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37460114 Commodity Market

37460114 Commodity Market

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  • LEADING COMMODITY MARKETS OF WORLD
  • REGULATORS:
  • LEADING COMMODITY MARKETS OF INDIA
  • WHAT MAKES COMMODITY TRADING ATTRACTIVE?
  • COMMODITY TRADING
  • NEED OF COMMODITY DERIVATIVES FOR INDIA:
  • HISTORY OF THE DEVELOPMENT OF COMMODITY MARKETS
  • RELEVANCE & POTENTIAL OF COMMODITY MARKETS IN INDIA
  • COMMODITY MARKETS ECOSYSTEM
  • INDIA¶S PLACE IN WORLD MARKET
  • WORKING OF COMMODITY MARKET
  • TRADING OF COMMODITY MARKET
  • Gold Terminology
  • MCX Contract specifications of gold:
  • REGULATORY BODY
  • ROLE OF GOVERNMENT IN COMMODITY MARKET
  • NATIONAL MULTI-COMMODITY EXCHANGE OF INDIA

A PROJECT ON: ³COMMODITY MARKET´ ± A BRIGHT SPOT

BACHELOR OF COMMERCE BANKING & INSURANCE.

SEMESTER ± V ACADEMIC YEAR: 2010-2011

SUBMITTED BY: CANUTE FERNANDES

ROLL NO:

NES RATNAM COLLEGE OF ARTS, SCIENCE & COMMERCE, BHANDUP (W), MUMBAI- 400078

Commodity Market

A PROJECT ON: ³COMMODITY MARKET´ ± A BRIGHT SPOT

BACHELOR OF COMMERCE BANKING & INSURANCE.

SEMESTER ± V ACADEMIC YEAR: 2010-2011

SUBMITTED BY: IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF DEGREE OF BACHELOR OF COMMERCE- BANKING & INSURANCE CANUTE FERNANDES

ROLL NO:

NES RATNAM COLLEGE OF ARTS, SCIENCE & COMMERCE, BHANDUP (W), MUMBAI- 400078

2|P a ge

Commodity Market

NES RATNAM COLLEGE OF ARTS, SCIENCE & COMMERCE, BHANDUP (W), MUMBAI- 400078

CERTIFICATE

This is to certify that Mr. Canute Fernandes of B.Com (B&I) Semester V (20102011) has successfully completed the project on COMMODITY MARKET under the guidance of Miss

COURSE CO-ORDINATOR: Mrs. Riya Rupani

INTERNAL EXAMINER Mr. Rajiv Mishra

EXTERNAL EXAMINER Princip al Mrs. Rina Saha

3|P a ge

Signature of Student Canute Fernandes Roll No: 4|P a ge . The information submitted is true & original to the best of my knowledge. CANUTE FERNANDES student of B.Com (B&I) Semester V (2010-2011) hereby declare that I have completed the project on COMMODITY MARKET.Commodity Market DECLARATION I MR.

My deepest thanks to lecturer. Rajiv Mishra guide of the project for guiding & correcting various documents of mine with attention & care. She/he has taken pains to go through my project & make necessary corrections as & when needed. Science & Commerce. 5|P a ge . Science & Commerce for support & guidance. for extending her support. I would also thank my institution & faculty members without whom this project would have been a distant reality. I also extend my heartfelt thanks to my family & well wishers. Mr. for their support. My deep sense of gratitude to Principal Mrs. Thanks & appreciation to the helpful people at NES Ratnam College of Arts. Bhandup (W). I extend my thanks to the principal of.Commodity Market Acknowledgement I owe a great many thanks to a great many people who helped & supported me doing the writing of this book. NES Ratnam College of Arts. Science & Commerce. Rina Saha of NES Ratnam College of Arts.

Forward Market Commissions & the Government played in the markets. It contains analysis of 3 commodities. It also throws light on highly traded commodities their volumes. the global commodity dynamics as all these influence the Indian commodity Markets their repercussions are seen in the local bourses. their significance in the economy & their contribution towards the GDP of the country.Commodity Market EXECUTIVE SUMMARY This project is based on commodity markets. The soul of the project is the commodity boosters the reasons who will drive the commodity bourses ahead. Hence this project has covered the recognized e xchanges & their organizational trading & the regulatory setup for future trading in commodities. margins & more importantly volatility. Commodity markets are now the buzz word all the investors are looking at the commodity market as a revenue generator. In includes FMC i. demand & supply scenario etc.e. 6|P a ge . Finally it covers all important points on the bases of which a person can understand the commodity market & start trading in them.

How it trade in stock market of India & other countries? 4. y Reference books. y Opinion of experts. Present status of commodity market in India? 5. y Various internet websites. I have adopted the following methodology of study throughout the project. Need & scope of commodity ma rket? 3. What is commodity market? 2. Future of commodity market? 7|P a ge .Commodity Market RESEARCH METHODOLOGY The method of data collection for my project is based on both primary as well as secondary data collection. y Newspaper magazines. 1. Objectives The objective of this study is to understand.

Suggestions Conclusion Bibliography Topic Page No 1-15 16 17 18 19-21 22 23 23 24-26 27-28 29-30 31 32-34 35-38 38-39 40-45 46-49 50 51-57 58-59 60 61-63 64-65 66-71 72-73 74 75 8|P a ge . 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 17 18 19 20 21 22 23 24 25 26 Commodity Market Basics Leading Commodity Markets Of World Regulator Leading Commodity Markets Of India Commodity Future Trading in India What makes Commodity Trading Attractive? Commodity Trading Need for Commodity Derivatives for India History Of Development of Commodity Markets Relevance & Potential Of Commodity Markets in India Commodity Market Ecosystem India¶s place in World Market Working of Commodity Market Trading of Commodity Market Merits & Demerits of Commodity Market Study of Single Commodity Gold Questionnaire on Gold Gold Terminology MCX Contract Specifications of Gold Regulatory Body Role Of Government in Commodity Market National Multi-Commodity Exchange Of India Multi-Commodity Exchange Of India National Commodity & Derivatives Exchange LTD. No.Commodity Market INDEX Sr.

