Derivatives
Content
Background Material
Raising Funds from Capital Market Learning of Derivative Strategies in Capital Market (A-Z Option Strategies) Overview on Registration & Formation of Trusts
June 12, 2010 India Habitat Centre Lodhi Road, New Delhi
Northern India Regional Council of
The Institute of Chartered Accountants of India
Organised by
1
FUND RAISING FROM CAPITAL MARKETS
COMMERCIAL PAPERS & NON-CONVERTIBLE DEBENTURES
Seminar on Capital Markets
C.A. Sunil Garg President, Treasury & Group Finance Religare Enterprises Ltd. NIRC, June 12th, 2010
COMMERCIAL PAPER
COMMERCIAL PAPER MARKET
Introduced in India in 1990. Intended to be a part of Working Capital Finance for Corporates
CP – SUITABILITY/ OBJECTIVES
To enable highly rated Non Banking Companies i.e. Corporates / PDs/ FIs to raise short term funds. Suitable for:
Lenders with short term surplus funds who wish to earn a higher rate then being offered by call money market or treasury bill market. Borrowers who wish to avail short term funds at effective rates cheaper than that being charged by the Banks (interest rate arbitrage).
2
ELIGIBILITY CRITERIA FOR CORPORATES
The tangible net worth of the company, as per the latest audited balance sheet is not less then Rs. 4 Crore. Company has been sanctioned working capital limit by bank or AIFIs The borrowal account of the company is classified as a Standard Asset by the financing bank / institution.
RATING REQUIREMENTS
Credit Rating to be obtained for issuance of CP from any of the following rating agencies : CRISIL, ICRA, CARE, FITCH or others, as may be specified by RBI Minimum Credit Rating : P-2 of CRISIL or such equivalent.
CP – PRIMARY MARKET
Players Tenor Inv. Criteria Banks/MFs/FIIs/NRIs HNIs/Corporates. 7 D – 364 D Liquidity Rating Financials Comfort Earmarking (most pref.) Stand alone cp Standby or Backstop facility Rs. 5 lakhs or multiple thereof. physical & demat Issued at a discount to face value.
COST CONSTITUENTS FOR COMMERCIAL PAPERS
Placement
Denomination Mode of issuance
Discount Rate Rating Fee Stamping Fee IPA Fee Arrangers Fee Registrar Fee NSDL Fee
3
NON CONVERTIBLE DEBENTURES
Relevant provisions of Companies Act:
1.117
to 123: Regulates (a) appointment of Debenture Trustee, (b) Duties of Trustee, (c ) Creation of Debenture Redemption Reserve and (d) Liabilities of Trustee, etc. (b): Approval of Board of Directors to issue Debentures. (d): Approval of Shareholders required if the borrowing is more than paid-up capital + free reserves of the Company
2.292(1) 3.293(1)
NON-CONVERTIBLE DEBENTURES
NON CONVERTIBLE DEBENTURESOBJECTIVES
• •
NON CONVERTIBLE DEBENTURESFEATURES
•Can
Method of raising Loan capital It forms part of Company’s Capital Structure but does not become share capital.
be issued as a public issue or as private placement. •Can be issued for Short term (less than one year) or Long term (more than one year)
4
ELIGIBLE INVESTORS AND BORROWERS
APPOINTMENT OF DEBENTURE TRUSTEE
Borrowers Borrowers • Corporates • FIs • Banks
Eligible Investors
Investors
• Mutual Funds • Corporates • Banks • FIIs • Trusts/PFs • Individuals • Insurance Companies
Regulated by 117 B of the Companies Act, 1956 and SEBI (Debenture Trustees) Regulations, 1993. Trustee can be a Bank, Insurance Company, Corporate or Public Financial Institution. Mandatory in case of public/right issue of debentures. Trustees are appointed to protect the interest of the investors.
CREATION OF DEBENTURE TRUST DEED AND STAMP DUTY IMPLICATIONS
Regulated by schedule IV of SEBI (Debenture Trustees) Regulations, 1993. It is an undertaking by the Company to pay principal and interest to the Debenture holders. It is a legal document to create charge on Company’s asset as security to the Debentures. Power to Trustees are defined in the Trust deed. There is a stamp duty cost involved in creation of Debenture Trust deed in getting it registered. It varies from state to state.
