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The wave of liberalization and globalization has encouraged the developing economies to
revolutionize their traditional economic setup with several newer ways and products. But
with the growing sophistication in the financial system, the scene of ‘volatility’ has been
witnessed every now and then and has gained growing attention and concern. Among the
several developing and transitioning economies, India witnessed the inception of derivatives
trading in the year 2000, and thereafter several hybrids have flooded the stock market.
Following the increasing number of derivative contracts traded, several issues have been
linked up with ‘derivatives’, with the issue of volatility being the most prominent one. Primarily,
derivatives saw the light of the day owing to the series of reforms by the Government of India,
as these reforms aimed at enhancing competition, increasing efficiency of the financial market,
stabilizing the market, etc. Out of the various objectives for which derivatives were introduced,
the function of “stabilizing the market” is regarded as the most important one.
In the context of India’s financial market, the National Stock Exchange of India Limited
(NSEIL) has perched high in the trading of stock futures. The turnover of derivatives, especially
of stock futures, has given an impetus to the research community to come up with studies of
such a genre which can track the trend, pattern and impact of this derivative contract that is
seen as gathering high growth in volume and growing investor acceptance. This is evident
from the trend of the stock futures turnover and the number of contracts transacted. The
number of contracts was recorded at 1,957,856 in 2001-02 for stock futures, which rose to an
astonishing figure of 145,591,240 in the year 2009-2010. This led to a big jump in the turnover
of stock futures to 5,195,246.64 in 2009-10, which was merely 51,515 in the debut year of
2001-02.
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