except actionable claims. COMMODITY A commodity may be defined as an article. For instance. The idea is to study the importance of commodity derivatives & learn about the market from an Indian point of view. may find commodities an 9|P a ge . money & securities. 2000 (Founder of the World Economic Forum) ³A strong & vibrant cash market is a pre-condition for a successful & transparent futures market. Commodity actually offers immense potential to become a separate asset class for market-savvy investors. a product or material that is bought & sold.´ INTRODUCTION India. arbitrageurs & speculators. The development & growth was shunted due to numerous restriction in the early 70¶s wh ich resulted in vibrant market. who claim to understand the equity markets. Retail investors. It can be classified as every kind of movable property. futures markets trades in commodity are largely used as risk management mechanism on either physical commodity itself or open positions in commodity stock.Commodity Market INDIA COMMODITY MARKET ³We are moving from a world in which the big eat the small to one in which the fast eat the slow´ -Klaus Schwab. surprisingly has an u nder developed commodity market. The article aims at understanding commodity market & how are the commodities traded on exchange. a commodity based economy where two -third of the one billion population depends on agricultural commodities. a jeweler can hedge his i nventory against perceived short term downturn in gold prices by going short in future markets. Unlike the physical market.

507 (136) National Stock Exchange (a+b) 1.400 Billion).645 519. take speculative positions in commodities and exploit Arbitrage opportunities in the market.1) Government Securities Market 1. Currently. Of the country¶s GDP of Rs 13.867.531 (84) Total Stock Market Turnover 1.160. base metals. This would help investors hedge their commodity risk. Turnover in Financial Markets and Commodity Market (Rs in Crores) S No.057.Commodity Market unfathomable market. It is the market where a wide range of products. commodities related (& dependent) industries constitute about 58%.230. With the introduction of futures trading.318.478 12.215 (4.702 3.002 (117) a)Cash 617.544. 40. energy and soft commodities like palm oil. Retail investors should understand the risk & advantages of trading in commodities futures before taking a leap.000 (91) (124.745. In fact.053 b)Derivatives 2.1) 10 | P a g e .322 (91.073 503.551 (13) 515.7) (16.7) a)Cash 314.534 b)Derivatives 439.000 crore (1. Market segments 1 2 3 I 2002-03 2003-04 2004-05 (E) 2.989 1.030 499. COMMODITY MARKET Commodity market is an important constituent of the financial markets of any country. coffee etc. precious metals.. 20. 20 billion).494.865 2.854 (43) 3.527 500. viz. are traded.518.452 4 Commodities Market NA 130.374. crude oil.503 19.827.7) Note: Fig.405 (56) 3.2) Forex Market 658.099. in bracket represents percentage to GDP at market prices Source: Sebi bulletin (16. the size of the commodities market grows many folds here on. the size of the commodities market in India is also qu ite significant.468 II Bombay Stock Exchange (a+b) 316.376 (63) 2.936 4. But commodities are easy to understand as far as fundamentals of demand & supply are concerned.130. It is important to develop a vibrant.027 2.035 (27) 2. active and liquid commodity market.8) (117.730 crore (Rs 13.147.4) (133. the various commodities across the country clock an annual turnover of Rs 1.672 1.641.872 3.505 (18.

Co Ministry of Consumer Affairs FMC (Forwards Market Commission) Commodity Exchange National Exchange Regional Exchange NCDEX MCX NMCE NBOT ¢§¦¥ ¤ £¢¡    od a 20 other regional exchanges § ¨ 11 | ag .

Co Qua ity Certification Agencies support agencies Consumers (Retai /Institutio -na )   " " Transporters/ Traders (specu ators)arbi -trageurs/c ient) 12 |   "  C earing ank ! Commodities cosystem MCX  Warehouses Hedger ( xporters / Mi ers Industry) Producers ( armers/Cooperatives/Ins titutiona )    ©© od a ag  #  .

Soymeal. Silver HNI.Commodity Market DIFFERENT TYPES OF COMMODITIES TRADED: World-over one will find that a market exits for almost all the commodities known to u s. Coconut OIL Oil. Refined Sunflower Oil. Sugar S-30 13 | P a g e . Rice Bran Refined Oil. Red Chilli Arecanut. Mentha Oil. Gold HNI. These c ommod i t i e s can be broadly classified into the following: METAL BULLION FIBER ENERGY SPICES PLANTATIONS PULSES Aluminium. Potato (Tarkeshwar). Silver L CottonM Staple. Mustard Seed (Sirsa). Kapasia Khalli. Steel Long Gold. Coffee (Robusta). Mustard Seed (Jaipur). Yellow Peas PETROCHEMICAL HDPE. Groundnut Oil. Jeera. Cotton Seed. Cardamom. Masur. Polypropylene(PP). Cotton S Staple. Lead. Gurchaku. Furnace Oil. Crude Palm Oil. Cotton M Staple. Pepper. Castor Seeds. Soy Bean. Rubber Chana. Crude Oil. i-gold. Sugar M-30. PVC S & OIL SEEDS Castor Oil. Cashew Kernel. Brent Crude Oil. Potato (Agra). Silver. Natural Gas. Refined Soy Oil. Gold M. Soy Seeds CEREALS OTHERS Maize Guargum. Cotton Yarn. Sponge Iron. Sesame Seed. Guar Seed. Coconut Cake. Rice Bran DOC. RBD Palmolein. Mustard Oil. E. Copper. Nickel. M.

122 2006 1.340 2007 2.479 24.Commodity Market TURNOVER OF INDIAN COMMODITY EXCHANGES Indian Commodity Futures Market (Rs Crore) Exchanges Multi Commodity Exchange NCDEX NMCE(Ahmadabad) NBOT(Indore) Others All Exchanges 2004 165147 266.731 57.338 13.759 2005 961.739.582 37.621.336 MARKET SHARE OF COMMODITY EXCHANGES IN INDIA 14 | P a g e .066 101.988 58.155.633 1.149 14.206 733.066.505.735 2.823 571.997 3.803 944.072 74.683 54.463 67.591 2.686 18.385 53.375.