CREATION OF DEBENTURE REDEMPTION RESERVE (DRR)
Regulated by section 117 C of the Companies Act, 1956 and General Circular no. 9/2002 dated 18.04.2002 issued by the Department of Company Affairs. DRR is the reserve created out of profits of the Company till the redemption of Debentures. In case of NBFCs, no DRR is required if debentures are privately placed but in case of public issue of debentures, DRR is required to be 50% of value of debentures. In case of other companies, it is 50% of value of debentures when issued publicly and 25% when it is privately placed. No DRR is required for Banks, AIFIs (All India Financial Institutions) regulated by RBI.
5
CREDIT RATING REQUIREMENT FOR ISSUANCE OF NCD
Rating from a Credit rating agency is required by the Investor to confirm the financial strength of the borrower/issuer of debentures. Privately placed / Debentures not to be listed: Not mandatory Public Issue /Debentures to be listed: Mandatory Higher the quality of credit rating, more the benefit of lower rate of interest to the borrower.
OTHER REGULATIONS
For Companies which are NBFCs: (Non Public deposit accepting) Following debentures are exempt from NBFC Acceptance of Public Deposits (Reserve Bank) Directions, 1998 a) Unsecured Debentures if issued to MFs. b) Debentures which are fully secured. c) Convertible Debentures For other Corporates: Following debentures issued will be exempted from Companies (Acceptance of Deposits) Rules, 1975: a) Debentures secured by mortgage of any immovable property b) Convertible Debentures
LISTING OF DEBENTURES ON STOCK EXCHANGES
Regulated by SEBI (Issue and Listing of Debt Securities) Regulations, 2008 Public Issue: Mandatory Private Placement: Not Mandatory (if desired then needs to follow above regulations) Credit Rating mandatory Compliances: 1) Prior consent from Debenture Trustee, 2) Prior approval from Stock Exchange, 3) Information Memorandum to be issued, 4) ISIN no. to be generated from NSDL/CSDL, 5) other listing compliances.
COST CONSTITUENTS FOR ISSUANCE OF DEBENTURES
Coupons Stamp Duty Rating Fee Debentures Trustee Fee Arranger Fee NSDL or CDSL Fee Registrar Fee
6
OPTIONS •It costs nothing to enter into a forward or futures contact, there is a cost to enter into an option contact.(hence understand before entering into any option contract) •It should be emphasized that an option gives the holder the right to do something. The holder does not have to exercise this right.
A to Z of OPTION Strategies
R.K.Arora
Head : Equity Broking , ALMONDZ GLOBAL SECURITIES LTD.
Types of Options
•CALL option: a call option gives the holder the right to buy the underlying asset by a certain date for a certain price. •PUT option: a put option gives the holder the right to sell the underlying asset by a certain date for a certain price. The price in the the contract is known as the exercise or strike price, the date is known as expiration date
Types of traders of derivatives
Hedgers : use derivatives to reduce or eliminate this risk. Speculators : wish to bet on future movements. They use derivatives to get extra leverage. Arbitrageurs : are in business to take advantage of a discrepancy between prices in two different markets.
7
OPTION Positions •There are 2 sides to every option contract. •On one side is the investor who has taken the long position(i.e.,has bought the option) •On other side is the investor who has taken a short position(i.e.,has sold or written the option).The writer of an option receives cash up front but has potential liabilities later.her profit or loss is the reverse of that of the purchaser of the option.
Factors affecting OPTION prices The current stock price The strike price The time to expiration The volatility of the stock price The risk free interest rate The dividends expected during the life of the option.
Relationship of all affecting factors
•The value of call generally increases as the current stock price,the time of expiration,the volatility,and the risk free interest rate increases.The value of the a call decreases as the strike price and expected dividends increase. •The value of a put generally increases as the strike price,the time to expiration,the volatility,and the expected dividends increase. The value of put decreases as the current stock price and the risk free interest rate increase.
