt istrumets* ad are allo:ed to do a ubli issue o belo: i6estmet rade bods. "e more :elome hae :as* the eemtio o +S o ororate debt istrumets issued i demat orm ad o reoi>ed sto #)

ehaes.+ata released released by S$< idiates that omaies raised Rs 2.12 lah rore throuh ororate bods i 200=-10* u 22.J1K rom Rs 1.J3 lah rore i 2007-0=. dia has :itessed a boost i tradi i the reet ast. otal tradi i ororate bods more tha doubled rom a a6erae o Rs. 1*550 rore i "tober 200= to Rs 3*35C rore i 'arh 2010* as reorted by the Natioal Sto $hae ad the
$*

Forei5n e7chan5e market

Haeis i the orei ehae maret (heeorth ore maret) orm the essee o the iteratioal iae. he orei ehae maret is ot limited by ay eorahial boudaries. t does ot ha6e ay reular maret timis* oerates 24 hours J days :ee 3C5 days a  year* harateri>ed harateri>ed by e6er-ro:i e6er-ro:i tradi tradi 6olume* ehibits ehibits reat heteroeeity heteroeeit y amo maret artiiats :ith bi istitutioal i6estor  buyi ad selli selli millio o dollars dollars at oe oe o to idi6iduals idi6iduals buyi or selli less tha 100 dollar.

$1

raditioally dia ore maret has bee a hihly reulated oe. ill about 1==2-=3* o6ermet eerised absolute otrol o the ehae rate* eort-imort oliy* &+ ( &orei +iret 6estmet) oliy. he &orei $hae Reulatio At(&$RA)eated i 1=J3* stritly otrolled ay ati6ities i ay remote :ay related to orei ehae. &$RA :as itrodued duri 1=J3* :he orei ehae :as a sare ommodity. Dost ideedee* uio o6ermet8s soialisti :ay o maai busiess ad the liese ra9 made the dia omaies oometiti6e i the iteratioal maret* leadi to delie i eort. Simultaeously dia imort bill beause o aital oods* rude oil etrol roduts ireased the ore outo leadi to se6er sarity o orei ehae. &$RA :as eated so that all ore earis by omaies ad residets ha6e to reorted ad surredered (immediately  ater reei6i) to R< (Reser6e atio* the %o6ermet o dia* elt the eessity to liberali>e the orei ehae oliy. Hee* &orei $hae 'aaemet At (&$'A) 2000 :as itrodued. &$'A eaded the list o ati6ities i :hih a ersoMomay a udertae ore trasatios. hrouh &$'A* o6ermet liberali>ed the eort-imort oliy* limits o &+ (&orei +iret 6estmet)  & (&orei stitutioal 6estors) i6estmets ad reatriatio reatriatios* s* ross border 'A ad ud raisi ati6ities. Drior to 1==2* %o6ermet %o6ermet o dia stritly otrolled the ehae rate. Ater 1==2* %o6ermet o dia slo:ly started relai the otrol ad ehae rate beame more $2

ad more maret determied. &orei $hae +ealer8s assoiatio o dia (&$+A)* set u i 1=57* heled the o6ermet o dia i rami rules ad reulatio to odut ore ehae tradi ad de6eloi ore maret  dia. he dia orei ehae maret has :itessed ar reahi haes sie the early 1==0s ollo:i the hased trasitio rom a eed ehae rate reime to a maret determied ehae rate reime i 1==3 ad the subseuet adotio o urret aout o6ertibility i 1==4 ad substatial liberalisatio liberalisatio o aital aout trasatios (Ae ). 'aret artiiats ha6e also bee ro6ided :ith reater leibility to udertae orei ehae oeratios ad maae their riss. his has bee ailitated throuh simliiatio o roedures ad a6ailability o se6eral e: istrumets. here has also bee siiiat imro6emet i maret irastruture i terms o tradi latorm ad settlemet mehaisms. As a result o  6arious reorm reorm measures* liuidity i the orei orei ehae maret ireased by more tha i6e times bet:ee 1==J-=7 ad 200C-0J.  relati6e terms* turo6er i the orei ehae maret :as C.C times the si>e o diaLs balae o aymets duri 2005-0C as omared  :ith 5.4 times i 2000-01 2000-01.. ,ith the deeei deeei o the orei orei ehae maret ad ireased turo6er* iome o ommerial bas throuh suh trasatios ireased siiiatly. Droit rom orei ehae trasatios aouted or more tha 20 er et o total roit o sheduled ommerial bas i the last 2 years.

$iiey i the orei ehae maret has also imro6ed as releted i the delie i bid-as sreads. he bid-as sread o RueeMGSQ $#

maret has almost o6ered :ith that o other ma9or urreies i the iteratioal maret. maret. " some oasios* i at* the bid-as sread o RueeMGSQ maret :as lo:er tha that o some ma9or urreies he $'$s8 eeriee* i eeral* i the 1==0s has hihlihted the ro:i imortae o aital lo:s i determii the ehae rate mo6emets as aaist trade lo:s ad eoomi ro:th i the 1=70s ad  beore.   the ase o most de6eloi de6eloi outries* :hih :hih seialise i labour-itesi6e labour-ite si6e ad lo: ad itermediate teholoy roduts* roit maris i the hihly ometiti6e marets are 6ery thi ad 6ulerable to rii o:er by lare retail hais. !oseuetly* ehae rate  6olatility has has siiiat emloymet* emloymet* outut ad distributioal distributioal oseuees. &orei ehae maret oditios ha6e remaied orderly i the ost-1==3 eriod* barri oasioal eriods o 6olatility. he dia aroah to ehae rate maaemet has bee to a6oid eessi6e 6olatility. ter6etio ter6etio by the Reser6e
maaemet. his aroah has heled dia i bei able to maitai iaial stability riht throuh the eriod o eoomi reorms ad liberalisatio liberalisatio  leadi to otiui oei o the eoomy* desite a reat deree o 6olatility i iteratioal marets* artiularly artiularly duri the 1==0s.

