What is risk management of derivatives in India? 

Stock exchanges follow robust risk management measures for derivative trading. These include, initial base minimum capital requirements, real time and system based monitoring of positions and automatic deactivation of trading terminals in case of exceeding the limits as imposed by exchanges, margins and daily mark to market margin system and initial Value at risk (VAR) based margin system. Apart from that there are various position limits, broker wise limits and scrip wise limits are also there to avoid building up of huge positions. 

 

Who monitors derivative trading in securities market?
Derivative trading in India is very well monitored by the stock exchanges (NSE has a pre dominant position as far as derivative trading is concerned compared to BSE). Besides SEBI also monitors the derivative markets through appropriate policy measures and frequent inspections.

What are the advantages of trading in derivatives?
Derivative contracts are effective tool for hedging and thereby reducing the potential of future risk. They also allow investors to take a leveraged position in the market and thereby increase the possibilities of earning higher returns. Derivative trading is the logical extension of cash market trading and a healthy derivative market is a sign of effective and robust economy. 

 

What are the disadvantages of trading in derivatives?
Because of their ability to provide leveraging, derivative disasters are pretty common in international markets. Just as there is huge potential of earning higher returns, it also exposes individuals and corporations alike to lose money in case the market moves against the positions held by them. Too much leverage has been the cause of worry and pitfalls for many traders and investors alike. 

 

Delivery Instruction Slips

What is delivery instruction slip (DIS)?
To give the delivery of shares from one account to another account, the investor has to fill ‘Delivery Instruction Slip (DIS)’. DIS may be compared to cheque book of a bank account. The following precautions are to be taken in respect of DIS:-
Ensure and insist with your DP to issue DIS book Ensure that DIS numbers are pre-printed and DP takes acknowledgment for the DIS booklet issued to investor.
Ensure that your account number [BO client id] is pre-stamped.
If the account is a joint account, all the joint holders have to sign the instruction slips. Instruction cannot be executed if all joint holders have not signed.
Avoid using loose slips
Do not leave signed blank DIS with anyone viz., broker/sub-broker.
Keep the DIS book under lock and key when not in use.
If only one entry is made in the DIS book, strike out remaining space to prevent misuse by any one.
Investor should personally fill in target account -id and all details in the DIS.
Keep track of your DIS at frequent intervals.
Is it possible to give delivery instructions to the DP over Internet?
Yes. Both NSDL and CDSL have launched this facility for delivering instructions to your DP over Internet, called SPEED-e and EASI respectively. The facility can be used by all registered users after paying the applicable charges. This would allow you to transfer shares through click of a mouse.