FINAL PROJECT REPORT

ON

COMMODITIES

A NEW INVESTMENT AVENUE
PREPARED BY

Chandra Prakash 06BS 0876

Manish Rathi 06BS 1729

Prem Kumar 06BS 2402

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FINAL PROJECT REPORT

COMMODITIES

A NEW INVESTMENT AVENUE
A Report submitted in partial fulfillment of the requirements of MBA Program of ICFAI Business School

DISTRIBUTION LIST: Faculty guide:
Prof. C.V.A. Prasad Rao Prof. Kaushik Bhattacharjee

PREPARED BY:
Chandra Prakash 06BS 0876

Manish Rathi 06BS 1729

Company guide:
Prem Kumar 06BS 2402

Mr. Suman Kumar Adepu Branch head, UTI securities, Ameerpet

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TABLE OF CONTENTS
Executive Summary 6

Commodities Demystified Definition and Basics Characteristics Spot versus futures contract Difference between commodity and financial derivatives

8 8 8 9 12

Participants in the market

13

The Indian picture FMC

16 17

Our methodology in phases

19

Step towards the Mandis The pulses story Meeting with the Farmers Interaction with MCX and FMC Bullion story Base metals The chilli story The FAPCCI episode Industries we visited Sugar story

22 22 24 26 28 29 31 46 48 51 2

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Trial :: http://www.Hyderabad Stock Exchange episode Commodity Sutra… Our Initiative Commodity exchanges in India Futures trading… The growth story The Road blocks Ban on futures Speculation Playing with the future The price management fundamentals Price discovery is a Ruse Prescriptions/Suggestions Commodity futures… An alternative investment avenue Suggestions to make Indian commodity market mature Latest developments in the last 1 year National spot exchange (NSE) The concept Objectives Participants Advantages Operations 3 PDF Created with deskPDF PDF Writer .docudesk.com .

Trial :: http://www.docudesk. Standard Chartered Appendices Frequently asked questions (FAQs) Invitation letter for Chilli market seminar Communication details o MCX o FMC o NCDEX Business cards Zink Calculator Proposal submitted to FAPCCI References Bibliography Webliography LIST OF TABLES / CHARTS 4 PDF Created with deskPDF PDF Writer .About the organization UTI securities Ltd.com . (UTISEL) Securities Trading Corp of India (STCI) STCI Commodities Ltd.

12: Trading operations at NSEAP Chart no.com . 5: Chart no. 2: Chart no. 4: Chart no. 1: Table no. social and demographic picture of our system. 2: Table no. 4: Table no. Production and Yield for Chilli in India List of foreign exchanges and commodities traded in them List of commodities in the Indian exchanges Details of commodities traded in MCX and NCDEX Chart no. 10: Participants of NSEAP Chart no. 8: Chart no. 7: Chart no. 3: Table no. The 5 PDF Created with deskPDF PDF Writer . 13: Delivery operations at NSEAP Executive summary Our endeavor is to find out the status of commodity Derivatives as they stand in the overall economical.Trial :: http://www. 6: Chart no. 11: Advantages on NSEAP Chart no.docudesk. 5: Arrivals of Chilli in Guntur market Area. Consumption and Closing stock of Sugar in India Nybot Sugar 11 futures price web page of Commodity sutra National Spot Exchange for agro products (NSEAP)… The concept Chart no. 3: Chart no.Table no. 9: Area and production for Chilli in India Percentage share of Chilli in total exports on India Spot and Futures price technical chart on Chilli Contract specification of Red Chilli Production. 1: Chart no.

it is a very new and nascent proposition in India. We have studied that impact.com . economies and trades are being interlinked. Whether one participates into it or keeps himself aloof. our businesses are no more ours. Even though Commodity futures have their long history in this country. • To find out the penetration level of commodity futures markets in Indian society taking Hyderabad as a representative market and added inputs from other parts of country • To explore the present status and future prospects of commodities in our economy. Entire world economy is involved into it. But commodities are also subject matter of our social fabrication. Their primary goal of true price discovery is also much waited. it has to be kept in mind that as an asset class and even as a tool of risk minimization (for Traders. The same applies to commodities. in no ways can escape its effects. Any society comprises of two set of people: Traders and farmers. This project aims to achieve the following objectives: • To explore commodity futures as : An investment avenue (for middle class) A risk minimization tool (for the business class). leave alone the matter of their development as an investment avenue. periodical bans and derogatory government policies have hindered their prospects to develop as a tool for hedgers (risk minimization). Their business practices and strategies are rapidly changing and commodity market is very much influencing it.impact in economical system is very much obvious and beyond any dispute as commodities are themselves economical propositions. It is noteworthy that the new world economic order is of convergence. However. Whether we like it or not. All sectors.docudesk.Trial :: http://www. he. Farmers and businesses). Commodities are affecting the lives of both set of people. 6 PDF Created with deskPDF PDF Writer .

giving main emphasis on sugar and metal companies.docudesk.Trial :: http://www.com .• To develop a business development model for UTI SECURITIES as a brokerage firm by targeting key markets and business houses in and around Hyderabad. Commodities Demystified Definition and Basics 7 PDF Created with deskPDF PDF Writer .

The delivery periods are specified. The seller in a futures market has the choice to decide whether to deliver goods against outstanding sale contracts.docudesk.Trial :: http://www. mineral. It is invariably entered into for a standard variety known as the "basis variety" with permission to deliver other identified varieties known as "tender able varieties". 8 PDF Created with deskPDF PDF Writer .A futures trading is a standardized agreement between a buyer and a seller to exchange a pre agreed and standardized grade of an asset at a specific price and future date. he can do so not only at the location of the Association through which trading is organized but also at a number of other prespecified delivery centers. energy or commercial commodity. Characteristics A "Futures Contract” is a highly standardized contract with certain distinct features. b. In case he decides to deliver goods. e. a metal. The item or underlying asset can be an agricultural commodity. Futures trading are necessarily organized under the auspices of a market association so that such trading is confined to or conducted through members of the association in accordance with the procedure laid down in the Rules & Bye-laws of the association. parties to the contracts not being capable of altering these units. Some of the important features are as under: a. d. a financial instrument or a foreign currency. c.com . The units of price quotation and trading are fixed in these contracts.

In futures market actual delivery of goods takes place only in a very few cases.com . for a stated price and quantity.docudesk. Clearing involves finding out the net outstanding. No money changes hands when the contract is signed. Transactions are mostly squared up before the due date of the contract and contracts are settled by payment of differences without any physical delivery of goods taking place. Spot versus Future Contracts: Every transaction has three components. clearing and settlement does not happen instantaneously. In a forward contract the process of trading. The exchange of money and the underlying goods only happens at the future date as specified in the contract. This is trading. In a spot transaction. that is exactly how much of goods and money the two should exchange. • • • Trading Clearing Settlement A buyer and seller come together.Trial :: http://www.f. the trading. but the clearing and settlement happens at the end of the specified period. clearing and settlement happens instantaneously where as a contract by which two parties irrevocably agree to settle a trade at a future date. A forward is the most 9 PDF Created with deskPDF PDF Writer . negotiate and arrive at a price. The trading happens today. Settlement is the actual process of exchanging money and goods.

they see the futures price of an asset getting out of line with the cash price. Speculators: Speculators are participants who wish to bet on future movements in the price of an asset. Hedgers: Hedgers face risk associated with the price of an asset they use for their business. As a result of this leveraged speculative position. 3. Gold. 2. jute. options and swaps. they can take large positions on the market. futures. for example. 10 PDF Created with deskPDF PDF Writer .docudesk. silver. they would take offsetting positions in the two markets to lock in the profit. that is. in simple words are any goods that are common and unbranded. they increase the potential for large gains as well as large losses. These are the people who have the direct interest in the underlying asset. sugar. Futures and options contracts can give them leverage. 1. wheat. A commodity derivative derives its value from an underlying asset. rubber. commodity or any other asset.com . A derivative is a product whose value is derived from the value of one or more underlying variables or assets in a contractual manner. pepper. The underlying asset can be equity. • • • Hedgers Speculators Arbitragers. Derivative contracts are of different types.Trial :: http://www. The most common ones are forwards.basic derivative contract. by putting in small amounts of money upfront. forex. which is necessarily a commodity. If. We call it a derivative because it derives value from the price of the asset underlying the contract. They use the futures or options markets to reduce or eliminate this business risk. Arbitragers: Arbitragers work at making profits by taking advantage of discrepancy between prices of the same product across different markets. Participants who trade in the derivatives market can be classified under the following three broad categories. Commodities.

because of its unique nature lends to the benefits of a wide spectrum of people like investors. are some of the common commodities. etc. all goods and products of agricultural (including plantation). FCRA defines "goods" as "every kind of movable property other than actionable claims. The national commodity exchanges have been recognized by the Central Government for organizing trading in all permissible commodities which include precious (gold & silver) and nonferrous metals. corporate etc. potatoes and onions. apple juice can be a commodity whereas the ‘Real’ apple juice cannot be called a commodity. coffee and tea. cereals and pulses.docudesk. ginned and unginned cotton. Commodities market essentially represents another kind of organized market just like the stock market and the debt market.. oils and oilcakes. mineral and fossil origin are allowed for futures trading under the auspices of the commodity exchanges recognized under the FCRA. However. Commodity includes all kinds of goods. exporters. Futures' trading is organized in such goods or commodities as are permitted by the Central Government. One may be surprised to know that in the US commodities markets there are futures available even on cattle. money and securities". producers. rubber and spices. sugar and Gur. Difference between Commodity and Financial derivative: FINANCIAL DERIVATIVES Only cash settled COMMODITY DERIVATIVE Option settlement 11 of physically PDF Created with deskPDF PDF Writer . commodities market.Trial :: http://www.cotton etc. For e. importers. At present.com . oilseeds.g. raw jute and jute goods.

Trial :: http://www. futures markets trade in futures contracts which are primarily used for risk management (hedging) on commodity stocks or forward (physical market) purchases and sales.Not bulky Warehousing not required No variation in quality Bulky Warehouse required Varying quality of assets Unlike the physical markets.docudesk. Participants in the Market Investor’s Perspective 12 PDF Created with deskPDF PDF Writer . therefore. scarcely end in deliveries. Speculators also use these futures contracts to benefit from changes in prices and are hardly interested in either taking or receiving deliveries of goods. Futures contracts are mostly offset before their maturity and.com .

the prices of commodities mostly run in tandem with the international exchanges.Trial :: http://www. This gives an investor a greater opportunity to trade and obtain economies in commodities. Especially in the metals space and the bullion market. Commodity futures help them to procure or sell the commodities at a price decided 13 PDF Created with deskPDF PDF Writer . We say this because a high degree of negative correlation is found between commodity prices and that of equity and bond market.docudesk. which means that they are capable of being used as effective hedging instruments providing better diversification.Commodities futures represent a good form of investment because of the following reasons: • High Leverage – The margins in the commodity futures market are less than the F&O section of the equity market. • Less Manipulations . • Diversification – The returns from commodities market are free from the direct influence of the equity and debt market. Importer or Exporter Commodities futures can be of immense help to an importer or exporter in the following ways: • Hedge against price fluctuations – Wide fluctuations in the prices of import or export products can directly affect their bottom-line as the price at which they import/export is fixed beforehand.com . So they are less prone to rigging or price manipulations.Commodities are mostly governed by international price movements.

• Assured demand – Any glut in the market can make them wait unendingly for a buyer. They can avoid this risk by buying a commodity futures contract by which they assured of supply of a fixed quantity of materials at a pre-decided price at the appointed time. Producer’s Benefits • Lock-in the price for the produce – For farmers. 14 PDF Created with deskPDF PDF Writer .months before the actual transaction. the raw material cost dictates the final price of their output. • Ensures continuous supply – Any shortfall in the supply of raw materials can stall their production and make them default on their sale obligations.docudesk. By buying commodity futures. there is every chance that the price of their produce may come down drastically at the time of harvest. a producer can fix the price of its raw material thus saving the customer from a sudden price hike.Trial :: http://www. Selling commodity futures contract can give them assured demand at the time of harvest.com . Any sudden rise in the price of raw materials can compel them to pass on the hike to their customers and make their products unattractive in the market. thereby ironing out any change in prices that happen subsequently. This is termed as hedging against the market price in future. By taking positions in commodity futures they can effectively lock-in the price at which they wish to sell your produce. Consumer’s Perspective • Cost Control – For an industrialist.

com .docudesk.Trial :: http://www.The Indian Picture 15 PDF Created with deskPDF PDF Writer .

or oilseeds in the futures market.com . who claim to understand the equity markets. Till some months ago. arbitrageurs and speculators. The twenty year bear market for commodities has drastically reduced the prices of many commodities to their lowest levels. The present shift in trend in commodity trading complimented by the global increase in demand will certainly hold a promising future for the investments in this segment. Historically. with the setting up of three multi-commodity exchanges in the country. Indian markets have recently thrown open a new avenue for retail investors and traders to participate: commodity derivatives. Commodity markets are of great help not only for their participants but also the economy as a whole. bonds and real estate. pricing in commodities 16 PDF Created with deskPDF PDF Writer .Trial :: http://www. may find commodities an unfathomable market. Retail investors.Coming to the Indian scenario. For retail investors could have done very little to actually invest in commodities such as gold and silver. intermediate ban on commodity trading and policy interventions by the government. this wouldn't have made sense. For those who want to diversify their portfolios beyond shares.docudesk. Retail investors should understand the risks and advantages of trading in commodities futures before taking a leap. commodities are the best option. This was nearly impossible in commodities except for gold and silver as there was practically no retail avenue for punting in commodities. The essential contributors of this scenario include stringent regulatory restrictions. retail investors can now trade in commodity futures without having physical stocks! Commodities actually offer immense potential to become a separate asset class for market-savvy investors. commodity markets in India are still in their initial stages of development. However. Commodity markets have a huge potential in the Indian context particularly because of the agro-based economy. But commodities are easy to understand as far as fundamentals of demand and supply are concerned. With the government's initiative for agricultural liberalization. despite a long history of commodity markets. commodities' trading in India has gained increased momentum in activities.

1952. thus providing an efficient portfolio diversification option. IES. To keep forward markets under observation and to take such action in relation to them. It is a statutory body set up in 1953 under the Forward Contracts (Regulation) Act. (Smt. in exercise of the powers assigned to it by or under the Act To collect and whenever the Commission thinks it necessary. "The Act Provides that the Commission shall consist of not less then two but not exceeding four members appointed by the Central Government out of them being nominated by the Central Government to be the Chairman thereof.com . demand and prices. 17 PDF Created with deskPDF PDF Writer . are the Members of the Commission. CSS. Padma Swaminathan. as it may consider necessary. Currently Commission comprises three members among whom Dr. periodical reports on the working of forward markets relating to such goods.Trial :: http://www.futures has been less volatile compared with equity and bonds. CSS and Dr. including information regarding supply.) Jayashree Gupta. is acting as Chairman and Smt. to publish information regarding the trading conditions in respect of goods to which any of the provisions of the act is made applicable. The Regulator Forward Markets Commission (FMC) headquartered at Mumbai is a regulatory authority. Kewal Ram.docudesk. of India. and to submit to the Central Government. Govt." The functions of the Forward Markets Commission are as follows To advise the Central Government in respect of the recognition or the withdrawal of recognition from any association or in respect of any other matter arising out of the administration of the Forward Contracts (Regulation) Act 1952. which is overseen by the Ministry of Consumer Affairs and Public Distribution.

Trial :: http://www.To make recommendations generally with a view to improving the organization and working of forward markets.com . Our Methodology 18 PDF Created with deskPDF PDF Writer .docudesk. To undertake the inspection of the accounts and other documents of any recognized association or registered association or any member of such association whenever it considerers it necessary.

I would specifically like to mention the name and contribution.com . We went through all the materials. reading and studying the commodity market and all its facets. We got help from our technical and fundamental experts in UTI SECURITIES in the office. whatever was available and could be assessed.Trial :: http://www. We would rather like to use here the more appropriate word of commodity future because the commodity market is entirely future market up to now. Hence we tried to track the daily price movements of various commodities. We also learnt fundamental and technical analysis tools to be able to understand interpret and use those data. 19 PDF Created with deskPDF PDF Writer .docudesk. news and trends.Commodity Market: A new investment avenue The Beginning………… Our first objective was to explore the project and plan it periodically. Merely understanding and knowing the basics and even the intermediary things were not going to help us. So our next endeavor was to understand the subtle complexities of commodity markets. As the topic given to us was quite new and very less study had so far been done. We studied thoroughly and were able to understand the elementary things of the market after much effort. journals. websites and literature. we received from these experts. it was really a difficult task to go ahead with our project… The literature survey: Phase I The next few days were of understanding. Building up the basics in commodity market and understanding its dynamics was the foremost important thing for us.

Suman Kumar Adepu.Rajeev Ranjan (Regional Head.com . he arranged for us a number of guest speakers and experts.docudesk. He taught us a number of technical analysis tools that were going to help us in our future work. Commodity Research.) He shared with us minute details of delivery mechanism of Commodity exchanges. UTI securities) Our branch head .Trial :: http://www. Market Survey: Phase II 20 PDF Created with deskPDF PDF Writer . Chirag Seth (Manager. through his own contacts. Learning commodity market almost took 15 days of ours. a technical expert in commodities and has an experience of working with companies like Kotak and Karvy. Mainly what is the procedure to be followed in taking delivery from the warehouses at the end of the contract period and all the issues involved in it. He is a person from the Mumbai head office and he spared some time from his business visit in discussing with us the methodology one should adopt to do the fundamental research of commodities. Delivery. Mr. though he holds equally good command over fundamentals of various commodities as well. trends. nature and analysis of commodities. From time to time. STCI commodities ltd. karvy comtrade Ltd.Mr.) He gave us deep insight about the fundamental analysis of commodities. Ameerpet. We were now very much comfortable with the mechanism. Mr. (Branch Head.

the real stakeholders were not fully participating. farmers. Also because. to our knowledge. it is the fastest growing sector of Indian economy and because this sector has yield the highest returns with least calculated risk to its investors. this market promises two most difficult propositions of business: True price discovery and Risk management. Tough. argumentative mind. brokers and all the concerned people for whom the commodity market (read future) was envisaged. exciting and promising terrain of commodity futures. this market has so far made and the ground realities associated with it. Promising because. We had to gauge the progress. The next few days were to face the hard realities of commodity trading in India.docudesk. it was not mature. We had to enter the tough. commodities market has became as big as 76 % of India’s GDP within san of 3 years. It was now important for us to know whether the market is same on ground as it appears from outside. a vast bookish. We had to go to different stakeholders. We had to understand the practical realities of this very nascent market. the commodity markets had still not penetrated even the crust of the Indian Economy. journals and literatures. we entered the market.The second phase of our project was to explore the real world of commodities which was not within the four walls of our office. Steps towards the Mandi….com . Because people out there were highest paid. superficial knowledge and an inquisitive. 21 PDF Created with deskPDF PDF Writer . It was neither in the commodity terminals nor with the books. participants. because. Exciting. because after 6 years of introduction. traders. So with the theoretical tools of technical and fundamentals.Trial :: http://www.

Please note that all the suggestions and comments made here are strictly that of the traders and the people whom we interviewed, and are not influenced by any personal bias or influence.

The Pulses Story:
Our first interaction was with the pulses traders in Bagumbazzar. Let us first introduce the very nature of this market (mandi). This mandi comprises almost 200 medium to big traders. Traders have there links to Rajasthan, Gujarat and mostly Marwari-Gujraati communities.