1=4J to1=JJ; +uri 1=4J to 1=J1* dia ehae rate system ollo:ed the ar 6alue system. R< ied ruee8s eteral ar 6alue at 4.15 rais o ie old. 15.432rais o old is eui6alet to 1 ram o old. R< allo:ed the ar 6alue to lutuate :ithi the ermitted mari o 1 eret. ,ith the breado: o the ed dealers.  other  :ords* R< istruted authori>ed authori>ed dealers to buy ad sell orei orei urrey  at the rate i6e by the R< o daily basis. Hee ehae rate lutuated but :ithi a ertai rae. R< maaed the ehae rate i suh a maer so that it rimarily ailitates imorts to dia. As metioed i Setio 5.1* the &$RA At :as art o the ehae rate reulatio raties ollo:ed by R<. Ioit itiati6e s ad S / &uded by 'HR+ - 4 -ND$# teratioal &iae Viod %uta Shool o 'aamet * . Bharaur dia8s ereial trade deiit  :ideed duri this eriod.
%$ ehae reser6e had d:idled do: to suh a le6el that it ould barely  be suiiet or or three-:ee8s three-:ee8s :orth o o imorts. +uri +uri Iue 1==1* dia airlited CJ toes o old* leded these :ith Gio erlad ad atio roramF o o6ermet o dia to mae rules ad reulatios ertaii to orei trade* i6estmet* ubli iae ad ehae rate eomassi a  broad amut o o eoomi ati6ities ati6ities more maret maret orieted. 1==2 o:ards; 1==2 mared a :atershed i dia8s eoomi oditio. +uri this eriod* it :as elt that dia eeds to ha6e a iterated oliy ombii 6arious asets o trade* idustry* orei i6estmet* ehae rate* ubli iae ad the iaial setor to reate a maretorieted e6iromet. 'ay oliy haes :ere brouht i o6eri dieret asets o imort-eo imort-eort* rt* &+* &orei Dortolio 6estmet et. "e imortat oliy haes ertiet to dia8s ore ehae system :as brouht i -- ruees :as made o6ertible i urret aout. his a6ed to the ath o orei ehae aymetsMreeits aymetsMreeits to be o6erted at maret-determied ehae rate. Ho:e6er* it is  :orth:hile to metio here here that haes haes brouht i by o6ermet o o dia to mae the ehae rate maret orieted ha6e ot haeed i oe bi ba. his roess has bee radual.

$&

Commodit& Market

!ommodity !ommodity utures utures marets marets larely larely remai remai uderde6e uderde6eloe loed d i dia. dia. his is i site o the outrys lo history o ommodity deri6ati6es trade as omared to the GS ad GB. A ma9or otributor to this at is the etesi6e o6ermet iter6etio i the ariultural setor i the ost-ideedee era.  reality* the rodutio ad distributio o  se6e se 6era rall ari ariul ultu tura rall omm ommod odit itie iess is stil stilll o6e o6er red ed by the the stat statee ad ad or:ards as :ell as utures tradi ha6e oly bee seleti6ely itrodued  :ith striet reulatory otrols. &ree trade i may ommodity  ommodity items remais restrited uder the $ssetial !ommodities At ($!A)* 1=55* ad ad or: or:a ards rds as :ell ell as ut uture ure ot otrrats ats are are limit imited ed to se sei ii i

$'

ommodity items listed uder the &or:ard !otrats (Reulatio) At (&!RA)* 1=52. he e6olutio o the orai>ed utures maret i dia ommeed i 17J5 :ith the setti u o the ed i 'umbai uder the ausies o $ast dia !otto  Assoiatio ($!A).
eated. he &or:ard !otrats (Reulatio) rules :ere otiied by the et etra rall o6e o6er rme met t i 1= 1=54 54.. he he utu uture ress trad tradee i si sies es :as :as irs irstt oraised by the dia Deer ad Sies rade Assoiatio (DSA) i !ohi i 1=5J. Ho:e6er* i order to moitor the rie mo6emets o  se6e se 6era rall ari ariul ultu tura rall ad ad es esse set tia iall omm ommod odit itie ies* s* utu uture ress trad tradee :as :as omletely baed by the o6ermet i 1=CC. Subseuet to the ba o  utures trade* may traders resorted to uoiial ad iormal trade i utures. Ho:e6er* i dias liberali>atio eoh as er the Iue 1=70 Bhusro Bhusro ommitte ommittees es reomme reommedatio datios* s* the o6erme o6ermet t reitrod reitrodued ued utures o seleted ommodities* iludi otto*  otto* 9ute* otatoes* et. &ollo:i the itrodutio o eoomi reorms i 1==1* the %o6ermet o dia aoited a eert ommittee o or:ard marets uder the hai hairm rma ash shi i o Dro Dro.. B.N. B.N. Babr Babra a i Iue Iue 1= 1==3 =3.. he he omm ommit itte teee submitted its reort i Setember 1==4* hamioi the reitrodutio o utures* :hih :ere baed i 1=CC* ad eadi its o6erae to ari ariu ult ltur ural al omm ommod odit itie ies* s* alo alo  :ith :ith sil6 sil6er er..  orde orderr to boos boostt the the ariu ariultu ltural ral setor setor** the the Natio Natioal al Ariul Ariultur tural al Doliy Doliy 2000 2000 e6isa e6isaed ed eteral ad domesti maret reorms ad dismatli o all otrols ad reulatios i the ariultural ommodity marets. t also roosed a easio o the o6erae o utures marets to miimi>e the :ide lutuatios i ommodity ries ad or hedi the ris arisi rom etreme rie 6olatilities.