Put-Call parity
Put-call parity is a relationship between the price, c, of a European call option on a stock and the the price, p, of a European put option on a stock. For a non-dividend paying stock, it is:-r(T-t) c+Xe =p+s
8
Trading strategies involving OPTIONS Plain VANILA & Standard options Complex or Nonstandard derivatives or exotic options or just exotics. In recent years, banks and other financial institutions have been very imaginative in designing exotics to meet the needs of clients (tailor made)
Covered call & Protective put Covered call : buying the stock and selling a call option on stock. Its similar to selling a put option. Protective put : buying a put option and buying the stock. Its similar to buying a call option.
SPREADS………………
BULL Spread: buying a call (put) with a low strike price and selling a call (put) with a higher strike price. Bear spread: buying a call (put) with a high strike price and selling a call (put) with a low strike price. Bull/bear spread limits both the investor`s upside potential and her downward risk.
SPREADS………………
BUTTERFLY Spread: buying calls (puts) with a low and high strike price and selling two calls (puts) with some intermediate strike price. Its appropriate strategy for an investor who feel that large stock price moves are unlikely. It require a small investment initially. Gives rise to small loss if there is a significant stock price move in either direction.
9
SPREADS………………
Calendar spread: can be created by selling a call option with a certain strike price and buying a longer maturity call option with the same strike price. Its created when direction is not known (arbitrage position).there can be many types of calendar spread:Neutral calendar spread Bullish/bearish calendar spread Reverse calendar spread etc………
SPREADS………………
Diagonal spread : is a spread which is such that both the expiration date and the strike price of the calls are different. its combination of bear, bull and calendar spreads. There are several different types of diagonal spreads.
Combinations…………..
•A combination is an option trading strategy that involve taking a position in both calls and puts on the same stock. Known as… 1.Straddles 2.Strips 3.Straps 4.Strangles etc………
STRADDLE Buying a call and put with same strike price and expiration date. Its appropriate when investor is expecting a large move in a stock price but does not know in which direction. A top straddle or straddle write is the reverse position.its created by selling a call and put of same strike price and same expiration. If the stock price on the expiration date is close to strike rate ,it leads to a significant profit.
10
Strips & Straps A strip consist of a long position in a call and two puts with the same strike price and expiration date. A strap consist of a long position in a put and two calls with the same strike price and expiration date.
Strangle In a strangle ,sometimes called a bottom vertical combination, an investor buy a put and a call with the same expiration date and different strike price. The sale of a strangle is sometimes referred to as a top combination.it can be appropriate for an investor who feels that large stock price moves are unlikely.
A of a to z •This presentation has explained just a few of the ways in which options can be used to produce an interesting relationships. Its just A of A TO Z of option strategies. •It’s a vast field.most exotic options trade in the otc mkt.,and are designed by financial institutions to meet the requirement of their clients:------------------
Exotic options Nonstandard American Options Forward Start Options Compound Options Barrier Options Binary Options Lockback Options Asian Options Options to exchange One Asset to Another Options involving Several Assets
Many Ways • There are many many other ways in which options can be used to produce interesting payoffs. Its not surprising that option trading has steadily increased in popularity and continues to fascinate investors.
11
NOT FOR PROFIT ORGANISATIONS:There is no clear cut definition of “NOT FOR PROFIT ORGANISATION”, but in common parlance they are considered to be of Charitable, Religious, Philanthropic, Cultural, Social, Political, Educational, Sports, Mutual Benefit Societies or Trade Associations or other organizations carrying out objects of public utilities. There is no specific Act of India, which deals with Not for Profit Organisations. Many of the organisations are constituted by specific Acts of Parliament or State Legislatures for a stated purpose. However, the most common organisations are constituted under the following heads:a) b) c) d) e) Trusts registered under the Trusts Act. Societies registered under the Societies Registration Act, 1860. Trusts created by will. Wakfs and wakf boards under the Mohammedan Law. Section 25 companies existing not for profit under the Companies Act, 1956.
