commodities are induced, over time, by demand-supply dynamics. The last two decades have witnessed many-fold increase in the volume of international trade and business due to the wave of globalization and liberalization sweeping across the world. This has led to rapid and unpredictable variations in financial assets prices, interest rates and exchange rates, and subsequently, to exposing the corporate world to an unwieldy financial risk. In the present highly uncertain business scenario, the importance of risk management is much greater than ever before. The emergence of derivatives market is an ingenious feat of financial engineering that provides an effective and less costly solution to the problem of risk that is embedded in the price unpredictability of the underlying asset. In India, the emergence and growth of derivatives market is relatively a recent phenomenon. Since its inception in June 2000 , derivatives market has exhibited exponential growth both in terms of volume and number of traded contracts. The market turn-over has grown in a short span , derivatives trading in India has surpassed cash segment in terms of turnover and number of traded contracts.
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In India government policy regarding the agricultural commodity futures market keeps fluctuating according to the needs of public (food) policy and the observed inflation trends at any point of time.This is understandably not unique to India but is true of global commodity markets particularly in developing countries. However, despite temporary reversals, the policy thrust in India now is on using the commodity derivatives market to integrate the vast numbers of poor agriculturists into the mainstream financial markets. The debate on how soon and how well the developments in the market for commodity futures in India would actually serve the cause of poor and marginal farmers/producers remains wide open.3 But there is no doubt that efficient commodity derivatives markets have immense potential for contributing to price stability and economic development. The main purpose of the present study would be to look into some characteristics of the Indian commodity futures market in order to judge whether prices indicate efficient functioning of the market or otherwise. Two of India’s national level electronics exchanges, the Multi Commodity Exchange of India Ltd. (MCX) and the National Commodity and Derivatives Exchange Ltd. (NCDEX), have been tracking multi-commodity indices for spot and futures prices, constituting prices of a basket of commodities from various sectors. We make use of these index values to comment on the efficiency in price formation in the electronically traded commodity derivatives market.
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Following the Global Financial Crisis regulators are committed to reduce the likelihood and severity of future crisis. In the area of financial derivatives the regulation is focused on increasing transparency, strengthening market infrastructure and reducing systemic risk. The post-crisis regulatory reforms frame the object of study of this research, which is the major transformation of regulation and supervision of the OTC derivatives market in the United Kingdom, and the consequent move towards the regulation of Central Counterparties (CCPs), as new intermediaries of the market. This work serves as a foundational discussion because it reveals that the current UK regime for CCPs does not fulfil what would be expected if a coherent risk based approach were taken. It highlights, for the first time, the shortcomings or ‘fractures’ of the UK regime of CCPs in the OTC derivatives market. The central hypothesis of this research is that the design and implementation of a coherent risk-based regime would allow UK regulators to use the approach as the ‘route-map’ of the regulation and supervision of CCPs. Coherence is reached when a risk-based regime integrates the perceptions and attitudes of regulators and firms related to the risks manufactured in the OTC derivatives market, and how they should be managed and controlled. The work uses a normative risk-based approach to regulation as a methodological lens to analyse the regime. It specifically focuses on prudential supervision and conduct of business rules governing CCPs in the OTC derivatives market.
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Conclusion and Suggestions : Finally concluded that there was a weak relationship between one region of exchange to another region of exchanges in terms of number of contract traded ,notional value of contracts traded, open interest in number of contracts and option premium of stock index options. Hence, it is suggested to introduce the new product mix along with the Stock Index Option to view a better performance in the international derivatives market.
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What has been described reveals the way in which this particular market has emerged. The study shows that issues of power, networks and framing have been important in these developments. From the perspective of power and politics in the formation of a market, ISDA is a powerful association which represents the largest financial institutions and their clients engaged in the derivatives market. These actors are concerned to develop a context where the market for derivatives is orderly and legal, but open to innovation and change. As well as the lobbying power which it can exercise alongside its individual members, ISDA uses its own expert power and that of the law firms which it employs in different parts of the world in order to achieve this. It pressurises governments to establish a legislative basis for derivatives trading along the lines of the ISDA Master Agreement and the Model Netting Act. Further it is concerned that this should be put in place even if it is at the expense of other actors in the system, as most obviously in terms of bankruptcy rules and regulations and the use of netting procedures. Other concerns about derivatives such as their proximity to gambling, their contribution to speculation and financial instability, their centrality to increasing levels of inequality and reward between top earners in the financial sector and the rest of the population, are swept aside as irrelevant to the basic technical problem of how to ensure that the market works properly for its participants. The agenda is set and potentially discomforting debates placed at the margins of public discourse.
