The first thing towards intro of derivatives trading in India was the promulgation with the Securities Laws(Amendment) Ordinance, 95, which withdrew the forbidance on alternatives in securities. The market intended for derivatives, however , did not remove, as there were no regulatory framework to govern trading of derivatives. SEBI create a 24–member committee underneath the Chairmanship of Dr . M. C. Gupta on Nov 18, 1996 to develop suitable regulatory structure for derivatives trading in India. The committee submitted its statement on 03 17, 98 prescribing important pre–conditions for introduction of derivatives trading in India. The committee recommended that derivatives must be declared as ‘securities' in order that regulatory structure applicable to trading of ‘securities' could also govern trading of securities. SEBI also set up a group in June 1998 underneath the Chairmanship of Prof. M. R. Varma, to advise measures for risk hold in derivatives market in India. The report, which was submitted in October 98, worked out the operational information on margining program, methodology pertaining to charging first margins, broker net worth, first deposit requirement and real–time monitoring requirements.
The Securities Agreement Regulation Take action (SCRA) was amended in December 99 to include derivatives within the ambience of ‘securities' and the regulating framework was developed for governing derivatives trading. The action also caused it to be clear that derivatives should be legal and valid as long as such legal agreements are traded on a identified stock exchange, thus precluding OTC derivatives. The government also rescinded in Mar 2000, the three– a generation old notification, which usually prohibited forwards trading in securities.