TRADING IN CENTRAL GOVERNMENT SECURITIES

TRADING IN CENTRAL GOVERNMENT SECURITIES:-

trading in government securities was introduced in January 2003. It can be carried out through a nationwide, anonymous, order drive, screen base trading system of stock exchange.Government securities come with a promise of the full repayment of invested principal at maturity of the security. Some government securities may also pay periodic coupon or interest payments. retail investors are allowed to buy and sell government securities in stock exchange individual, firms, companies, corporate bodies, Institutions, trust and, other and it is approved by the RBI are allowed to participate in the retail market.

ROLLING SETTLEMENT:-

rolling settlement improves the efficiency and integrity of the securities market. Under the rolling settlement all traders executed on a trading day are settled after certain days.A rolling settlement is the process of settling security trades on successive dates based upon the specific date when the original trade was made so that trades executed today will have asettlement date one business day later than trades executed yesterday. This is called t + n rolling settlement since 1 April ,2002, traders are settled under t + 3 rolling settlement.
The NSE has introduced t + 2 rolling settlement from 1 April 2003,. Under it each order has a unique settlement date. Specified at the time of order entry. It is mandatory for trades to be settled on the predetermined settlement date.

■ EASTABLISHMENT OF CREDITORS RATING AGENCIES:
Mehandi there are three credit rating agencies the investment information and credit rating agency of India Limited the credit rating Information Service of India Limited and credit analysis and Research Limited were set up in the order to assess the financial health of different Financial Institutions and Agencies related to the stock market activities it is very helpful for the investor’s also in evaluating the risk of their Investments.
■ INVESTORS PROTECTION:
The security and exchange Bank of India was established by the the central government of India for the purpose of investors and education and protection fund in 2001. it works in advocating and guiding investors it tries to protect the interest of the small investors from frauds and malpractices in the capital markets.
■ GROWTH OF DERIVATIVE TRANSACTIONS:
Since June 2010 Aisi has introduced the derivatives trading in the activities in November 2001 it also introduced the future and options transactions please innovative products have give variety for the investment leading to the increase of the capital markets. NSE alone accounts for 99 percent of the derivatives trading in Indian markets. The introduction of derivatives has been well received by stock market players. Trading in derivatives gained popularity soon after its introduction. In due course, the turnover of the NSE derivatives market exceeded the turnover of the NSE cash market. For example, in 2008, the value of the NSE derivatives markets was Rs. 130, 90,477.75 Cr. whereas the value of the NSE cash markets was only Rs. 3,551,038 Cr.

■ COMMODITY TRADING:

Commodity trading is as old as the financial markets, and perhaps even older than that. The first example of an organised exchange for trading commodities dates back to Amsterdam in 1530. These days there are a whole host of markets available to trade with just a few clicks of a mouse or taps on your mobile device, but some commodities remain as popular as ever. along with the trading of ordinary securities that trading in commodities is also recently encouraged.
In 2002 , the government of India allowed the reintroduction of commodity future in India.
The multi commodity exchange is setup the volume of such transactions is growing at a splendid rate. as of now apart from numerous regional exchanges India has six National commodity exchange namely MCX started on 10 November 2003 ,national commodity and derivative exchanges National multi commodity Exchange India commodity exchange the ACE derivative exchange and the universal commodity exchange.
commodities are still exchanged throughout the world. A commodities exchange refers both to a physical location where the trading of commodities takes place and to legal entities that have been formed in order to enforce the rules for the trading of standardized commodity contracts and related investment products.
The regulatory body is Forward Market commission which was set up in 1953 as of September 2015 the FMC was merged with the securities and exchange Bank of India.

■ MANDATORY PAN REQUIREMENT :