$)

$(R@C(@RE8 CO"#@C(  C@RRE"( $(!(@$ ed otrats* settlemets* et. he ehae-based marets are essetially deri6ati6e marets ad are similar to euity deri6ati6es i their :ori* that is* e6erythi is stadardi>ed ad a erso a urhase a otrat by ayi oly a eretae o the otrat 6alue. A erso a also o short o these ehaes. 'oreo6er* e6e thouh there is a ro6isio or deli6ery* most otrats are suared-o beore eiry ad are settled i ash. As a resu result lt** oe oe a a se seee a ati ati6e 6e arti artii ia ati tio o by eo eole le :ho :ho are are ot ot assoiated :ith the ommodity. he tyial structure of commodit&  futures markets in India is as ollo:s;  At reset* there are 2C 2C ehaes oerati oerati i dia ad arryi out out utures tradi ati6ities i as may as 14C ommodity items. As er the reommedatio reommedatio o the &'!* the %o6ermet o dia reoi>ed the Natioal 'ulti !ommodity $hae (N'!$)* Ahmadabad@ 'ulti !ommodity $hae ('!)* Natioal !ommodity ad +eri6ati6e %*

$hae (N!+$)* 'umbai ad dia !ommodity $hae ( !$) as atio-:ide multi-ommodity ehaes.  As omared to 5= ommodities i Iauary 2005* =4 ommodities :ere trad traded ed i +ee +eemb mber er 200C 200C i the the omm ommod odit ity y utu uture ress mar maret et.. hes hesee ommo ommodit dities ies ilud iluded ed ma9or ma9or ariu ariultu ltural ral ommod ommoditi ities es suh suh as rie* rie*  :heat* 9ute* otto* oee* ma9or ulses (suh as urad* arahar ad haa)* edible oilseeds (suh as mustard seed* oout oil* roudut oil ad sulo sulo:er :er)* )* sies sies (ee (eer* r* hilli hillies* es* umi umi seed seed ad turme turmeri ri)* )* metals (alumiium* ti* iel ad oer)* bullio (old ad sil6er)* rude oil* atural as ad olymers* amo others. %old aouted or the the lar lares estt shar sharee o trad tradee i term termss o 6alu 6alue. e. A tem temor orar ary y ba ba :as :as imosed o utures tradi i urad ad tur dal i Iauary 200J to esu esure re orde orderl rly y mar maret et od odit itio ios s.. A ei eii ie ett ad ad :ell :ell-o -or ra ais ised ed ommodities utures maret is eerally ao:leded to be helul i rie diso6ery or traded ommodities.

%1

COMMO#I(IE$ (R!#E#  ,orld-o6er oe :ill id that a maret eits or almost all the ommodities o: to us. hese ommodities a be broadly lassiied ito the ollo:i;

 Alumiium* !oer* !oer* #ead* Niel* Niel* Soe ME(!L

ro* Steel #o (
B@LLIO"

FIBER 

E"ER' 

$6ICE$

6L!"(!(IO"$

%old* %old HN* %old '* i-old* Sil6er* Sil6er HN* Sil6er ' !otto # Stale* !otto ' Stale* !otto S Stale* !otto Yar* Baas
%2

6@L$E$

!haa* 'asur* Yello: Deas

6E(ROCHEMIC!L$ H+D$* Dolyroylee(DD)* DV! !astor "il* !astor Seeds* !oout !ae* !oout "il* !otto Seed* !rude Dalm "il* %roudut "il* BaasiaBhalli* 'ustard "il* OIL  OIL $EE#$

'ustard Seed (Iaiur)* 'ustard Seed (Sirsa)* R<+ Dalmolei* Reied Soy "il* Reied Sulo:er "il* Rie
CERE!L$

'ai>e %uarum* %uar Seed* %urhau* 'etha

O(HER$

"il* Dotato (Ara)* Dotato (aresh:ar)* (aresh:ar)* Suar '-30* Suar S-30

BE"EFI($ OF COMMO#I(' F@(@RE$ M!RAE($ he rimar rimary y ob9e ob9eti6 ti6es es o ay uture uturess eha ehae e are are authe autheti ti rie rie diso6 diso6ery ery ad a ei eiie iett rie rie ris ris maae maaeme met. t. he beei beeiia iarie riess il ilud udee thos thosee :ho :ho trad tradee i the the omm ommod odit itie iess be bei i  oe oere red d i the the ehae as :ell as those :ho ha6e othi to do :ith utures tradi. t is beause o rie diso6ery ad ris maaemet throuh the eistee o utures ehaes that a lot o busiesses ad ser6ies are able to utio smoothly. %#

. 6ric 6rice e #isc #iscov over er&: &:))
6rice Risk Mana5ement: Mana5ement: ) Hedi is the most ommo method

o rie ris maaemet. t is stratey o oeri rie ris that is iheret i sot maret by tai a eual but oosite ositio i the utures maret. &utures marets are used as a mode by heders to rotet rotet their busiess busiess rom ad6erse ad6erse rie hae. hae. his ould ould det the roit roitabi abilit lity y o their their busie busiess. ss. Hedi Hedi  be bee eits its :ho are i6ol i6ol6ed 6ed i trad tradi i  o omm ommod odit itie iess lie lie arm armer ers* s* ro roes esso sors rs** me mer rha had dis iser ers* s* mauaturers* eorters* imorters et. ;.

