Government Reforms in Derivative Trading in India
Government Reforms in Derivative Trading in India
Amendment of Securities Contracts (Regulation) Act (SCRA), 1956
Derivatives became legal under the legal framework for securities trading in 1999 when the SCRA was adapted to select them as "securities." The legal basis for trading derivatives in India was established by this significant amendment.
Formation of the L.C. Gupta Committee
A committee which was led by Dr. L.C. Gupta was established by SEBI in 1996 to create a regulatory framework for the trading of derivatives. The group suggested introducing derivatives gradually, beginning with stock index futures. The foundation for the regulation of derivative markets was laid in 1998 when SEBI approved these proposals.
Introduction of Exchange-Traded Derivatives
In March 2000, the government revoked a notification that had been in effect for three decades and that forbade forward dealing in securities. As a result, exchange-traded derivatives were initially introduced in June 2000, and SEBI allowed the NSE and BSE to start equity derivatives divisions. In 2001, index options, individual stock options, and individual stock futures were launched after the initial introduction of index futures based on the Nifty and Sensex.
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Formation of the J.R. Varma Committee for Risk Management
In 1998, a group headed by Prof. J.R. Varma was established by SEBI to develop risk-containment strategies for the derivatives market. This committee created crucial foundations for real-time position monitoring, member net worth requirements, and margining mechanisms..
Eligibility Criteria for Derivative Trading Members
SEBI established strict eligibility criteria that exchanges and their brokers had to complete. A minimum of 50 members for derivative segments, and a requirement for SEBI permission prior to the introduction of any derivative contracts. Also, clearing members had to have a net worth of ₹3 crore.
Compulsory Risk Disclosure and Investor Protection Measures
The government m