Futures trading in wheat were existent at several places in Punjab & Uttar Pradesh. Forward Contracts (Regulation) Act was enacted in 1952 & the FMC was established in 1953 under the Ministry of Consumer Affairs & Public Distribution. Also. Bombay Cotton Exchange Ltd. Derivative t r a d i n g takes place t h r o u g h exchange-based markets with standardized contracts. But the most notable futures exchange for wheat was Chambers Of Commerce at Hapur set up in 1913. The Futures trading in oilseed started in 1900 with the establishment of Gujarati Vyapari Mandali. Futures trading in bullion in Mumbai began in 1920. as in equities. several other exchanges were created in the country to trade in diverse commodities. In due course. These two associations amalgamated in 1945 to form East India Jute & Hessain Ltd. set up in 1875 was the 1 st organized Futures Market.. settlements etc. wholesaler etc. castor seed & cotton. EVOLUTION OF COMMODITY MARKET IN INDIA Bombay Cotton Trade Association Ltd. there exists the spot and the derivatives segment. which carried on futures trading in groundnut. The spot markets are essentially over the counter markets and the participation is restricted to people who are involved with that commodity say the farmer. processor. But organized futures trading in raw jute began onl y in 1927 with the establishment of East Indian Jute Association Ltd. was established in 1919 for futures trading in raw jute & jute goods. Calcutta Hessain Exchange Ltd. 15 | P a g e . was established in 1893 following the widespread discontent amongst leading cotton mill owner¶s merchants over functioning of Bombay Cotton Trade Association. to conduct organized trading in both Raw Jute & Jute goods.Commodity Market DIFFERENT SEGMENTS IN COMMODITIES MARKET The commodities market exits in two distinct forms namely the Over the Counter (OTC) market and the Exchange based market.

US London Metal Exchange Tokyo Commodity Exchange (TOCOM) Shanghai Futures Exchange Sydney Futures Exchange London International Financial Futures and Options Exchange (LIFFE) Multi-Commodity Exchange in India (NMCE). 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Global Commodity Exchanges New York Mercantile Exchange (NYMEX) London Metal Exchange (LME) Chicago Board of Trade (CBOT) New York Board of Trade (NYBOT) Kansas Board of Trade Winnipeg Commodity Exchange. India Dubai Gold & Commodity Exchange (DGCX) Dubai Mercantile Exchange (DME). India Multi Commodity Exchange of India Limited (MCX). (joint venture between Dubai holding and the New York Mercantile Exchange (NYMEX)) 16 | P a g e . Manitoba Dalian Commodity Exchange.Commodity Market LEADING COMMODITY MARKETS OF WORLD Some of the leading exchanges of the world are: S. India National National Commodity and Derivatives Exchange (NCDEX). No. China Bursa Malaysia Derivatives exchange Singapore Commodity Exchange (SICOM) Chicago Mercantile Exchange (CME).

governmental) regulatory agency: Country Australia Chinese mainland Hong Kong India Pakistan Singapore UK USA Malaysia Regulatory agency Australian Securities and Investments Commission China Securities Regulatory Commission Securities and Futures Commission Securities and Exchange Board of India and Forward Markets Commission (FMC) Securities and Exchange Commission of Pakistan Monetary Authority of Singapore Financial Services Authority Commodity Futures Trading Commission Securities Commission 17 | P a g e .Commodity Market REGULATORS: Each exchange is normally regulated by a national governmental (or semi.

similar to the BSE & NSE. screen based trading system for trading. to come up and let them deal in commodity derivatives in an electronic trading environment. These exchanges are expected to offer a nation-wide anonymous. They are: S.NO. The Forward Markets Commission (FMC) will regulate these exchanges. National Board of Trade (NBOT). Ahmadabad 18 | P a g e . Indore National Multi Commodity Exchange (NMCE). 1 2 3 4 Commodity Market in India Multi Commodity Exchange (MCX). Mumbai National Commodity and Derivatives Exchange Ltd (NCDEX).Commodity Market LEADING COMMODITY MARKETS OF INDIA The government has now allowed national commodity exchanges. Consequently four commodity exchanges have been approved to commence business in this regard. order driven.

Similarly. The basic concept of a derivative contract remains the same whether the underlying happens to be a commodity or a financial asset. physical settlement in commodity derivatives creates the need for warehousing. In the case of financial derivatives. the concept of varying quality of asset does not really exist as far as financial underlying are concerned. Due to the bulky nature of the underlying assets. However there are some features. The basic concept of a derivative contract remains the same whether the underlying happens to be a commodity or a financial asset. Efficient price discovery prevents seasonal price volatility. Even in the case of physical settlement. Greater flexibility. However in the case of commodities. They were then found useful as a hedging tool in financial markets as well. This becomes an important issue to be managed. which are very peculiar to commodity derivative markets. In the case of financial derivatives. 19 | P a g e .Commodity Market COMMODITY FUTURES TRADING IN MARKET Introduction Derivatives as a tool for managing risk first originated in the Commodities markets. Derivatives as a tool for managing risk first originated in the Commodities markets. They were then found useful as a hedging tool in financial markets as well. the quality of the asset underlying a contract can vary largely. Spaced out purchases possible rather than large cash purchases and its storage. certainty and transparency in procuring commodities would aid bank lending. However there are some features. financial assets are not bulky and do not need special facility for storage. which are very peculiar to commodity derivative markets. Benefits to industry from futures trading Hedging the price risk associated with futures contractual commitments. most of these contracts are cash settled. most of these contracts are cash settled.

brokerage fees. etc. Why commodity futures? One answer that is heard in the financial sector is "we need commodity futures markets so that we will have volumes. the question arises about who will maintain the buffer stock. In this case. Many economists think that we could have major benefits from liberalization of the agricultural sector. on real time basis. * Lending for agricultural sector would go up with greater transparency in pricing and storage. state-of-art technology deployment.what is the role for commodity futures in India's economy? In India agriculture has traditionally been an area with heavy government intervention. Hedged positions of producers and processors would reduce the risk of default faced by banks. and something to trade''. Traders would be t r a i n e d to be R u r a l Advisors and Commodity Specialists and through them multiple rural needs would be met. information dissemination. Benefits to exchange member Access to a huge potential market much greater than the securities and cash market in commodities.Commodity Market Facilitate informed lending. scalable. We have to look at futures market in a bigger perspective -. how 20 | P a g e . Government intervenes by trying to maintain buffer stocks. and they have import-export restrictions and a host of other interventions. Provide trading limit finance to Traders in commodities Exchanges. Robust. Member can trade in multiple commodities from a single point. Commodity Exchanges to act as distribution network to retail agri.finance from Banks to rural households. they try to fix prices. like bank credit.