Im2ort) Im2ort) E72or E72ortt com2eti com2etitive tiveness ness:: ) he eor eorte ters rs a hede hede

their rie ris ad imro6e their ometiti6eess by mai use o  utures maret. A ma9ority o traders :hih are i6ol6ed i hysial trade iteratioally ited to buy or:ards. he urhases made rom the hysial maret miht eose them to the ris o rie ris resulti to losses. he eistee o utures maret :ould allo: the eorters to hede their roosed urhase by temorarily substituti or atual urhase till the time is rie to buy i hysial maret.  the absee o  utures maret it :ill be metiulous* time osumi ad ostly hysial trasatios. %$

/.

6redicta 6redicta%le %le 6ricin5: 6ricin5: ) he demad or ertai ommodities is

hihly rie elasti. he mauaturers ha6e to esure that the ries should be stable i order to rotet their maret share :ith the ree etry  o imort imorts. s. &uture &uturess otra otrats ts :ill :ill eable eable redi redita tabil bility ity i domest domesti i ries. he mauaturers a* as a result* smooth out the iluee o  haes i their iut ries 6ery easily. ,ith o utures maret* the mauaturer a be auht bet:ee se6ere short-term rie mo6emets o oils ad eessity to maitai rie stability* :hih ould oly be ossible throuh suiiet iaial reser6es that ould other:ise be utili>ed or mai other roitable i6estmets. i6estmets. 0.

Benefits for farmers!5ricultural farmers!5riculturalists: ists: )  Drie istability has a

diret beari o armers i the absee o utures maret. here :ould  be o eed to ha6e lare reser6es to o6er aaist ua6orable rie lutuatios. his :ould redue the ris remiums assoiated :ith the mareti or roessi maris eabli more returs o rodue. Stor Stori i  mor more ad ad bei ei more ore ati6 ti6ee i the the mare aretts. he he rie rie iormatio aessible to the armers determies the etet to :hih tradersMroessors irease rie to them. Sie oe o the ob9eti6es o  utures ehae is to mae a6ailable these ries as ar as ossible* it is  6ery liely to beeit the armers. Also* due to the time la bet:ee lai lai  ad rodu rodutio tio* * the maret maret-de -deter termi mied ed rie rie iorm iormati atio o dissemiated by utures ehaes :ould be ruial or their rodutio deisios. >.

Credit Credit accessi% accessi%ilit& ilit&:: )  he absee o roer ris maaemet

tools :ould attrat the mareti ad roessi o ommodities to hih-ris eosure mai it risy busiess ati6ity to ud. $6e a %%

small mo6emet i ries a eat u a hue roortio o aital o:ed  by traders* at times mai it 6irtually imossible to ayba the loa. here is a hih deree o relutae amo bas to ud ommodity  traders* eseially those :ho do ot maae rie riss.  i ase they  do* the iterest rate is liely to be hih ad terms ad oditios 6ery  striet. his osses a hue obstale i the smooth utioi ad ometitio o ommodities maret. Hedi* :hih is ossible throuh utu uture ress mar maret ets* s* :oul :ould d ut ut do: do: the the dis disou out t rate rate i omm ommod odit ity  y  ledi. ?.

Im2roved Im2roved 2roduct 2roduct Dualit&: Dualit&: ) he eistee o :arehouses or

aili ailitat tati i deli6e deli6ery ry :ith :ith radi radi  aili ailitie tiess alo alo :ith :ith other other relate related d  beeits ro6ides a 6ery stro reaso to urade ad ehae the uality o the ommodity to rade that is aetable by the ehae. t esure esuress uior uiorm m stada stadardi rdi>at >atio io o ommo ommodit dity y trade* trade* ilud iludi i the terms o uality stadard; the uality ertiiates that are issued by the ehae-ertiied :arehouses ha6e the otetial to beome the orm or hysial trade.

%&

#erivatives Market

 A deri6ati6e is is a iaial rodut rodut :hih has bee bee deri6ed rom rom aother iaial rodut or ommodity. %'