They trade in pulses (tur, urad, moong, gaur seeds, masoor, chana) and other agricommodities like wheat, rice, etc. They give high turnover and all the trading done here are spot in nature. They trade through local brokers at the mutually agreed price and on (credit cash) basis. Some of the traders here are in their business for more than 70 years and it is their third generation which is carrying forward their business. Some other traders are also mill –owners of Dal (pulses).

I am putting all these things across because it is very much obvious that these traders have their stake in the commodity future market. They are the one, who should have actively participated in the futures market for hedging (risk management). They have their obvious interest in the future market because futures are very much related to their business activities. Price movements in the future market reflect in their own business and they are prone to the activities and practices of the commodity exchanges.

We met a number of traders, brokers, mill owners and whole sale merchants to find out what they thought about the different commodity exchanges. We 22 PDF Created with deskPDF PDF Writer - Trial :: http://www.docudesk.com

introduced ourselves as research trainees from ICFAI business school that were there to undertake research on perceptions of people towards commodity futures trading and its comparison with other investments.

We made the following observations and inferences1:

We came to know from them that they call commodity futures markets as “Dabba Trading” The found the initial perception of commodity market to be very negative and inflexible. They said that it was meant to create unnecessary volatility in the market price, and there wasn’t any correlation between spot prices and the future prices. They believed that the futures market moves only due to speculation by the few top players like ITC, Reliance etc who dominate the whole market. The idea of delivery did not suit them mainly due to the freight charges involved in delivering the goods from their respective warehouses to their place of business and moreover they were not clear regarding the procedures to be followed for delivery of commodities from the exchange. The traders shared with us their experiences where last year they lost crores of rupees due to the game in “kabuli channa”.

Farmer’s Story:

1

Source: Conversation with Pulse Traders at Begum Bazzar

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Farmer is one of the biggest stake holders of commodity (AGRI) market. So we decided to interact with farmers also. We searched on internet about Farmers association in Hyderabad and found the address and contact number. We called next morning the General Secretary of Federation of Farmers Association Mr. P Chengal Reddy and told him about our project. We got appointment with him and met him at his office at Shanthi Nager. Mr. Chengal Reddy Introduced us with many farmers representing different province of the state and producer of different crops. We were shocked by knowing that none of the farmers knew about the commodity exchanges and future derivatives. Even Mr. Reddy was also not having much idea. We understood that awareness level is key responsible factor for less participation of farmers in commodity futures. Mr. Reddy told us the various factors which are reason for farmer’s distress condition:

1. 2. 3. 4. 5. 6. 7.

Agriculture being Unorganized(They fall in traps of traders ) No standardized production(Can’t trade with exchanges in bulk) Farmers do not get remunerative price Lack of Agro Technical Support. Lack of awareness Computer illiteracy Lack of capital (Borrow from traders and sell their produce to them only at very lower price)

8.

lack of co-operative societies

Apart from all this, many reasons were being counted but the main theme of the story was that farmers do not get remunerative price of their produce because of cartel of traders.

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com .2Example 1: The sweet oranges are sold in a lot of 10 tons and there is 1 ton "chhut" on this. Though at Guntur where MCX and NCDEX have their warehouse gets price of 50 Rs.) Sweet orange farmers do not have any escape. 4Interaction with MCX and FMC: 2 Source: Conversation with Farmers Source: Conversation with Mr.docudesk.Trial :: http://www. Even these 9 tons also are at a distress price. This “chhut” means Relaxation. per Kg. per Kg. most of the issue related to farmers will be addressed.Once the farmers of India will get price. per Kg goes to multi layered middle man. It means farmers sell 10 tons of sweet orange at a price of 9 tons. We understood how Exchanges can create an environment where farmers will get good prices. while end consumers pay a price of 120-150 per kg for chilly powder. P Chengal Reddy Email communication in Appendix: 3 4 25 PDF Created with deskPDF PDF Writer . this is the mode in entire country. This practice is running at Kothapet Market Dilshukh Nagar Hyderabad (In fact. There is a large sum of 100-130 Rs. Example 32: Most chilly farmers sell the red chilly at a price of 20 Rs.

3. These markets will have online terminals in each city where Framers and traders of any part of India can trade in a common platform. Although they introduced us with concept of spot market which they are introducing very soon. MCX. So we raised the same concern to them. Madhav Reddy with us. 2.com . MCX is very flexible and dedicated to shape this financial service in the benefit of participant if practical. This will solve the problem of delivery complications. Having warehouses in each city is not practical. Quality norms are in place and if someone finds flaws in that they can revise and inspect the process. Mumbai fixed a meeting of Vice president (Business development) Mr. This has shown us the dedication of regulators and facilitators for the reform.docudesk. In another two Days we were sitting with Mr. MCX as well as Mr. MCX is in process of changing the Units and now accepts both 25 as well as 40 kgs bags for chilly. The main outcome of this meeting was: 1. Anupam Mishra. Madhav Reddy in his office and discussing the issue.Trial :: http://www. We got quick and positive reply from them. Director Commission (IR) Forward Markets about the concern raised by the trader. Issues raised by traders were very generic in nature and only FMC or exchange was in capacity to answer it.We sent email questionnaire to Research and development department. 26 PDF Created with deskPDF PDF Writer . 4.

Madhav request. Apart from this we also had a talk on farmers issue with Mr. Mr. We went to Mahan kali Street to meet and interact with Gold. This was a very positive and constructive step towards organizing seminar at chilly mandi. Reddy has shown the willingness to meet the traders to solve their problems. Due to lack of Political repercussion these exchanges could not get govt. how farmers with delivery intentions at other part of country where exchange do not have their warehouses can trade through it. MCX as well as NCDEX is opening electronically integrated spot market in each city of India where farmers and traders from all over country can trade on single platform. nod in Andhra Pradesh under APMC Act. Reddy said that how Exchange can help farmers to get the true price. Mr. 27 PDF Created with deskPDF PDF Writer .docudesk. In this case existence of trader’s cartel will not be possible. But spot market on an electronic platform which is already started in 4 states can be a solution. (Government of Andhra Pradesh) Which comes under state legislation to open Spot markets in the state? On Mr. we had meeting with farmers association again on the spot market. Bullion Story Our next target was to cover the Bullion Markets in Hyderabad.Mr.Trial :: http://www. On our query. The outcome of the meeting was that there is need for awareness within farmers for the spot market.com . Reddy said we can not provide warehouse in each city as it is not financially viable. Madhav Reddy which was raised at farmer’s association.

traders were not very friendly and aware of Exchange trading. We also planned to arrange a seminar here with local traders to educate them and bring awareness about commodity futures. It is assumed to be more risky in taking positions in exchanges rather bear the cost of price fluctuations. This was one practice which give them profit in case of price rise. We did some research on this field and headed towards 28 PDF Created with deskPDF PDF Writer . But here also.Trial :: http://www. Base Metals Our next step in this direction was towards the market of Base metals and industrialists who use these base metals in their industrial production. The same old proposition of speculation was prevalent here also. They used to take delivery when prices are low.com . traders resort to block their own delivery to their customers in case of price increase.Silver and Bullion merchants. Here. we tried to interact with traders to educate them about the benefits of using exchange as a platform for their advantage. and stock them until prices rise. In stead. We expected. Traders relied much on banks for taking deliveries of Bullions and were ready to be risk exposed to price fluctuations rather than taking resort of hedging in exchanges. This street is known as the biggest market for precious metals in and around Hyderabad. people here to be much aware of the commodity trading as precious metals (Gold and Silver) are the one where exchanges have proved their worth worldwide and almost 75% business of exchanges run on these metals.docudesk.

They are mainly SMEs which manufacture metal components of machines and other equipments. The big players in this market from whom these traders procure most of their materials like ingots and prime raw material are Hindustan Zinc. Our Discoveries: Traders here are of varying nature. some are dealers in scrap and prime metals while some others deal in ingots and finished materials. The traders here did agree with us that exchange rate and futures contracts have a great influence on the normal business but hardly anybody had the accurate understanding of how the exchange functions. 29 PDF Created with deskPDF PDF Writer . aluminum and nickel. The industrialists here buy a considerable quantity of goods from the local market as well in the form of scrap. Although all the traders were aware about the overview of metals in world market but still they were not exposed to exchange traded contracts. copper.com .docudesk. The turnover in this market runs from 1 crore to 100 crores. We found that few of these traders did actually did some study to participate in the futures market to prevent their business from market risks. Adani and Sterlite copper and some traders in Whivandi in Maharashtra.Trial :: http://www.secunderabad to meet the metal traders and later on to Balanagar industrial area where we fixed appointments with a number of industrialists and big traders. At Balanagar Industrial area. we met industrialists who manufacture metal components. Few traders who have earlier invested in the exchanges had also stopped trading after incurring huge losses. They are the people who have interests in zinc.

These are the class of people who are exposed to exchange trading and also participate in it. Santosh Rungta5.Most of the contracts here are made for a future period. in India now. Moreover they told us that they import a large quantity of their goods so trading in MCX do not give them any major advantages since there is no delivery of goods like Zinc. But the noticeable thing is that very less traders’ trade on MCX or NCDEX platform. copper. Located at about 6 kms from the Secretarial.Trial :: http://www. Limited 30 PDF Created with deskPDF PDF Writer . this market contributes to about 10% 5 MD. They also pointed out to us the difference between the futures market and the spot market rates the reasons for which were not well explained.docudesk. Most of them trade through LME or COMEX platform When asked the reason they said that the exchanges in India were not that mature in terms of rules and regulations. Tapasya Casting Pvt. Trading through LME gives them more hedges against their business risk. aluminum etc. an Industrialist in Balanagar. proper framework and governing body. Told Mr. since the Indian metal market is influenced by the movements in the foreign market mostly US and china. The Chilli Story: Next we went to the Chilli market at Malakpet in Hyderabad.com . which means we enter into contract with our customers to supply finished goods at an agreed fixed price within the next 5 – 6 months.

m.com . they get somewhat the 31 PDF Created with deskPDF PDF Writer . First we met the president of the Andhra Pradesh grain & seeds merchants association. Chilli is mainly traded in the months of march – may which is the harvesting season for chilli and in this season the fresh crops start coming into the market. Andhra Pradesh Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Karnataka Madhya Pradesh Harvesting Sowing season We followed the same method of research in this market as well.of the total chilli trade in AP. Raghavendra and he explained to us the method of operation in the spot market. He said that the market opens at 7:00 a.Trial :: http://www.m.docudesk. The other commodities traded in this market are Onion and tamarind. The following table would clear the sowing and harvesting pattern of chilli in India. which is the biggest market for Chilli in the world and by 9:00 a. D. at Guntur in AP. Mr.

000 to 1.20. Another draw back of the system was that the farmers are bound to sell their products at the market price because they cannot afford to take back their goods due to their huge transportation costs. We received a positive response from them and very soon arranged a meeting with Mr. In malakpet. There after we again approached the Chilli association and after a series of meetings with the President and the Gen secretary of this association. we 32 PDF Created with deskPDF PDF Writer . We thus discussed with them the concept of futures trading and how it can be beneficial to the traders as well as the farmers but a number of problems and issues were brought to light by those traders As a part of our endeavor to solve few of their issues. broker or the exporter makes the highest bid takes away the produce and the farmers get their price. farmers from different places and regions bring their produce and place them for open auction. Madhav Reddy. We discussed with him all the issues brought forward by the traders in the chilli market and we did arrive at certain conclusions and solutions on some problems. which is a well known commodity exchange. Business development in MCX. In the auction whichever trader. we wrote a mail to MCX India.000 bags.000 to 10.docudesk.Trial :: http://www. Vice President.market rate which is taken into consideration for further transactions in other markets like the malakpet market. We remained in constant touch with the MCX people from there on.00.000 bags arrive in this market in the season time which is from January to April. During this time the arrivals at Guntur is somewhere in the range of 1. We Discovered That: This was a very unscientific method of price discovery and that the farmers do not receive their right price all the time.com . Every day about 8.

The arrangements of the seminar were being done with the help of MCX (Multi Commodity Exchange) and the dates were to be finalized very soon. The Seminar at Malekpet Mandi Our seminar was scheduled for 25th April 2007. Our guests in the seminar included: 33 PDF Created with deskPDF PDF Writer . We had identified that the biggest problem in this market is the lack of proper awareness and information about these exchanges and thus through this seminar we tried to address these issues and enabled the traders to get the right information straight from the horse’s mouth.planned to organize a seminar here with the help of the Association to educate the traders and farmers about the Commodity exchanges and futures contracts and how they can be benefited by it.docudesk.com .Trial :: http://www.

e. Pradeep Reddy Research head Spices in charge VP.Trial :: http://www. Our first speaker was Mr. Chilli MCX STCI Commodities STCI Commodities MCX The seminar was attended by about 50 traders including some masala company owners and cold storage owners. He discussed in details the different strategies that should be used in the futures market by the traders and dealers namely Hedging and Arbitrage. He discussed how a trader can make use of hedging and intelligent speculation to maximize his profit and minimize the business risk. The opening speech was delivered by Mr.docudesk. Madhav Reddy Mr. He welcomed our guests and introduced them to the whole association. Raghevender Mr. He spoke at length about commodity futures and its introduction in India. our objective and purpose of the seminar. Chirag Seth Mr. Rajesgwar Mr. Raghevender who introduced our team. Business Development All India Product head. D. STCI commodities. Research head. Chirag Seth.com . Ali Mr. Traders in this market buy and sell goods on every day basis and there are few instances where the traders take forward contracts of sale i. Our speakers were: Mr. they enter into a contract of sale of some specified quantity of goods at an agreed price 34 PDF Created with deskPDF PDF Writer . Someshwar President Secretary Treasurer AP Grain & Seeds Merchants Association AP Grain & Seeds Merchants Association AP Grain & Seeds Merchants Association And other important board members and office bearers of the association.Mr.

its fundamentals. consumer and exporter of chillies in the world. Few of his important discussions are as follows: Indian Scenario: India is the world's largest producer.com . the initial margin to be supplied by the investors at about 5 % to 7 % and the lot size of chilli in the futures market that is 5 tons. He also talked about the investment involved in trading in futures market. In such cases hedging should be used by taking an inverse position in the futures market to lock in the price of goods that the trader agrees to sell on a specified time.Trial :: http://www. India also has the largest area under chillies in the 35 PDF Created with deskPDF PDF Writer . acreage and export figures.05 % for any account opened in the market. Traders showed special interest when they were told that chilli in Guntur accounts for about 50 % of the chilli traded in the country and that the malakpet market contributes to about 10 % of the volume traded in Guntur. the spices specialist at STCI commodities.docudesk. Our next speaker was Mr. He also discussed about Arbitrage opportunities in the futures market and that how the difference between the cash and futures price can be used for arbitrage. and production. Ali. the brokerage to be charged by UTI securities which was announced at . He also discussed the future expectations of chilli.on some specified future date. He gave complete outlook on chilli. its price targets in the medium and long term.

84. Jwala etc. The major chilly growing districts of Andhra Pradesh are Guntur. However. Orissa. Teja. 6 Almost all the states of India produce the crop. Wonder Hot.Trial :: http://www. The most popular among these are. the major arrival season extends from February to April.183 hectares in 2003-04. The peak arrivals are reported in February to March.com .world. West Bengal. Karnataka (15%). Byadgi. It is estimated that India produced 1060345 tons of dry chilli from an area of 8. the harvesting begins from December with 5% of the arrivals usually reported in this month. While. There are several varieties of chilli cultivated in India. The Indian scenario of chilli includes the fundamentals like demand and supply. Rajasthan and Tamil Nadu. Maharashtra. The crop planting starts from August and extends till October. 6 Source: MCX 36 PDF Created with deskPDF PDF Writer . LC 334. Khammam. Chillies are the most common spice cultivated in India. The important chilli growing states of India are Andhra Pradesh (46%). Warangal. Madhya Pradesh.docudesk. Krishna and Prakasham. Arrivals in the market form an important aspect of supply and it is shown with the help of the following table which depicts in details the arrivals in the Guntur market that forms the benchmark for all chilli traded on any exchange. Chillies can be grown during the entire year at one or the other part of the country. Sannam.

He also presented the production and export statistics of chilli in India for the last 10 years: He presented a full picture of the chilli production over a 1 year period. Syria. China. • Besides India.docudesk.com . • Chilli contributes almost 22% of the total world spices trade in Volume terms which is led by Pepper which contributes about 34%. • China is becoming a major competitor for Indian Chilli growers. Pakistan and other countries. the other chilli producing nations are: Pakistan.Trial :: http://www. 7 Table no: 1 Source: STCI commodities 37 PDF Created with deskPDF PDF Writer . Spain. the reason for decline in 2005 mainly being the production area being used for other crops than chilli and there has been an increase in production due to the export demand from countries like Srilanka. Mexico and Morocco. Turkey.7 Global Scenario: Chilli • 25% of the world chilli production is contributed by India.

6265 9 Export of chilli has always been a very important aspect of discussion and it is one important factor which governs the price movement as well.Area & Production for Chili(1996-97 1500000 1300000 1100000 900000 700000 500000 300000 100000 to 2006-07) 1800 1600 1400 1200 1000 800 600 400 200 Hect & Prodn ) 7 9 1 6 0 2 4 3 5 8 -9 -0 -0 (e -0 -0 -0 -9 -0 -0 -9 96 997 998 999 000 001 002 003 004 005 -07 19 1 1 1 2 2 2 2 2 2 06 20 Year Ar ea ( Hect ) Pr oduct i on ( Tons) Yi el d( Kg/ Hect ) 8 Year 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 (e) Area (Hect) 944200 840600 891200 959200 836500 880000 827400 758600 950000 759600 846000 Production (Tons) 1066000 870100 1043200 1052800 983700 1069000 894600 1287800 1100000 600000 800000 Yield (Kg/Hect) 1129 1035 1171 1098 1176 1215 1081 1698 1157. 1 Table no: 2 9 Source: STCI commodities Kg/Hect (000) 38 PDF Created with deskPDF PDF Writer .895 790 945.com .docudesk.Trial :: http://www. 8 Chart no.

13% USA. 11 Chart no.Trial :: http://www. 3% Malaysia. 28% Sri Lanka.:2 Source: STCI commodities 39 PDF Created with deskPDF PDF Writer . 26% Others. 24% 11 He also talked about the technical aspects relating to chilli some of them being the correlation between futures and the spot market at Guntur. 6% Bangladesh .com .Chilli Export 169000 149000 129000 109000 Year 89000 69000 49000 29000 9000 2000-01 2003-04 2004-05 2005-06 2006-07e 2007-08p Tons 10 This increase in exports is mainly due to fresh demand coming US and from the Asian countries. Percentage Share in Total Exports of India Nepal.docudesk.

Average Spot Prices 7200 6200 Average Future Prices 7200 6200 Prices 5200 4200 3200 2200 1200 Prices 5200 4200 3200 2200 1200 Ja n F eb Ma r A pr Ma y J un Jul Au g S ep Oc t N ov De c Month 2005 2006 Table source: STCI commodities12 Finally before he wound up. 50 %.2 % and so on. This was the daily candle stick chart of chilli from January 2007 onwards which shows the trends in the price of chilli over the last few months. 38. 12 Chart no.Trial :: http://www.: 3 PDF Created with deskPDF PDF Writer .docudesk.com Ja n Fe b Ma r Ap r Ma y Ju n Ju l Au g Se p Oc t No v De c 2005 Month 2006 40 .8 %. he showed everybody the technical chart of chilli trading in NCDEX. the fibonacci series distribution can also be seen clearly in the chart where the percentage distribution can be seen as 61.