These days. resulting in losses. These activities produce their own "optimal" buffer stocks. The third is the role about storage. In this fashion.Farmers spend money on fertilizers. 21 | P a g e . arbitrageurs on the futures market will use imports and exports to smooth Indian prices using foreign spot markets. Thus a farmer would like to lock in his future price and not be exposed to fluctuations in prices. If the future price is high and the present price is low. an arbitrager will buy today and sell in the future. Many agriculture economists understand the need of liberalization in the sector. If we think there will be a shortage of wheat tomorrow. and it. commodity futures markets are a part and parcel of a program for agricultural liberalization. etc. Futures market will produce their own kind of smoothing between the present and the future. how will farmers not be vulnerable that tomorrow the price will crash when the crop comes out. Futures markets are an instrument for achieving that liberalization. which -. then I can sell my wheat on the futures market. which is doing a huge job of storage. and it will carry signals back to the farmer making sowing decisions today. which eliminates my risk from price fluctuations. smooth prices. They are worried when making these investments that by the time the crop comes out prices might have dropped. high yielding varieties. which is fixed today. the futures prices will go up today. The converse is also true.in my opinion -. thus if the future price is low the arbitrageur will buy in the futures market. how will farmers get signals that in the future there will be a great need for wheat or rice. In totality. In all these aspects the futures market has a very big role to play. agriculture requires investments .does not work.Commodity Market will we smoothen the price fluctuations. They also wo rk very effectively when there is trade in agricultural commodities. Next. a system of futures markets will improve cropping patterns. if I am growing wheat and am worried that by the time the harvest comes out prices will go down. Today we have the Food Corporation of India. is a system. I can sell my wheat at a price.

acting as a counterweight to stocks. Better risk-adjusted returns. High co-relation with changes in inflation. 22 | P a g e . compared with. Investors can leverage their investments and multiply potential earnings. equities and bonds. Less volatile. A good hedge against any downturn in equities or bonds as there is Little correlation with equity and bond markets. No securities transaction tax levied.Commodity Market WHAT MAKES COMMODITY TRADING ATTRACTIVE? A good low-risk portfolio diversifier A highly liquid asset class. bonds and real estate.

23 | P a g e . commodity trading is going to be the next big thing for investors. After Equity trading. Agriculture sector is an imp factor in achieving a GDP growth of 8-10%. Globally. presently. Govt.Commodity Market COMMODITY TRADING Commodity Trading in India is regulated by FMC headquartered at Mumbai. In India people have a love for Gold & S ilver. 1952. Of India. Agriculture contributes about 22% of the GDP of Indian economy. It is a statutory body set up in 1953 under the Forward Contract (Regulation) Act. trading is also going to pick up in Gold & Silver. All this indicates that India can be promoted as a major centre for trading of commodity derivatives. In India. It employees around 57% of the labor force on total of 163 million hectors of land. it is a regulatory authority which is overseen by the Ministry of Consumer Affairs & Public Distribution. in addition to being a major consumer of bullion & energy products. the commodity market is about three times the size of equities trade market. the commodity market is still is the nascent stage & is gradually picking up taking a cue from the global market. NEED OF COMMODITY DERIVATIVES FOR INDIA: India is among top 5 producers of most of the commodities.

Farmers (sellers) & dealers (buyers) slowly started entering into contract for forward exchanges of grain for cash at some particular future date so that farmers could avoid taking the trouble of transporting & storing wheat (at very high costs) if 24 | P a g e . Midwest farmers. Aristotle described the use of call options by Thales of Miletus on the capacity of olive oil presses. CBOT preceded futures exchanges in Europe.000 yrs ago in China with rice as a commodity.e. which lead to higher wheat production. used to connect to Chicago to sell their wheat to dealers who. In the first few yrs of COBT. The situation changed for the better in 1848 when a central marketplace was opened where farmers & dealers could meet to deal in ³CASH´ grain i. when new management decided that the mere provision of a trading floor was not sufficient & invested in the establishment of grades & standards as well as nationwide price information system. Historically. Farmers usually brought their wheat to Chicago hoping to sell at a good price.Commodity Market HISTORY OF THE DEVELOPMENT OF COMMODITY MARKETS Global Scenario: It is widely believed that the futures trade first started about approximately 6. in 1730. Around the same time good agriculture technologies were developed in the area. weeks could go by without any transaction taking place & even the weeks could go by without any transaction taking place & even the provision of a daily free lunch did not entice exchange members to actually come to the exchange! Trade took off only in 1856. to exchange cash for immediate delivery of wheat. The city had very limited storage facility & hence. transports it to all over the country. organized trading in futures began in the US in the mid-19th century with maize contracts at the Chicago Board Of Trade (CBOT) & a bit later cotton contracts in New York. the farmers were often left at the mercy of the dealers. therefore. In the 1840¶s Chicago had become a commercial centre since it had good railroads & telegraph lines connecting it with the east. The first organized futures market was the Osaka Rice Exchange. In ancient Greece. Futures trade first started in the 17 th century. in turn.