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Two conference papers addressed FX markets and exchange rates directly. Levich and Packer’s comprehensive review suggests that the development and functioning of FX markets has progressed at a faster pace in Asia-Pacific than in other regions. The BIS’s Triennial Central Bank Survey of foreign exchange and derivatives market activity in 2013 shows that turnover in the currencies of both developed and emerging Asian economies, particularly the Chinese renminbi, have seen rapid growth that is well above the global average. All segments of FX market turnover in the region (eg spot and derivatives, onshore and offshore) have expanded exponentially.
The present study investigates the efficiency of currency derivatives market by assessing its contribution towards price discovery process using spot and future prices of four currencies ( USD / INR , EURO/INR , GBP / INR and JPY / INR ) traded on the National Stock Exchange (NSE), India. As per the investigation, it can be concluded that there is a long run equilibrium rela- tionship between spot rates and future rates, with unidirectional causality running from future rates to spot rates for all currencies under consideration. As the futures markets contribute more to the price discovery, this implies that more investors are attracted to it. This in turn leads to more rational price discovery.
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As highlighted in the literature, there are many new instruments in the financial markets today which allow efficient risk management in banking. The creation of such instruments to manage credit risk is one of the most important steps towards complete risk-sharing markets. The following section shall analyze the impact of deriva- tives on a bank’s optimal deposit, loan decisions and risk management. The derivative trades a risky cashflow into a certain cashflow. The bank can hedge the credit risk by taking a short (long) position, i.e., selling (buying) con- tracts H, in the derivatives market. The given forward rate is denoted by r F . It is assumed that there is a posi-
Furthermore, key EU directives and regulations start being transposed, or converted into British law, and implemented to improve market integrity and security dealing. These include the European Market Infrastructure Regulation (EMIR), which regulates the derivatives market, in particular OTC derivatives, central counterparties (CCPs), and trade repositories; the Alternative Investment Fund Managers Directive (AIFMD), which regulates hedge funds, private equity, and real estate funds; and the Financial Conglomerates Directive, which focuses on large financial groups active in different financial sectors, often across borders, and promotes convergence in national supervisory approaches and between sectors. The BoE, in charge of the supervision of financial market infrastructure (FMI), relies on directly applicable EU regulations, accompanied by binding technical standards for the supervision of CCP and securities settlement systems. 6
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The crisis demonstrated that financial economic theory serves the interests of some more than others, for while a few individuals were enriched before and by the crisis, it has had a profoundly destructive impact on the majority 2 . Although financial economic theory has been empirically falsified 3 and continues to wreak havoc and destruction it is very difficult to overcome. For this reason several theorists have described financial economics as zombie economics (see for example, Fine, 2008; Martin, 2002; Quiggin, 2012). This is not simply a question of theoretical niceties; in practice, in 2014, financial institutions and government policies (whose activities are underpinned by financial economics’ rationalities) continue to impoverish the lives of the majority of people. Two aspects of Marxist theory are particularly pertinent for the arguments in this essay -- the labour theory of value and fictitious capital. In Marxism only human labour (work) can create value 4 . Fictitious capital is any form of investment (for example bonds, stocks, derivatives, and collateralized debt obligations) which is based upon the expectation of future returns. Since the expected returns might be produced in the future, they do not currently exist, and, so are fictitious. Marx explains that fictitious capital (especially stocks and credit) serves several important functions under capitalism, not least in terms of enabling capitalist expansion. But, if investment flows to forms of fictitious capital which are not based upon the creation of value, this will, sooner or later, provoke an economic crisis. The flow of money into forms of fictitious capital which are purely speculative and not part of the value creation process (although incredibly profitable for some) exacerbated the recent crisis (see Chabrak, 2014).
