INADEQUATE DEPOSITORY SYSTEM
The Committee is of the view that all such securities which are composing in stock index and used for stock index futures, should necessarily be in depository mode.
Settlement problems of the cash market may weaken the arbitrage process by making it risky and costly. Since, index based derivatives trading does not itself involve deliveries, it will increase the arbitrage trading between cash and index derivatives markets.
The arbitrage process keeps the two markets in alignment. Thus, due to this reason, it is essential for successful futures trading that all the scripts of the particular stock index futures must be in the depository mode. Hence, depository scripts in India should be enhanced.
The Committee has no doubt that the creation of futures markets by introducing the financial derivatives, including equity futures, currency futures and interest rate futures would be a major step towards the further growth and development of the Indian financial markets provided that the trading must be cost-efficient and risk hedging facilities.
The Committee is of the view that all such securities which are composing in stock index and used for stock index futures, should necessarily be in depository mode.
Settlement problems of the cash market may weaken the arbitrage process by making it risky and costly. Since, index based derivatives trading does not itself involve deliveries, it will increase the arbitrage trading between cash and index derivatives markets.
The arbitrage process keeps the two markets in alignment. Thus, due to this reason, it is essential for successful futures trading that all the scripts of the particular stock index futures must be in the depository mode. Hence, depository scripts in India should be enhanced.
The Committee has no doubt that the creation of futures markets by introducing the financial derivatives, including equity futures, currency futures and interest rate futures would be a major step towards the further growth and development of the Indian financial markets provided that the trading must be cost-efficient and risk hedging facilities.