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Derivatives Market ISMR
159
Derivatives Market
Introduction
The emergence and growth of market for derivative instruments can be traced back to the willingness of risk-averse
economic agents to guard themselves against uncertainties arising out of uctuations in asset prices. Derivatives are
meant to facilitate hedging of price risk of inventory holding or a nancial/commercial transaction over a certain period.
They serve as instruments of risk management. By locking-in asset prices, derivative products minimize the impact of
uctuations in asset prices on the protability and cash ow situation of risk-averse investors. By providing investors and
issuers with a wider array of tools for managing risks and raising capital, derivatives improve the allocation of credit and
the sharing of risk in the global economy, lowering the cost of capital formation and stimulating economic growth. Now
that world markets for trade and nance have become more integrated, derivatives have strengthened these important
linkages between global markets, increasing market liquidity and efciency and are seen to be facilitating the ow of
trade and nance.
The nancial derivatives gained prominence in post-1970 period due to growing instability in the nancial markets and
became very popular, accounting for about two-thirds of total transactions in derivative products. In the recent years,
the market for nancial derivatives has grown both in terms of variety of instruments available, their complexity and
turnover. Financial derivatives have changed the world of nance through creation of innovative ways to comprehend
measure and manage risks.
India's tryst with equity derivatives began in the year 2000 on the NSE and BSE. Trading rst commenced in Index
futures contracts, followed by index options in June 2001, options in individual stocks in July 2001 and futures in single

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