Financial Daily from THE HINDU group of publications
Sunday, Jan 02, 2005
Financial Daily from THE HINDU group of publications Sunday, Jan 02, 2005 |
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Investment World
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Derivatives Markets Markets - Derivatives Markets What are derivatives?
THE term `Derivative' indicates that it has no independent value, i.e. its value is entirely `derived' from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, livestock or anything else. In other words, derivative means a forward, future, option or any other hybrid contract of pre-determined fixed duration, linked for the purpose of contract fulfilment to the value of a specified real or financial asset or to an index of securities. With Securities Laws (Second Amendment) Act, 1999, derivatives has been included in the definition of Securities. The term derivative has been defined in Securities Contracts (Regulations) Act, as: -A derivative includes: a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; b. a contract which derives its value from the prices, or index of prices, of underlying securities. What is a futures contract? Futures contract means a legally binding agreement to buy or sell the underlying security on a future date. Future contracts are the organized/standardized contracts in terms of quantity, quality (in case of commodities), delivery time and place for settlement on any date in future. The contract expires on a pre-specified date which is called the expiry date of the contract. On expiry, futures can be settled by delivery of the underlying asset or cash. Cash settlement entails paying/receiving the difference between the price at which the contract was entered and the price of the underlying asset at the time of expiry of the contract. Source: www.sebi.gov.in
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