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Derivative trading in India can take place either on a separate and independent Derivative Exchange or on a separate segment of an existing Stock Exchange.

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Derivative Trading

Derivatives are contracts that are based on or derived from some underlying asset, reference rate, or index. The underlying asset can be securities, commodities, bullion, currency, livestock or anything else.

With Securities Laws (Second Amendment) Act 1999, Derivatives has been included in the definition of Securities. As per the Act 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;
A contract which derives its value from the prices, or index of prices, of underlying securities;

Derivative trading implies a forward, future, option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities.

Derivative trading in India can take place either on a separate and independent Derivative Exchange or on a separate segment of an existing Stock Exchange. Derivative Exchange/Segment function as a Self-Regulatory Organization (SRO) and SEBI acts as the oversight regulator.