13 Chart no: 4 Source: STCI commodities 41 PDF Created with deskPDF PDF Writer . They blamed the exchange for adding extra impurities to make that percentage as 35 Secondly they said that the delivery mechanism at the exchange accredited warehouses were not up to the mark. There is lack of transparency.Trial :: http://www.13 There after we laid emphasis on the delivery issue and we called the MCX people to answer all their queries.com . They said that the percentage of impurities in the exchange traded Chilli sums up to about 35% were as in the spot market that percentage comes to only about 15%. no proper control. hidden costs and other problems in the delivery. We had gathered from research that people in that market had the following issues and they sought clarifications on the following matters: Firstly they were not satisfied with the quality specifications of the CHILLI traded in the exchange.docudesk.

They did not like this disparity. Pradeep Reddy the product head of chilli. Now. Madhav Reddy explained the contract specifications and rules to be kept in mind before trading through MCX. this seminar turned out to be hot debate between MCX officials and the traders. there was a huge mess created by NCDEX in Guntur where traders were denied delivery of goods when the prices were on a roll towards the higher side and there was a lot of unrest and confidence was breached by the traders.One trader told us that the exchange provides packaging of chilli in bags of 25 kg where as in the spot market it is traded in bags of 40 kg. Mr.Trial :: http://www. 42 PDF Created with deskPDF PDF Writer . Last year. Madhav Reddy explained the delivery rules and the quality issues and specifications were taken up by Mr.docudesk.com . Mr.

Trial :: http://www.43 PDF Created with deskPDF PDF Writer .docudesk.com .

They even promised MCX to 14 Chart no.mcxindia.com 44 PDF Created with deskPDF PDF Writer .mcxindia.pdf14 Most of the traders who raised issues relating to delivery suggested MCX to open warehouses and delivery centers in Hyderabad so that the traders are saved of the transportation cost in delivering goods from Guntur to Hyderabad.Trial :: http://www.docudesk.Source: http://www.com .com/RedChilli_apr07.: 5 Source: www.

We witnessed a very important aspect in the chilli market that the association is considered to be a bench mark and is looked upon for any important business decisions on the part of an individual trader. Owing to his bad experiences in the futures market last year. and we learnt that breaking of ice was very important here and this ice breaker was the president himself. and his son Mr.com . 45 PDF Created with deskPDF PDF Writer . After the seminar. we followed up with the traders to clarify their doubts if any they had. he had cautioned the rest of the traders so when we met the traders individually. they were still wary of investing because they were not advised to do so by their president. Mr.The Seminar Effect Things changed a lot after this seminar. they told us that though they were satisfied with the concept of hedging and other risk minimization strategies.Trial :: http://www. who was also the owner of cold storages in Hyderabad. Radha Krishna. This number further went up to 15 in one week time. Deepak Dave to give a small presentation to him and finally the ice was broken and this sent a positive message in the whole market and we started with opening 6 accounts in two days in the Malakpet Market.docudesk. We then followed up with the president. We fixed up appointments and meeting with him and also asked our CEO Mr. We found that all of a sudden the mentality and outlook of people had changed towards futures market. Raghevender.

To explore the possibility of Business Development among the member industries of FAPCCI. medium and small firms.15 Our Objective: FAPCCI is a leading consortium of all Industries and commercial firms in entire Andhra Pradesh representing all big. 15 Source: FAPCCI 46 PDF Created with deskPDF PDF Writer . This organization is awarded ISO 9001:2000 organization. It has 2800 members on its rolls. It has about 150 other Chambers and Associations at State.com . joint and corporate sectors.docudesk. retail and small trade organizations.000 members.The FAPCCI Episode: An Introduction: FAPCCI started in 1917 as a Chamber of Commerce and Industry representing the entire state of Hyderabad. It represents large. Its indirect membership through its affiliates covers a broad spectrum of industries and trade organizations come to 20.P. To understand business dynamics of Andhra Pradesh through FAPCCI and Industries through A. It consists of companies from public. private. We had three objectives in our mind while approaching FAPCCI: 1. District levels affiliated to it. 2. Reaching to FAPCCI means reaching to all the industries of Andhra Pradesh in one go.Trial :: http://www. It also represents wholesale. medium and small scale Industries from the State.

V. Our target audience was set as Small & Medium Enterprises (SMEs). (The proposal is given in the appendices).Rao.3.FAPCCI suggested us to come up with a detailed proposal and submit it to the core committee of FAPCCI. The topic of seminar was “Exit Route for Sick SSIs”. its members and business community.Trial :: http://www. Our Approach: This part of our project was indeed a very ambitious one. We finally came with a consensus of organizing a seminar in association with FAPCCI about commodity futures. Getting access and targeting the entire Industry community was a giant task. We held a long discussion of about one hour and we discussed several issues regarding FAPCCI. We came up with the proposal the very next day. But this endeavor had a great business opportunity for our organization. We were asked to first present our ideas in the seminar after which FAPCCI would have to conduct a fresh seminar with us. Hence. in general. C.com . Ananth Reddy & Mr. We also discussed about the marketing of the seminar in detail. we contacted FAPCCI board. 47 PDF Created with deskPDF PDF Writer . Finally. To create the awareness about Commodity futures among the Industries and to explore the possibility to use the Commodity futures as a hedging tool in a real industrial scenario. We also discussed about ways in which commodity futures contracts can be introduced to them for mitigating their price risk by hedging and locking in their profit. we were told that we are allotted a slot of 20 minutes in one of their ongoing seminar scheduled on 10th may. Mr.docudesk. We met with two Deputy Secretaries of FAPCCI. We were given the compendium of members of FAPCCI.

He talked about the Commodity Futures contracts as a risk mitigating tool for price risk in the business of SMEs & SSIs.Chirag Seth. Commodity Research. Deepak Dave gave his personal nod to attend.com . We also got confirmation from the President of FAPCCI for arranging a one day workshop on commodity futures. Head. the CEO of our company Mr. Prem Kumar (one of us) was given the opportunity to address the gathering of more than 100 industry heads. Our approach was to directly talk to heads of these businesses. Our effort was much appreciated by all the participants of the seminar. 48 PDF Created with deskPDF PDF Writer . In this effort. We decided to convince them individually about the viability of commodity futures in their business.). STCI commodities ltd. STCI Commodities Limited himself. We also talked to them on phone and got appointment with many of them.Trial :: http://www.docudesk. This was a great business opportunity for our company and our efforts also got acknowledged by CEO. Industries: We also planned to meet as many industries as possible to get the real feed back from them. we mailed around 50 industries about commodity futures on a trial basis.For attending the seminar. We got many participants who were inquisitive about commodity futures and its scope in their business model. He came with his team (Mr.

) Mr.M.M. 49 PDF Created with deskPDF PDF Writer . Darsith Agrotech Ltd. we generated for the company. CEO) Mr.Lvt.M.Laxmiprashad (Chairman) Mr.D.Ramakrishnan (Jt.Bhandari.U.Now this led to an altogether strange 16 Source: Mr.B.com .Krishna (V. Pennar Profiles Ltd. Tirupati Udyog Ltd.P. J. Cubex Tubings pvt.) Mr.Trial :: http://www. This rosy picture suddenly changed when the metal prices rose sharply in the international market .S.Udaya Babu (V. CUBEX Tubings Ltd. One recent Example of price risk Example 116 There are several Transformer manufacturing companies around Hyderabad.) Our meetings with all these people were very fruitful. Sujana Metals Ltd.P. ITW India Ltd.D. it also gave us an exposure to the industrial scenario of A.Manoj Kumar Goel (Dr. Kakatiya Cements/Sugar ind.Some of the key Industries.Agarwal (M. Ennore Foundries Ltd. & CEO) N.C.S. Aishu Castings pvt. Agarvanshi Aluminum Ltd. About 6 months before.Rao (Pres.C.Ramanaiah (M. we interacted were: • • • • • • • • • • • • • • Suryavanshi Spinning Mills SAMKRG Piston & Rings Ltd.P. Apart from the huge business opportunity.docudesk. Director) Mr. Mr.V.Akash Garg (Asst. Tolsariya Metals Udyog Ltd.D.Bhandari (Ex. They entered into contracts of various sizes at a fixed price.Finance) Mr. Tolasariya (M.M. U. they got a huge chunk of business for manufacturing transformers and it was a good opportunity to expand their business.) Mr.P.U.D.Rahul Agarwal (Chairman) K.) Mr.Karunakar ( Director) R.K. Ltd. Bimla Spices food industries Ltd.D .) Mr.Venkatashwaralu Mr.K. Ltd. P.

They could have locked up their profit margin and commodity futures contracts would have covered their price risks.situation. It made them incurring heavy losses in spite of having good orders. This led to their cost of production being more than the selling price. 50 PDF Created with deskPDF PDF Writer .Trial :: http://www.com .docudesk. they would not been suffering losses even in the worst scenario. They had to now procure raw metal at a higher price. If they would had taken commodity futures contracts earlier.

docudesk. the surplus sugar during the year has been estimated at 6. Cane-pricing act was enforced to provide good price to farmers. many of them switched over to other crop that has its effect on the supply of sugar cane thereby price tends to increase. 17 18 Source: http://www.Sugar Story: A bitter situation India is the largest producer-consumer of sugar in the world.indiansugar. Sampath Committee Incentive scheme) of sugar industry in India gave rise to only small capacity plant with further expansion. The price at which sugarcane are procured by the mills is controlled by central and state government Minimum through Price (SMP) Statutory and State Advised Prices (SAP) respectively. Due to unpaid dues to cane farmers. Indian sugar industry could not get the benefit of economies of scale. 3. 2.517 million tonnes. The kind of evolution (1975.com/president/index. Sugar output this year is expected about 26 million tonnes against a consumption of about 19 million tonnes. Main problems of sugar industry18 (From the perspectives of Sugar mill’s owners) 1.com .Trial :: http://www. Taking into account the carry over stock of 4 million tonnes from the previous season.htm Source: Based on conversation with sugar mill owners 51 PDF Created with deskPDF PDF Writer .

We can see below the graph of production. Sugar as a commodity is currently faced with a peculiar situation of huge inventories. :6 Economictimes 9/05/07 21 Chart no. 19 20 Chart no.: 7 Source: Special Commodity Report: http://www.mcxindia. unpaid dues to cane farmers and mills suffering losses. Currently. consumption as well as surplus. the Indian sugar industry pays the highest cane price in the world. For paying unpaid due to the cane grower.4.com .docudesk.com/ 52 PDF Created with deskPDF PDF Writer . plunging prices.Trial :: http://www. mill owners finding 250 Rs loss a better bet than taking a loan from any bank. Cost of producing one quintal of sugar is about Rs 155020 but not realizing more than 1300 Rs per quintal. International trend 21 International future price trend as reflected on NYBOT prices. 19 5. The down-sliding price of sugar is not Indian specific but it is world market phenomenon.

850/. Customs duty at 60% besides countervailing duty of Rs. like many other countries. Imported sugar is also subject to the monthly release mechanism & stock holding limits as applicable to domestic sugar. • Reimbursement of internal transportation charges on sugar exported from factories to the port of shipment. both at the Centre and State levels have played a crucial role in the development of the sugar industry. starting from sugarcane to the use of end-product sugar. The policy allows free export of sugar and factories can also under take export of raw sugar in addition to mill white sugar.com .com/ 53 PDF Created with deskPDF PDF Writer . • Fixed ocean freight reimbursement @ Rs. Government control Government liberalized export / import trade in sugar from 1997. licensing/capacity/cane area.per tonne of the sugar exported. the government had also put sugar imports on Open General License (OGL) allowing private parties to import sugar. Importers are also required to surrender 10% of imported sugar as levy at prices notified by the Government.docudesk. The sugar economy in India. Government control. is highly regulated.e. Simultaneously.mcxindia. government policies. Even the byproducts are subject to government control.Trial :: http://www.5% is levied on imported sugar.In India. covers all aspects of sugar business i. Other WTO compatible policy22 measures facilitating export are • Duty Entitlement Pass Book (DEPB) scheme @ 4% for export of sugar. 22 Special Commodity Report: http://www. 350/.per tonne equivalent to 7. Sugar import is allowed under Open General License (OGL). procurement/ pricing/sugar pricing/distribution and Imports and exports.

docudesk. Though there is no price control on free-sale sugar. This trend clearly poses a serious challenge to sugar producers around the world.com . GOI controls extend to free market prices also through the issue of monthly dispatch orders to all the sugar mills in the country based on demand supply situation in the country. Therefore the producers are left with only free sale sugar quota to run the business profitably.Trial :: http://www. 1966 Sugarcane (Control) Order 1966 Levy Sugar Supply(Control) Order 1979 Sugar (Packing And Marking)Order. The ratio is1585 from 1st February 2001. Higher the release lower the price. 1982 Source: http://www. a specified percentage of total production of each sugar factory is procured as levy sugar at notified prices for distribution through the PDS.indiansugar.The internal sugar prices are largely governed by the releases of sugar made by the Government. market supplies are regulated by the Government through a mechanism of monthly release quotas. But usually levy prices are very low and fall below the cost of production. Costs tend to exceed prices because many producers benefit from Government protection enabling them to survive despite the fact that their cost exceeds world price levels. • • • • • • 23 Essential Commodities Act.5% declined over the previous years' prices.com/ 54 PDF Created with deskPDF PDF Writer . 1970 Sugar Cess Act. lower the release higher the price. Since December 1979.Levy prices are fixed by the GOI based on SMP for the year.23 1955 (Briefly Ec Act) Sugar (Control) Order. The trend in world raw sugar prices is that it exhibits a clear downward trend with an annual declining rate of approximately 1. Following acts and orders through which government regulates the sugar Industry.

Unlike few other countries. which produce sugar for exports on a regular basis. World consumption is projected to grow by 2.com 55 PDF Created with deskPDF PDF Writer .• • • Sugar Development Fund Act.l4/-per qtl.15%.mcxindia.29%. international prices have been ruling way below the cost of production of even the most efficient producer of sugar. which provide for levy of Rs. of sugar known as Sugar Development Fund (SDF). On several occasions.) World Sugar Market Review 24 As per ISO (International Sugar Organization). enacted Development Development 1983 Fund (Government the Fund Sugar Act & Rules.docudesk. 24 Source:www.com . For 2006/07. Indian exports were mainly to liquidate partly its surplus stocks. The SDF is utilized for granting several term loans to sugar mills for modernization and grants for research projects in the sugar industry besides creation of buffer stocks as and when required to ensure price stability. There is a serious mismatch between the cost of production of sugar in India and the international price. world export availability is projected to exceed import demand by more than 4 million tones.Trial :: http://www. 1982 LSPEF Act 1976 Sugar Rules. only a fraction down from the 10-year average of 2. global sugar output is estimated at 160.2 million tonnes against a consumption demand of 153 million tonnes.

Why Futures in Sugar Since Sugar industry is being slowly decontrolled by the government. 56 PDF Created with deskPDF PDF Writer .com . Sugar based new industry such as ethanol and its use as fuel that has been mooted by government would constantly strengthen the scope of sugar future trading. By products of sugar cane industry is getting a lot of attention and it would add depth in the market. For the industry to become competitive.docudesk. large number of participants. All the factors for success of future trading such as organized and developed spot market. It indicates too much interference of the government in the industry. and active traders are very much present in the Indian sugar industry. India is the only country in the world where sugar price goes against the sugarcane price.Trial :: http://www. market force would be putting its impact on the price behavior of the commodity. allowing future trading would lead to revivals of real market forces which will be for good health of the industry in the long term.

docudesk.com . Since right now the selling price in spot market is even less than Cost price. In case in opposite scenario if price of sugar have rose more than 1700. Senario 1. Numerically Cost of manufacturing 1550 Rs/ql On 1st Dec 2006 Spot price 1670 Rs/ql May2007 future 1703 Rs/ql Took a short Position. Let’s say 1900.Today since spot price of Sugar in May2007 is nearly 1200-1300. If Sugar mill Owner has done a future contract for May 2007.Practical Hedging Example Sugar: Example25 In Dec 2006 if a sugar mill owner expects an output of 5000 tonnes of sugars in May 2007. He could have cover his short position and booked a profit of nearly 400-500 Rs. this business loss could have turned into profit even in this worse market scenario. He might have got a sale contract at price of 1703.Future contract may give loss. This can be effectively avoided by putting a strict stop loss at resistance say 1720. On 20th May 2007 Say Spot price 1250 Rs/ql Cover position in may 2007 25 Assumed situation with real data 57 PDF Created with deskPDF PDF Writer .Trial :: http://www.

58 PDF Created with deskPDF PDF Writer .Future Price 1270 Rs/ql Business loss 1550-1250=300 Rs/ql Profit in future contract 1703-1270=433 Rs/ql Total profit =433-300=133 Rs/ql Senario 2 On 20th May 2007 Say spot price 1900 Rs/ql Future Price 1925 Rs/ql Before reaching to 1925 from 1703 We will put strict stop loss at resistance at (say) 1720 Rs.docudesk. So in both the scenario we are making profit.Trial :: http://www./ql Business profit 1900-1550=350 Rs/ql Loss in future contract 1720-1703=17 Rs/ql Total profit= 350-17=333 Rs/ql.com .

We learnt that company has exposure to forward contract where it had entered into a contract to sell molasses over the period of time. Mr. 59 PDF Created with deskPDF PDF Writer . K Madhusudan. Since Mr. As per him the only solution of this is to diversify the production towards ethnol. G. Chairman and managing director of KPS Group.R. G. We called the General Secretary of SISMA Mr.The South India Sugar Mills Association (SISMA) From our search in sugar from internet. Madhusudan is already trading in copper future he was having very fair idea about the whole concept.com/). we learnt about The India sugar mill association (http//www. Rayalseema sugar is one of the subsidiaries of KPS group.com . We used the database and followed these companies. Nageswar Rao (Technical Advisor of Prudential Sugar). He has also opened an account to trades in commodity with STCI Commodities Limited.docudesk.Trial :: http://www. Bhale Rao and had telephonic talk with him and fixed an appointment.indiansugar.S. Nageswar Rao was not happy with the regulation and protectionism. Rayalseema Sugars We met Mr. At the same time we got database of sugar mills. Prudential sugar We interviewed Mr. The Andhra chapter comes under (SISMA) The South India Sugar Mills Association. which is a major source of revenue especially when sugar is sold in loss.

GMR Industries Background Note GMR Group is one of the biggest corporate house in India with core expertise in Infrastructure.docudesk.com . Date 10th May. Ramakrishnan 60 PDF Created with deskPDF PDF Writer . GMR Group's Agri-Business comprises of a sugar plant located at Sankili in Srikakulam district of Andhra Pradesh that has a cane crushing capacity of 5000 tonnes per day. Two dimensional growth strategies Forward Integration Sankili Sugar Plant has set new standards in forward integration by initiating down stream production of plantation Sugar and co-generated power. bio-composted organics manure and bio-fertilizer CO2 gas in its distillery units. it is also setting up two more sugar plants in Karnataka. Backward Integration GMR Industries Sugar business has implemented several innovative measures in backward integration. ethanol rectified spirit. manufacturing as well as agri business. The cane development programme being one of several initiatives has transformed the socioeconomic face of the region. Besides. diversified in various sector like energy. 2007 Interview with Mr. R.Trial :: http://www.