TRUSTS:The TRUSTS are formed by the procedure laid down in the Indian Trust Act, 1882. A Trust is created by desire and declaration, which may be oral or written or by will, but it is advisable to have a trust declaration written, if it involves immovable property and it should be registered with the appropriate SubRegistrar under the Indian Registration Act. There are the following essential features of the trust:1. Three parties; Author or Settler, Trustee and Beneficiary. 2. Declaration of Trust. 3. Certainty of the subject matter of the trust. 4. Certainty of the objects of the trust. The Trust Deed is the constitution of the Trust to be formed. It contains the aims and objects of the trust, and the purposes for which the property of the trust can be utilised, beneficiaries of the trust and makes rules for the management and administration of the trust property and distribution thereof. The settler may direct for any specific mode of investment of trust funds. The declaration of trust once made cannot be modified or altered even by the settler unless he has reserved the right. The stamp duty required for the declaration of trust is as per Stamp Act of the relevant state and is similar to the one applicable to Conveyance Deed. In Delhi, at present it is 8% of the value of the property settled.
The Trust Deed or Declaration to be effective should contain the following items:a) Name of the Trust.
12
b) c) d) e) f) g) h) i) j) k) l) m) n) o) p)
Official address of the Trust Objects of the Trust Number of the Trustees. Term of office of the Trustees. President. Managing Trustee. Termination of office of the trustees. Meeting and proceedings of the Trustees. Quorum and Voting in the meetings. Powers, Functions and Duties of the Trustees. Application of the properties of the Trust. Accounts and Audit Defects of Procedure immaterial. Amendments. Dissolution of the Trust.
SOCIETIES UNDER THE SOCIETIES REGISTRATION ACT:The most common form of N.P.O. is Societies registered under the Societies Registration Act, XXI of 1860 and as per provisions of Section 20 of the said Act following Societies may be registered. Section 20:- the following societies may be registered under this Act:-
Charitable societies, the military orphan funds or societies established at the several presidencies of India, societies established for the promotion of science, literature, or the fine arts for instruction, the diffusion of useful knowledge, {the diffusion of political knowledge}, the foundation or maintenance of libraries or reading rooms for general use among the members or open to the public or public museums and galleries of paintings and other works of art, collections of natural history, mechanical and philosophical inventions, instruments or designs.
Minimum seven persons are required to get the society registered, who will apply to the Registrar of Firms and Societies of relevant state with copy of Memorandum of Association and Rules and Regulations duly signed and verified and a fee of Rs. 50/- is to be paid. The Memorandum of Association has to be of the following format:1. Name of the Society. 2. Registered Office of the Society.
13
3. Aims and Objects of the Society. 4. Present Management. 5. Subscription by Desired Persons. The Memorandum of Association has to be signed by at least three office bearers and identity proof of the Desired Persons should be filed. Special points to be considered:1. The proposed name should not contravene the provisions of the Emblems Act, 1950. 2. The Societies having All India Character should have one member each from at least seven states. 3. Signatories to the Memorandum of Association should be duly witnessed. 4. An affidavit regarding legal possession of the office should be filed. 5. Present Management should be out of the Desirous Persons, who have subscribed to Memorandum of Association. 6. Rules and Regulations should be consistent with the provisions of Societies Registration Act, XXI of 1860 as applicable to Union Territory of India. 7. Rules must provide for provisions relating to Sections 4, 6, 12, 13 and 14 of the Act. Generally, the rules should contain the following:1. Name of the Society. 2. Membership of the Society. 3. General body of the Society. 4. Governing Body. 5. Bank account. 6. Functions of the Governing body. 7. Sources of the income. 8. Election and Quorum 9. management of the funds 10. Powers and duties of the office bearers. 11. Audit 12. Amendment 13. Legal proceedings Section-6 of the Act. 14. Annual List of governing body 15. Dissolution
SECTION 25 COMPANIES :In case of Joint Stock Companies, not for profit companies are registered as Private or Public Limited Companies under the Companies Act, 1956 and can get a license for use of name with Limited at the end u/s 25 from the R. D. Company Law Department. The procedure for the registration is same as that of the other Companies.
