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Emergence
of liberalization, privatization and globalization opportunities,
and natural and man-made catastrophes have brought forth
the need to have derivative instruments. The Securities
Contract (Regulation) Act of 1956 (SCRA) in India defines
the "derivative" to include 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 and a contract which derives its value
from the prices, or index of prices, of underlying securities.
Derivatives are the securities under SCRA and hence the
regulatory framework under the SCRA governs the trading
of derivatives. With the increasing need of these instruments
for the masses, it was observed that the masses were the
major consumers for these products. Keeping in view the
potentiality of these instruments, Sebi has put its best
efforts to bring them in the Indian capital market but continuous
resistance and reluctance on the part of the Indian Capital
Markets' operators, financial institutions, and retail investors
delayed it because of the absence of basic infrastructure
facilities such as electronic transfer of funds, dematerialization
and rolling settlements. The importance was realized when
the long purchases far exceeded the sellings with the huge
outstanding positions without any strong mechanism of risk
coverage standing around Rs. 6000 cr.
In
December, 2000, had not the turmoils of the Indian Capital
market owing to events such as Madhopuria Mercantile Cooperative
Bank (MMCBs') insolvency, manipulation of data in the Calcutta
Stock Exchange by the Executive authorities in the regulatory
body, transferring of the positions at the end of closing
of the settlement day from Bombay Stock Exchange to Calcutta
and to National Stock Exchange and, of course, bouncing
of the Ketan Parekhs'check of Rs. 120 cr for the Bank of
India's payment, it would not have been an easy task for
Sebi to implement the most innovative financial instruments
in the Indian Capital Market with strong instructions. Investor
community was so scared of these instruments that the business
fell drastically within six months from the combined total
of daily turnover of both NSE and BSE approximate by Rs.
20000 cr in 2000 to 60 cr in the month of June 2001. |
