The Legal Paradox Surrounding OTC Financial Derivatives in the Indian Banking System

Abstract

Derivatives, a term which denotes instruments like forwards, futures, options, swaps, etc., constitute an important segment of financial market in the developed economies. They have gained ground the world over as one of the most sought after financial market hedging instruments. Though, derivatives trading existed in India from quite some time back, modern genre of financial derivatives made their formal appearance on the Indian scene only recently. Economic liberalization and resultant growth in the Indian financial sector has created a huge appetite for newer instruments and derivatives are one of them. Such types of complex financial instruments pose a real challenge for the reg1l.Zators to tame. This paper attempts to explore the meaning, nature and significance ofderivatives and the legal structure surrounding the use of Over-The-Counter Derivatives in ihe Indian Banking System.