+.%. %ardeer deied the deri6ati6es as EA deri6ati6e is a iaial rodut :hih has bee deri6ed rom maret or aother rodut.Fhe seurities otrats (Reulatio) At 1=5C deies Ederi6ati6eF as uder setio 2(a).As er this E+eri6ati6eF iludes (a) Ea seurity deri6ed rom a debt istrumet* share* loa :hether seured or useured* ris istrumet or otrat or dierees or ay other orm o seurity.F (b) Ea otrat :hih deri6ed its 6alue rom the rie* or ide o ries at uderlyi seurities.F he abo6e deiitio o6eys that the deri6ati6es are iaial roduts. +eri6ati6e is deri6ed rom aother iaial istrumetM otrat alled the uderlyi. A deri6ati6e deri6es its 6alue rom uderlyi assets.  Aouti stadard S&AS133 deies deies a deri6ati6e deri6ati6e as Ea deri6ati6e deri6ati6e istrumet is a iaial deri6ati6e or other otrat :ill all three o the ollo:i harateristis; (i) t has (1) oe or more uderlyi* ad (2) oe or more otioal amout or aymets ro6isios or both. hose terms determie the amout o the settlemet s ettlemet or settlemets. (ii) t reuires o iitial et i6estmet or a iitial et i6estmet that is smaller tha :ould be reuired or other tyes o otrat that :ould  be eeted to ha6e a similar similar resose to haes i maret maret ators. ators. (iii) ts terms reuire or ermit et settlemet. t a be readily settled et by a meas outside the otrat or itro6ides or deli6ery o a asset that uts the reiiets i a ositio ot substatially dieret dieret rom et settlemet.&rom settlemet.& rom the aoremet aoremetioed* ioed* deri6ati6es reer to seurities or to otrats that deri6e rom aother :hose 6alue deeds o aother %(

otrat or assets. As suh the iaial deri6ati6es are iaial istrumet :hose ries or 6alues are deri6ed rom the ries o other uderlyi iaial istrumets or iaial assets. he uderlyi istrumets may be a euity share* sto* bod* debeture* treasury  bill* orei orei urrey or e6e e6e aother deri6ati6e asset.Hee* asset.Hee* iaial iaial deri6ati6es are iaial istrumets :hose ries are deri6ed rom the ries o other iaial istrumets.

1. 'aaemet o ris ; "e o the most imortat ser6ies ro6ided by the deri6ati6es is to otrol* a6oid* shit ad maae eiietly dieret tyes o ris throuh6arious strateies lie hedi* arbitrai* sreadi et. +eri6ati6e assist the holders to shit or modiy suitable the ris harateristis o the ortolios. hese are seiially useul i hihly 6olatile iaial oditios lie errati tradi* hihly leible iterest rates* 6olatile ehae rates ad moetary haos. 2. 'easuremet o 'aret; +eri6ati6es ser6e as the barometers o the uture treds i rie :hih result i the diso6ery o e: ries both o the sot ad uture marets. hey hel i dissemiati dieret iormatio reardi the uture marets tradi o 6arious ommodities ad seurities to the soiety :hih eable to diso6er or orm suitable or orret or true euilibrium rie i the marets. As a result* they assets i aroriat aroriatee ad suerior alloatio o resoures i the soiety. 3. $iiey i tradi; &iaial deri6ati6es allo: or ree tradi o ris omoets ad that leads to imro6i maret eiiey. raders a use a ositio i oe or more iaial deri6ati6es as a substitute or a ositio i uderlyi istrumets.  may istaes* traders id iaial deri6ati6es to be a more attrati6e istrumet tha the %)

uderlyi seurity. his is maily beause o the reater amout o liuidity i the maret oered by deri6ati6es as :ell as the lo:er trasatio osts assoiated :ith tradi a iaial deri6ati6e as omared to the osts o tradi the uderlyi istrumets istrumets i ash maret. 4. Seulatio ad arbitrae ; +eri6ati6es a be used to auire ris* rather tha to hede aaist ris. hus* some idi6iduals ad istitutios :ill eter ito a deri6ati6e otrat to seulate o the 6alue o the uderlyi asset* betti that the arty seei isurae :ill be  :ro about the uture 6alue 6alue o the uderlyi uderlyi asset. Seulators loo loo to  buy a asset i the uture at a lo: rie aordi aordi to a deri6ati6e deri6ati6e otrat otrat  :he the uture uture maret rie rie is hih* or to sell a asset asset i the uture at a hih rie aordi to deri6ati6e otrat :he the uture maret rie is lo:. di6idual ad istitutios may also loo or arbitrae oortuities* as :he the urret buyi rie o a asset alls belo: the rie seiied i a utures otrat to sell the asset. 5. Drie diso6ery ; he imortat aliatio o iaial deri6ati6es deri6ati6es is the rie diso6ery :hih meas re6eali iormatio about uture ash maret ries throuh the uture maret. +eri6ati6e marets ro6ide a mehaism by :hih di6erse ad sattered oiios o uture are olleted ito oe readily diserible umber :hih ro6ides a osesus o o:ledeable thii. C. Hedi ; Hede or mitiate ris i the uderlyi* by eteri ito a deri6ati6e otrat :hose 6alue mo6es i the oosite diretio to their uderlyi ositio ad aels art or all o it out. Hedi also ours  :he a idi6idual idi6idual or istitutio buys buys a asset ad sells it usi a uture otrat. hey ha6e aess to the asset or a seiied amout o time* ad a the sell it i the uture at a seiied rie aordi to the &*