You will find 28000 families with 28000 plots of small land in just 32 acres of land and each of them having various interest of cultivation. The first reason being Kind of harvesting is done in India. GMR industries Limited 61 PDF Created with deskPDF PDF Writer .docudesk. Although. Meeting 28000 landlords. ”says Mr R. “Indian socio cultural formation has ruined the agricultural system. Some times price of cane is much more than the price of refined sugar in world market. GMR is in talk with these small landlords to integrate lands for initiating corporate cultivation.This fact is very much of concern that Indian sugar is much out of competition in term of quality and manufacturing cost. This is main hurdle in standard corporate cultivation with use of machinery.Trial :: http://www.com . convincing them and bring them on common platform itself is hectic task and require a big deal of time. He was not much aware about operation of future market. Ramakrishnan26. 26 Joint Managing Director.

This new company acts as a broker of NSE and BSE.com . It has around 300 brokers (members) affiliated with it. To sustain in the market and grow. Our company is already working on the idea to provide terminals and franchise to some regional exchanges so that they can trade in commodity derivatives through our terminals. This has given a crisis to the exchange. It is in the process of demutualization. Before emergence of BSE and NSE.Trial :: http://www. Introducing Commodity to Stock Exchanges is an innovative idea.docudesk. HSE has taken several restructure measures. This will give exchanges an alternate avenue of business and a facility to its broker to also deal in commodity futures. By this way. But the pan India reach of BSE and NSE has posed a threat on these regional stock exchanges. Hyderabad Stock exchange had a good volume of trading.Hyderabad Stock Exchange (HSE) episode Hyderabad Stock Exchange (HSE) is one among 23 regional stock exchanges of India. It works on the electronic platform of WAN and VSAT. Our company is already in talk with three regional stock exchanges for this possible partnership. Hardly a few trades take place on these exchanges. It has floated a 100 % owned subsidiary named HSE Securities Ltd. There business has come down drastically. It gives the facility to its brokers to trade in NSE & BSE through its own platform. it has managed to keep it relevant in this market scenario and also is a very good source of revenue generation for it. They are • • Madras Stock Exchange Bangalore Stock Exchange 62 PDF Created with deskPDF PDF Writer .

Hence. Our CEO Himself briefed us about the possible intricacies of such possible collaborations and mandated us to approach HSE on behalf of the company.Trial :: http://www.Sri Hari. We got a positive feedback from them and we scheduled a high powered next round of talks with them in couple of days. We had a meeting with two deputy CEOs of HSE and HSE Securities. We also discussed this issue with their administrative head Mr. Someshwar Rao. we approached HSE officials in this regard. Our CEO himself came for the meeting on 16th May.K.com . 63 PDF Created with deskPDF PDF Writer . we were told to submit a detailed proposal for this joint partnership and for due diligence.• Interconnected Stock Exchange We were assigned the task to explore the possibility of similar kind of tie up with Hyderabad Stock Exchange also.docudesk. The outcome of the meeting was that they were convinced with this idea but at the same time all complication of legal aspect needed to be addressed. So.Bhaskar Reddy and Mr. Mr.V.R.

Commodity Sutra… An Initiative We found in all these interviews and meeting that there is a communication gap which is mother of all this complications. www.com We received good response and appraisal to whomever we discussed about this website. To just understand the reaction of market participation and to work on the bridging this communication gap we launched a web site as apart of our project.docudesk.com .Trial :: http://www.commoditysutra. So there should be a forum to speak on the concern where everyone is listening. 64 PDF Created with deskPDF PDF Writer . We believe that there can be many these kinds of small steps to boost the pace of awareness level.forum5.

. The Rajkot Seeds oil & Bullion Merchants` Association Ltd 4. Rajdhani Oils and Oilseeds Exchange Ltd.. 22. The East India Cotton Association Mumbai. Kochi 10.Commodity exchange in India27 The list of exchanges that has been allowed to trade in commodities are 1... Bikaner Commodity Exchange Ltd. Gwaliar 15. Haryana Commodities Ltd. 2.. 21. 8. The Kanpur Commodity Exchange Ltd. Hapur 13. Ltd. Bhatinda Om & Oil Exchange Ltd. Hissar 25.Muzaffarnagar 9. NCDEX and NMCE are large exchanges and MCX is the biggest among them. The Central India Commercial Exchange Ltd. 12. Delhi 11. Out of these 25 commodities the MCX. National Board of Trade. Surendranagar Cotton oil & Oilseeds Association Ltd. The Chamber Of Commerce.Trial :: http://www. The Meerut Agro Commodities Exchange Co. Esugarindia Limited. Batinda. 7. Meerut 6. First Commodity Exchange of India Ltd. . Multi Commodity Exchange of India Ltd. National Multi Commodity Exchange of India Limited. 24. Bangalore. The Spices and Oilseeds Exchange Ltd. Indore. Vijay Beopar Chamber Ltd. Kanpur 5. 19. Kochi 17.docudesk. e-Commodities Ltd. 20. National Commodity & Derivatives Exchange Ltd. Bikaner 18.com .. India Pepper & Spice Trade Association.Mumbai 3. 23. The Coffee Futures Exchange India Ltd. The East India Jute & Hessian Exchange Ltd. 27 Source: PTI / New Delhi April 11. The Bombay Commodity Exchange Ltd. 16. 14. Ahmedabad Commodity Exchange Ltd. 2007 65 PDF Created with deskPDF PDF Writer .

the turnover stood at Rs 1. National Commodity and Derivatives Exchange (NCDEX) and National Multi Commodity Exchange of India (NMCE). a commodity analyst said.55 lakh crore registered in 2005-06.Future Trading: the Growth story • Futures trading on commodity exchanges rose by more than 70 per cent to Rs 36. • According to data released by commodity market regulator Forward Markets Commission (FMC).67 lakh crore.70 lakh crore. • The overall surge in the turnover of commodity exchanges in 2006-07 has been primarily led by the three leading national bourses.Trial :: http://www. which together account for more than 97 per cent of the business.82 lakh crore. during March 16-31 of the last financial year total turnover from futures trading was Rs 1. In the first half of March. the total turnover on the three national and 20 regional commodity bourses stood at Rs 5.3 per cent in the total turnover of futures trading followed by NCDEX with 31.docudesk. 66 PDF Created with deskPDF PDF Writer . Multi Commodity Exchange (MCX). In 2004-05. • MCX has emerged as the top commodity bourse in the last fiscal with a share of 62. • The turnover would have hit the Rs 37 lakh crore level.7 per cent share.com .76 lakh crore in 2006-07 compared with Rs 21. but for this decline in business in the second half of March.

81% in 2003-04. • The turnover of the commodity and stocks (including index futures) futures rose 58.com . in China about 85%.asp?relid=17932&kwd 67 PDF Created with deskPDF PDF Writer . will boost the commodity futures trading further in the coming years Commodities to surpass equities in the next 2-3years – Even when stock exchanges are enjoying an unprecedented boom and increasing investors’ wealth. • The turnover of commodity and stocks futures grew at a scorching pace in 2006-07.28 • Participation of banks. and in India? 5.665 crore during Mar 1-15 and Rs 33. mutual funds and FIIs. Commodity exchanges have not logged as much volume of trade and as much value as securities have done. 20.• Leading agri-commodity exchange NCDEX continued to march ahead with its turnover rising to Rs 42. The commodity futures outperformed the stocks and index futures by posting 70 per cent growth in turnover. 1952.53 trillion.632 crore in February 16-28. 28 http://www. but there is no doubt that in the next five years or so the commodity exchanges will overtake stock exchanges in terms of volume and value.nic. accounting for 80 per cent of the total turnover of the cash and futures markets. in Brazil about 200%. crossing the Rs 100 trillion mark at Rs 110.982 crore during March 16-31 from Rs 41.in/release/release.8 per cent in 2006-07. The share of futures in the total turnover was 74 per cent a year ago and 60 per cent two years ago.14% in 2004-05 and 66% during 2005-06.docudesk. it is the commodities that are making a steady progress.pib. along with introduction of options trading with amendments to the FCR Act. • Futures market size relative to GDP in the US is about 90%.7 per cent. The turnover of stocks and index futures rose 53.Trial :: http://www.

if the government had not banned futures trading in the price-sensitive agro commodities like urad.37 trillion (Rs 36.50 per cent share.• The three major commodity exchanges had a combined turnover of Rs 36. The turnover of these commodities rose 164 per cent.com .6 per cent. natural gas and gold by the MCX. • The pace of growth of commodity futures would have been much more. The BSE has a minuscule 0. • The commodity futures market has been growing at a higher pace with its share in the total pie increasing from around two per cent in 200405 to 30. moong. 15.7 per cent in 2005-06 and 32. 37.6 per cent in 2005-06 to 66 per cent in 2006-07. • On the stock markets. The ban halted its pace of growth from 126.4 per cent in the first half of 2006-07 to 32. the Multi Commodity Exchange (MCX) 20 per cent and the National Commodities and Derivatives Exchange (NCDEX) 10. the National Stock Exchange accounts for 66. and their share in the total turnover increased from 47. 68 PDF Created with deskPDF PDF Writer .257 crore due to introduction of 49 new stocks futures during the year. the BSE and the NSE clocked a total turnover of Rs 74.Trial :: http://www.9 per cent in 2006-07.009 crore) during the financial year. while the NMCE accounts for the remaining 2 per cent. tur and wheat in the second half of 2006-07.5 per cent.docudesk.7 per cent in second half of 2006-07. • Among the five major exchanges that allow futures trading. • This was attributed to introduction of international commodities such as Brent Crude.

com .. they were able to synchronize themselves with the WPI. Chicago Climate Exchange etc. As the entire metal trading in the world market is done through exchanges and commodity exchanges in India being a representative of global metal exchanges. A five-member committee headed by Planning Commission Member Abhijit Sen has been asked to study “the extent of impact. if any. For agri commodities Exchanges were based on the factored and averaged out inputs in the spot markets. 000 crores with a highest daily turnover of Rs.Trial :: http://www. urad and chana futures were banned. hence were able to reflect WPI.17. For some commodities like metal.The Roadblocks: Commodity trading despised Ban on Futures: • The government banned futures trading in wheat and rice on February 28 when the Budget was presented in Parliament while announcing a freeze on launching new contracts till an expert committee submits it report. While highlighting the importance of strategic alliances that MCX has already gone into with exchanges like NYMEX. he expressed 69 PDF Created with deskPDF PDF Writer . 988 crores.exchanges were able to discount all the parameters associated in WPI. of futures trading on wholesale and retail prices of agricultural commodities” The report submitted found an explicit relationship between wholesale price and commodity future trading. in a short span of around 30 months.7. future commodity trade has grown to an average daily turnover of Rs. As report discovered. It emphasized on the emergence of a pan-Indian market for commodities in India that will have unique prices for the entire country. Earlier.( those were in line with the global prices and the factors ). Tokyo Commodity Exchange. LME.docudesk.

investors. Speculation For a long time since the Forwards Contract (Regulation) Act 1952. The ultimate beneficiaries in this scenario will be farmers who deserve a fair deal in a predominantly agricultural economy of India.Trial :: http://www. This was because of high speculation that was order of the day then. Traders were seen more as speculators in commodities rather than market makers. Care should be taken to see that unrestrained speculation does not create unwarranted volatility in prices to the detriment of stakeholders. NMCE and National Board of Trade (NBOT) has 70 PDF Created with deskPDF PDF Writer . The attitude towards commodity trading was one of suspicion and frown. Largely. There is also another aspect of speculation. No market can thrive without speculation.coming into commodities markets on a large scale. But there is still a need to strengthen regulatory mechanism.both individuals and institutional . regulators and financial institutions have realized that it is not enough to set up commodity exchanges but a strong regulatory mechanism should be in place for orderly functioning of these exchanges so that both individuals and institutions participate on a large scale to bring about price discovery and stability to the market. commodities trading were looked upon with suspicion. commodity trading was in disrepute because of unregulated speculative activity.docudesk. That is the volume of trade on commodities exchanges such as NCDEX. Then. Commodities are no longer seen as speculators’ heaven as more and more investors . Today the situation is different as there is a regulatory mechanism in the form of Forward Markets Commission. much less futures. wrong perception owed to the absence of regulatory mechanism.his satisfaction at the performance of MCX and hoped that India will become global hub of commodity trading in near future. Now things are changing for the better as both the government and other stakeholders such as traders. farmers.com . There is no doubt that the situation is a far cry from the one that prevailed towards the end of the 1960s.

circulatory trading etc. Both price discovery as well as a fair return to farmers. We.SEBI and other bodies have regulatory powers over the functioning of stock exchanges in the country. Excerpts from an interview taken with FMC Member. After all the primary function of a commodity exchange is to facilitate the spread of correct information for all stakeholders so that transparency in transactions makes price discovery possible. A strong regulatory mechanism is also needed to check price-rigging.10 lakh crore by 2010.reached Rs 7. traders. Forward Contract (Regulation) Act 1952 is being amended to factor in changes in subsequent period.5 lakh crore during the first five and a half month till September 15 of the current fiscal. apart from of course.docudesk. We have developed software 71 PDF Created with deskPDF PDF Writer . Once a legal framework is put in order commodities exchanges will become better and more efficient conduits of right information for stakeholders. Mr. But it would be a mistake to draw a parallel between these two sectors. will be possible if there is wider participation of these bodies.Kewal Ram throws some light on the issue Regulatory Aspect: “I feel strongly that for orderly functioning of commodities exchanges there is a greater need for efficient regulatory bodies. the real actors in the entire drama. If the current trend in growth continues it is said that the trade volume will cross Rs. at FMC have prepared a plan to strengthen regulatory mechanism more or less on the lines of SEBI but differing in some details in view of differential nature of stocks and commodities. FIIs and general investors in commodities spot and futures. banks. After all stocks are derivatives and commodities are real. The trading volumes on commodity exchanges surpassed that of futures on the capital market in August 2005 for the first time in the history of the domestic derivatives in the market. So I feel there is a need for greater participation of financial institutions.com .Trial :: http://www. This will ensure broadening as well as deepening of the commodities markets.

com ." Giving speculators a clean chit. Prospects for commodities in this country are really bright. 72 PDF Created with deskPDF PDF Writer . We have already overtaken the Mumbai Stock Exchange (BSE) in terms of value. It has also a long experience in stock regulation. as observed from the cross-country experience of active commodity futures markets. I am sure that in the next 2-3 years will see an exponential growth of commodities trading. but it quickly reverts to long-run equilibrium price.docudesk. the survey has forecast that exchanges are likely to see even higher volumes and value of items traded in the coming fiscal. the survey said. But it is not fair to compare our software with SEBI’s as that body has spent Rs.." the survey has stated. Referring to fears about speculators distorting the market.” Ban on Commodity futures: A case of excessive political intervention in the Economic subsystem INDIA is unlikely to shut down its agricultural commodity futures anytime soon. reflecting fundamentals of the respective market.Trial :: http://www. price behavior of a commodity in the futures market might show some aberrations. but do not have a "systematic causal influence on prices" . "At times.20 crore on it. if accolades from the Economic Survey are any indication. helps in efficient price discovery of the respective commodities and does not impair the long-term equilibrium price of commodities.. as information flows in. The total turnover of commodity derivatives market has already crossed 76% of India's GDP. Calling the ban on urad and tur futures ‘temporary’. "Futures market. the survey said they play a role in providing liquidity to markets and may sometimes benefit from price movements.somewhat like SEBI’s to facilitate online information.

All eyes are now on the proposed amendments to the Forward Contracts (Regulation Act). the survey has pointed out. Up to December 31. The market has been looking forward to the introduction of options as a more sophisticated way of trading in commodity derivatives.docudesk. and NCDEX. Due to the frequent clampdowns and uncertainty in farm futures.6 lakh crore in 2005-06 to Rs 16 lakh crore in 2006-07. as in the case of tur and urad to prevent 'unhealthy' speculation. gold has been the real star of the show this year. the government has clamped down heavily on farm futures contracts by increasing the margins. Dow Jones AIG Commodity Cash Index and Reuters/Jefferies Commodity Research Bureau. The survey believes the amended Act.Ironically. energy and bullion.Trial :: http://www. which derives its market share from metals. there has been a sharply divergent pattern of growth between MCX. NCDEX saw reduced volumes. 1952. Meanwhile. though farmers are meant to be the chief beneficiaries of commodity exchanges. It also allows the government to introduce options in commodity futures. On the other hand.44 lakh crore in 2006-07. Though punters on metals and gold have been the biggest players in the market till now. MCX turnover rose from Rs 9. expected to be passed in this session of Parliament. the growth of MCX in 2006-07 is comparable with some of the international commodity indexes such as Goldman Sachs Commodity Index. Guar (11%) and chana (10%) were the only farm commodities with doubledigit figures. reducing volatility or simply banning them. will ensure "orderly conditions" in commodity futures.com . which is the biggest in farm commodities. For the first time in three years. energy and bullion. the turnover on NCDEX shrank from Rs 10 lakh crore in 2005-06 to Rs 9. the 73 PDF Created with deskPDF PDF Writer . Punters playing on geo-political tensions ensured that gold and silver had 50% share in terms of volume. The Act intends to substantially enhance the surveillance and monitoring powers of the regulator Forward Markets Commission. in the last one year. Riding on the back of a global boom in metals.

Trial :: http://www. more than Rs. helping their price discovery process and thereby providing an opportunity to farmers.docudesk. Fortunately.45 to Rs. technology allowed India's online commodity markets to reach the smallest investor's doorsteps. the Indian farmer is preferring suicide to a life of misery and penury. This is something even bourses in Chicago and New York are just catching on. and so much so that he couldn't afford to buy fresh stocks at such high prices. most Indian housewives don't exercise that option and instead curse their fate while buying more than Rs.60 per kg. 74 PDF Created with deskPDF PDF Writer . using the open outcry method.60 a kg for capsicum. "Agricultural commodities are expected to gain importance. Even rising wheat prices are triggering alarm bells with the government announcing wheat imports.survey is hopeful of farm commodities getting their share of the spotlight. now have just 3% share of the total commodity derivative business.40 per kg for tomatoes. Last year. To his dismay. That may well come true. hoping he would buy fresh stock at further lower prices. Housewives are testing out alternative food concoctions on her family because she can't afford to prepare sambhar. Playing With Futures: Market Manipulation in Commodities Markets Farmer could not make money despite having a better harvest of Arhar dal this year because there was a glut in the market." the survey said. the market went up instead of down.60 a kg for daal (pulses). In spite of high price of produce the fact is devastated by poor returns and a mountain of debt. as pulses are being sold at exorbitant prices between Rs.com . A trader in wholesale grains market in Who sold his stocks at much lower prices than last year. and a further amount of around Rs. Traditional regional exchanges.

Even the UPA Chairperson. how do we put it. copiously doesn't think so. then why are prices hitting the roof? Most Traders acerbically blames it on futures trading in the commodity market. the following: • The closing price for mentha oil in October 2005 was about Rs. The increase in prices is. nor has the consumption skyrocketed. Most surprisingly. 2006. considering the fact that there are clear indications that speculation is rampant. flatly put the onus of unprecedented inflation on commodity markets. so does Ashish. where is the money going? If neither production has gone down. Traders like Ajay. accusing commodity exchanges of manipulating markets. But the Chairman of commodity futures regulator. 75 PDF Created with deskPDF PDF Writer . And least of all being the memorandum to the President of India submitted on July 5. S. who allege. By March 2006. Sonia Gandhi. "In sync with market trends.420 (a sign?) in the next two months. while chairing the Core Ministerial meeting of the government to review price rise. and the trading volume was 'zero'. but by the commodity exchanges in order to book profits.docudesk.000 tonnes and the price had gone up to more than Rs. Vindicating the point. is alleging that prices of commodities are not being fixed as per demand or supply.Trial :: http://www. Sundaresan.com . by Confederation of All India Traders. the volume traded in mentha oil had skyrocketed to about 400." as he sassed recently rising up to defend the futures markets. "The regulator has totally failed to monitor abnormal increase in prices of commodities in the market. have angrily demanded a ban on their operations. if the farmer is not getting better returns and the housewife is paying through her nose.800 per tonne.The obvious question is.450 per tonne." And most of all. the Forward Markets Commission (FMC). the price fell to Rs. A pulse trader at the BegumBazar (Hyderabad). Sundaresan's point could well put rhetoric to shame.