Indian Scenario: History of trading in commodities in India dates back to several centuries. there were many commodity futures exchanges. In mid-1940¶s. sugar. Slowly. could pass on his obligation to another farmer. he would sell the contract to someone who needed it. even those individuals who had no intention of ever buying or selling wheat began trading in these contracts expecting to make some profits based on their knowledge of the situation in the market for wheat. During the 1 st half of the 20th century. including the Calcutta Hessain Exchange Ltd. The futures trading in Gold began in Mumbai in 1920. Those exchanges traded i n jute. The futures trading in oilseed started in 1900 when Gujarati Vyapari Mandali (today¶s NMCX. This system was suitable to farmers as well as dealers. Such forward contracts became common & were even used subsequently as collateral for bank loans. The Forward Contract Regulation 25 | P a g e . They were called speculators. pepper. Ahmadabad) was established. However.Commodity Market the price was not acceptable. potatoes. If the dealer decided he didn¶t want the wheat. if the farmer didn¶t want to deliver his wheat. India¶s history of commodity futures market has been turbulent. The farmer knew how much he would be paid for his wheat. trading in forwards & futures became difficult as a result of price control by Government. The hedgers began to efficiently transfer their market risk of holding physical commodity to these speculators by trading in future exchange. But organized futures market in India emerged in 1875 when the Bombay Cotton Trade Association was established. & the dealer knew his costs of procurement well in advance. They hoped to buy contracts at low price & sell them at high price or sell the contracts in advance for high price & buy for lower price. They also began to change hands before the delivery date. turmeric. that was established in 1927. etc. The price would go up & down depending on what was happening in the wheat market. This is how the future market in commodities developed in US. Options were banned on cotton in 1939 by the Government of Bombay to curb widespread speculation. The contracts slowly got ³standardized´ on quantity & quality of commodities being traded. Also.

In the post-liberalization era of the Indian economy. 26 | P a g e . In 1960s. the Government of India suspended forward trading in several commodit ies jute. These measures weakened the agricultural commodity markets in India. the World Bank in association with United Nations Conference on Trade & Development (UNCTAD) conducted a study on Indian Commodities Market. Dantwala Committee in 1966. In 1996. seeds. etc. cotton.Commodity Market Act was passed in 1952. This put a regulatory guideline on forward trading. However. it was the Kabra Committee & the World Bank-UNCTAD study that finally assessed the scope for forward & futures trading in commodities markets in India & recommended steps to revitalize futures trading. edible oil. transportation & distribution of agricultural products. The Government appointed four committees (Shroff Committee in 1950. Khusro Committee in 1979 & Kabra Committee in 1993) to go into the regulatory aspects of forward & futures trading in India. the government offered to buy agricultural products at Minimum Support Price (MSP) to ensure that the farmers benefited. due to fears of increase in commodity prices. The Government also managed storage.

Many of these commodities would be traded on the futures markets as food-processing industry grows at a phenomenal pace. global trends indicate that the volume in futures trading trends to be 5 -7 times the size of commodities spot trading in the country (Internationally. which are trading in more than 85 commodities at present.500 + Agricultural Produce Market Cooperative (APMC) mandis. there is a network of over 27. Many nationalized & private sector banks have announced plans to disburse substantial amounts to finance commodity -trading business. & the list continues to expand. The Government of India has initiated several measures to stimulate active trading interest in commodities. & removing legal hurdles to attract more participants have increased 27 | P a g e .Commodity Market RELEVANCE & POTENTIAL OF COMMODITY MARKETS IN INDIA Majority of commodities traded on global commodity exchanges are agri -based. Commodity Markets therefore are of great importance & hold a great potential in case of economies like India.000+ haats (Rural Bazaars) that are seasonal market places of various commodities. where more than 6 5% of the population are dependent on agriculture. The commodity trade segment employs nearly five million plus traders. The potential of the sector has been well identified by the Central Government & the State Government & they have invested substantial resources to boost production of agricultural commodities. developing exchanges with modern infrastructure & systems such as online trading. There is huge domestic market for commodities in India since India consumes a major portion of its agricultural produce locally. Indian Commodities Market has an excellent growth potential & has created go od opportunities for market players. The Government also has recognized three national level commodity exchanges. These marketplaces play host to a variety of commodities every d ay. approving new exchanges. According to the experts in commodity markets. Steps like lifting the ban on futures trading in commodities. It has major markets in regions of urban conglomeration (Cities & Towns) & nearly 7. the multiple f or physical versus derivatives is much higher at 15-20 times). To add to this. India is World¶s leading producer of more than 15 agricultural commodities & is also the world¶s largest consumer of edible oils & gold.

1952. The volumes are likely to surge further as a result of the increased interest from the international participants in Indian Commodity Markets. the commodity prices (especially international commodities such as base metals & energy) have been subject to price volatility in international markets. It is expected that Foreign Institutional Investors (FIIs). Commodity Trading & commodity financing are going to be a rapidly growing business in the coming years in India. The trading volumes are increasing as the list of commodities traded on NCE also continues to expand. If these international participants are allowed to participate in the markets (like in case of capital markets). Commodity derivatives exchanges have been established with a view to minimize risk associated with such price volatility. mutual funds & banks may be able to participate in commodity futures is also expected after the amendments to the FCR Act. With the liberalization of the Indian economy in 1991.Commodity Market the scope of commodities derivatives trading in India. the growth in commodity futures can be expected to be phenomenal. since India is largely a net importer of such commodities. 28 | P a g e .

it is essential to understand the different components of the commodity markets ecosystem. etc. 29 | P a g e . distributors. traders. bazaars. 2) Logistics Companies: Storage & transport Companies/operators. Exporters. 5) Lending Agencies: Banks & Financial Institutions. etc. manufacturers. wholesalers. The following illustration shows the different components in the commodity markets ecosystem: The commodity markets ecosystem includes the following components: 1) Buyers/Sellers or Consumers/Producers: Farmers. 3) Markets & Exchanges: Spot Markets (mandis. Merchandisers.) & Commodity Exchanges (national & regional level) 4) Support Agencies: Depositories/de-materializing agencies. Oil producing companies.Commodity Market COMMODITY MARKETS ECOSYSTEM After studying the importance of commodity markets & trading in commodity futures. Importers. Central & State Warehousing Corporations & Private Sector Warehousing Companies. etc. farmers co-operatives. quality testing & certifying companies. APMC mandis. State Civil Suppliers Corporations.