utures otrat o ourse* this allo:s them the beeit o holdi the asset. J. Drie stabili>atio utio ; +eri6ati6e maret hels to ee a stabili>i iluees o sot ries by redui the short s hort term lutuatios.  other :ords* deri6ati6es redues both ea ad deths ad leds to rie stabili>atio eet i the ash maret or uderlyi asset. 7. %eari o 6alue ; Seial are ad attetio about iaial deri6ati6es ro6ide le6erae (or eari)* suh that a small mo6emet i the uderlyi 6alue a ause a lare dieree i the 6alue o the deri6ati6e. =. +e6elo the omlete marets ; t is obser6ed that deri6ati6e tradi de6elo the maret to:ards Eomlete maretsF omlete maret oet reers to that situatio s ituatio :here o artiular i6estors be better o tha others* or atters o returs o all additioal seurities are saed by the already eisti seurities i it* or there is o urther soe o additioal seurity. 10. $ourae ometitio ; he deri6ati6es tradi eourae the ometiti6e tradi i the maret* dieret ris tai reeree at maret oerators lie seulators* heders* traders* arbitraeurs et. resulti i irease i tradi 6olume i the outry. hey also attrat  you i6estors* i6estors* roessioals roessioals ad other eerts :ho :ill at as atalysts atalysts to the ro:th o iaial maret. 11. #iuidity ad redue trasatio ost ; As :e see that i deri6ati6es tradi o immediate ull amout o the trasatio is reuired sie most o them are based o mari tradi. As a result* lare umber o traders* seulators* arbitraeurs arbitraeurs oerates i suh marets. So* &1

deri6ati6es tradi ehae liuidity ad redue trasatio ost i the marets o uderlyi assets.

+eri6ati6e marets i dia ha6e bee i eistee i oe orm or the other or a lo time.  the area o ommodities* the ed utures maret. he
he NS$ ad
• • • •

 1=52 - $atmet o the or:ard otrats (Reulatio) At.  1=53 - Setti u o the or:ard maret ommissio.  1=5C- $atmet o S!RA   1=C= -Drohibitio o all orms o or:ard tradi uder setio 1C o S!RA.

&#

•

 1=J2 -ormal arry or:ard trades bet:ee t:o settlemet yles

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 bea o
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most ommodities.  1=73- %o6t. ammeds bye-la:s o ehae o
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shares.  1==2 -$atmet o the S$< At.  1==3 -S$< Drohibits arry or:ard trasatios.  1==4 -Babra !ommittee reommeds utures tradi i =

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ommodities.  1==5- %.S. Datel !ommittee reommeds re6ised arry or:ard

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system.  14th +e. 1==5 NS$ ased S$< or ermissio to trade ide

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utures  1==C -Re6ised system restarted o
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 :or or ide ide utures  11th 'ay 1==7- #! %uta ommittee submitted reort  1st Iue 1===- terest rate s:asMor: s:asMor:ard ard rate areemets

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allo:ed at
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s:asMor:ard rate areemets s:asMor:ard  24th 'ay 2000 - S'$ hose Nity or tradi utures ad

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otios o a dia ide  25th 'ay 2000- S$< a6e ermissio to NS$ 
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utures tradi  =th Iue 2000-$ 2000-$uity uity deri6ati6es itrodued at
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utures) at NS$  31st Au. 2000-!ommeemet 2000-!ommeemet o tradi utures  otios o

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Nity at S'$  1st Iue 2001-de 2001-de  otio lauhed at
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&$

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 Iu 2001- radi o euity ide otios at NS$  Iuly 2001 -radi at sto otios at NS$  =th Iuly 2001-Sto 2001-Sto  otios lauhed at ie Iue 200J -NS$ lauhes deri6ati6es o Nity Iuior  !N 100  "t. 200J- NS$ lauhes deri6ati6es o Nity 'ida -50  1st Ia. 2007-radi o !hhota ('ii) Sese at
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iterest rate deri6ati6e marets  17th +e. 200=-
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osts or all  &eb. 2010- #auh o urrey uture o additioal urrey airs

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at NS$  Ar. 2010 -&iaial deri6ati6es ehae a:ard o the year by

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 Asia
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 Iuly 2010- !ommeemet tradi o SD !N Nity utures o

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!'$ at NS$  "t. 2010- trodutio o $uroea style sto otio at NS$Ioural o
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(I<'SSR) SSN No; 231=-5C14  "t. 2010 -trodutio o !urrey otios o GS+ NR by NS$  Iuly 2011- !ommeemet o =1 day %" tradi
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NS$  Au. 2011 -#auh o deri6ati6e o %lobal dies at NS$  Se. 2011- #auh o deri6ati6e o !N DS$  !N irastruture

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dies at NS$  30th 'arh 2012-
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deri6ati6es

Insurance Market

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dia surae dustry has ot the dee-rooted history. hese e6idees are rom the :ritis o 'au ('ausmrithi)* Yaa6alya (+harmasastra) (+harmasastra) ad Bautilya (Arthasastra). (Arthasastra). he :ritis sea about ooli o resoures that ould be re-distributed i times o alamities suh as ire* loods* eidemis ad amie. Aiet dia history has reser6ed the 6ery earliest traes o isurae i the orm o marie trade loas ad arriers otrats.  dia the surae has e6ol6ed o6er time hea6ily dra:i rom other outries* $lad artiularly.