• There are persistent allegations that about 250 small commodity traders across India have committed suicide after going bankrupt in 2005-06.com . the volumes traded in commodity exchanges are 40 to 50 times the actual supply of the commodity. • The trading volume in the commodities exchanges went up by a staggering 274% in 2005-06. As mentioned before. The online version of commodity trading was intended to ensure that such "bonded" farmers could sell their produce online to millions of prospective traders across the world in an internet based commodity exchange for price discovery of their produce. And it is this group that has been suffering the most due to the entry of FIIs and other big stock market players in commodity trading. But hardly any farmer trades his produce on the exchange. increasing the market prices of the commodity. And if they felt that they were still not getting the right price.• Often. trading went on for more than one year without any physical delivery of the commodity. • In turmeric. A spice merchant from Delhi provides an incriminating insight.Trial :: http://www. who used to form a cartel and buy the farmer's produce at prices much lesser than market prices. but are also pleading for warning to be given to various similarly stuck traders. they could sell it in futures market .who have been trading their agri-produce after buying it from farmers and small wholesalers. not only is this group now demanding a ban on futures commodity markets.at an agreed price they felt could be fetched after a few months when the demand for their produce could go up. The rate of growth continues to be very high even now. The exchange also provided a platform to foreign traders to buy Indian goods for their own markets. It's again the same for wholesalers .docudesk. Commodity markets were permitted by the government to free farmers from the clutches of local traders. 76 PDF Created with deskPDF PDF Writer .medium and big .

"Total produce of small cardamom in India is 12.6.500 per 10 grams last month. vegetables and oil too have gone up. There are also allegations of some tainted stock market players like Ketan Parikh manipulating the commodity market to book heavy profits. The Price Management Fundamental 77 PDF Created with deskPDF PDF Writer .150 from Rs. It is also a fact that besides wheat. Recently. Of course. NCDEX imposed a margin of 45% on urad daal and 18.19.800. valued at Rs. urad and mentha oil.. And not all of these are being traded in the futures market. a Bullion trader at Mahan kali. part of the hike is additionally due to seasonal factors. but only in commodities like guar gum. two of which do not directly affect ordinary people. H. blames futures trading for the upward swing in gold prices from Rs. and silver from Rs.docudesk.480 million. prices of other commodities like milk.200 per kg to Rs.000 tonne.200 six months ago to Rs. In any case the exchange itself imposes margins to ward off speculators. The weakening of rupee and non-availability of pepper outside the exchange resulted in the prices of this sibling of salt zooming up to Rs.6.com . Ajay.Trial :: http://www.11. A big trader can corner 80-90% of the produce through commodity exchanges making the prices skyrocket in open market.850 per unit (per 10 tonne) on June 26. Trading on mentha oil had to be suspended for sometime on July 9.7. The NCDEX Managing Director P. dals and pulses. Ravi Kumar denies this..12.5% on tur daal to discourage speculators. The basic issue now is how to strengthen the commodity regulator and speed up the physical delivery system. there have been excessive speculations. detergents." The spice man may not be too much off the mark. True.

they gambled on turmeric prices falling in the future). Overall. They have to pay the huge difference after which traders either quit the market for good or join the speculation bandwagon. a selective and shadowy group of big traders cornered the market and the small traders realized that they did not have the resources to go on gambling. Though one would not wish to connect. creating volatility in the market. where speculative futures trading were being done for more than one year without any physical delivery of the product.buying left. there have been four confirmed cases of suicide amongst Delhi-based commodity traders in recent weeks. Most went bankrupt. including one Hyderabad-based trader who lost Rs.On the basis of parameters like rainfall. or withdrew with heavy losses.com . hoping to buy it at later stage. hoping the market would still be high. spread of disease. product managers at commodity exchange inform traders of likely volumes of the crop. However. There were clear indications from experts about a bumper crop and most traders.Trial :: http://www. sold turmeric short (in layman's terms.5 million. Small and medium traders. rue the lost opportunity. right and centre making prices go up. Price Discovery is a Ruse 78 PDF Created with deskPDF PDF Writer . but in fact. The speculators pitch in. A telling example is turmeric. there are many traders who claim more than 200 small traders across India have committed suicides.docudesk. Even those who dare to buy in futures. And without surprises. who had already sold off their produce at throwaway prices. come in for a shock to find that speculators and big traders have sold off their stocks causing the prices to crash. something exactly similar seems to have happened with the commodity mentha oil. That is the precise moment that big players step in .

The commodities market regulator FMC simply doesn't have the manpower. the problem crops up when speculators are allowed to go wild with futures trading without any effective regulation from a body or an institution.Futures trading perform two important functions: • • price discovery Risk management It is useful to all segments of the economy – • • • The farmer because he can get an idea of the price his produce can fetch him after some time. speculation and market fixing. These factors have led many traders to raise uncomfortable questions: 79 PDF Created with deskPDF PDF Writer . the resources and the expertise to effectively regulate the rapidly growing speculation in scores of commodities across India. It took many more scams and alleged scamsters like C.Trial :: http://www. The consumer since he gets alerted about future prices of essential commodities Exporters.it simply doesn't have the wherewithal to prevent rigging.com . Even now. However. as it provides an advance indication of the likely price. While the Harshad Mehta scam triggered the formation of SEBI in 1992 to more effectively regulate the markets. Commodity markets were supposed to have eliminated the risk of being duped by a wholesale trader.docudesk. FMC faces the dilemma faced by SEBI in the early 1990s . R. Bhansali and Ketan Parekh and more than a decade for SEBI to reach a stage where it could even claim that it is actually an effective regulator. There are many analysts who compare the present status in the Indian commodities markets to the Wild West scenario that prevailed in the Indian stock markets after the first flush of liberalization in 1991.

com ..docudesk.• A whopping 98% of traders in commodities lost money..Trial :: http://www. Why? Why doesn't the government close down defaulting exchanges or manage them better? • • Why don't all exchanges increase margins or stop trading? Why are settlements of contracts still not transparent? Why are market regulators unaware of trade intricacies? 80 PDF Created with deskPDF PDF Writer .

enforcement and penalty in case of contravention of the provisions of the FCR Act.docudesk. Some corrective measures proposed in the bill. allow trading in options.Trial :: http://www. The FMC should be handled by the finance ministry instead of the consumer affairs ministry. • • • • Convert warehouse receipts into a negotiable instrument. 1952 that regulates the commodity markets by introducing an Amendment Bill in the Lok Sabha on March 21 this year.Prescriptions / suggestions The government had proposed to amend the Forward Contracts (Regulation) Act. The FMC should be headed by an economist. • Make provision for investigation. • • • FIIs should not be allowed to trade in commodity futures. Trading of non-deliverable goods like crude oil should be stopped as it promotes speculation and hedging. Clearing house functioning should be improved. • All commodity exchanges should strengthen their warehousing facilities to boost storage and prompt delivery. Settlement of futures contracts to be made transparent. and some more by some financial experts are: • • • Increase number of FMC members from four to nine Conferring power upon the FMC to levy fees Make provisions for 'corporatisation' and 'demutualization' of recognized. 81 PDF Created with deskPDF PDF Writer .com . • Make provisions for registration of members and intermediaries.

Trial :: http://www. However. they have grown by leaps and bounds. farmers and other stakeholders of business. Still much has to be done and commodity market in India has to score much more in years to come in terms of penetration. Within 6 years of period. we find that even after excessive government restrictions. regulatory control and transparency. Also a sizable amount of stakeholders. The prime question here then how commodities are now considered as a serious alternative investment avenue. By investment tool we mean an asset class wherein surplus money of the economy can be pooled in to generate more growth for Economy as a whole and a capital investment for its investor. maturity. They have been launched in 2003 after much consultation and much ban –allow imbroglio. not only for its real participants but also for people who do not hold any direct business 82 PDF Created with deskPDF PDF Writer .docudesk.Commodity Futures: An Alternative Investment Avenue The first question which we are trying to address is the status of commodity futures markets in present scenario in India. disinterest of participants and fragmentation of markets. commodities in this country were never meant to be an investment tool for middle class. When one goes into diagnosis of commodity derivatives. Their primary aims were price discovery for various participants of spot commodity market and also as a tool to minimize risks involved with the price fluctuations and exigencies to traders. Commodities have never intended to emerge as an investment class. policy anomalies.com . are still out of this business model and are still suspecting it as a derogatory for their business interest. they have already attained 76% of country’s GDP and the volume of 3200000 crore! Our some of the exchanges compete with biggest in world commodity markets and are competitive enough.

the volume of many contracts could be so low that on some days a trade cannot occur. They are not only speculators but also for bourgeoning middle class with its surplus money and expertise.docudesk. but with the idea of transferring the contract concerned to an actual producer or user at a profit. But hedgers can not function without the presence of speculators. The speculators are the most prominent investment class. If the market is restricted to hedgers. therefore. because a buyer cannot find a seller or vice versa. not with the intention of actually making or taking delivery.com . there is the risk that prices could be 83 PDF Created with deskPDF PDF Writer . They are also said to be keeping the real players away from the market. They are blamed for their capacity of over price volatility and inflated scenarios and are said to be hampering the business prospect of real stakeholders. This is where the speculators step in. They do good to bring liquidity in the market and are generally the one who help in Market making. In fact. We are analyzing the behavior and role of speculators in the commodity market. They buy or sell in forward trades. They are very integral part of any economical or business cycle and are also the one who are most despised. They are alleged for excessive price volatility and immature behavior of market as a whole. buy and sell a large number of contracts enabling the hedger to transfer risk with ease by injecting liquidity into the system. However. The findings of the role of speculators in Indian commodity market are well talked about. those can be termed as people who take commodity as their investment tool. But the moment speculation begins. they are the speculators to whom the real players transfer their risk. They can. who are actual producers or users of commodity.interest in commodities in which they are investing. it should be kept in mind that forward contracts are means of hedging against the risk of price volatility or uncertainty of supply. who wants to take part in all pervading INDIA GROWTH STORY and contribute in the mainstream of national economy.Trial :: http://www.

we find that other benchmarks showed negative returns.Trial :: http://www. Like the GSCI. agriculture and metals). So as an asset class. Only near or near-deferred contract months are taken for the index computation. they prove to be a fantastic tool in the hands of prudent investor.34 Lakh Crore 6685 Lakh Tonns 274% 244% Now coming to our core question: How efficient are commodity derivatives as an investment tool? For this we need to compare the risks and returns of commodity futures with other asset classes. It relies on a unique combination of liquidity on MCX and physical market size to determine its component weighting. 84 PDF Created with deskPDF PDF Writer .com .71Lakh Crore 1942. % 2004-05 2005-06 increase Value Volume 5. The MCX Comdex now tracks 10 commodities selected on their liquidity and their importance to the physical market. This implies that the Indian index has been steadily bullish compared with its global counterparts most of which are in the negative return zone.1 Lakh tonns 21. Equal weights are assigned at group level (energy. Also we would like to emphasis that commodity markets in India are now in the phase of a mega bull run which is going to stay for long time.docudesk. If we take MCX COMDEX as a representative of Commodity market in India and compare it with other markets n the world.86%. MCX Comdex: It was created in June 2005 to mirror the commodity prices discovered at the Multi Commodity Exchange of India (MCX).manipulated to move consistently in one direction for significant periods of time. inflicting losses on some and gains for the others. there is no limit on the number of underlying commodities. ranging from 1 per cent to 7 per cent while MCX COMDEX gave an annualized return of 18.

gold. and rubber.10 MCX COMDEX inception(June 2005) 29 www.63 11.34 18.98 -39.87 day -3.82 21.31 34.84 1.31 per cent).56 17. This was followed by the RICI. with an annualized return of 5. The index is not traded on any of the exchanges in India due to regulatory constraints.85 -2.41 5.20 the 18.18 -29.83 19.06 -2. Among the benchmark indices studied only MCX Comdex and RICI had positive returns for the period (see Table).35 21. cottonseed oilcake.21 17.81 18.04 per cent).12 32. The Indian benchmark MCX Comdex provided the highest annualized return of about 18.Trial :: http://www.91 -5. urad and guar seed.05 drawdown Return /Risk Ratio Return date from of -6.90 97. wheat.77 -3.commodityindia.Currently. 29Risks and Returns: MCX Comdex VS Global Benchmark Indices GSCI DJAIG RICI CRB COMDE X Annualized Return Annualized Risk Average return Max per -1.56 per cent (annualized risk: 17.04 18.com . while energy and agriculture groups comprise crude oil.84 -5.com 85 PDF Created with deskPDF PDF Writer .05 -6.docudesk.33 per cent with a moderately higher annualized risk (19.70 16.26 9.24 Max/Min 22. silver and copper represent the metals group. and Soya oil.50 35.

SUGGESTIONS TO MAKE INDIAN COMMODITY MARKETS MATURE:

The commodity derivative market is relatively insignificant at present to be influenced by the money/forex markets. But this may not be the case in the near future. In the USA,the commodity futures trading commission trading(CFTC)has jurisdiction to regulate all types of derivative contracts-forex,government securities, interest rates,

equities ,etc.In UK,even greater convergence of regulatory authority is achieved by vesting regulatory powers to a single agency, the Financial Services Authority. In India, there have been occasions to disentangle of issues of regulatory jurisdiction between RBI and SEBI.The proposals of allowing stock brokers to trade in commodity derivatives market and regional stock exchanges being allowed to trade commodity futures contract are being discussed at regulatory levels. Therefore, similar issues of regulatory jurisdiction and the desirability of regulatory convergence are likely to become relevant. • The long period of prohibition on forward trading in major commodities has weakened the commodity derivatives in India. Futures markets in commodities find themselves left far behind the derivative markets in developed countries which have been functioning uninterruptedly. Even the securities market in India, which was far behind the commodity derivatives in terms of volume, level of participation etc.in 1960s, has grown rapidly. This has caused some players in commodity markets to migrate to the securities market. The equity trading cult was established and modern infrastructure, systems and regulations were introduced with the emergence of NSE and SEBI. • The challenge before the commodity markets is to make up for the loss of growth and development during the three decades of restrictive

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government policies, which had the effect of delaying the growth of commodity derivative markets. • The best practices which are being discussed to be implemented are: Daily mark to market margining. Time stamping of trades Novation of contracts and creation of trade guarantee fund. Back-office computerization for the existing single

commodity exchange and online trading for the new exchanges. Demutualization for the new exchanges. •

The market in India has been very traditional so far. These new techniques of making market more developed are facing steep resistance from the traders. A sizable chunk of trade often migrates to informal system because of introduction of these measures from time to time. A latest example could be a virtual close down of Bombay and Kanpur commodity exchanges after enforcing new regulatory

mechanisms. The traditional players find themselves at difficulty in changing with methods of trading, clearing and settlement suddenly. • There is a widespread lack of awareness about the role and technique of futures trading among the potential beneficiaries. Only massive efforts to train younger generations in modern trading techniques and allowing the already trained stock brokers to trade in commodity futures can obviate the need to depend on the traditional players to revive the commodity derivative market.

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Latest developments in Commodity Markets in last 1 Year:

The turnover of commodity and stocks futures grew at a scorching pace in 2006-07, accounting for 80 per cent of the total turnover of the cash and futures markets. The share of futures in the total turnover was 74 per cent a year ago and 60 per cent two years ago.

The turnover of the commodity and stocks (including index futures) futures rose 58.8 per cent in 2006-07, crossing the Rs 100 trillion mark at Rs 110.53 trillion. The commodity futures outperformed the stocks and index futures by posting 70 per cent growth in turnover. The turnover of stocks and index futures rose 53.7 per cent.

The three major commodity exchanges had a combined turnover of Rs 36.37 trillion (Rs 36,37,009 crore) during the financial year.

This was attributed to introduction of international commodities such as Brent Crude, natural gas and gold by the MCX. The turnover of these commodities rose 164 per cent, and their share in the total turnover increased from 47.6 per cent in 2005-06 to 66 per cent in 2006-07.

On the stock markets, the BSE and the NSE clocked a total turnover of Rs 74, 15,257 crore due to introduction of 49 new stocks futures during the year.

The commodity futures market has been growing at a higher pace with its share in the total pie increasing from around two per cent in 200405 to 30.7 per cent in 2005-06 and 32.9 per cent in 2006-07.

The pace of growth of commodity futures would have been much more, if the government had not banned futures trading in the price-sensitive agro commodities like urad, moong, tur and wheat in the second half of 2006-07. The ban halted its pace of growth from 126.4 per cent in the first half of 2006-07 to 32.7 per cent in second half of 2006-07.

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89 PDF Created with deskPDF PDF Writer .50 per cent share. the Multi Commodity Exchange (MCX) 20 % and the National Commodities and Derivatives Exchange (NCDEX) 10.6 per cent.docudesk. The BSE has a minuscule 0.• Among the five major exchanges that allow futures trading. while the NMCE accounts for the remaining 2 %.5 %. the National Stock Exchange accounts for 66.com .Trial :: http://www.

National Spot Exchange is a state-of the-art unique market place providing customized solutions to various problems faced by the farmers. Food. investors and the general mass.National Spot Exchange The Concept 30 National Spot Exchange is a national level institutionalized. importers.com .docudesk. It has been floated by the following organizations 30 Chart no : 9 Source: National Spot Exchange 90 PDF Created with deskPDF PDF Writer . arbitrageurs. exporters. in a function at New Delhi on 10th February. traders. This project was launched by Shri Sharad Pawar. transparent spot Exchange. which is poised to transform the rural economy. processors. Honorable Union Minister for Agriculture and Consumer Affairs. 2005.Trial :: http://www. and Public Distribution. electronic.

docudesk. NAFED (National Agricultural Cooperative Marketing Federation of India Limited). the leading Government agency. To provide authentic spot price of various commodities that can be used by the futures market as the benchmark price for settlement of their contracts on the date of expiry. the leading commodity exchange in India. Objectives To provide an effective method of spot price discovery in various commodities. engages in food procurement. distribution and storage activities. end users. FTIL (Financial Technologies India Limited) is among the very few companies globally that offers exhaustive solutions library for Exchanges. Forward Markets Commission (FMC) and the Government in achieving the target of compulsory delivery in 91 PDF Created with deskPDF PDF Writer . To create a market where the processors.MCX (Multi Commodity Exchange of India Limited).Trial :: http://www. provides technology solutions to financial markets and facilitates expansion of stock broking terminals. investors and arbitrageurs can invest money in buying various commodities across the country without going through the hassles of physical market. To create a market where farmers can sell their produce and realize sale proceeds at the best prevailing price. without any counter party and quality risk. To help the futures exchanges. To create a transparent market where financiers. corporates (both private and government) and other upcountry traders can procure agricultural produces at the most competitive price.com . It is also amongst the top three Exchanges in the world in bullion futures. provides futures trading in more than 70 commodities. in a transparent manner from across the country. exporters.

