GALLEON one of the America’s leading hedge fund’s co founder Raj Rajaratnam found guilty of insider trading. Raj is one of the wealthiest men at Wall Street. More than $25 million profit generated through insider trading by Galleon.

There is a series of people from leading business houses including an IT firm, rating agency and Investment banks who were involved with Raj Rajaratnam.

The Hedge fund size is more than $7million dollar and it did insider trading in a list of IT firms including Google, Intel etc, before the IT bubble burst in 2001.

There are several questions raised out of this case. Do hedge funds need to be regulated? If yes! than they will come under constraints.  The case should cause financial professionals considering insider trades in the future to wonder whether law enforcement is listening.

But the laws in our country are enforceable to handle cases like this ?

The derivative instrument Interest rate future IRF is back in India after a period of 6 years .IRF was launched in the year 2003 for the first time in India, it did not took off as there was lack of liquidity and various complexities including the delivery of the product.

Last Saturday I attended the seminar at NSE, again introduction of IRFs in the Indian market. Came across various things and still could not able to digest few things because of the complexities.

The best part of IRFs is that they are deliverable at the end of maturity and the catch is IRFs will be functioning on the basis of underlying 7% Notional Government bond having a maturity of 10years.

The committee has recommended 11 Government of India Bonds having maturity not more than 10 years any of these could be delivered by the seller at the end of maturity depends upon the seller option.

At a time four contracts would be available to trade with the expiry of March, June, September and December so far only two are available they are of September and December.

The concept of Cheapest to Deliver CTD has been introduced (keeping in mind the lack of liquidity in the Indian bond market). Out of 11 bond chosen by the exchange the bond having less CTD will be delivered by the seller in the normal circumstances. Quoting the example:

 An Upward sloping yield curve and having a long maturity will be delivered by the seller (keeping in mind the reinvestment risk so it would be CTD contact)

It’s a great move in reforming the India’s Bond market having lot of potentials to outperform in the world market. In India generally the IRF are traded by the Banks, Primary dealers, financial institutions and Mutual fund. Earlier IRF where only used for the balance sheet management and Mutual funds were allowed only to hedge their risk. Thankfully they will be allowed to trade now.

The market for the derivatives on Bond world wide is much bigger comparing to the size of equities market world over. The CBOT allow to trade spreads between the two different bonds. (Say a 10 year note and 30 year bond), means we can long on one and short on the other. The product attracts lot of volume and volatility.

In India calendar spread can be traded current month and the far month. The response in the last 10 days reported by the business newspaper is not that great. Hopefully the volume will pick up but the delivery part complexities will be there so IRFs could prove out to be great Trading, Arbitrage and hedging product.

Every body wants to be succesful in his/her life. But what are the reasons that some of us more succesful then our counterparts? Is it really down to skill, knowledge and stratergy or some thing altogether unpredictable? Black Swan the name give by the author Nassim Nicholas Taleb. After reading Black Swan I found fooled my randomness is also worth a read for the people who are associated with markets.

The book will definately challange the way you think about business and the world.More precisely its the factor called luck, how we percieve luck in our personal and proffesional experiences. Its more obvious in the markets we hear an enterpreneur has ‘vision’ or a trader is ‘talented’. but all too often thier performances is down to chance rather than skill, its becoz we fail to understand probability that we continue to believe events are non-random, finding reasons where none exits.

As a trader I loved the way the chapers are constructed in the book.

The newly elected government seems to be going in the right direction. Indicating that this is the most literate cabinet India ever have. Last year Mr Chiddambaram proposed a CTT on all commodities contract, that could have been disaster for the commodities market if the same has been introduced. The exchange traded commodity market is still in its juvenile stage .

Commodities market in India need to develop a lot comparing to the other markets of the world. Current FM has shown indications that he will not introduce the CTT in the budget, this will cherish all the commodities traders and encourage the investors to focus on the commodities too as a investment destination.

Even the most developed country of the world have not imposed commodity tax.

Nassimm Nicolas taleb described the current global crisis worst then the 1930 recession. This is because of the financial system and economies are co related.

But India is in better state considering the world economy.Thanks to the vision of former RBI governor Y.V. Reddy conservative policies. He never allowed the Indian banks to write any securitization and turning them to toxic derivatives, that’s why of the whole trillion dollar exotic products India’s exposure is only 50 crores.  Mr Reddy predicted the real estate bubble in India and tightened the policy rates on continues basis.