 dia the ad6et o #ie surae started i the year 1717 :ith the establishmet o the "rietal #ie surae !omay i !alutta.  the  year 172=* the 'adras $uitable $uitable had bea bea the lie isurae busiess busiess i the 'adras Dresidey.
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surae ad the dia oies :ere u or hard ometitio  ometitio rom the orei omaies. History o eeral isurae :as duri the 1Jth etury to the dustrial Re6olutio i the :est ad the oseuet ro:th o seaari trade ad ommere i the 1Jth etury. he %eeral surae has its roots i the year 1750 i !alutta rom the establishmet o rito surae !omay #td.* by
otiied 2J Reulatios o 6arious issues lie Reistratio o surers* Reulatio o isurae aets* Re-isurae* Sol6ey 'ari* "bliatio o surers to Rural ad Soial setor* 6estmet ad  Aouti Droedure* Droedure* Drotetio Drotetio o oliy holdersL holdersL iterest* iterest* et. dia surae dustry is lourishi :ith se6eral atioal ad iteratioal layers layers ometi ad ro:i at raid rates. he suess omes usually rom the easi o oliy reulatios* ad dia has  beome more more amiliar :ith :ith dieret isurae isurae roduts ad ad the eriod rom 2010 - 2015 is ro9eted to be the L%olde AeL or the dia isurae idustry. dia surae omaies today oer a omrehesi6e rae o isurae las* a rae :hih is ro:i as the eoomy matures ad the :ealth o the middle lasses ireases. he most ommo tyes o isurae iludes; term lie oliies* edo:met oliies* 9oit lie oliies* :hole lie oliies* loa o6er term assurae oliies* uitlied isurae las* rou oliies* esio las* ad auities. hose lie the %eeral % eeral isurae las are also a6ailable to o6er motor isurae* home isurae* tra6el isurae ad health isurae.

yes o surae 1. #ie sura surae e is all about about uaratee uarateei i a seii seii sum o moey moey to a desiated beeiiary uo the death o the isured* or to the isured i he or she s he li6es beyod a ertai ae. 2. Health Health surae surae - it is surae surae aaist aaist eeses eeses iurred iurred throuh illess o the isured or the erso :ho taes u the isurae.

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3. #iability surae usually isures roerty suh as automobiles* automobiles* roerty ad roessioalMbusiess mishas ad others.

 Latest development developments s •

 No6ember 200= Aordi to the idustry body reort ubliatio* the medial isurae setor :ould aout or GSQ 3  billio i the et three years.

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 the year 2007-0= the R+A i its aual reort said that the Health isurae remium olletios touhed GSQ 1.45 billio omared :ith GSQ 1.13 billio i the re6ious year.

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&urther i 200= the total remium bet:ee Aril ad +eember  :as GSQ 1.35 1.35 billio* u rom rom GSQ 1.12 billio* a irease o 20 20 K* as er iures released by the reulator.

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 Aordi to R+A R+A uidae ote ote released by by R+A* the the reulator has ireased the lo-i eriod or all uit-lied isurae las (G#DS) to i6e years rom the urret three years* :hih maes them lo-term iaial istrumets ad ro6ide ris rotetio. he ommissio ad eeses ha6e also bee redued by e6ely distributi them throuhout the lo-i eriod.

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 the year 2010-2011 he dia isurae uit o +uth iaial ser6ies irm N% las to i6est GSQ 51 millio to ud easio i the outry. 100 brahes :ill be oeed by Dri6ate lie isurer &uture %eeral dia :ill ead its distributio et:or i additio to its eisti et:or o =1 brahes duri 2010. here

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 :ill also be be irease i the the aey ore ore by 21*000 21*000 to C5*000 C5*000 eole. •

 et i6e year 'a %rous to i6est a urther GSQ 134.= 'illio  by 'a
he total maret si>e o the isurae setor i dia :as GSQ CC.4  billio i &Y 13. t is ro9eted ro9eted to touh GSQ GSQ 350-400 billio billio by 2020. 2020. dia :as raed 10 th amo 14J outries i the lie isurae busiess i &Y 13* :ith a share o 2.03 er et. he lie isurae remium maret eaded at a !A%R o 1C.C er et rom GSQ 11.5 billio to GSQ 53.3 billio duri &Y 03-13. he o-lie isurae remium maret also re: at a !A%R o 15.4 er et i the same eriod* rom GSQ 3.1 billio to GSQ 13.1 billio. +iitalWsurae-20 +iitalWsurae -20
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Government Initiatives he Gio
 Road Ahead  Ahead  he uture o diaLs isurae setor loos ood* dri6e by the outryLs a6ourable demorahi* reater a:areess* suorti6e o6ermet  :hih eats oliies oliies that imro6e imro6e busiess* ustomer-etri ustomer-etri roduts* roduts* ad raties that i6e busiesses the best e6iromet to ro:. diaLs isurable oulatio is atiiated to touh J5 rore i 2020* :ith lie eetay reahi J4 years. #ie isurae is ro9eted to omrise 35 er et o total sa6is by the ed o this deade* omared to 2C er et i 200=-10.

'2

6ro%lems 9ith the Indian Financial Market he dia sto marets till date ha6e remaied staat due to the riid eoomi otrols. t :as oly i 1==1* ater the liberali>atio roess that the dia seurities maret :itessed a lurry o D"s serially.

dia embared o substatial eoomi liberali>atio i 1==1.  the ield o iae* the ma9or themes :ere the sali ba o aital otrols ad the osteri o a domesti iaial system. his :as art o a e: rame:or o embrai lobali>atio ad o i6i rimay to maret-based mehaisms or resoure alloatio. &rom 1==1 to 2002* roress :as made i our areas* releti the shortomis that :ere the e6idet. &irst* aital otrols :ere redued substatially to i6e dia irms aess to orei aital ad to build oo6ermet oo6erme t mehaisms or iai the urret aout deiit. Seod* a e: deied-otri deied-otributio butio esio system* the Ne: Desio System* :as set u so that the you oulatio ould ahie6e siiiat esio :ealth i ad6ae o demorahi trasitio. hird* a e: isurae reulator* the surae Reulatio ad +e6elomet  Aey* :as set u* ad the ubli setor mooolies mooolies i the the ield o isurae :ere broe to irease aess to isurae. &ourth ad most imortat* there :as a siiiat burst o ati6ity i buildi the euity maret beause o the imortae o euity as a mehaism or iai irms ad the reoitio o iirmities o the euity maret. his i6ol6ed establishi a e: reulator* the Seurities ad $haes '#