Procurement and disposal of commodities through online trading system. logistics handling and shipment.all agricultural produces by way of creating a structured and standardized spot market. To promote grading and standardization of agricultural produces and create a market. 92 PDF Created with deskPDF PDF Writer . where banks and money lending agencies can provide warehouse receipt financing to farmers and traders.Trial :: http://www. Customized services relating to storage. Facilitating collateral financing and borrowing against warehouse receipts. quality certification and standardization of commodities. Market Intelligence Reports. Services Offered By National Spot Exchange Electronic spot trading facility in multiple commodities with specific delivery centers. Grading. transportation.docudesk.com .

com ( National Spot Exchange) 93 PDF Created with deskPDF PDF Writer .docudesk.com .Nationalspotexchangeexchange.Participants in the National Spot Exchange 31 Advantages of National Spot Exchange 32 31 Chart no: 11 Source: www.Trial :: http://www.

Benefits to the Traders Common National Level Platform for Buying and Selling of Commodities. Access to a national level transparent market.com . Benefits to Corporate / Exporters / Importers Facilitates bulk procurement operations without counter party and quality risks.Benefits to the Farmers Realizing the best possible price at the time of sale for agricultural produces. where direct selling to processors or end users would be feasible. No counter party risk in trade. Increase in bargaining power due to availability of an alternative market. Customized services relating to storage and logistics.Trial :: http://www. 32 Chart no: 12 Source: National Spot Exchange 94 PDF Created with deskPDF PDF Writer . Availability of professional services for grading and standardization. Trade and payment guarantee. Cost reduction in handling and other activities.docudesk. Procurement and disposal of huge quantity possible. Increase in holding capacity due to availability of warehouse receipt financing.

Jobbing and spread trading between cash and futures. It can create an alternative investment instrument. which can be accessed through VSAT. Long term investors can buy physical commodities stored at National Spot Exchange warehouses and take advantages of off season price rise. National Spot Exchange would provide the stepping stone for this purpose. Investors can buy physical material on National Spot Exchange and do arbitrage with future contracts traded on MCX. Disposal of deliveries received on Future market. Benefits to the Futures Exchange Commodity exchanges would get a fair transparent spot price for settlement of their contracts. which will be traded from 10 am to 5 pm. Regulator wants to move towards compulsory delivery in various commodities. It will launch daily expiry contracts. just like investing in stock market.docudesk.Trial :: http://www. Benefits to the Arbitrageurs Advantage of cash-future arbitrage electronically. OPERATIONS PLATFORM AT NATIONAL SPOT EXCHANGE Trading National Spot Exchange will provide an online screen based trading system.com . The positions outstanding at the end of the day will result into compulsory 95 PDF Created with deskPDF PDF Writer . leased line or internet.Complete avoidance of hassles relating to physical market operations.

But during the day.delivery. The buyer's account will be debited by the Exchange on T + 4 and delivery order will be handed over to them after ensuring that payment is through. pay out will be credited to the 33 Chart no: 12 Source: National Spot Exchange 96 PDF Created with deskPDF PDF Writer .docudesk. the transactions of offsetting nature will be netted off and delivery will be executed only with respect to the net quantity outstanding at the end of the day. On T + 4.Trial :: http://www. place of delivery. date of delivery and other conditions will be specified by the Exchange in advance and all contracts executed on the system would be on the basis of such terms only 33 Delivery and Settlement All trades executed on a day will be netted off at the end of the day as per the weighted average price of last 30 minutes. The net sellers have to give delivery by way of depositing goods in the Exchange designated warehouses / storage tanks within T + 3.com . The profit / loss arising would be settled on the basis of MTM on the next day. All the terms relating to quality specifications.

34 Chart no: 13 Source: National Spot Exchange 97 PDF Created with deskPDF PDF Writer .seller's account. margin will not be applicable on such positions.docudesk. However. All positions outstanding in the market would be subject to margin payable by both buyers and sellers. the buying position would be auctioned by the Exchange at the risk and cost of the buyer. if the sellers have deposited goods in the Exchange designated warehouses. In case the buyer fails to make payment.Trial :: http://www.com . margining and surveillance to ensure market integrity. 34 Risk Management and Surveillance The Exchange will use various tools for risk management. the position will be auctioned / closed out at the risk and cost of the seller separately. In case the seller fails to give delivery.

the pay out will be declared as per the Exchange schedule. Trade and Post-Trade operations. Technology National Spot Exchange gets the strategic advantage of having Financial Technologies (India) Ltd. For this purpose. as its technology partner for delivering technologically advanced solutions to market participants. It would deliver a cuttingedge to the National Spot Exchange Trade Life Cycle i. FTIL is proven class of end-to-end Exchange Trading technologies. 98 PDF Created with deskPDF PDF Writer .Trial :: http://www.com .e. addressing Trading / Surveillance / Clearing and Settlement operations. the Exchange will maintain a settlement guarantee fund.Settlement Guarantee Fund The Exchange will guarantee performance of all contracts executed on the Exchange platform. Pre-Trade.docudesk. Notwithstanding default of any member.

com . [STCI] and its nominees. jointly with public sector banks and all-India financial institutions with objective of fostering the 99 PDF Created with deskPDF PDF Writer . UTISEL has been working as an independent professional entity for providing financial intermediary and advisory services to corporate institutional and retail clientele.Trial :: http://www. which have been well received and appreciated by its clientele. (STCI) was established by Reserve Bank Of India (RBI) in May 1994. The Company has grown from an institutional brokerage house to a fullfledged financial intermediary having nationwide presence in major cities with branches and franchisees to service a wide range of clients.About The Organization UTI SECURITIES LTD. 1994 by Unit Trust of India as its 100% subsidiary and on April 17. 2006 the entire share capital of the company was transferred to Securities Trading Corporation Of India Ltd. The Company has built up a reputation for transparent and fair execution of transactions.docudesk. SECURITIES TRADING CORPORATION OF INDIA LTD. (STCI) Securities Trading Corporation Of India Ltd. (UTISEL) UTI SECURITIES LTD. (UTISEL) was incorporated on June 28.

com . underwriting. On the introduction of the system of Primary Dealership in Government Securities. 1934. 2004. STCI's core activities comprise participation. The Company has established a name for itself in the Indian Government Securities Market and has emerged as one of the leading Primary Dealer over the period of time. market making and trading in Government Securities. in February 1996.docudesk. 1949 and Section 42(1) of the Reserve Bank Of India Act. Government of India have notified STCI as an "Approved Finance Institution" for the purpose of Sections 18 and 24 of the Banking Regulations Act.development of an active secondary market for Government securities and bonds issued by Public sector undertakings. Due to regulatory restrictions. Therefore UTI securities Ltd. one organization cannot trade in equities as well as commodities. STCI Commodities Limited has membership on Multi Commodity Exchange of 100 PDF Created with deskPDF PDF Writer . Apart from the above.Trial :: http://www. It commenced business operations in June 1994 and started dealing in government securities. floated STCI commodities Ltd. STCI COMMODITIES LTD. STCI became one of the first two institutions to be accredited by RBI as a primary Dealer in Government securities. the company is an active partner in the interbank call money markets and Repo market. STCI Commodities Limited was incorporated on September 20. as its wholly owned subsidiary.

docudesk. In the first stage this year. according to the memorandum of understanding (MoU) signed between both the parties. STANDARD CHARTERED Securities Trading Corporation of India (STCI). Standard chartered will hike the stake further to 74 per cent and it will buy the remaining 26 per cent stake in UTI Securities by 2009. 35 http://www.com/common/storypage.com . Standard chartered will buy 49 per cent stake for Rs 135 crore.35 The new company will also be going for a name change soon to reflect the ownership of Standard Chartered in the organization. During the next year. has decided to sell its entire stake in UTI Securities to Standard Chartered Bank in two years at a predetermined price of Rs 275 crore.business- standard.Trial :: http://www.India Limited (MCX) and National Commodity and Derivatives Exchange Limited (NCDEX).php?autono=284476&leftnm=2&subLeft=0&chkFlg= 101 PDF Created with deskPDF PDF Writer .

4. Need to take approval from • • • RBI FMC IRDA 2. 6. Kind of crop varies as per geography and season so product should take care of these variables. 5.Configuration of a new financial product ( For the benefits of farmers) If a financial product. Lot size should match the capacity of production for the farmers. Farmers should be made aware of this financial product. Product should be very find tuned with respect to each other.docudesk. The future contract should match with requirement of farmers. 3. 102 PDF Created with deskPDF PDF Writer . Points needed to keep in mind: 1. which will be combination of Agri research guidance + insurance + loan + future derivative This can solve all the problems of farmers and can give full risk cover. • • • • Agri research support Loan Insurance Future derivatives :will provide agri tec support :financial support :will cover all the uncontrollable risk :ensure the market for the produce Above all can be done with the collaboration of some financial institutions.com .Trial :: http://www. Future contract will be short in nature. 7.

What are the major commodity Exchanges? The Government of India permitted establishment of National-level MultiCommodity exchanges in the year 2002 and accordingly three exchanges have come into picture. Aren’t they? Commodity futures market has been in existence in India for centuries. The Government of India banned futures trading in certain commodities in 70s. Commodity Futures are recently introduced in India. traders and investors. It is similar to the Index futures and Stock futures but the underlying happens to be commodities instead of Stocks and indices. They are • Multi-Commodity Exchange of India Ltd.com . however trading in commodity futures was permitted again by the government in order to help the Commodity producers. commodity exchanges originated before any other financial exchange.Trial :: http://www. 103 PDF Created with deskPDF PDF Writer . Mumbai (MCX).docudesk.Appendix 1 Frequent Asked Questions What are Commodity Futures? Commodity Futures are contracts to buy specific quantity of a particular commodity at a future date. Infact most of the derivatives instruments had their birth in commodity exchanges. World-wide.

docudesk.com .00 Am to 11. However there are regional commodities exchanges functioning all over the country. Gold.Trial :: http://www. Crude Oil etc) are allowed to be traded after 8. Soy Beans. Some of the most popular exchanges around the world are given below along with the major commodities traded. Soy oil.: 3 104 PDF Created with deskPDF PDF Writer . • National Multi Commodity Exchange. Mumbai (NCDEX). Tin.00 PM. MCX and NCDEX. Palm Oil What are the working hours for the commodity exchanges? Commodity Exchanges (MCX and NCDEX) function from 10.00 PM and 5. At international level there are major commodity exchanges in USA. Soy Oil. 36 Table no. Rubber Rubber. Copper. Lead Options on Energy.e. STCI securities Ltd has got membership of both the premier commodity exchanges i. Silver. Japan and UK. Heating Oil (NYMEX) Chicago Board of Trade London Metals Exchange Chicago Board Option Exchange Tokyo Commodity Exchange Malaysian Derivatives Exchange Soy Oil.36 EXCHANGE New York Mercantile MAJOR COMMODITIES TRADED Exchange Crude Oil.55 PM with a break of 30 minutes between 5. Ahmedabad (NMCE). Interest rate Silver. Corn Aluminium. Crude oil.• National Commodity and Derivatives Exchange of India.30 PM. However some specific commodities with strong international price linkages (such as Gold.

Canara Bank as the major share-holders. The exchange for this purpose maintains a Settlement –Guarantee fund akin to the stock exchanges. Corporation Bank. Bank of India. How the deliveries are made possible? 105 PDF Created with deskPDF PDF Writer . PNB. promoted by Financial Technologies Ltd has got on board institutions such as SBI. They also make sure that the price of futures and spot prices coincide during the settlement so that the arbitrage opportunities do not exist. Bank of Baroda. the commodity exchanges have got some of the most high profile corporate as their promoters.Trial :: http://www. knowledge and also high standards of operations. The National Commodity and Derivatives Exchange (NCDEX) has got NSE. commodity exchanges are regulated by Forwards Market Commission (FMC). Forwards Market Commission is under the purview of the Ministry of Food. Multi Commodity exchange of India. NABARD. Such a high profile share-holding provides these exchanges valuable experience. Also the exchange guarantees the settlement of trades and so eliminates the counter-party risk in the transactions.Who regulates the commodity exchanges? Just as SEBI regulates the stock exchanges. LIC. ICICI. Are there physical deliveries in commodity futures exchanges? YES. in order to maintain the futures prices in line with the spot market. Canara Bank. have made available provisions of settlement of contracts by physical delivery.docudesk. Are the trades/ settlement guaranteed by the exchanges? YES. the exchanges. Union Bank of India. HDFC Bank.com . Agriculture and Public Distribution. CRISIL.

if he is interested in physical delivery would be matched with a seller and would be required to take delivery of the specified quantity of stock from the designated warehouse. Read the delivery/ settlement procedure carefully or contact us before deciding to give/ take physical delivery.docudesk. Are any transaction duty charges imposed on commodity futures contracts. Normally it is the seller's responsibility to collect and pay the sales tax. The sales tax is applicable at the place of delivery. The sales tax is applicable only in case of trade resulting into delivery. The buyer of the commodity futures. Both NCDEX and MCX have successfully completed physical delivery in bullions and various agro-commodities. upon expiry of the contract may choose to deliver physical stock instead of settling the positions by cash.The exchange has enlisted certain cities for specific commodities as the delivery centres. The seller of commodity futures. as in case of stocks? 106 PDF Created with deskPDF PDF Writer . in which case he would be required to deliver the stocks to the specified warehouses. World-wide commodity futures are generally used for hedging and speculation and hence physical deliveries are negligible. If the trade is squared off no sales tax is applicable. Those who are willing to opt for physical delivery need to have sales tax registration number. Do I need to pay sales tax on all trades? Is registration mandatory? NO.Trial :: http://www. Please note the delivery and settlement procedure differs for each exchange and commodity. In case of NCDEX it is mandatory to open a Demat account with an approved DP by the buyer and seller if they wish to take/ give delivery of goods.com . However the possibility of physical delivery has made these markets more attractive in India.

Tur . Maize . Long Staple Cotton. Tin . 37 Bullion Gold and Silver Castor Seeds. Crude Palm Oil. Medium Staple Cotton Chana. Castor Oil. Yellow Peas Rice. Groundnut Oil. Nickel. Steel Flat. What are the commodities on which futures trading take place? At Present futures are available on the following commodities. Refined Soy Oil. At MCX the expiry day is 15th of every month. Sarbati Rice . Mustard Seed. Basmati Rice. If 20th happens to be a holiday the expiry day will be the previous working day. What is the date of expiry? At NCDEX the contracts expire on 20th day of each month.Although FMC does not levy any transaction charges as of now. The expiry day also differs for different commodities in both the exchanges. Urad. Yellow Peas. 4 107 PDF Created with deskPDF PDF Writer . Soy Seeds.docudesk. Mustard Seed Oil. Cottonseed Spices Metals Fibre Pulses Cereals Energy Pepper. Jeera. Jeera Crude Oil 37 Table no. Wheat . Cottonseed Oilcake. which may differ for each commodity/ exchange. If 15th happens to be a holiday the expiry day will be the previous working day. Steel ingots Kapas.Trial :: http://www. Transaction charges are in the range of Rs 4 to Rs 6 per lakh/per contract. the respective commodity exchanges levy transaction charges. Copper. Oil & Oilseeds Soymeal. RBD Palmolein.com . Red Chilli. Turmeric Steel Long.

Silk Following is a table showing the details regarding major commodities traded on MCX & NCDEX. Aug. Cashew.Others Rubber.38 MCX Commodity Initial Margin Quotation Lot Size Delivery Centre Mumbai. Cashew Kernel . Coffee.Trial :: http://www.docudesk. Sugar . Gur. : 5 108 PDF Created with deskPDF PDF Writer . Dec Mar. Guar Seed . Dec Crude Oil Soy Oil Pepper Soy Seed NCDEX Commodity Guar Seed Soy Oil Sugar M 5% 3% 8% 4% 1 bbl 10 KG 10 KG 1 MT 100 bbls 10 MT 100 KG 10 MT Mumbai Indore Kochi Indore All months All months All months All months Initial Margin* 5-10 % 5-10 % 5-10 % Quotation Lot Size 100 KG 100 KG 100 KG 10 MT 10 MT 10 MT Delivery Centre Jodhpur Indore Available months All months All months Muzaffarnagar All months 38 Table no.com .5% 10 Gms 1 Kg Oct. Apr. Gold 3. May. Jun. Silver 5% 1 KG 30 KG Ahmedabad Jul. Ahmedabad Available months Feb. Sep. Guargum .

1952.com . 5-10 % 10 Gms 1 Kg Mumbai Jun. Aug. 5-10 % 1 KG 30 KG New Delhi Jul. No exchange or person can organize or enter into or make or perform options in goods. Dec 5-10 % 5-10 % 5-10 % 5-10 % 5-10 % 100 KG 100 KG 100 KG 100 KG 100 KG 10 MT 1 MT 10 MT 10 MT 1 MT Delhi Kochi Delhi Mumbai Indore. The list given above covers only the popular commodities and not exhaustive. Apr.Gold (Sona) Feb. NCDEX follows SPAN margins which could be between 5-10% depending on volatility. Are options also allowed in commodity derivatives? No. Nagpur. Oct.docudesk. Kota All months All months All months All months All months May. Options in goods are presently prohibited under Section 19 of the Forward Contracts (Regulation) Act. Silver (Chandi) Wheat Pepper Chana Urad Soy Bean * MCX Initial margins are shown above. FAQ S ON DERIVATIVES What is a Derivative contract? 109 PDF Created with deskPDF PDF Writer . However the market expects the government to permit options trading in commodities soon. Dec Mar.Trial :: http://www. Sep.

stocks etc. Four most common examples of derivative instruments are forwards.com . precious metal. futures. 1952. currency. options and swaps/spreads. the parties to the contracts do not decide the terms of futures contracts. which are settled by payment of money difference or where delivery and payment is made after a period of 11 days. 110 PDF Created with deskPDF PDF Writer . stock. all the contracts for delivery of goods. What is a forward contract? A forward contract is a legally enforceable agreement for delivery of goods or the underlying asset on a specific date in future at a price agreed on the date of contract.docudesk. bond. indices of commodities. What are standardized contracts? Futures contracts are standardized. Under Forward Contracts (Regulation) Act. In other words. are forward contracts. or. the underlying asset can be a commodity.Trial :: http://www.A derivative contract is an enforceable agreement whose value is derived from the value of an underlying asset. but they merely accept terms of contracts standardized by the Exchange.

docudesk. these are generally not used for merchandizing propose. As the terms of the contracts are standardized. The bid and offer prices are based on the expectations of prices on the maturity date. the terms of forward contracts are individually agreed between two counterparties. In other words. FUTURES CONTRACTS What is a futures contract? Futures Contract is specie of forward contract. Futures contracts are used generally for protecting against rich of adverse price fluctuation (hedging). How are futures prices determined? Futures prices evolve from the interaction of bids and offers emanating from all over the country – which converge in the trading floor or the trading engine.What are customized contracts? Forward contracts (other than a future) are customized.Trial :: http://www. II. It is simply agreeing to sell the physical commodity at a later date or selling short. It is 111 PDF Created with deskPDF PDF Writer . when one doesn't own commodity? One doesn't need to have the physical commodity or own a contract for the commodity to enter into a sale contract in futures market. Futures are exchange – traded contracts to sell or buy standardized financial instruments or physical commodities for delivery on a specified future date at an agreed price. How is it possible to sell.com .

com . What are long positions? In simple terms. and buying the distant contract. and selling the deferred month contracts. What are short positions? Short position is net sold position. What is bull spread (futures)? In most commodities and financial derivatives market. What is bear spread (futures)? In most of commodities and financial derivatives market.possible to repurchase the contract before the maturity.docudesk. where futures contract prices are higher than the spot price and the futures contracts maturing earlier.Trial :: http://www. What is ‘Backwardation'? 112 PDF Created with deskPDF PDF Writer . long position is a net bought position. the term refers to selling the nearby contract month. What is ‘Contango'? Contango means a situation. the term refers to buying contracts maturing in nereby month. to profit from the wide spread which is larger than the cost of carry. to profit from saving in the cost of carry. thereby dispensing with delivery of goods.