Commodity derivatives exchanges provide a platform for hedging against price risk for these users. warehouses for storage. & quality testing & certification agencies for assessment & evaluation of commodity quality standards. They have exposure to the physical commodities market. In turn. thus. exposing themselves to price risk. they depend on logistic companies for transportation of commodities. Users Logistic Companies Support Agencies Farmers & Farmers Co-operatives Storage & Transport Requirements & Quality Certification Requirements Central & State Warehousing Corporation APMC Mandis Testing & Certifying Companies Traders Spot Market State Civil Suppliers Cooperation Commodity Market Private Sector Warehousing Companies Warehouse Receipt System Lending Agencies 30 | P a g e .Commodity Market The users are the producers & consumers of different commodities.

28 1.99 7.09 3rd 31 | P a g e .02 Share 11.84 10.74 World 2049 599 55 35 40 1278 2.14 15. Commodity Rice(Paddy) Wheat Pluses Groundnut Rapeseed Sugarcane Tea Coffee(Green) Jute & Jute Fibers Cotton(Lint) India 240 74 13 6 6 315 0.75 0.06 18.00 24.35 23.64 17.28 4.17 12.08 3.Commodity Market INDIA¶S PLACE IN WORLD MARKET The following table shows the position of Indian Commodity Market in the International Commodity Market with respect to certain significant commodities.85 43.65 25.30 Rank 3rd 2nd 1st 2nd 3rd 2nd 1st 8th 2nd 2.

Futures have something called an expiry date. Traders need not visit a commodity market to speculate. The buyer should be able to take physical delivery at a location of his cho ice on presenting the warehouse receipt. Trading : . The first is the spot trade. Which allows him to ask for physical delivery of the goods from the warehouse? But someone trading in commodity futures need not necessarily possess such a receipt to strike a deal. by when the buyer or seller either closes (square off) his account or give / take delivery of the commodity. Today Commodity trading system is fully computerized. goods X in a warehouse and gets a warehouse receipt. Squiring off is done by taking an opposite contract so that the net outstanding is nil. Following diagram gives idea about working of the Commodity market. The commodity trading system consists of certain prescribed steps or stages as follows: 1. The second is futures trade.At this stage the following is the system implemented -Order receiving -Execution -Matching -Reporting 32 | P a g e . in which one pays cash and carries away the goods. But at present in India very few warehouses provide for specific commodities.Commodity Market WORKING OF COMMODITY MARKET There are two kinds of trades in commodities. the seller should be able to deposit the commodity at warehouse nearest to him and collect the warehouse receipt. For commodity futures to work. A person deposits certain amount of say. A person can buy or sale a commodity future on an exchange based on his expectation of where the price will go. With online commodity trading they could sit in the confines of their home or office and call the shots. The underpinning for futures is the warehouse receipt. The broker maintains an account of all dealing parties in which the daily profit or loss due to changes in the futures price is recorded.

But since commodities futures market is a relatively new entrant in India. 2. 3.Commodity Market -Surveillance -Price limits -Position limits. 10 STEPS TO INVEST IN COMMODITY MARKET: The future trading in commodities has emerged as a major investment option in India.This stage has following system followed as follows-Marking to market -Receipts and payments -Reporting -Delivery upon expiration or maturity. 33 | P a g e .This stage has following system in place -Matching -Registration -Clearing -Clearing limits -Notation -Margining -Price limits -Position limits -Clearing house. not many investors know how to tap and benefit from trading in various commodities. Here are 10 steps that you need to know to invest in commodities market. Settlement: . Commodity market performances are equal to that of the stock market and analysts predict that the commodities market will overtake the capital market in trade volumes sooner than later. Clearing: .

brokerage fees ranging from 0. account opening charges and annual maintenance charges.set stop loss and book profit levels. Step 8: Focus on a few commodities.08% on contract value. Step 5: Be clear of the service deliverables from your broker. Step 10: Get ready for investing and track your success and losses all the time. Step 4: Choose the right brokerage plan that optimizes your costs. 34 | P a g e .03% to 0. Step 7: Set aside funds for commodity investing. You could require PAN card. Step 3: Be clear of the rules and regulations especially transaction costs. gather requisite knowledge and pay up the initial amount for margin money. address proof and passport size photos. Step 9: Clear any or all doubts now . Step 6: Insist on regular reports and special knowledge / training opportunities. but remember not at the cost of other traditional investing avenues. Step 2: Fill a demat account opening form with a registered br okerage house and a member with the national commodity exchanges.Commodity Market Step 1: Locate a brokerage house with a reputation for service.

Commodity Market TRADING OF COMMODITY MARKET ³Money making is not a commodity. but commodity trading could earn you money!´ 35 | P a g e .

or selling. Trading in any contract month will open on the twenty first day of the month. Investing in Commodities: Commodity investment can be done in a number of ways: y By investing in companies that produce commodities. However. On producing this receipt. the buyer can claim the commodity from the warehouse. Investors can choose between the two. where the settlement date is the next working day after expiry. settlement takes place five to seven days after the expiry. commodity stockiest and wholesalers go for delivery. in case of deli very-based traders. All open contracts not intended for delivery are cash settled. Commodity trading follows a T+1 settlement system. Many investors already hold shares in such companies or hold units in collective investment schemes such as unit trusts which invest all or part of the fund assets into such companies. While speculators and arbitrageurs generally prefer cash settlement. In the case of delivery-based trades. a transferable receipt from the warehouse where goods are stored is issued in favour of the buyer. y By purchasing. All contracts settling in cash will be settled on the following day after the contract expiry date. This involves high transaction costs and is not a suitable 36 | P a g e . The option to square off the deal or to take delivery can be changed before the last day of contract expiry.Commodity Market Investors¶ choice: The future market in commodities offers both cash and delivery -based settlement. three months prior to the contract month. If the buyer chooses to take delivery of the commodity. the December 2004 contracts open on 21 September 2004 and the due date is the 20 -day of the delivery month. For example. the margin raises to 0-25% 0f the contract value and the seller is required to pay sales tax on the transaction. the commodities themselves on the µspot market¶ for immediate delivery.