14
Raising Funds from Capital Market Learning of Derivative Strategies in Capital Market (A-Z Option Strategies) Overview on Registration & Formation of Trusts
June 12, 2010 India Habitat Centre Lodhi Road, New Delhi
Northern India Regional Council of
The Institute of Chartered Accountants of India
Organised by
1
FUND RAISING FROM CAPITAL MARKETS
COMMERCIAL PAPERS & NON-CONVERTIBLE DEBENTURES
Seminar on Capital Markets
C.A. Sunil Garg President, Treasury & Group Finance Religare Enterprises Ltd. NIRC, June 12th, 2010
COMMERCIAL PAPER
COMMERCIAL PAPER MARKET
Introduced in India in 1990. Intended to be a part of Working Capital Finance for Corporates
CP – SUITABILITY/ OBJECTIVES
To enable highly rated Non Banking Companies i.e. Corporates / PDs/ FIs to raise short term funds. Suitable for:
Lenders with short term surplus funds who wish to earn a higher rate then being offered by call money market or treasury bill market. Borrowers who wish to avail short term funds at effective rates cheaper than that being charged by the Banks (interest rate arbitrage).
2
ELIGIBILITY CRITERIA FOR CORPORATES
The tangible net worth of the company, as per the latest audited balance sheet is not less then Rs. 4 Crore. Company has been sanctioned working capital limit by bank or AIFIs The borrowal account of the company is classified as a Standard Asset by the financing bank / institution.
RATING REQUIREMENTS
Credit Rating to be obtained for issuance of CP from any of the following rating agencies : CRISIL, ICRA, CARE, FITCH or others, as may be specified by RBI Minimum Credit Rating : P-2 of CRISIL or such equivalent.
CP – PRIMARY MARKET
Players Tenor Inv. Criteria Banks/MFs/FIIs/NRIs HNIs/Corporates. 7 D – 364 D Liquidity Rating Financials Comfort Earmarking (most pref.) Stand alone cp Standby or Backstop facility Rs. 5 lakhs or multiple thereof. physical & demat Issued at a discount to face value.
COST CONSTITUENTS FOR COMMERCIAL PAPERS
Placement
Denomination Mode of issuance
Discount Rate Rating Fee Stamping Fee IPA Fee Arrangers Fee Registrar Fee NSDL Fee
3
NON CONVERTIBLE DEBENTURES
Relevant provisions of Companies Act:
1.117
to 123: Regulates (a) appointment of Debenture Trustee, (b) Duties of Trustee, (c ) Creation of Debenture Redemption Reserve and (d) Liabilities of Trustee, etc. (b): Approval of Board of Directors to issue Debentures. (d): Approval of Shareholders required if the borrowing is more than paid-up capital + free reserves of the Company
2.292(1) 3.293(1)
NON-CONVERTIBLE DEBENTURES
NON CONVERTIBLE DEBENTURESOBJECTIVES
• •
NON CONVERTIBLE DEBENTURESFEATURES
•Can
Method of raising Loan capital It forms part of Company’s Capital Structure but does not become share capital.
be issued as a public issue or as private placement. •Can be issued for Short term (less than one year) or Long term (more than one year)
4
ELIGIBLE INVESTORS AND BORROWERS
APPOINTMENT OF DEBENTURE TRUSTEE
Borrowers Borrowers • Corporates • FIs • Banks
Eligible Investors
Investors
• Mutual Funds • Corporates • Banks • FIIs • Trusts/PFs • Individuals • Insurance Companies
Regulated by 117 B of the Companies Act, 1956 and SEBI (Debenture Trustees) Regulations, 1993. Trustee can be a Bank, Insurance Company, Corporate or Public Financial Institution. Mandatory in case of public/right issue of debentures. Trustees are appointed to protect the interest of the investors.
CREATION OF DEBENTURE TRUST DEED AND STAMP DUTY IMPLICATIONS
Regulated by schedule IV of SEBI (Debenture Trustees) Regulations, 1993. It is an undertaking by the Company to pay principal and interest to the Debenture holders. It is a legal document to create charge on Company’s asset as security to the Debentures. Power to Trustees are defined in the Trust deed. There is a stamp duty cost involved in creation of Debenture Trust deed in getting it registered. It varies from state to state.