Trial :: http://www. it is said to be trading at Backwardation.e. A positive number indicates a futures discount (Backwardation) and a negative number. i. The method of fixing Settlement price is prescribed in the Byelaws of the exchanges. if any. are paid. What is convergence? 113 PDF Created with deskPDF PDF Writer . normally it is a weighted average of prices of transactions both in spot and futures market during specified period. a futures premium (Contango).com . What is cash settlement? It is a process for performing a futures contract by payment of money difference rather than by delivering the physical commodity or instrument representing such physical commodity (like. warehouse receipt) What is offset? It refers to the liquidation of a futures contract by entering into opposite (purchase or sale. Unless otherwise specified. the price of the nearby futures contract month is generally used to calculate the basis. What is settlement price? The settlement price is the price at which all the outstanding trades are settled. What is ‘basis'? It is normally calculated as cash price minus the futures price. profits or losses.When the prices of spot or contracts maturing earlier are higher than a particular futures contract. as the case may be) of an identical contract.docudesk.

as defined in the Byelaws of Associations.com . viz. may not meet the specific needs of the buyers/sellers. if manipulators rig up the prices of a contract. futures contracts may not be suitable for merchandising purpose. hence various aspects of the contracts. Why delivery of good is permitted when futures contract by their very nature not suitable for merchandising purposes? The threat of delivery helps in dissuading the participants from artificially rigging up or depressing the futures prices. For example.. etc. What is “Due Date Rate”? Due Date Rate is the weighted average of both spot and futures prices of the specified number of days. mainly because these are standardized contracts. so as to become zero on the date on maturity. packing. are performed otherwise than by physical delivery of goods. the world over. But most of the futures contracts. Why the proportion of futures contracts resulting in delivery is so low? The reason is. quality/grade of the goods. Can one give delivery against futures contract? Futures contract are contracts for delivery of goods.Trial :: http://www.This refers to the tendency of difference between spot and futures contract to decline continuously. 114 PDF Created with deskPDF PDF Writer . seller may give his intention to make a delivery instead of settling his outstanding contract by entering into purchase contracts at such artificially high price.docudesk. place of delivery.

they would be compelled to speculate on prices. which already exists in the market. It is however extremely unlikely for every hedger to find a hedger counterparty with matching requirements. Theoretically.Trial :: http://www. therefore. The hedgers intend to shift price risk. on the basis of which they can expect to make profit. Futures market helps them to avoid speculation by entering into hedge contracts. Speculators are such participants who are willing to take risk of hedgers in the expectation of making profit. since they do not create risk. The speculators are the persons who try to assimilate all the possible price-sensitive information. In fact. but merely accept the risk.com . the relationship between 115 PDF Created with deskPDF PDF Writer . indicating the crop season. What is the difference between a speculator and gambler? Speculators are not gamblers. in the absence of futures market. it is difficult to imagine a futures market functioning without speculators.What is Warehouse Receipt? It is a document issued by a warehouse indicating ownership of a stored commodity and specifying details in respect of some particulars. Speculators provide liquidity to the market. which they can only if there are participants willing to accept the risk.docudesk. some times. What is hedging? Hedging is a mechanism by which the participants in the physical/cash markets can cover their price risk. Why do we need speculators in futures market? Participants in physical markets use futures market for price discovery and price risk management. like. quality. The speculators therefore contribute in improving the efficiency of price discovery function of the futures market. quantity and.

Who are day-traders? Day traders are speculators who take positions in futures or options contracts and liquidate them prior to the close of the same trading day. who enters into futures contract to manage the risk of adverse price fluctuation in respect of his existing or future asset.com .Trial :: http://www. so that the arbitrageur makes risk-less profit. This enables the participants in the physical/cash markets to cover their price risk by taking opposite position in the futures market. PARTICIPANTS IN DERIVATIVES MARKETS Who is hedger? Hedger is a user of the market. This loss is however allowed to be carried forward for eight years.the futures and cash prices is determined by cost of carry. What is arbitrage? Arbitrage refers to the simultaneous purchase and sale in two markets so that the selling price is higher than the buying price by more than the transaction cost. Can the loss incurred on the futures market be set off against normal business profit? Loss incurred in futures market by entering into contracts for hedging purposes can be set off against normal profit. during which it can be set off against speculative profit. 116 PDF Created with deskPDF PDF Writer . The two prices therefore move in tandem. The loss incurred on account of speculative transactions in futures market cannot be set off against normal business profit. III.docudesk.

57. with the sole intention of earning profit is a speculator.com .Trial :: http://www. who executes trade by being personally present in the trading ring or pit floor trader has no place in electronic trading systems.Who is floor-trader? A floor trader is an Exchange member or employee. who simultaneously quotes both bid and offer price for a same commodity throughout the trading session. What kinds of risks do participants face in derivatives markets? Different kinds of risks faced by participants in derivatives markets are • Credit risk • Market risk • Liquidity risk • Legal risk • Operational risk What is credit risk? Credit risk on account of default by counter party This is very low or almost zeros because the Exchange takes on the responsibility for the performance of contracts 117 PDF Created with deskPDF PDF Writer . who trades or takes position without having exposure in the physical market.docudesk. Who is market maker? A market maker is a trader. Who is speculator? A trader.

What is market risk?

Market risk is the risk of loss on account of adverse movement of price.

What is liquidity risk?

Liquidity risks is the risk that unwinding of transactions may be difficult, if the market is illiquid

What is Legal risk?

Legal risk is that legal objections might be raised, regulatory framework might disallow some activities.

What is operational risk?

Operational risk is the risk arising out of some operational difficulties, like, failure of electricity, due to which it becomes difficult to operate in the market.

IV. EXCHANGES AND THEIR ROLE

How many recognized/registered associations engaged in commodity futures trading?

At present 21 Exchanges are recognized/registered for forward/ futures trading in commodities.

Why are associations required to get recognized?

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Under the Forward Contracts (Regulation) Act, 1952, forward trading in commodities notified under section 15 of the Act can be conducted only on the Exchanges, which are granted recognition by the Central Government (Department of Consumer Affairs, Ministry of Consumer Affairs, Food and Public Distribution). to obtain certificate of Registration from the Forward Markets Commission.

What is the procedure for obtaining recognition for an Association?

The application for grant of recognition will have to be made in triplicate in a prescribed form to Secretary, Department of Consumer Affairs, Ministry of Consumer Affairs, Food and Public Distribution, Krishi Bhavan, New Delhi – 110 00. Form A prescribed for application for the recognition is placed on the web site of the FMC www.fmc.gov.in .The application for grant of recognition should be forwarded through Forward Markets Commission, Everest, 3rd Floor, 100, Marine Drive, Mumbai – 400 002.. The Government may grant recognition to the applicant association on the basis of recommendations made by the Forward Markets Commission. A fee of Rs. 2500/- will have to be paid by the applicant association for grant of recognition. The fee could also be deposited in the nearest Government Treasurer or the nearest branch of State Bank of India; provided that at Mumbai, Kolkatta, Delhi, Kanpur and Chennai, the amount has to be deposited in the Reserve Bank of India. The fee can also be remitted by crossed Indian Postal Order drawn in favour of Secretary, Forward Markets Commission. The application has to be accompanied by 3 copies of Memorandum and Articles of Association and Byelaws.

What is the procedure for obtaining certificate of registration from the Forward Markets Commission?

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Application in triplicate for grant of certificate of Registration in Form B placed on the web site of the FMC < www.fmc.gov.in > - should be sent to Forward Markets Commission, Everest, 3rd Floor, 100, Marine Drive, Mumbai – 400 002. A fee of Rs. 50/- will have to be paid by the applicant association for grant of registration certificate. The fee could also be deposited in the nearest Government Treasurery or the nearest branch of State Bank of India; provided that at Mumbai, Kolkatta, Delhi, Kanpur and Chennai, the amount has to be deposited in the Reserve Bank of India. The fee can also be remitted by crossed Indian Postal Order drawn in favour of Secretary, Forward Markets Commission. The application has to be accompanied by 3 copies of Memorandum and Articles of Association and Byelaws.

What is the role of an Exchange in futures trading?

An Exchange designs a contract, which alone would be traded on the Exchange. The contract is not capable of being modified by participants, i.e., it is standardized. The Exchange also provides a trading platform, which converges the bids and offers emanating from geographically dispersed locations. This creates competitive conditions for trading. The Exchange also provides facilities for clearing, settlement, arbitration facilities. The Exchange may also provide financially secure environment by putting in place suitable risk management mechanism (margining system etc.), and guaranteeing performance of contract through the process of novation.

Why does Exchange collect margin money?

The aim of margin money is to minimize the risk of default by either counter party. The amount of initial margin is so fixed as to ensure that the probability of loss on account of worst possible price fluctuation, which cannot be met by the amount of ordinary/initial margin is very low. The Exchanges

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Why is Mark-to-Market margin collected daily in commodity market? Collecting mark-to-market margin on a daily basis reduces the possibility of accumulation of loss. particularly when futures price moves only in one direction.fix rates of ordinary/initial margin keeping in view need to balance high security of contract and low cost of entering into contract. and delivery margin. special margin. What is initial/ordinary margin? It is the amount to be deposited by the market participants in his margin account with clearing house before they can place order to buy or sell a futures contracts. mark-to-market margin. This must be maintained throughout the time their position is open and is returnable at delivery. the participants are 121 PDF Created with deskPDF PDF Writer .com . What is Mark-to-Market margin? Mark-to-market margins (MTM or M2M or valan) are payable based on closing prices at the end of each trading day. What are the different types of margins payable on futures? Different margins payable on futures contracts are Ordinary/initial margin. The Exchange collects these margins from buyers if the prices decline and pays to the sellers and vice versa. These margins will be paid by the buyer if the price declines and by the seller if the price rises.docudesk. Also. Hence the risk of default is reduced. exercise. expiry or closing out. This margin is worked out on difference between the closing/clearing rate and the rate of the contract (if it is enterned into on that day) or the previous day's clearing rate. volatility margin.Trial :: http://www.

Government of India. In the absence of such a system. Forward Markets Commission and Commodity Exchanges. The resultant financial crisis in a futures market could create systematic risk. unscrupulous participants could use these leveraged contracts for manipulating prices. For the purpose of forward contracts in certain commodities can be regulated by notifying those commodities u/s 15 of the Act. VI.. Alternatively. for the given upfront margin the limit on open position would have to be reduced.9%. In the absence of regulation.required to pay less upfront margin – which is normally collected to cover the maximum. of the potential risk during the period of mark-tomarket. thereby affecting interests of society at large. This could have undesirable influence on the spot prices. for a given limit on open position. The regulation is needed to create competitive conditions. there are three tiers of regulations of forward/futures trading system exists in India. clearing. Regulation is also needed to ensure fairness and transparency in trading.com .docudesk. 99. namely. which has the effect of restraining the trade and liquidity. settlement 122 PDF Created with deskPDF PDF Writer . Regulation is also needed to ensure that the market has appropriate risk management system. say. forward trading in certain other commodities can be prohibited by notifying these commodities u/s 17 of the Act.Trial :: http://www. The FC(R) Act. 1952 prohibits options in commodities. REGULATION What is the present system of regulation in commodity forward/future trading in India? At present. What is the need for regulating futures market? The need for regulation arises on account of the fact that the benefits of futures markets accrue in competitive conditions. a major default could create a chain reaction.

and management of the exchange so as to protect and promote the interest of various stakeholders. The Forward Markets Commission's Head Quarter is located at Mumbai and Regional Office at Kolkata. • It keeps forward markets under observation and takes such action in relation to them as it may consider necessary. (Department of Consumer Affairs).gov. 100. Government of India.in What are the functions of the Forward Markets Commission? • FMC advises Central Government in respect of grant of recognition or withdrawal of recognition of any association. Ministry of Consumer Affairs. Food and Public Distribution. Tel (022) 22811262/22811429.fmc. E-mail - fmc@bom5. This was set up under the Forward Contracts (Regulation) Act of 1952. It is responsible for regulating and promoting futures/ forward trade in commodities. “Everest”. Fax (022) 22812086. Web-site . What is Forward Markets Commission and where is it located? Forward Markets Commission is a regulatory body for commodity futures/ forward trade in India. Mumbai – 400 002 .in .com . 3 rd floor. • It makes recommendations for improving the organization and working of forward markets. The Address of the contact person is as follows The Chairman.www.docudesk. Forward Markets Commission. • It collects and publishes information relating to trading conditions in respect of goods including information relating to demand.Trial :: http://www.nic.vsnl. 123 PDF Created with deskPDF PDF Writer . supply and prices and submit to the Government periodical reports on the operations of the Act and working of forward markets in commodities. in exercise of powers assign to it. particularly non-member users of the market. Marine Drive.

com . Why and what are the regulatory measures prescribed by Forward Markets Commission? Forward Markets Commission provides regulatory oversight in order to ensure financial integrity (i. and in some cases. Circuit-filters or limit on price fluctuations to allow cooling of market in the event of abrupt upswing or downswing in prices.e. 124 PDF Created with deskPDF PDF Writer . to prevent systematic risk of default by one major operator or group of operators). also member-wise. The following powers are vested in the Central Government. and. and (d) Requisitioning any public record or copy thereof from any office. (c) Receiving evidence on affidavits. (b) Requiring the discovery and production of any document. market integrity (i. powers to direct to make or to make articles (Rules) or Bye-laws. Some times limit is also imposed on intra-day net open position. powers to suspend business of recognised association. The Forward Markets Commission prescribes following regulatory measures Limit on net open position as on the close of the trading hours. What are the powers of the Commission? The Commission has powers of deemed civil court for (a) Summoning and enforcing the attendance of any person and examining him on oath. most of which are delegated to the Commission The powers of approving memorandum and articles of association and Byelaws. powers to suspend governing body of recognised association.e. The limit is imposed operator-wise. to ensure that futures prices are truly aligned with the prospective demand and supply conditions) and to protect & promote interest of customers /non-members.• It undertakes inspection of books of accounts and other documents of recognized/registered associations.Trial :: http://www.docudesk.

whenever they visit Exchanges. Commission has also prescribed simultaneous reporting system for the Exchanges following open out-cry system. clearing and settlement. 125 PDF Created with deskPDF PDF Writer . telephone number of the officer of the Commission who can be contacted for any grievance.com . instead of merely attending meetings of the Board of Directors and holding discussions with the office-bearers. address. The website of the Commission also has a provision for the customers to make complaint. The Commission has also mandated all the Exchanges following open outcry system to display at a prominent place in Exchange premises. send comments and suggestions to the Commission.docudesk. Circuit breakers or minimum/maximum prices These are prescribed to prevent futures prices from falling below as rising above not warranted by prospective supply and demand factors. except a written consent is taken within three days' time. By making further purchases/sales relatively costly. Skipping trading in certain derivatives of the contract. This measure is also imposed on the request of the Exchanges. Officers of the Commission have been instructed to meet the members and clients on a random basis. trading ahead of clients. This measure is imposed only on the request of the Exchange. These steps facilitate audit trail and make it difficult for the members to indulge in malpractices like. the price rise or fall is sobered down.Trial :: http://www. the name. What are the legal and regulatory provisions for customer protection? The F. to ascertain the situation on the ground.C(R) Act provides that client's position cannot be appropriated by the member of the Exchange. Forward Markets Commission is persuading increasing number of Exchanges to switch over to electronic trading.Special margin deposit to be collected on outstanding purchases or sales when price moves up or down sharply above or below the previous day closing price. closing the market for a specified period and even closing out the contract These extreme measures are taken only in emergency situations. etc. which is more customer-friendly.

HYD.Appendix: 2 STCI COMMODITIES IN ASSOCIATION WITH INVITES YOU FOR THE SEMINAR ON AP GRAIN & SEEDS MERCHANTS ASSOCIATION PROFIT MAXIMISATION & RISK MANAGEMENT USING FUTURES MARKET SPEAKERS D. ADEPU.com . UTI advantage Services & support VENUE: ASSOCIATION HALL. BUSINESS DEVELOPMENT. CHILLI. Cell: 9394744777 126 PDF Created with deskPDF PDF Writer .docudesk. AGENDA Purpose of the seminar Chirag Seth RESEARCH HEAD.Trial :: http://www. MCX Delivery issues through exchange Pradeep Reddy PRODUCT HEAD. MCX Overview of Chilli Suman K.MALAKPET DATE: 28TH APRIL TIME: 12 NOON SUMAN K. AP GRAIN & SEEDS MERCHANTS ASSN. Adepu BRANCH HEAD. Raghavender PRESIDENT. Ph: 23417s031. UTI SECURITIES. STCI COMMODITIES Hedging & Arbitrage in futures market Madhav Reddy VICE PRESIDENT. UTI SECURITIES.

During our market Survey we found that apart from awareness there are some fundamental question that need be solved before tapping these mandis. So. Hyderabad.com . As a part of curriculum we are working on a research project" Commodity market: A new investment avenue.com Subject: Re: Seminar in Chilly Market (Malakpet) Dear Sir. Regards Chandra Prakash 127 PDF Created with deskPDF PDF Writer . Doing MBA from ICFAI Business School. It would be of great help and of mutual benefit if MCX will work with us. We felt that our project is of no use if we could not find the way to break this ice. Not only Chilly but most of the Trader from pulses to bullion avoid trading through exchange. Every one has their problems every one want to speak up but no one to listen. We went to different kinds of mandis from pluses to bullion.com] Sent: Monday. We also went to malakpet (Hyderabad) and came to know that many seminar had been unsuccessfully conducted here by MCX . This is Chandra Prakash. April 02. So we are looking forward to work with you to conduct this seminar.Appendix 3: Our communication with MCX From: chandra prakash [mailto: chandra5911@gmail.docudesk. But each of these places I found some kind of communication gap. we are planning to conduct seminar here on 6th of April in collaboration with UTI Securities. 2007 1:37 AM To: research@mcxindia. NCDEX as well as many brokering houses .Trial :: http://www.

Thanks and Regards.com .docudesk. Joe J/MCX/Marketing Cc: Chiragra C/MCX/Training Subject: FW: Seminar in Chilly Market (Malakpet) FYI. Shunmugam From: Chiragra C/MCX/Training Sent: Monday.Trial :: http://www. April 02. Regards.022-66491751 128 PDF Created with deskPDF PDF Writer . Chiragra Chakrabarty Vice President Head Training & Research & Development MCX Phone No . 2007 11:30 AM To: Nitin J/MCX/Centre of Academia Subject: FW: Seminar in Chilly Market (Malakpet) Please talk to him what is talking about? Thank you. Dr.022-66497000 (Ext No-7021) Fax No . 2007 10:43 AM To: 'Sumesh P/MCX/CBO'. April 02.From: Shunmugam V/MCX/ R&D Sent: Monday.