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less need for the risk management instruments when an economy is in a high growth phase and vice-versa. Interest rate variables play no important role in the usage of OBS derivatives activities. The interest rate spread has a statistically insignificant impact on OBS derivatives activities except for the forward contracts. This suggests that banks do not value the uncertainty about future interest rates when they consider OBS contracts decisions. The significantly negative impact of the interest rate spread on forward contracts can be explained by the substitution effect between traditional banks activities and OBS activities. Short–term treasury bills and mid-term treasury bills are insignificant for derivatives while long-term treasury bill rates are significantly negative for options and forwards. This can be explained by the fact that banks prefer to deal with the long- term lending activities when the interest rates are high. Price level variables also have a role in determining OBS derivatives activities. There is a negative relation between share prices and both options and futures, and a negative relation between the CPI and both swaps and forwards. The balance of payments variables unexpectedly have no significant role in determining the usage of OBS derivatives. However there is a significantly negative impact of the total trade level on options and the total transfers level has a negative impact on forward OBS contracts.
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DOI: 10.4236/tel.2018.811159 2461 Theoretical Economics Letters high, and governments seek to ensure this is attracted to their jurisdiction through competitive taxation rates and other suitable incentives. Inevitably this means public spending must fall, or the burden be shifted onto less mobile pro- duction factors like labour. If nations can regionalise and agree to co-operation, then the large market is attractive to firms and there is no race to the bottom of the type predicted by most taxation competition models in the mould of  or —a combination henceforth referred to as ZMW. However, as    and others, note incentives to compete dominate the search for harmonisation in Europe, despite attempts to harmonise taxes 1 the community still sees competi-
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Implications, Basel, July 1999; Idem, Clearing Arrangements for Exchange-Traded Derivatives, Basel, March 1997; Idem, Cross-border securities settlements, March 1995; Idem, Delivery versus payment in securities settlement systems, September 1992; B ANK OF E NGLAND , Report of the DVP Steering Group, February 2000; B OLLEN , “Cross.border securities settlement and risk analysis framework for cross-border links”, Fin Stab Rev NBB (2006)123-140; D EVRIESE /M ITCHELL , “Liquidity risk in securities settlement”, J of Banking and Finance, 30(2006)1807-1834; E UROPEAN C ENTRAL B ANK , "Consolidation in central counterparty clearing in the euro area", ECB Monthly Bulletin (August 2001)69-77; F REEDMAN , "The regulation of central securities depositories and the linkages between CSD's and large-value payment systems", Bank of Canada Technical Report No.87, November 1999 (also available at http://www.bank-banque-canada.ca); F UMEAUX /H ELLER , supra, p.38; G UADAMILLAS /K EPPLER , Securities clearance and settlement systems – A guide to best practices, Policy Research Working Paper 2581, World Bank, April 2001; K ELLER , supra p.40; ; L UCAS , "La surveillance de la sécurité et de l'éfficacité...." supra p.37; M C G AW ( ED .), The world's clearing houses - A comprehensive report and analysis of clearing for exchange traded futures and options, 2nd ed., Surrey : Futures & Options World, 1995; M OONEY , “Transfer, pledge, clearance and settlement in the Japanese and United States government securities markets”. BOJ Monetary and Economic Studies 9(1991)103-147; P ARKINSON /G ILBERT /G OLLOB /-
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area in the gold market. Xu and Fung (2005) and Lin, Chiang, and Chen (2008) use GARCH models to examine the COMEX‐TOCOM linkages, while Fuangkasem, Chunhachinda, and Nathaphan (2012) look at the COMEX‐MIX (india)‐ TOCOM markets. The general consensus is that COMEX dominates. All of these papers concentrate on futures markets, which misses the overwhelming dominance of the London market.
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Technical Standards (No. 152/2013 and 153/2013) covering points such as capital requirements, margining, default fund, liquidity risk controls, segregation and portability of positions and collateral, investment policy and stress testing. On 5 October 2012, the Commission launched a consultation on a possible framework for the recovery and resolution of financial institutions other than banks, including CCPs, CSDs, and proposals are expected in Q4 2014. In the US, the FSOC (Financial Stability Oversight Council) is authorised under Title VIII, section 131, of the Dodd-Frank Act to designate a Financial Market Utility (FMU) as ‘systemically important’ in cases where a failure or a disruption to the functioning of an FMU could create, or increase, the risk of significant liquidity or credit problems spreading among financial institutions or markets and thereby threaten the stability of the US financial system. Currently designated FMUs, including five clearing entities supervised by the Board, the CFTC or the SEC, are subject to heightened prudential and supervisory provisions aimed at promoting robust risk management, safety and soundness.