CREATION OF DEBENTURE REDEMPTION RESERVE (DRR)
Regulated by section 117 C of the Companies Act, 1956 and General Circular no. 9/2002 dated 18.04.2002 issued by the Department of Company Affairs. DRR is the reserve created out of profits of the Company till the redemption of Debentures. In case of NBFCs, no DRR is required if debentures are privately placed but in case of public issue of debentures, DRR is required to be 50% of value of debentures. In case of other companies, it is 50% of value of debentures when issued publicly and 25% when it is privately placed. No DRR is required for Banks, AIFIs (All India Financial Institutions) regulated by RBI.
5
CREDIT RATING REQUIREMENT FOR ISSUANCE OF NCD
Rating from a Credit rating agency is required by the Investor to confirm the financial strength of the borrower/issuer of debentures. Privately placed / Debentures not to be listed: Not mandatory Public Issue /Debentures to be listed: Mandatory Higher the quality of credit rating, more the benefit of lower rate of interest to the borrower.
OTHER REGULATIONS
For Companies which are NBFCs: (Non Public deposit accepting) Following debentures are exempt from NBFC Acceptance of Public Deposits (Reserve Bank) Directions, 1998 a) Unsecured Debentures if issued to MFs. b) Debentures which are fully secured. c) Convertible Debentures For other Corporates: Following debentures issued will be exempted from Companies (Acceptance of Deposits) Rules, 1975: a) Debentures secured by mortgage of any immovable property b) Convertible Debentures
LISTING OF DEBENTURES ON STOCK EXCHANGES
Regulated by SEBI (Issue and Listing of Debt Securities) Regulations, 2008 Public Issue: Mandatory Private Placement: Not Mandatory (if desired then needs to follow above regulations) Credit Rating mandatory Compliances: 1) Prior consent from Debenture Trustee, 2) Prior approval from Stock Exchange, 3) Information Memorandum to be issued, 4) ISIN no. to be generated from NSDL/CSDL, 5) other listing compliances.
COST CONSTITUENTS FOR ISSUANCE OF DEBENTURES
Coupons Stamp Duty Rating Fee Debentures Trustee Fee Arranger Fee NSDL or CDSL Fee Registrar Fee
6
OPTIONS •It costs nothing to enter into a forward or futures contact, there is a cost to enter into an option contact.(hence understand before entering into any option contract) •It should be emphasized that an option gives the holder the right to do something. The holder does not have to exercise this right.
A to Z of OPTION Strategies
R.K.Arora
Head : Equity Broking , ALMONDZ GLOBAL SECURITIES LTD.
Types of Options
•CALL option: a call option gives the holder the right to buy the underlying asset by a certain date for a certain price. •PUT option: a put option gives the holder the right to sell the underlying asset by a certain date for a certain price. The price in the the contract is known as the exercise or strike price, the date is known as expiration date
Types of traders of derivatives
Hedgers : use derivatives to reduce or eliminate this risk. Speculators : wish to bet on future movements. They use derivatives to get extra leverage. Arbitrageurs : are in business to take advantage of a discrepancy between prices in two different markets.
7
OPTION Positions •There are 2 sides to every option contract. •On one side is the investor who has taken the long position(i.e.,has bought the option) •On other side is the investor who has taken a short position(i.e.,has sold or written the option).The writer of an option receives cash up front but has potential liabilities later.her profit or loss is the reverse of that of the purchaser of the option.
Factors affecting OPTION prices The current stock price The strike price The time to expiration The volatility of the stock price The risk free interest rate The dividends expected during the life of the option.
Relationship of all affecting factors
•The value of call generally increases as the current stock price,the time of expiration,the volatility,and the risk free interest rate increases.The value of the a call decreases as the strike price and expected dividends increase. •The value of a put generally increases as the strike price,the time to expiration,the volatility,and the expected dividends increase. The value of put decreases as the current stock price and the risk free interest rate increase.
