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A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. There are several different types of equity derivative; including options, warrants, futures, forwards, convertible bonds, and swaps. Each has its advantages, and each is often used in a particular situation. However, Futures & Options are the most common types of Equity derivatives.
Option value calculated as (Premium + Strike Price) x Quantity
Index derivatives - Eligibility criteria of Indices
1. The framework shall not be applicable to flagship index of the exchange. The flagship index for Metropolitan Stock Exchange of India Limited for the purpose of product success framework is SX40.
2. The product success framework shall be applicable to all index derivatives at the underlying level
3. The criteria for evaluation of the index derivatives are as follows:
4. Each of the above criteria shall be satisfied for continuation of the derivatives on the given index. If any index fails to satisfy any of the above mentioned criteria, then no fresh contracts shall be issued on that index. However, the existing unexpired contracts may be permitted to trade till expiry and new strikes may also be introduced in the existing contracts.
Surrogate / Pseudo index
5. However, even if an index does not fulfil all the criteria during a review, the Exchange may not discontinue derivatives on that index provided there is a surrogate/pseudo index in another exchange(s), which continue to meet the evaluation criteria on the respective exchange. The index under review must have been surrogate/pseudo to another index on the date of review and must have remained as such for the major duration of the review period.
6. For this purpose, an index may be considered to be surrogate/pseudo of another index, if all the following conditions are met:
7. All index derivatives would be reviewed semi-annually in the first week of April and October based on the data for the preceding six months i.e. period of review would be October to March for the April review and April to September for the October review.
8. Only those index derivatives which have completed at least 21 months from the launch month would be liable for review.
9. Once an index is excluded from the derivatives list, it shall not be considered for re-inclusion for a period of at least six months. Exchanges may consider re-launching derivative contracts on the same index after carrying out suitable modification(s) in contract specifications based on market feedback, after a cooling off period of at least six months, subject to SEBI approval.