Government of India has amended the rules for quoting of PAN for certain high value transactions. These rules emphasize the vital importance of having and quoting of PAN. Basically these changes deal with mandatory quoting of PAN in respect of certain transactions which exceed a specific limit. in order to maintain a good audit trail of transaction in the securities market and to strength the know your client concept then has been made compulsory with effect from 1st January 2007.
■ STOCK EXCHANGES PERMITTED TO SET TRADING HOURS:
In 2009 to 2010 the stock exchange bar permitted to set the trading hours in the cash and derivative segment subject to the condition that the trading hours are being between 9 a.m. to 5 p.m. and the stock exchange has a risk management system and infrastructure commensurate with the trading hour.
■ REITS/INVITS:
Real estate investment trust infrastructure investment trust is a form of alternative investment vehicle conceptualized in 2008 the working mechanism of and real estate investment trust involves purchase of commercial properties and then providing them on rent 2 3 and the funding is done through the issuance of units to public which are available on stock exchange is the main advantage of a real estate investment trust structure is grounded on the tax exemptions that it receives.
REITs are modelled after mutual funds and provides their investors with all types of income stream as well as the benefits of long term capital appreciation. A0n REIT also trades on major stock exchange and provides investor with a highly liquid stake in real assets typically offering high yields.
InVITs, on the other hand, are a globally popular financial instrument. Scoring points due to its tax efficient nature and higher yields compared to global market. InVITs are instruments that work like mutual funds. InVITs are designed to pool small sums of money from number of investors to invest in asserts that it is cash flow over a period of Time. Part of this cash flow would be distributed as dividend for investors often, Infrastructure Projects such as roads and highways take some time to generate study cash flows . Mean while the infrastructure company has to pay interest to the banks for the loans taken by it . and is essentially give the company the leave a to fulfill its Dept obligations quickly.

DERIVATIVE MARKET:-
A derivative contract between two parties with derives its value / price from an underlying asset. Originally, underlying Corpus is first created which can consist of one security or a combination of securities.
The derivatives market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets. The market can be divided into two, that for exchange-traded derivatives and that for over-the-counter derivatives. the value of the underlying asset is bound to change as the value of the underlying assets keep changing continuously. Generally, stocks, bonds, currency, commodities and interest rates for the underlying assets.
As derivatives are nearly contracts between two or more parties, anything like weather data or amount of rain can be used as underlying assets. The derivative can be classified as future contracts, forward contract, options swap and credit derivatives.
▪︎ financial derivatives in India-
At present, the Indian stock markets are not having any risk hedged instruments that would allow the investor’s to manage and minimise the risk. In industrialized countries apart from money market and capital market securities, a variety of other securities known as derivatives have now become available for investment and trading.
The most common types of derivatives are futures, options, forwards and swaps. Description: It is a financial instrument . A derivative is a financial product which has been derived from another financial product or commodity.

▪︎ characteristics–
Accounting standard SFAS133 define a derivative instrument is a financial derivative or other contract which will compromise of all three of the following characteristics-

1. Its terms require a permit net settlement. It can be readily settled net by a means outside the contract or it provides for delivery of an asset that puts the receipt in a position not substantially different from net settlement.
2. It has one or more underlying asset coma and one or more National amount for payments provisions or both. Those terms determine the amount of the settlement or settlements.
3. There’s no initial net investment or an initial net investment that is smaller than would be required for other types of contract that would be expected to have a similar response to changes in market factors.
   From the aforementioned, derivative refer to securities or to contract that derives from another is value depends on other contract or effort. As such the financial derivatives are financial instruments whose prices our values are derived from the prices of other underlying financial instruments or financial assets.Derivatives have a maturity or expiry date post which they terminate automatically.Derivatives have a maturity or expiry date post which they terminate automatically. The underlying instruments may be an equity share, stock, Bond, debenture, treasury bill, foreign currency or even another derivative asset. Hence, financial derivatives are financial instruments whose prices are derived from the process of other financial instruments. As defined above ,its value is entirely derived from the value of the underlying assets.

¤ uses of financial derivatives-
Some of the uses and applications of financial derivatives can be enumerated as following-