Put-Call parity
Put-call parity is a relationship between the price, c, of a European call option on a stock and the the price, p, of a European put option on a stock. For a non-dividend paying stock, it is:-r(T-t) c+Xe =p+s
8
Trading strategies involving OPTIONS Plain VANILA & Standard options Complex or Nonstandard derivatives or exotic options or just exotics. In recent years, banks and other financial institutions have been very imaginative in designing exotics to meet the needs of clients (tailor made)
Covered call & Protective put Covered call : buying the stock and selling a call option on stock. Its similar to selling a put option. Protective put : buying a put option and buying the stock. Its similar to buying a call option.
SPREADS………………
BULL Spread: buying a call (put) with a low strike price and selling a call (put) with a higher strike price. Bear spread: buying a call (put) with a high strike price and selling a call (put) with a low strike price. Bull/bear spread limits both the investor`s upside potential and her downward risk.
SPREADS………………
BUTTERFLY Spread: buying calls (puts) with a low and high strike price and selling two calls (puts) with some intermediate strike price. Its appropriate strategy for an investor who feel that large stock price moves are unlikely. It require a small investment initially. Gives rise to small loss if there is a significant stock price move in either direction.
9
SPREADS………………
Calendar spread: can be created by selling a call option with a certain strike price and buying a longer maturity call option with the same strike price. Its created when direction is not known (arbitrage position).there can be many types of calendar spread:Neutral calendar spread Bullish/bearish calendar spread Reverse calendar spread etc………
SPREADS………………
Diagonal spread : is a spread which is such that both the expiration date and the strike price of the calls are different. its combination of bear, bull and calendar spreads. There are several different types of diagonal spreads.
Combinations…………..
•A combination is an option trading strategy that involve taking a position in both calls and puts on the same stock. Known as… 1.Straddles 2.Strips 3.Straps 4.Strangles etc………
STRADDLE Buying a call and put with same strike price and expiration date. Its appropriate when investor is expecting a large move in a stock price but does not know in which direction. A top straddle or straddle write is the reverse position.its created by selling a call and put of same strike price and same expiration. If the stock price on the expiration date is close to strike rate ,it leads to a significant profit.
10
Strips & Straps A strip consist of a long position in a call and two puts with the same strike price and expiration date. A strap consist of a long position in a put and two calls with the same strike price and expiration date.
Strangle In a strangle ,sometimes called a bottom vertical combination, an investor buy a put and a call with the same expiration date and different strike price. The sale of a strangle is sometimes referred to as a top combination.it can be appropriate for an investor who feels that large stock price moves are unlikely.
A of a to z •This presentation has explained just a few of the ways in which options can be used to produce an interesting relationships. Its just A of A TO Z of option strategies. •It’s a vast field.most exotic options trade in the otc mkt.,and are designed by financial institutions to meet the requirement of their clients:------------------
Exotic options Nonstandard American Options Forward Start Options Compound Options Barrier Options Binary Options Lockback Options Asian Options Options to exchange One Asset to Another Options involving Several Assets
Many Ways • There are many many other ways in which options can be used to produce interesting payoffs. Its not surprising that option trading has steadily increased in popularity and continues to fascinate investors.
11
NOT FOR PROFIT ORGANISATIONS:There is no clear cut definition of “NOT FOR PROFIT ORGANISATION”, but in common parlance they are considered to be of Charitable, Religious, Philanthropic, Cultural, Social, Political, Educational, Sports, Mutual Benefit Societies or Trade Associations or other organizations carrying out objects of public utilities. There is no specific Act of India, which deals with Not for Profit Organisations. Many of the organisations are constituted by specific Acts of Parliament or State Legislatures for a stated purpose. However, the most common organisations are constituted under the following heads:a) b) c) d) e) Trusts registered under the Trusts Act. Societies registered under the Societies Registration Act, 1860. Trusts created by will. Wakfs and wakf boards under the Mohammedan Law. Section 25 companies existing not for profit under the Companies Act, 1956.
