In India derivative trading may happen either on a separate and independent Derivative Exchange or then on a separate segment of an existing Stock Exchange. Essentially the derivative exchange or derivative segment operate as a Self-Regulatory Organization (SRO). SEBI performs as the oversight regulator.
All clearings and settlements of trades that happen on the derivative exchange or segment have to be done through a clearing corporation that has an independent administration, as well as membership from the derivative exchange or segment.
The regulatory framework of the derivatives markets in this country is the Securities Contract (Regulation) Act, 1956; and the Securities and Exchange Board of India Act, 1992.
The basic regulatory framework for the derivatives market functioning in India was formulated by the Dr. L.C Gupta Committee, which was constituted by SEBI. SEBI is responsible for the following:
• This regulatory body created the suggestive bye-law for the derivative exchanges or Segments, along with their respective clearing corporation.
• It laid down the rules, bye-laws and regulations for the derivatives market
• This regulatory body also prescribed the conditions of eligibility into in the derivatives market
• It provided the facilities to deal with investor grievances.
There are varied types of membership in the derivatives market. These a enumerated as follows:
• The trading member is one who can trade for himself and on behalf of his clients
• The clearing member are those who have agreed to settle all trades that happen through them.
• The self-clearing member are those who are limited to only clearing their own trades.