unlike stocks. It seems an obvious statement but commodities make a return for investors if price rise after purchase. against fluctuations in the value of the US dollar against other leading currencies. and in particular. Taking positions in individual commodities is essentially speculative and should only be undertaken by professional investors who can afford to lose large sums of money if things go wrong. it is 12-18% in gold. Commodities are also good bets to hedge against inflation. his absolute returns would have been above 24%. as pricing in commodity future is less volatile compared to equities and bonds. 37 | P a g e . 10-12% in cotton and 5-10% in government securities. Gold offers good protection against exchange rate fluctuations. 15-25% in silver. Returns from Commodity trading: Absolute returns from stocks and bonds are definitely higher than pure commodities. global weather patterns. commodities offer no gain from interest income or dividends.Commodity Market method of investment for individual investors. if an investor had put his money only in silver and bonds from 1997-2003. or selling via the commodities exchanges for later delivery. Unlike financial assets. But commodity trading carries a lower downside risk than other asset classes. y By purchasing. commodity prices are dependent on their demand supply position. Most trading in commodities is done through µfutures¶ and µoptions¶. However. According to study. While the average annual volatility is 25 -30% in benchmark equity indices like the BSE Sensex or NSE¶s Nifty. government policies related to subsidies and taxation and international trading norms as guided by the World Trade Organisation (WTO). They generate losses if prices fall.

banks are keen to tap the commodity trade -financing front. pepper. soya bean oil.m. Commodities like chana.1889 crore.10000 crore per day. Active trades were high among others Guar seed. 01. On Aug. In a short span of over a year.39 billion (one . online commodity markets are witnessing good growth in India. Active trades were high in among others Guar seed.Commodity Market Growth of commodity trading: A soft interest rate regime and a weak US dollar have increased the demand for the commodities. There were 457 members (1. The volume for the trading session till 02:00 p. The daily turnover volume at the National Commodity and Derivative Exchange (NCDEX) stood at Rs.5% as against the normal lending rate between 11% and 14%. Commercial banks are chasing the commodity industry with attractive lending rates between 8% and 8. 2009. Rape Mustard seed and Soya oil. has achieved a peak daily turnover of Rs. sugar. Chana. on the other hand. Chana.m. The daily volume of trading of Rs. 432 members (1. 38 | P a g e . 2009 up to 5:00 p. mustard seeds and wheat contributed to the balance trading volume.970 users) users participated in trading on Aug 3.851 users) participated in trading and put through more than 99. Though the most popular commodities for trading in India are gold. was Rs. There were more than 93. Turmeric and Soybeans.68 billion (one-way).198 trades.638 trades put through by them. Turmeric.way).2617 crore on 8 December 2004.2500 crore at NCDEX alone has surpassed that of Rs. the market is divided equally between bullion and agricultural commodities in terms of trading volumes. soya bean and guar gum. MCX.39.2000 crore on the Bombay Stock Exc hange (BSE). Soya oil. 26. urad. It registered a record daily traded volume of Rs. silver. Expecting the turnover on the three online commodity exchanges to spurt to Rs.

Disadvantages: Globally commodity markets are criticized for their part in indulging in speculation and thus increasing the prices. economic experts say that if the farmer and the consumer are to be benefitted then future trading and spot trading in the rural commodity markets should be encouraged. Advantages: y The commodity markets try to integrate the fragmented rural markets. y Transportation and warehousing facilities would be increased. 39 | P a g e .Commodity Market ADVANTAGES & DISADVANTAGES OF COMMODITY MARKETS. y There would be guarantees for trade and also payments. Another major criticism is that the farm gate price is very low when compared to the price paid by the consumer. y Multiple commodities can be procured at one centre. y The bargaining power of the farmers would be increased. Small producers have no say in the market and traders dominate. Considering all these advantages. y Efficient spot price can be discovered and disseminated.

Commodity Market STUDY ON SINGLE COMMODITY: GOLD: 40 | P a g e .

Commodity Market

GOLD Introduction Gold is a unique asset based on few basic characteristics. First, it is primarily a monetary asset, and partly a commodity. As much as two thirds of gold¶s total accumulated holdings relate to ³store of value´ considerations. Holdings in this category include the central bank reserves, private investments, and highcaratage jewllery bought primarily in developing countries as a vehicle for savings. Thus, gold is primarily a monetary asset. Less than one third of gold¶s total accumulated holdings can be considered a commodity, the jewellery bought in Western markets for adornment, and gold used in industry. The d i s t i n c t i o n b e t we e n gold a n d c o m m o d i t i e s i s important. Gold has maintained its value in after-inflation terms over the long run, while commodities have declined. Some analysts like to think of gold as a ³currency without a country¶. It is an internationally recognized asset that is not dependent upon any government¶s promise to pay. This is an important feature when comparing gold to conventional diversifiers like T-bills or bonds, which unlike gold, do have counter-party risk.

What makes gold special?

Timeless and Very Timely Investment Gold is an effective diversifier Gold is the ideal gift Gold is highly liquid Gold responds when you need it most

41 | P a g e

Commodity Market

Market Characteristics

y The gold market is highly liquid. Gold held by central banks, other major

institutions, and retail jewellery is reinvested in market.
y

Due to large stock of gold, against its demand, it is argued that the core driver of the real price of gold is stock equilibrium rather than flow equilibrium.

y

Effective portfolio diversifier: This phrase summarizes the usefulness of gold in terms of ³Modern Portfolio Theory´, a strategy used by many investment managers today. Using this approach, gold can be used as a portfolio diversifier to improve investment performance.

y

Effective diversification during ³stress´ periods: Traditional method of portfolio diversification often fails when they are most needed, that is during financial stress (instability). On these occasions, the correlations and volatilities of return for most asset class (including traditional diversifiers, such as bond and alternative assets) increase, thus reducing the intended ³cushioning´ effect of the diversified portfolio.