1. Management of risk– one of the most important services provided by the derivative is to control, avoid, Swift and manage efficiently different types of risk through various strategies like hedging, arbitrating, spreading.Financial risk management is the practice of protecting economic value in a firm by using financial instruments to manage exposure to risk: operational risk, credit risk and market risk, foreign exchange risk, shape risk, volatility risk, liquidity risk, inflation risk, business risk, legal risk. Derivative assits the holders to shift or modified suitably there is characteristics of the portfolio. These are especially useful in highly volatile financial conditions. Like a erratic trading, highly flexible interesting, rates, volatile exchange rates and monetary chaos.
2. Price discovery- the important application of financial derivative is the price Discovery which means revealing information about future cash market prices through the future market. Derivative markets provide a mechanism by which diverse and scattered opinions of future are collected into one readily discriminable number which provides a consensus of knowledgeable thinking.The price discovery process is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers. The futures and options market serve important functions of price discovery.
3. Hedging– hedge or mitigate risk is the underlying ,by entering into a derivative contract whose value moves in the opposite direction to their underlying position and cancels part or all of it out. Hedging also occurs when an individual or institution by an asset and sells it using a future contract. They have access to the asset for a specified amount of time and can then sell it in the future at a specified price according to the Future contract of course this allows them the benefit of holding the Asset
4. Liquidity and reduced transaction cost–
   As we see that in derivative trading, no immediate full amount of the transaction is required since most of them are based on margin trading. As a result large number of trading, and arbitrageurs operate in such markets. So, derivative trading and enhances liquidity and reduces transaction cost in the market of underlying assets.
5. Develop the complete markets- it is observed that derivative trading develop the market to work complete market. Complete market concept refers to that situation where no particular investor be better off than others, on patterns of returns of all additional securities are spanned by the already existing securities in it, or there is no further the scope of additional securities.
6. Measurement of market-derivatives for as the parameters of the future trends in prize which result in the discovery of new prices both on the spot and future market. Their help in getting different information regarding the future market trading of various commodities and securities to the society which enables to discover or form suitable for correct or through equilibrium price in the markets as a result the assets will be in an appropriate and superior allocation of resources in the society.
7. Efficiency in trading-financial derivative allow for free trading of risk components and that leads to improving market efficiency. Traders can use a position in one or more financial derivative as a substitute for opposition in underline instrument. In many instances traders find financial derivatives to be a more attractive instrument than the underlying security. This is mainly because of the greater amount of liquidity in the market of a bi derivatives as well as the low transaction costs associated with trading a financial derivative as compared to the cost of trading the underlying instruments in cash market.
8. Speculation and arbitrage- derivative can be used to acquire risk rather than to hedge against risk.thùs, some individuals and Institutions will enter into a derivative contract to speculate on the value of the underlying asset, betting that the party seeking insurance will be wrong about the future value of the underlying asset. Speculator look to buy an asset in the future at a low prices according to a derivative contract when the future Market price is high, or to sell and acid in the future at a high price according to derivative contact when the future Market price is low. Individuals and Institutions may also look for arbitrage opportunities, as when the current buying price of an asset Falls below the price specified in a futures contract to sell the asset.
9. Price stabilisation function– derivative market helps to keep a stabilizing influence on spot prices by reducing the short term fluctuation in other words, derivative reduce both take and depth and lens to price stabilization effect in the cash market for underlying asset.Price stabilisation. Related Content. Also known as stabilisation. The process whereby the market price of a security is manipulated in order to achieve a successful offer.
10. Gearing of value– special care and attention about financial derivatives provide leverage such that a small Movement in the underlying value can cause a large difference in the value of the derivative.A gearing ratio is a general classification describing a financial ratio that compares some form of owner equity (or capital) to funds borrowed by the company.
11. Other uses the other uses of derivatives are observed from the derivative trading in the market that the derivative have smooth and out price fluctuations, squids the price spread, integrated prices structure at different points of time and removes gloves and shortage in the markets. The derivatives also assist the investor’s, traders and managers of large pools of funds to device such strategies so that they may make proper asset allocation to increase the hills and achieve other investment goals.