The importance of the various factors in the change in the US gross and net external positions can be inferred from Table 1, in which we report our calculations of the total (cumulated) value of the various factors that contributed to the changes in asset, liability and net positions of the US from end-2002 to end-2016. For liabilities, the cumulative value of ‘other changes’ (“Changes in volume and valuation not included elsewhere”) in 2003-16 is rather small, $359 billion, which is dwarfed by a $30 trillion liability stock. The impact of exchange rate-related changes on liabilities is even smaller, since the bulk of US foreign liabilities are dominated in US dollars. In contrast, market-price related changes account for almost $5 trillion, which is about one-third of the $15 trillion financial account transactions in 2003- 16. Thereby, non-resident investors profited from quite large market price gains in their US FDI and portfolio equity investments over the full period of 2003-16 3 .
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Derivative market serves two basic purposes in an economy. It provides hedging opportunities to those who suffer from uncertainties in market prices. It applies particularly to agricultural and primary articles for which supply depends highly on natural conditions such as weather. The producer, in this market, can fix his product price beforehand by agreeing on a forward contract. Buyers can also do the same to confirm the purchase price. In fact, commodity futures evolved as a means of heading, although latter on it was used more for speculation purposes. In India, for instance, over 95 percent of the trading volume in futures today comprises speculative trades. Derivative market performs another economic function, viz, Price Discovery.
Strengthening CCPs is a necessary but hardly sufficient condition to ensure financial system stability. In a post-crisis environment that is still reformulating and issuing new regulations, macroprudential regulators should be mindful of policies aimed at improving CCP functioning, inducing unintended consequences. Policymakers should also evaluate the potential for CCP margin requirements to be pro-cyclical, especially as CCP members become more interconnected among themselves and with other parts of the financial system. Policies that impose added responsibilities to CCPs may tax their ability to raise additional capital or liquidity during stressed market conditions. It is vital that in implementing new policies, assessments include how changes in CCP and market behavior affect third parties. Indeed, the new policies may induce undesirable and destabilizing system-wide behaviors.
In other words, the process is to compare the statistics of the cross-correlation coefficients of price fluctuations of stock 𝑖 and j against a random matrix having the same symmetric properties as the empirical matrix. The RMT is known to distinguish the random and non-random parts of the cross- correlation matrix C and the non-random parts of C which deviates from RMT results is known to provide information regarding genuine collective behaviour of the stocks under consideration and indeed the entire market from where the sample stocks were drawn, (Plerou, V., et al. 2012). The investigation of correlations among price changes of various assets in a given exchange is not only necessary for quantifying the risk in a given portfolio but also of scientific interest to researchers in economics and financial mathematics [Kim, G et al. (1989) and Palmer, R.G. et al. (1994)]. Nonetheless, the problem of interpreting the correlations between individual stocks-price changes in a given financial market can be likened to the difficulties experienced by physicists in the fifties, in interpreting the spectra of complex nuclei. Due to the huge amounts of spectroscopic data on the energy levels that were available which were too complex to be interpreted through model calculations, since the nature of the interactions were not known, the concept of Random Matrix Theory (RMT) was developed to take care of the statistics of energy levels of the complex quantum systems [Kondor, I. et al. (1999); Charterjee, A. et al. (2006); Voit, J. (2001)].
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Shiqing Xie, Jiajun Huang (2013), this paper examined an empirical analysis on the price discovery function of index futures in China for CSI 300 index period of the study from April 2010 to April 2012 using Vector Error Correction Model (VECM).the conclusions drawn were that solid cointegration relationship between the CSI 300 index and its index futures exists in the long run; when prices deviate from the long term equilibrium, the stock index reverses weakly, while the reversal of index futures is much stronger; the daily lead-lag relationship between the prices of the CSI 300 index and its index futures contracts is not significant in the short run; shocks from the spot market have a lasting impact upon the futures market, but not vice versa, due to the limited short- term adjustment ability of the spot market.