The premier exchange - BSE - had a badla or a carryforward system in place, and was hence reportedly against introduction of futures. But then this system had a drawback. It did not allow institutions to participate. Its rival, NSE, however, wanted to start with derivatives. The government was not sure whether the financial system was prepared for this idea. Repeated changes in the government only added to the delay.

Finally, the time seems to have come when both the exchanges seem prepared to kick off trading. The government too has given its nod.

The markets have changed vastly since the time derivatives were first proposed to be introduced in 1996.

For starters, trading, which used to take place in a ring, has become computerised, making the system more transparent. A depository is in place, and hence hassles associated with physical paper have diminished. On the other hand, the markets have witnessed an increase in market capitalisation and delivery based trading, which makes it difficult for any single individual to manipulate the system. Domestic mutual funds have given an excellent performance, which has instilled confidence in small investors. All these factors will add tremendous depth to the stock markets.

This entire infrastructure seems to be enough to support derivative trading, but some hurdles remain. Electronic transfer of funds in the banking system is still not a reality, and we still do not have an active debt market where arbitragers can park their short-term funds.

Plans are on to start with stock index futures on the Sensex as well as the Nifty. Stock index futures is the most widely accepted product internationally and is easy to understand. Compared to any scrip, an index is difficult to manipulate.