■ major derivatives-

1. Forward contract-
   Forward contract is a customised contract between the buyer and the Cello where settlement takes place on a specific date in future at a price agreed to today., a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on at the time of conclusion of the contract, making it a type of derivative instrument. In case of forward contract, the price with his Ltd / received by the parties is decided at the time of entering into contract. It is simplest form of derivative contract mostly entered by individuals in day to day life the holder of a long forward contract has an agreement to buy an acid at a certain time in the future for a certain prize which is agreed upon today. The buyer a forward .
2. Acquires a legal obligation to buy an asset known as the underlying asset.
3. At a price which is fixed today.
4. At some specific future date.
5. Future contract:
   Future contract is an agreement between two parties to buy or sell a specified quantity of an asset at a specified price and at a specified time and place .future contract are normally traded on an exchange with sets the certain standardized norm for trading in future contracts the feature of a future contracts may be specified are as follows:
   • future contract required to have standard contract terms.
   • future are traded only in organised exchanges.
   • future trading required margin payment and daily settlement.
   • future exchange is associated with clearing house.
   • future position can be closed.
   • the future contracts are executed on expiry date .
   • future market are regulated by regulatory authorities like the securities and exchange Bank of India.
   • future prices are expressed in currency units with the minimum price movement called a tick size.
6. Option contract:
   An options contract is an agreement between two parties to facilitate a potential transaction on the underlying security at a preset price, referred to as the strike price, prior to the expiration date.
   In theory option can be written on almost any type of underlying security. equity is the most common but there are also several types of non equity options based on securities such as bonds ,foreign currency Indices for commodities such as gold or oil. the person who buys an option is normally called as the buyer or holder. conversely the seller is also known as the seller or writer .we can say an option is a particular type of a contract between two parties where one person gives the other person the right to buy or sell a specific asset at a specified price within a specified time period.
   In general, call options can be purchased as a leveraged bet on the appreciation of a stock or index, while put options are purchased to profit from price declines. The buyer of a call option has the right but not the obligation to buy the number of shares covered in the contract at the strike price. Today options are traded on a variety of instruments like commodities, financial asset as diverse as foreign exchange, Bank time deposit, treasury securities ,stock, stock indexes ,petroleum product ,food grains, metals, and many more. the main characteristics of options are following:
   • options ho holders do not receive any dividend on interest .
   • option holders can enjoy a tax advantage.
   • option yields only capital gains.
   • option enables the investor to gain a better returns with a limited account of investment .
   • options can reduce the total portfolio transaction cost .
   • option holder can enjoy a much wider risk-return combinations.
   • option create the possibility of gaining a windfall profit .
   • option holders can control their rights on the underlying asset.
   • option are trade on otc and in all recognised stock exchanges.
7. Swap contracts:
   Swap contracts are financial derivatives that allow two transacting agents to the swap revenue streams arising from some underlying assets held by each party. Swap are the agreements between two parties to exchange asset at a predetermined intervals. seaps are generally customised transactions the swaps are innovative financing which reduces borrowing cost and increases control over interest rate risk and FOREX exposure . the swap includes both the spot and forward transaction in a single agreement. swap are the centre of the global financial Revolution .swaps are useful in avoiding the problems of unfavorable fluctuations in FOREX market. the parties that agree to the swap are known as counter parties. the two commonly used swaps are interest rate swap and the currency swap interest rate swap entail swapping only the interest related cash flows between the parties in the same currency .currency swap entail swapping both principal and interest between the parties with the cash flows in One Direction being in a different currency that the cash flows in the opposite direction.

■ COMMODITIES MARKET/COMMODITIES FUTURES:
A commodity market is a physical or virtual marketplace for buying, selling, and trading raw or primary products. There are currently about 50 major commodity markets worldwide that facilitate trade in approximately 100 primary commodities.
One can also do commodity trading using future contracts. and a future contract is an agreement between the buyer and the seller where in the buyer promises t pay the agreed upon sum at the moment of the transaction when the seller delivers the commodity at a tree decided that in the future.
Commodities can be invested in numerous ways. An investor can purchase stock in corporations whose business relies on commodities prices or purchase mutual funds, index funds, or exchange-traded funds that have a focus on commodities-related companies.
A farmer can does buy wheat futures to fix a price at which he would want to sell a certain amount in future. a trader might buy or sell wheat futures for delivery on a future date at a price decided now .like a stock one can invest in a commodity through the commodity bourses.india has six commodity exchanges such as MCX,NCDEX,NMCE,ICEX,ACE,and the UCX.

■ SCHEMES RELATED TO CAPITAL MARKETS IN INDIA :
The Rajiv Gandhi Equity savings scheme is a new equity tax advantage Saving Scheme for equity investors in India with the stated objective of encouraging the saving of the small investors in domestic capital markets.
The scheme is designed exclusively for the first time individual investors in securities market, whose gross total income for the year is below a certain limit. In 2013-14, the income ceiling of the beneficiaries was raised to Rs. 12 lakh from Rs. 10 lakh specified in 2012-13. The investor would get under Section 80CCG of the Income Tax Act, a 50 percent deduction of the amount invested during the year, upto a maximum investment of Rs. 50,000 per financial year, from his or her taxable income for that year, for three consecutive assessment years.
It was approved by The union finance minister Shri P Chidambaram on 21st September 2012 it is exclusively for the first time written investors in security markets.
☆ salient features of the scheme:

1. The tax deduction allowed will be over and above the rupees 100000 limit permitted allowed under Section 80c of the Income Tax Act.
2. The scheme is open To new retail investors identified on the basis of their PAN.
3. IPO of PSU which are scheduled to get listed in the relevant financial year and whose annual turnover is not less than four thousand crores for each of the immediate past 3 year will also be eligible.
4. In addition to the 50 percent tax deduction for investment ,dividend income is also tax free .
   5.stock listed under BSE 100 or CNX 100 or stocks of PSU that are Navratnas, Maharatnas and miniratnas will be eligible under the scheme .follow on public officers of these companies will also be eligible.
5. for investment upto rupees 50,000 in the sole RGESS demat account, if the investor opts for a basic service demand account annual maintenance charges for the demat account are zero and for investment upto rupees 2 lakh,and rupees 100.
6. To benefit the small investors investment are allowed in installments in the year in which tax claim are made.
7. exchange traded funds and MF that have RGESS- eligible securities as their underlying and are listed and traded in the stock exchanges and settled through a depositary mechanism have also been brought under the RGESS to provide the advantage of diversification and consequent risk minimization.
8. Investors would have a be required to maintain their level of investment during the two years at the amount for which they have claimed income tax benefit or at the value of the portfolio before initiating a sale transaction Which ever is less for at least 270 days in a year.
   10 . The total lock in period for investment will be three years including an initial blanket lock-in of one year.
9. After the first year investor will be allowed to trade in the securities investors are free to trade or churn there portfolios for around 90 days in each of the Year following the first year of the investment.
10. In this case the investor fails to meet the conditions stipulated the tax benefit with will be a withdrawn.
11. The general principle under which trading is allowed is that whatever is the value of stock or units sold by the investor from the RGESS portfolio RGESS complaint securities of at least the same value or credit back into the account subsequently however the investor is allowed to take benefit of the appreciation of his RGESS portfolio provided its value remains above the investment for which he has claimed Income Tax benefit.

■ GOLD RELATED SCHEMES:
On 5th November 2015 the union government launched three gold related schemes gold monetisation scheme, sovereign gold Bond scheme ,and gold coin or bullion scheme.The coins will be available in denominations of 5 and 10 grams. A 20 gram bar or bullion will also be available. About 15,000 coins of 5 gm, 20,000 coins of 10 gm and 3,750 gold bullions will be made available through MMTC outlets.

• Gold Monetisation Scheme

Resident indians deposits under the scheme. The minimum deposit at any one time will be raw gold equivalent to 30 grams of the precious metal of 995 fineness. There is no maximum limit for deposit under the scheme and the metal will be accepted at the Collection and Purity Testing Centres certified by the Bureau of Indian Standards. However the deposit outstanding under the gold deposit scheme were allowed to run till maturity unless the depositors prematurely withdrawal them .
The objective of introducing the modification in the schemes is to make the existing scheme more effective and to broaden the Ambit of the existing schemes from merely mobilizing gold held by households and institutions in the country to putting the gold into productive use. Interest on deposits under the scheme will start accruing from the date of conversion of gold deposited into tradable gold bars after refinement or 30 days after the receipt of gold at the Collection and Purity Testing Centres or the bank’s designated branch, as the case may be and whichever is earlier. The principal and interest of the deposit under the scheme will be denominated in gold.The gold received under MLTGD will be auctioned by the agencies notified by the government and the sale proceeds will be credited to government’s account held with Reserve Bank of India.
The RBI has fixed the public issue price of sovereign gold bonds at Rs 2,684 per gram. These bonds will be issued in denominations of 5, 10, 50 and 100 grams of gold orotherdenominations.Applications for the bond will be accepted from November 5-20. The Bonds will be issued on November 26. The Bonds will be sold through banks and designated post offices as may be notified.
The borrowing through issuance of Bond will form part of market borrowing programme of Government.bonds can be used as collateral for loans. The loan-to-value ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time.
3.gold coins:
Indian Gold Coin Scheme is the third scheme launched by the Government of India. The Indian Gold Coin is the first national gold coin which will have the image of Ashok Chakra minted on one side and the face of Mahatma Gandhi on the other side. The coin is currently available in denominations of 5gm, 10gm and 20gm. This allows even those with a small appetite to Buy Gold under this scheme.gold schemes indiaThe Indian gold coin and bullion is a part of the gold monetization program. The Indian gold coin and bullion are of 24 carat clarity and 999 find all coins and Bullions are hallmarked as per the BIS standards. and are minted by the Security Printing and Minting corporation of India limited.

The price of these coins is fixed by the Metals and Minerals Trading Corporation of India. It is believed that the coin is 2-3 percent cheaper than the ones manufactured by most of the established corporate sellers.