$olutions atio o the iaial system had tae lae rom 1==2 to 2004* iaial eoomi oliy eeded to be rethouht o a muh larer sale to address the roblems ai the system. As is the o6etio i dia* the osesus o desired reorms :as ostruted throuh reorts rom our eert ommittees o; 1.

te  ter rat atio ioa all i ia ae e** led led by De Der ry y 'is 'istr try y i i 200 200J J

2.

+ome +o mest sti i i ia a e* e* le led d by by Ra Rahu hura ram m Ra9 Ra9a a i 20 2007 07

3.

!ai !a ita tall o ot tro rols ls** led led by G. B. B. Si Siha ha i 20 2010 10

4.

!os !o sum umer er ro rote tet tio io* * led led by +h +hir ire edr draS aS:a :aru ru  i 20 2010 10

hese our reorts add u u  to a iterally osistet ad omrehesi6e rame:or or dia iaial reorms. he idis :ere :idely disussed ad debated i the ubli disourse (see table 1 or the mai reommedatios reommedat ios o these eert ommittees). he our reorts diaosed roblems* roosed solutios* ad reshaed the osesus.

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6rimar& #ata '&

 soe to lose relati6es :ho ha6e had eeriee :ith the iaial marets. hey ha6e see the dia marets trasorm rom the 1=708s till the urret day.

X. ,hat :ere the marets lie i the 1=708s as omared to the urret day?  A.  the 1=708s 1=708s there :as :as muh less use o o teholoy. he oe outry outry  :as still i eistee eistee :hih made made the maret lae really really haoti. No: No: e6erythi is omutarised thereore mai tradi muh more o6eiet ad also remo6i the haes o huma error. X. Ho: has lobali>atio aeted the marets?  A. he S$< S$< has tae may may eorts eorts to remo6e restretios o o orei layers eteri the marets. here are less issues :he it omes to &+8s ad &&8s ad thus the dia ore maret has boomed ad it has also made dia a 6ery :ell reoi>ed eoomy i the :orld. &orei i6estors reali>e that there is o better lae to i6est as the dia eoomy is o the massi6e rise ad seems that it :ill otiue this tred.

X. Ha6e you otied ay hae i the :ay i6estors trade due to the haes made by the o6ermet?  A. he o6ermet o6ermet has itrodued itrodued may methods methods 6ia :hih omaies are reuired to be more trasaret ad hee they ha6e to re6eal their iaials i a more detailed :ay. his has heled i6estors to hae their method o aalysis rom tehial to udametal thus heli i6estors mae deisios o umber :hih al:ays ro6es to be a more iormed deisio. ''

X. he 6alue o seurities traded has ob6iously oe u rom ba i the day. +id you eet suh a massi6e irease i the 6olume o trade?  A. o be hoest* this irese irese i trade does does ot ome as a sho to me  beause o the the 6arious ammedmets ammedmets made i the dieret dieret marets. All All these haes made ha6e bee ositi6e oes ad :ere desied i a :ay to irease the 6alue o seurities traded.  :ould be more tae aba i the 6olume o trade had ot bee as muh as it is today.

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Conclusion

he dia &iaial System has bee i eistee or eturies. &rom the eistee o barter tradi to tradi :ith old to the urret hih teh modes o e-iaii ad tradi. he urret heihts that the dia &iaial System has reahed ha6e ob6iously ot bee attaied o6eriht. As the oular sayi oes ERome :as8t built i a dayF i the same :ay the dia &iaial 'arets ha6e radually eaded ad imro6ed ste by ste. his ro9et learly outlies the strides that ha6e  bee tae by by the o6ermet o6ermet ad the iaial istituitios istituitios to imro6e imro6e ad moderi>e the marets. he umbers that ha6e bee i6e i the ro9et are a lear roo o the ositi6e haes that ha6e bee made.  the tred that has bee set i the last 35 years or so otiues i the  years to ome ome the truly the sy is the limit or the dia eoomy. eoomy. he imro6emet o teholoy teholoy ad eatmet o e: ats has set the eoomy i the riht diretio ad the oly diretio is u:ards. he mai marets that ha6e bee o6ered i the ro9et are ; •

!aital 'arets; Sto marets ad
•

!ommodity 'arets

•

'oey 'arets

•

+eri6ati6es 'arets; &utures 'arets

•

surae 'arets

•

&orei $hae 'arets

($

he resesarh methods that  ha6e used also reiterate my aith i the idia eoomy. As a youth o the atio  o: that dia is headed i the riht diretio ad  a eel sae i this atio. he abo6e metioed marets are the mai laes :here i6estmets tae lae.

he seeds ha6e bee so: years ba ad :ith the itrodutio o the e: o6ermet ad the imro6emet o teholoy ad a:areess o the i6estors ireasi* our atio seems destied or eoomi stability ad reatess

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