Volume 20, Number 3 Article by Sandeep Srivastava, Surendra S Yadav, P K Jain September, 2008
Derivative Trading in Indian Stock Market: Brokers's Perception :
The authors conducted a survey of brokers in the recently introduced derivatives markets in India to examine the brokers' assessment of market activity and their perception of the benefits and costs of derivative trading. The need for such a study was felt as previous studies relating to the impact of derivative securities on the Indian stock market do not cover the perception of market participants who form an integral part of the functioning of derivative markets. The issues covered in the survey included: a) perception of brokers about the attractiveness of different derivative securities for clients; b) profile of clients dealing in derivative securities; c) popularity of a particular derivative security out of the total set; d) different purposes for which the clients are using these securities in order of preference; e) issues concerning derivative trading; f) reasons for non-usage of derivatives by some investors and g) pricing, liquidity and informational efficiency of the derivative market.
Derivative securities have penetrated the Indian stock market and it emerged that investors are using these securities for different purposes, namely, risk management, profit enhancement, speculation and arbitrage. High net worth individuals and proprietary traders account for a large proportion of broker turnover. Interestingly, some retail participation was also witnessed despite the fact that these securities are considered largely beyond the reach of retail investors (because of complexity and relatively high initial investment). Based on the survey results, the authors identified some important policy issues such as the need to bring in more institutional participation to make the derivative market in India more efficient and to bring it in line with the best practices. Further, there is a need to popularise option instruments because they may prove to be a useful medium for enhancing retail participation in the derivative market.
Reprint No 08305
