The stock exchanges in India have made noteworthy contribution for the development of an organised capital market. To introduce the trading of derivatives on exchange platform, certain conditions are needed to be fulfill

To start the trading of derivatives in exchange, following have been considered as the pre-requisites: Strong and Healthy Capital Market The first and foremost requirement is the existence of a strong and healthy capital market. An efficient, transparent and fair capital market with strong settlement cycles helps in building an efficient derivatives market. Clearing Corporation and Settlement Guarantee Existence of a common clearing corporation providing settlement guarantee as well as cross margining is essential for speedy settlement as well as for risk minimization. This is particularly important in the case of derivatives where there are often no securities to be delivered and the settlement is arranged in the form of cash difference. Reliable Wide Area Telecommunication Network Since derivative trading must be introduced on nation-wide basis so as to provide equal opportunities for hedging to the investor population throughout the country, existing and reliable telecommunications network along with existence of proven automated trading systems is extremely important. Risk Containment Mechanism There should exist a strong and disciplined margining system in the form of daily and mark to market margins, which provide a cover for exposure along with price risk and notional loss in case of default in settling outstanding positions, thereby minimizing market risk.