TRUSTS:The TRUSTS are formed by the procedure laid down in the Indian Trust Act, 1882. A Trust is created by desire and declaration, which may be oral or written or by will, but it is advisable to have a trust declaration written, if it involves immovable property and it should be registered with the appropriate SubRegistrar under the Indian Registration Act. There are the following essential features of the trust:1. Three parties; Author or Settler, Trustee and Beneficiary. 2. Declaration of Trust. 3. Certainty of the subject matter of the trust. 4. Certainty of the objects of the trust. The Trust Deed is the constitution of the Trust to be formed. It contains the aims and objects of the trust, and the purposes for which the property of the trust can be utilised, beneficiaries of the trust and makes rules for the management and administration of the trust property and distribution thereof. The settler may direct for any specific mode of investment of trust funds. The declaration of trust once made cannot be modified or altered even by the settler unless he has reserved the right. The stamp duty required for the declaration of trust is as per Stamp Act of the relevant state and is similar to the one applicable to Conveyance Deed. In Delhi, at present it is 8% of the value of the property settled.
The Trust Deed or Declaration to be effective should contain the following items:a) Name of the Trust.
12
b) c) d) e) f) g) h) i) j) k) l) m) n) o) p)
Official address of the Trust Objects of the Trust Number of the Trustees. Term of office of the Trustees. President. Managing Trustee. Termination of office of the trustees. Meeting and proceedings of the Trustees. Quorum and Voting in the meetings. Powers, Functions and Duties of the Trustees. Application of the properties of the Trust. Accounts and Audit Defects of Procedure immaterial. Amendments. Dissolution of the Trust.
SOCIETIES UNDER THE SOCIETIES REGISTRATION ACT:The most common form of N.P.O. is Societies registered under the Societies Registration Act, XXI of 1860 and as per provisions of Section 20 of the said Act following Societies may be registered. Section 20:- the following societies may be registered under this Act:-
Charitable societies, the military orphan funds or societies established at the several presidencies of India, societies established for the promotion of science, literature, or the fine arts for instruction, the diffusion of useful knowledge, {the diffusion of political knowledge}, the foundation or maintenance of libraries or reading rooms for general use among the members or open to the public or public museums and galleries of paintings and other works of art, collections of natural history, mechanical and philosophical inventions, instruments or designs.
Minimum seven persons are required to get the society registered, who will apply to the Registrar of Firms and Societies of relevant state with copy of Memorandum of Association and Rules and Regulations duly signed and verified and a fee of Rs. 50/- is to be paid. The Memorandum of Association has to be of the following format:1. Name of the Society. 2. Registered Office of the Society.
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3. Aims and Objects of the Society. 4. Present Management. 5. Subscription by Desired Persons. The Memorandum of Association has to be signed by at least three office bearers and identity proof of the Desired Persons should be filed. Special points to be considered:1. The proposed name should not contravene the provisions of the Emblems Act, 1950. 2. The Societies having All India Character should have one member each from at least seven states. 3. Signatories to the Memorandum of Association should be duly witnessed. 4. An affidavit regarding legal possession of the office should be filed. 5. Present Management should be out of the Desirous Persons, who have subscribed to Memorandum of Association. 6. Rules and Regulations should be consistent with the provisions of Societies Registration Act, XXI of 1860 as applicable to Union Territory of India. 7. Rules must provide for provisions relating to Sections 4, 6, 12, 13 and 14 of the Act. Generally, the rules should contain the following:1. Name of the Society. 2. Membership of the Society. 3. General body of the Society. 4. Governing Body. 5. Bank account. 6. Functions of the Governing body. 7. Sources of the income. 8. Election and Quorum 9. management of the funds 10. Powers and duties of the office bearers. 11. Audit 12. Amendment 13. Legal proceedings Section-6 of the Act. 14. Annual List of governing body 15. Dissolution
SECTION 25 COMPANIES :In case of Joint Stock Companies, not for profit companies are registered as Private or Public Limited Companies under the Companies Act, 1956 and can get a license for use of name with Limited at the end u/s 25 from the R. D. Company Law Department. The procedure for the registration is same as that of the other Companies.
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