NSE or the National Stock Exchange of India started the derivatives trading by launching index futures in the month of June in the year 2000. Since then, the futures contracts have been based on the benchmarks laid down by the S&P CNX Nifty Index. Trading in options contracts was commenced the year later, in June 2001. Individual securities were introduced as a future trading underlying asset in the November month of the same year. Since then, individual securities have their own options and futures contracts as per the 226 list taken out by SEBI. Based on the market indices such as CNX-IT, NIFTY MIDCAP 50 and the BANK NIFTY, futures and options trading has been allowed as well by the NSE.
The NSE provides the information regarding the various derivatives products traded in India, their systems and procedures, clearing, settlement processes, statistics, risk management and so on.
Each stock exchange has its own characteristics which govern the trading that takes place in its premises. When we talk of futures markets, BSE or NSE function like such markets themselves. For instance, the equity market at NSE functions as a weekly futures market which closes on the Tuesday of every week. If a person decides to go long on Thursday, he or she will not be obligated to perform the transactions right away. Hence, the long position maintained can be reversed on Friday due to which there would be no net obligations remaining on the clearing house. This scenario does not take place in a T+3 makret. Trading at NSE provides a centralized platform due to which the futures market in India remains liquid at best and hence reduces counter-party risks to investors.
When we talk about index derivatives, the NSE-50 index is a set of securities which has been created so that the market impact is minimized when the entire index portfolio is bought or sold together. Index funds, index derivatives are best fincial instruments for trading Nifty. The market risk which is present in the various portfolios in the country can be minimized by referring to Nifty.
NSE or the national stock exchange launched the futures and options contracts on indices like the NSE-50 index. The market impact cost associated with such derivatives was seen with Nifty which can be compared to the highly liquid market indices of the world. The foreign exchange market also has the capability to support a healthy derivatives trading environment. These two comprise the two markets which are compatible for derivatives trading.
Clearing houses are needed in derivatives trading since such activities require highly liquid environments. Accordingly, the clearing house has been set up in NSE known as the NSCC since this is an important factor in large scale derivatives trading.
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