Although he created a lot of critics for him self because of his conservative policy but if he didn’t acted on time the situation could have been worse.
After completing his tenure at RBI he has never seen in the media nor at his home town because he has been delivering lectures how to come out of this crisis at World bank, Banking Institutes and to many global financial systems.
In one of the interview prof Joshep Stiglz said that the only way US could have been saved from the subprime crisis if YV Reddy was handling US Fed reserve ins ted of Alan’s Greenspan.

Thanks to the vision of YV Reddy man who saved Indian financial system from entring in to the global fiasco.

The decoupling theory which was introduced by some one before the sub-prime crisis in 2008 was went for the toss, when the Indian economy also suffered by the global recession. Now the Indian markets are ending in green from the last week and showing consistency but the European and the US stock markets are not showing such a great chance of revival.Is the decoupling theory persisting ? or the common views of analysts saying that its a election rally in the Indian market.

Global events are directly linked to the economy each and every major news do discount the market today or tomorrow. Be it the G20 sub mitt or the major chapter 11 bankruptcy filing by the MNCs. The Indian markets are up and when a finance guy want to know why they are up no body has the answer for the rally. Analyst has given a name to it saying its a election rally. Being in the market I always have a appetite to know the reason behind rise and fall of the market.

My friends are ringing me up and asking me Is it the correct time to enter in to the market ? I told them there is no correct and no wrong time to enter in to the market , its the script which you are buying has more importance rather then going gungho about the market. I still believe that the Indian capital market are very much in efficient they could be moved up and down by cartelisation. In the end Its the retail individual who is the sufferer . I don’t know where will be market after the elections or in the coming 1 year. I only remember one thing said my professor that to enter in to the market the loss born by you is the fees charged by the market . In market no body lose money neither the other one gain, Its only the transfer of wealth from one individual to another.

Economy always passes in different phases could be classified as the boom phase, the downside or the burst  phase . Central bankers are the key players in the economy with limited power in their hand.

Alans Greenspan and YV Reddy are credited with far greater power then they ever had and with responsibility for outcomes largely beyond their control. Central bankers actually have  very limited tools and hence limited powers.

Reddy in India understood the risk of bubble better than Greenspan .In the era of Greenspan the major collapse where the tech bubble, Long term Capital Management. and now the biggest ever financial crisis of all times. His successor Ben Bernanke along with US treasury Tim Giothner rebuilding by pooling finances in the US economy .

Reddy made several efforts to squash the bubble in the year 2004-2007 by raising the repo rate from 6% to 9%  which stopped banks from lending for urban purchase and increased the risk weightage to real estate.

Comparing the two economy US investor could buy $100 worth of shares with only $33. The Sensex gained 700% for the period 2003-08 and US housing prices rose 55%.

Mr Reddy deserved all praised for calibrated opening up rather then resisting to liberalization. Even after bubble recognisation central bank can’t do much.

Well India’s rating has been downgraded by S&P from stable BBB to -BBB, making situation more worse for the economy. Several measures on the fiscal side has been announced by the government reducing the excise duty by 2% and service tax by 2%. Concerns have been raised that the domestic firms will face problems while raising the money from abroad with the downgrading but I feel the affect will be negligible or 50/50. because looking at the current situation across the glob its equally difficult to raise the money from abroad because money has become a scarce commodity in the world. Several stimulus packages have been announced by the various governments bailing out the sectors.The situation has been conflagration from financial sector to the manufacturering sector which is said to be the growth engine for the economy.Lay offs and stocks lying in the go-down are common seen every where. Its time to better watch the things and then react because every day is a event day for economies.

Finaly the revolution in the Indian partnership has come and from April 1st 2009, the partnership undergo a huge transformission and the liability of the partnership will be limited to the shares they hold in the firm.

The Indian corporate is facing a severe liquidity crisis – evidences of which are well known as pledging of shares for the loan. The central government has eased the norms of FDI and it could go up to maximum 99.5% in most of the sectors. Some see it as an election pro move and critics have there opinion that the government has opened the can of worms.

The cap has been kept at 99.5% because 100% subsidiaries of foreign companies forego tax benefits of combined FDI and FII investments.

According to the Department of industrial policy and production (DIPP) any company will be projected Indian owned if the foreign company has less than 50% beneficial ownership in the company.

For example RANAJN PVT LTD, registered in India as an Indian company where a foreign company holds 49% stake and its Indian partner hold 51%. Ranjan pvt ltd investment in any sector will be considered Indian Investment, regardless of whether the sector is one in which FDI has been capped like telecom.

Well there have been certain issues like beneficial ownership has been brought in to the notice?  It’s expected that DIPP will give clearance on Monday over it. There are some more issues which are not cleared it seems the decision has been taken more in a half hazard manner. For the time being don’t eat your head wait to see some clarifications on Monday.