Nitin Joshi < nitin. Any disclosure. or land line no. 3.Trial :: http://www. Chandra Prakash. An early response will be highly appreciated.docudesk. and delete it from your system notifying the sender immediately. Any disclosure.chiragra. of participants in the seminar. 2. distribution. 4. Qualification of the participants. It is intended solely for the addressee and access to this email by anyone else is unauthorized. is prohibited and may be unlawful.9821420236 / 9867567508 E-mail . please destroy any copies of this message. including any attachments. forwarding. Approval of the Head of the Department / Director. Main objective of the seminar Topics No. dissemination. If you have received it in error.com --------------------------------------------The information in this E-mail (which includes any files transmitted with it) is CONFIDENTIAL and may be legally PRIVILEGED. -------------------------------------------------- On 02/04/07. copying. copying.com > wrote: Dear Mr.chakrabarty@mcxindia. so that we could have discussed the matter over telephone? I understand from your email that you are interested in organizing a seminar at ICFAI Business School . 1.Mobile No . forwarding.joshi @mcxindia. Please let me know the following details to enables us to take a decision on this issue.com -------------------------------------------------The information in this E-mail (which includes any files transmitted with it) is CONFIDENTIAL and may be legally PRIVILEGED. Duration of the Talk. please destroy any copies of this message.mcxindia. printing or any action taken or omitted to be taken in reliance on it or utilising the same for any purpose other than what it is intended for. Warm Regards Nitin Joshi Phone: 66497000 ( Extn 7054 ) Mobile No:9867567550 E Mail: nitin. dissemination. printing or any action taken or omitted to be taken in reliance on it or utilising the same for any purpose other than what it is intended 129 PDF Created with deskPDF PDF Writer .mcxindia.com www. We thank you very much for showing your confidence in MCX for your solution. including any attachments. distribution.com . If you have received it in error. May I request you to pls let me know your Mobile no. 6.com URL: www.joshi@mcxindia. 5. It is intended solely for the addressee and access to this email by anyone else is unauthorized. and delete it from your system notifying the sender immediately.

But one thing we have seen common in all these market (bullion. Risk appetite 3.Branch manger. pulses as well as spices) Most of the trader either have traded or know about this kind of trading through exchanges. But let me talk about Chilly market at Malakpet.joshi@mcxindia. we would have made them aware about different financial products. Our Basic objective of the project was: 1. Reasons: 1. Difference in units (They trade in 40kg unit and mcx in 25). 3. But when we started making market survey we found. ----------------------------------------------------------.for.which I heard some days back ……MCX is working on this. is prohibited and may be unlawful. 5. As a part of project we went to various markets. suman kumar adepu . If required.Ameerpet.. This in not just awareness level or risk appetite. They also suggested 4. Seller's option.Trial :: http://www.Forwarded message ---------From: chandra prakash <chandra5911@gmail. mobile:9394744777) 130 PDF Created with deskPDF PDF Writer . In fact we are doing summer internship with Uti Securities. reason was something else which make them avoid exchange trading. Thank you for your Quick Reply. What are the motive (speculation/hedging/arbitrage) of their participation in commodity exchanges.They wanted to know date When the spot trading will start as proposed By MCX Apart form these there was many other concern which has been raised. They all did it through Local broker without any research calls.com> Dear Sir. It was pure speculation and almost all of them lost their money and business.com . Delivery in Hyderabad in place of Guntur make the trade more feasible 5. Their trade strategies 4.UTI Securities. 2. We(myself with two of my batch mates working on same project) met to our company guide( Mr.com> Date: 02-Apr-2007 18:32 Subject: Re: Seminar in Chilly Market (Malakpet) To: Nitin Joshi <nitin. Trader with intention to take delivery is discouraged by delivery logic "seller's option".docudesk.qualityspecification: this was raised by one of the trader that In the MCX and NCDEX warehouses Water is purposely sprayed over chilly by using the limit of 14% humidity and limits of other impurities to increase the weight.. To know Awareness level of Trader 2.

3. Let me answer you the questions which have been asked in your letter. Qualification of research team not known to us 5. Mr. 4. But Sir we Still doubt the success if Exchange will not come forward for this. So we approached the chilly market and met with President: DHADUVAI RAGHVENDRA : 9246215498 Gen Sec : DEVARA RAJESHWER :9393324666 Trader: RADHAKRISNA 9246500963 and finally decided to conduct a seminar with all the trader of chilly market. suman in this regard. adepu (Br.Trial :: http://www.We discussed to the matter and came to conclusion that we can tell them the difference between speculation and Hedging. No. Topic: Commodity market: a new Investment Avenue.docudesk. Research Team. We suggest you to have a meeting with us before this seminar and work out the agenda of the seminar if you are convince with our proposal. 2.Uti Sec) contacted Mumbai to call a research team to be part of this seminar. mobile no.Duration : 1-2 Hours Sir we expect from you to actively participate in the seminar to address the problem raised by them. of participant: a. Since we are conducting seminar not in ICFAI Campus but in Chilly market (MALAKPET) and this is part of our project so no need of special approval from Director. We got consent of the President. there will not be any problem in getting such approval. 9290674658 9394744777 131 PDF Created with deskPDF PDF Writer . 1. it is important to listen their problems and work on it which only Exchange can do. But we feel that more than this. Manager . Branch manager. U Sec c. Even if you feel it is required. Our objective was to convince them that Hedging is different than speculation and how can they use hedging for the purpose of diversifying their business risk. Usec. Please talk to Mr. Regards Chandra Prakash Suman Kr adepu mobile no.(Number Not Yet confirmed) Qualification: We are doing PGDBA from ICFAI Hyderabad. We 3 intern b.com .

because trade is done through computer"Dabba".gov. The result was shocking.Exchange gives in Units of 25 KG. As a part of our curriculum we are working on our research project"Commodity:A new investment avenue.the current condition can be resumed.com> hide details 09-Mar to anupam@fmc. at least for me. This is a very silly difference but it is changing the whole story.chilly are traded in units of 40 KG. Hyderabad.they are just for speculation. Commodity market is named as Dabba Trading. anupam_mishra@hotmail.doing MBA from ICFAI Business School. Once market will take the healthy shape. Banning the commodity Future trade is not a great option.in < anupam@fmc.com ." While working on our project we made a market survey at different "Mandis" at Hyderabad including "Chilly and Chana Mandi".Trial :: http://www. Government should take steps to stop speculation especially into agri commodity. One option may be .Even after stringent quality norms.com <anupam_mishra@hotmail.docudesk. Example: if a trader at somewhere in deep south trading in channa with intention to take delivery. and it really defaming the market.Units. Mr.if for some time if exchange will make it mandatory to take the delivery. As i studied.Commodity Exchange gives excellent platform for farmers as well as traders to trades on and it is the most appreciable financial invention so far.Our Communication with FMC Director.But when talked to these traders. 4. These were some of the unanswered questions: 1.com Dear sir.com> date 09-Mar-2007 23:22 subject Research on Commodity market mailed-by gmail.it seems cursh. 3. Example. Anupam Mishra from chandra prakash <chandra5911@gmail.Speculation is at its extreme. will it be viable to get delivery at delhi and paying 10.000 Rs as transportation? 2. 132 PDF Created with deskPDF PDF Writer . do not match. This is Chandra Prakash.in>.We interacted to traders and tried to get some insight.gov. quality never match. will eliminate the speculator and will give way for trader to come forward. Exchange are not made for real trading.Always be downgraded.

Marine Drive. 3rd floor. Anupam Mishra Director(IR) Forward Markets Commission Government of India "Everest". Mumbai . We appreciate the concerns raised by you. 10-Mar Thanks for the mail and sharing of your views. We would definitely like to have furthur suggestions in the matter.fmc@nic.com anupam.400 002 INDIA Phone: +91 22 22026541 / 22795307 Fax: +91 22 22812086 E-mail: anupam_mishra@hotmail.Trial :: http://www.docudesk.I read about an awareness programme dated in 2006.in 133 PDF Created with deskPDF PDF Writer . but if I am right story can be re written and scenario can be changed.com . If you ever happen to be in Mumbai you could give me a ring and we could share our perceptions of the markets. I really don't know the twist of the whole story.com date 10-Mar-2007 13:42 subject RE: Research on Commodity market mailed-by hotmail.com> to chandra5911@gmail. 100. Regards anupam mishra <anupam_mishra@hotmail.com Dear Chandra.

Member of Parliament. related foreign brokerage such as FMI Financial Markets International and future NCDEX National Commodity & Derivatives Exchange (NCDEX) are going ahead with their plans to educate the farmers in the hinterlands of Punjab. I read the news about NCDEX that it is planning to educate farmers in Punjab.Our Communication with NCDEX -----Original Message----From: chandra prakash (chandra5911@gmail. 2007 02:35 PM To: askus@ncdex. exporters/ importers and end users of a commodity and reflects the views and 134 PDF Created with deskPDF PDF Writer . Adding the News below. We met to many farmers and farmer association as well and we found that proper education and awareness is required. "I do not mind future trading provided it benefits the farmers. traders. But each of these places we found some kind of communication gap. "Thing that is going in the favour of these farmers is that the companies like NCDEX are ready to bear the hoarding cost as well.Trial :: http://www. Addressing the farmers here in Moga. Regards Chandra Prakash Source: Economic Times "MOGA: Undeterred by the suspension of futures trading. BKU. We went to different kinds of mandis from pulses to bullion. processors. Please respond if Exchange is having any such plan.Hyderabad. "Now with companies ready to pay the hoarding cost the debt ridden farmers can always wait. we can help arranging that and that would be part of our project. (Punjab).000. Earlier their was no option before them. Doing MBA from ICFAI Business School. Every one has problems. Mr Sharad Joshi. After all Punjab provides wheat to entire India. said. BKU Bharat Kissan union activists also seems to be supporting these companies. An effort is being made to empower the farmers with information technology.com) Subject: Educational Seminar for farmer in Hyderabad Dear Sir.com ( askus@ncdex. numbering over 1. Top FMI and NCDEX officials impressed upon the participants. Normally the debt ridden farmers in the state try to sell their produce as soon as possible so as to pay back the loan they had borrowed from the Artiyas and money lenders. March 30." Says Balwant Singh.com . If NCDEX would prefer to plan same kind of educational Seminar here in Hyderabad and nearby village. As a part of curriculum we are working on a research project" Commodity market: A new investment avenue.docudesk. GS. the fact that futures trading in commodities on an online commodity exchange like NCDEX results in transparent and fair price discovery due to large scale participation of farmers/producers.com) Date: Friday. This is Chandra Prakash.

processors.Forwarded message ---------From: John <askus@ncdex. It should not be used by anyone who is not the original intended recipient. If you have erroneously received this message.Trial :: http://www. Mr Narendra Gupta. Customer Service Group (022) 66406609-6612 135 PDF Created with deskPDF PDF Writer .com> Date: 30-Mar-2007 15:15 Subject: RE:'NCDEX=442-270' Educational Seminar for farmer in Hyderabad To: chandra prakash <chandra5911@gmail. "This e-mail message may contain confidential. please delete it immediately and notify the sender. said farmers can use the online trading platform of NCDEX to hedge the price risk by selling forward their expected production. Mr Sharad Joshi. proprietary or legally privileged information. are unable to exercise control or ensure or guarantee the integrity of/over the contents of the information contained in e-mail transmissions and further acknowledges that any views expressed in this message are those of the individual sender and no binding nature of the message shall be implied or assumed unless the sender does so expressly with due authority of NCDEX.Before opening any attachments please check them for viruses and defects. Thanks and regards. chief strategy.com . However.docudesk." Said Mr Joshi. Kindly take a note of the same. Do revert for any further queries. NCDEX. " The phone and fax number on NCDEX side have been changed from 5xxx xxxx to 6xxx xxxx. He emphasised that NCDEX provides an effective platform for price risk management for all segments of players farmers/producers. We have forwarded your request to the concerned authorities and they would be contacting you if any decision is arrived upon.com> Dear Sir. traders." ---------. "To make farmers come out of the debt trap I do not mind if the consumers have to pay bit more. accepted that the future trading can pave a way to the price rise.expectations of a wider cross-section of people related to that commodity. We acknowledge the receipt of your e mail requesting for an educational seminar in Hyderabad. Also for these companies both agrarian states Punjab and Haryana are important markets. exporters/importers and end users of the commodity even as farmers can use price signals on the exchange platform to decide which crop to grow in the next season. The recipient acknowledges that NCDEX or its subsidiaries or associated companies.

our Research Head. we had active talks and meetings with the following dignitaries in our company: They also include the CEO. MCX Anjani Sinha CEO.Trial :: http://www.com .docudesk. VP of MCX and other important people Deepak V. MCX 136 PDF Created with deskPDF PDF Writer .Appendix: 4 As part of the work in our company. National Spot Exchange Nitin Joshi. Dave CEO. STCI Madhav Reddy Vice President. Business Development. STCI Commodities Chirag Seth Research Head.

137 PDF Created with deskPDF PDF Writer .Following is the list of important companies that we visited and gave presentations to their top honchos.com .docudesk.Trial :: http://www.

As a part of the task given to us by the CEO. Deepak Dave. Following is their list: These are the people who made our meeting with the FAPCCI association possible: 138 PDF Created with deskPDF PDF Writer . we arranged meetings with key personnel in the Hyderabad Stock Exchange. STCI Commodities.com .docudesk. Mr.We had a series of meetings and talks with the AP Grain and Seeds merchants Association which helped us arrange the seminar in the Malakpet mandi.Trial :: http://www. Following is the list of some important association members.

com . we also met enumerable traders and whole sellers.Our meeting with the Farmers Association enabled us to interact with the following people in the association: Apart from the above Industrialists and Association people.Trial :: http://www.docudesk. with whom we exchanged our views and also brought business from them: 139 PDF Created with deskPDF PDF Writer .

Trial :: http://www.docudesk.com .140 PDF Created with deskPDF PDF Writer .

docudesk.com .141 PDF Created with deskPDF PDF Writer .Trial :: http://www.

Trial :: http://www.142 PDF Created with deskPDF PDF Writer .com .docudesk.

1 152789.5 43.895 154317.docudesk.8725 143 PDF Created with deskPDF PDF Writer .1680698 12308.80463 25184.Trial :: http://www.97269 246.4 11573.59886 735.20%) Landed Cost (Re/Mt) 1527.APPENDIX 5: ZINK CALCULATOR PREPARED BY US FOR BALAANAGAR INDUSTRIAL AREA ZINC Calculator S.5 6 7 8 9 10 11 12 13 Caliculating custom duty Landing charge Assessable Value Basic customs duty(7.($125) Ex Rate 3420 43.com .4 166872.No 1 2 3 Particulars International spot price Ex Rate –Say Final Settlement For Delivery Premium CIF .1 144000 147402 4 5 5387.32) custom cess on aggrete of Duties(2%) Total Custom duty(8+10) Wharfage Charges(.5%) CVD Plus 2 % cess(16.1794539 Per Kg cost 166626.5 166.

Our theme for the presentation is: “COMMODITY FUTURES A STRATEGIC RISK MANAGEMENT TOOL” A brief introduction about our company: UTI SECURITIES LTD.com .P. The Company has built up a reputation for transparent and fair execution of transactions. with its turnover crossing 36 lakhs crore in the year 20062007. which have been well received and appreciated by its clientele. We are also one of the top players in Equity and Commodity trading. both agro and metal based have been using these tools to fight the adverse impacts of price fluctuations and risk factors. it was taken over by the “Securities Trading Corporation of India” (STCI). Its core activities comprise participation.Industries. It was one of the first two institutions to be accredited by RBI as a primary Dealer in Government securities. The commodity derivatives have been a very operational tool in the hands of industries and businesses all over the world. UTISEL has been working as an independent professional entity for providing financial intermediary and advisory services to corporate institutional and retail clientele. Of late. (Dpt.APPENDIX 6: PROPOSAL SUBMITTED TO FAPCCI (Federation of A. underwriting. To put the point more clearly. (UTISEL) was incorporated on June 28. a large part of metal trading in Europe is done through LME (London Metal Exchange).Trial :: http://www. we at UTI securities propose to conduct a seminar in active collaboration with FAPCCI. A brief overview of commodity future: Commodity trading in India has been formally started in the year 2003 under the regulatory authority of FORWARD MARKET COMMISSION.Chamber of Commerce and Industries) Dear Sir.Internationally Commodity Marketsare around 40 times larger than Equity Markets. on “Commodity Futures market”.docudesk. In reference to the discussion we had with your office. Secretary). which was established by Reserve Bank of India (RBI) in May 1994. Since then it has been growing at a phenomenal rate. it has also developed as an investment avenue for maximizing their corporate and individual profits. market making and trading in Government Securities. 144 PDF Created with deskPDF PDF Writer . 1994 by Unit Trust of India as its 100% subsidiary and in the year 2006.

P. It is often asked that why Commodity futures in India has not attained its goal and could not give much benefits to industries and businesses. As a repercussion. we have been conducting several seminars and other activities to create awareness among traders. trader or industries.Seeds and Grains Merchants Association on 25th April.com . be it farmer. We have been active through different platforms to address the issues of unawareness and strategic risk management among all stakeholders of economy. commodity futures are even now far away from its championed objectives of True price discovery and risk minimization in the wake of price volatility. Misperception regarding commodity futures in India in the minds of traders.docudesk. Risk minimizing strategies (Hedging and Arbitrage) not adopted by the majority of traders and industrialists. our industries are not able to derive full benefits of these tools to minimize their risks and profit maximization. Our other findings are: 1. we recognize it to be an ideal forum for addressing the issues of commodity futures amongst the industrialists of AP. We are also in active talk with Andhra Pradesh farmers association to conduct similar activities among farmers of Andhra Pradesh. 2. 4. 3. we propose to conduct a seminar on “Futures market” with your active association where in we will be inviting research analysts. 5. In Hyderabad itself. Ph: (+91) 9394744777 145 PDF Created with deskPDF PDF Writer .Hence. Therefore sir. A similar kind of seminar is scheduled for Bullion traders in the 1st week of May. commodity experts and representatives from different commodity exchanges. Lack of Education and awareness regarding commodity futures in investors. we have learnt that FAPCCI is a leading consortium of all Industrialists and businesses of Andhra Pradesh and its role in bringing forward the issues and problems concerning the industrial community as a whole has been very well appreciated.In India. People assume commodity futures as a mere speculative tool. It is alleged to be still in the influence of speculators and real players are still wary off entering the market. the commodity futures have been faced with several resistances. Sir. Regards UTI SECURITIES LTD. we are conducting seminar in Chilli markets (Malakpet) with A. Ignorance towards professional research and advisory Our Objective: As part of our national campaign. Sir.Trial :: http://www. farmers and industrialists regarding true benefits and proper strategies of commodity futures. Our researches show that unawareness and faulty strategies have led to loss and finally disinterest among traders and industries.

Trial :: http://www.REFERENCES BIBLIOGRAPHY: Commodity and derivative. 2007 146 PDF Created with deskPDF PDF Writer .com .docudesk. monthly magazine Volume 02. April 2007 Commodity markets: A new Investment avenue ICFAI university press Commodity reports from UTISEL Economic survey: 2005/2006/2007 Reports of Public Information Bureau: Government of India The Indian Express: 17th April. issue 4.

com/commoditiesFAQ.contentlinks.co.karvycomtrade.htm http://www.docudesk.ncdex.com/indian_commodities_market.Trial :: http://www.com/iw/2007/04/01/20hdline.crnindia.nationalspotexchange.fmc.lme.com http://www.karvycomtrade.com http://www.com/why_commodities.commoditycontro.asp http://www.com/101FAQfromFMC.karvycomtrade.in http://www.blonnet.asiancerc.com/ 147 PDF Created with deskPDF PDF Writer .usectrade.asp http://www.com http://www.asp http://www.mcxindia.uk http://www.com http://www.asp http://www.com .karvycomtrade.com http://www.pdf http://www.karvycomtrade.asp http://www.WEBLIOGRAPHY: http://www.com/utisecurities/product_services.com http://www.basemetals.gov.com/mcx.asp http://www.mcxcomnews_annual07.

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