Dr.BRR

Commodity Exchanges World India

CME Group i.e., [CME + CBOT+

NYMEX + COMEX]

LME

LIFFE

MCX Nov 10, 2003, Mumbai, > 69 commodities,

Av. Daily T/O > Rs. 15000 crore, Does 60 % commodity trading in India, FT, SBI, Corp Bk, NABARD, NSE, BOI, BOB, Canara, HDFC Bk, Union Bk, Fidelity etc…….

Dec 15, 2003, Mumbai, > 57 commodities, ICICI Bk, LIC, NABARD, Goldman Sachs etc…….

Nov 26, 2002, Amd’bad, >24 commodities, CWC

[Central Warehousing Corporation], Commodity related institutions of Gujarat, PNB etc

National Board of Trade, Indore (NBOT) + Host of Regional

commodity exchanges

Market timings, Contract size, Contract Cycle vary from exchange to exchange.

CMS B School JAIN University IAPM Dr BRR

Dr.BRR

Commodity Exchanges - India

National Commodity Exchanges

MCX: Multi Commodity Exchange of India Ltd, Mumbai

NCDEX: National Commodity & Derivatives Exchange Ltd, Mumbai

NMCE: National Multi Commodity Exchange of India Ltd, Ahmedabad

ICEX: Indian Commodity Exchange Ltd, New Delhi [Reliance+IndiaBulls+IDFC etc]

ACE: Ace Derivatives and Commodity Exchange Ltd, Mumbai [Kotak Achored]

Regional Commodity Exchanges National Board of Trade, Indore

India Pepper & Spice Trade Association, Kochi

+ Host of Regional commodity exchanges [Refer fmc.gov.in]

Regulation GOI-Ministry Of Consumer Affairs, Food and Public Distribution FMC & Forward Contracts (Regulation) Act, 1952. In US: CFTC [Commodity Futures Trading Commission]

For OTC: ISDA [International Swaps and Derivatives Association]

CMS B School JAIN University IAPM Dr BRR

Dr.BRR

Commodity Exchanges

MCX Regional NCDEX NMCE

CMS B School JAIN University IAPM Dr BRR

Dr.BRR

Stock Indices vs. Commodity

Real time Not Real time

Cash market Futures market

COMMODITIES: AGRI: Cereals, Pulses, oil seeds, Spices, Plantations,

vegetables, industry RM… METALS: Base, Precious, Ferrous

ENERGY: Crude, Furnace oil, Natural Gas PETROCHEMICALS: Polymers etc

Trading: Screen based, state-of-the-art, new generation integrated trading platform that permits faster & efficient operations in a cost effective manner.

CMS B School JAIN University IAPM Dr BRR

Dr.BRR

Risk Management:

Real-time Margining System at client level

Monitoring of position limits (Quantity)

Capital adequacy norms

Daily price limits

Initial margins

Special margins

Marked-to-market margin

Delivery period margin

Clearing and Settlement: System driven and rule based. The Exchange has its own in-house clearing house, which undertakes to

clear each and every trade and is counter-party for all trades; thus offering novation (zero counter-party

risk) to each and every trade executed on the Exchange

CMS B School JAIN University IAPM Dr BRR

Dr.BRR

Objectives of Commodity Exchanges

Price Discovery

Price Risk Management

Benefits/Advantages

Hedging

Arbitration

Speculation

Leverage

Liquidity

Integrated Price structure

Price Stabilization

Free flow of information

Terminal market facilities and infrastructures

CMS B School JAIN University IAPM Dr BRR

Dr.BRR

Fundamental analysis of Commodities Production & consumption: Crop pattern, Consumption pattern

Govt Policy: Import and export, Government interference,

Distance between consuming center to producing center, Cost of transportation, Means of transportation

Usual trade practice

Weather, Climate, Cultivation period

Impact of technology on crop cultivation.

Scope and potential of production and consumption for particular commodity and its rivalry with other similar kind of commodity that may in turn may be near substitute for it.

Value chain of the commodity & influence of stakeholders at different levels in value chain.

Taxation: sales tax, import tax, export tax, custom duty, octroi

Inflation,

Foreign currency exchange rate,

Presence of organized institutions,

Groups and their influence on trading community pertaining to particular commodity.

For metals & crude, some of the above points are relevant. For further information, refer commodity journals & Commodity exchanges.

D S

Q

P

CMS B School JAIN University IAPM Dr BRR

Dr.BRR

Forward Trading Evolution – Ban – Resume

Evolution:

Commodity Derivative markets started in India in Cotton in

1875 and in oilseeds in 1900 at Bombay, & in raw jute and

jute goods started at Calcutta in 1912.

Ban:

Forward trading was banned in 1960’s except for Pepper,

Turmeric, Castorseed and Linseed. Futures trading in

Castorseed and Linseed was suspended in 1977.

Resume:

Post liberalization of the economy started [in 1990], the

Government set up a Committee under the Chairmanship of

Prof. K. N. Kabra in 1993 to examine the role of futures

Trading. Committee recommended allowing futures trading

in 17 commodity groups. It recommended strengthening of

Forward Markets Commission and amendments to Forward

Contracts (Regulation) Act, 1952.

CMS B School JAIN University IAPM Dr BRR