42 | P a g e

Commodity Market

Demand and supply

y China produced 276 metric tons of gold last year, equal to about 9.7

million ounces, said London precious metals consultancy GFMS Ltd. That's up 12% from the year-ago and represented just over one-tenth of the world's supply.
y The ranking pushes South Africa into second place, the first time the

Gold giant has lost its top ranking since 1905. South Africa, who¶s late 19th century gold rush led to the founding of mining heavyweight Anglo American Plc and is home to global producers Gold Fields Ltd and AngloGold Ashanti Ltd; saw its production decline 8% to 272 metric tons.
y India is world largest gold consumer with an annual demand of 800

tonnes.

Demand and Supply of Gold in India (in tonnes)

2006 Supply Mine Production Net Producer Hedging Total mine supply Official sector sales Old gold Scrap Total Supply Demand Fabrication Jewellery Industrial & Dental Subtotal of above fabrication Bar & coin retail investment Other retail investment ETFs and similar Total Demand Inferred Investment 573 -140 430 93 303 826 519 111 630 89 -3 113 829 -3

2007 580 -129 451 95 262 808 568 112 680 116 -5 36 827 -19

% change 1 5 2 -13 2 9 1 8 31 -68 0 43 | P a g e

and in case capital gains through marked to market is also taken into account. one necklace and two bangles. Indian Gold Jewellery Market y Plain 22 carat jewellery is the core of consumption especially in the rural areas. Risk and Return on Gold Investments The return from investments in gold may be compared with the return on investment in Government bonds in the Indian markets. y Studded (i. where gold is so important in judging a family's status at a marriage. y Medallions.February 1996 and sold at end-February 2002 at the prevailing rates in the local bullion market. A basic marriage set for a bride is two earrings. Illustratively. th e annualized average return could be as high as 15 per cent. On the contrary.2 oz). one ring. all in 22 carat gold and weighing up to 200 grams (6. one nose pin. investment in a liquid risk-free Government security on the same date would have fetched a comfortable positive return. gem-set) 18 carat jewellery is increasingly popular in the cities and is estimated to have used 31 tones (1 million oz) in 2001. if gold had been purchased at end.Commodity Market Source: GFMS Ltd. These items are popular as gifts at weddings and 44 | P a g e .e. charms and small gift items account for up to half of what is loosely called jewellery. the average annualized return would work out to be negative.

Commodity Market other family events. 45 | P a g e . The industry is beginning to be modernized with large factories. The Bu re au o f I n d i a n S t a n d a r d s h a s i n t r o d u c e d a voluntary scheme which. single shop operations. as has the number of Indians possessing gold jewellery. y Hallmarking does not exist in India and under-caratage is commonplace.000 workshops supplying over 300.000 retailers. mostly family-owned.6 m oz) annually. y The market is highly fragmented with an estimated 100. known as Jari used in high quality saris worn at weddings and special occasions requires somewhere in the region of 20 tones (0. y Gold thread. The minimum legal caratage is 9 carat. installing the latest equipment. although not yet widely used. Ahmadabad and Bangalore. in centers such as Mumbai. y The number of retail jewellery outlets has increased greatly since the abolition of gold control. is becoming more popular.

Goud (Afrikaans).000 tonnes. Q4. It has several properties that have made it very useful to mankind over the years. it is estimated that all the gold ever mined amounts to about 145. reflecting one of the most obvious properties of gold. 'Aurum'. Au. Gull (Norwegian) and Kulta (Finnish). This is reflected in the similarities of the word gold in various languages: Gold (English). Q2.Commodity Market Frequently Asked Questions on Gold Q1. Its chemical symbol. How much gold is there in the world? At the end of 2001. What is Gold and why is its chemical symbol Au? Gold is a rare metallic element with a melting point of 1064 degrees centigrade and a boiling point of 2808 degrees centigrade. notably its excellent conductive properties and its inability to react with water or oxygen. Q3. Where does the word Gold come from? The word gold appears to be derived from the Indo-European root 'yellow'. is short for the Latin word for gold. Why is gold measured in carats? 46 | P a g e . Guld (Danish). Gold (German). Gulden (Dutch). which literally means 'Glowing Dawn'.

The Romans also used the name Siliqua for a small silver coin. For gold.54 grammes. when a carat became used as a measure of the purity of gold alloys (see next Question 5). then India is the largest repository of gold in terms of total gold within the national boundaries. In terms of personal ownership. so the Siliqua was approximately equivalent in value to the mass of 1 Keration or Siliqua Graeca of gold. i. it is not known who owns the most. How and when this change occurred is not clear. The carat is still used as such for the weight of gem stones (1 carat is about 200 mg). This latter had a mass of about 4. The purity of gold is now measured also in terms if fineness. Q5. Who owns most gold? If we take national gold reserves. and now Carat in modern times) for the bean of the Carob tree. Q6. The Carob seed is from the Carob or locust bean tree. i. the value of 1/24th of a Solidus is about 1 Keration of gold. What is a Carat? A Carat (Karat in USA & Germany) was originally a unit of mass (weight) based on the Carob seed or bean used by ancient merchants in the Middle East. 47 | P a g e .Commodity Market This stems back to ancient times in the Mediterranean /Middle East. but is possibly a member of a ruling royal family in the East.e. It does involve the Romans who also used the name Siliqua Graeca (Keration in Greek. Qirat in Arabic. which was onetwenty-fourth of the golden solidus of Constantine. 1 carat. it has come to be used for measuring the purity of gold where pure gold is defined as 24 carats. then most gold is owned by the USA followed by Germany and the IMF. If we include jewellery ownership. Thus 18 carats is 18/24th of 1000 parts = 750 fineness. i. e. parts per thousand.e.

How much does it cost to run a gold mine? Gold mining is very capital intensive. with other operations nearing the end of their lives. Q9. but the real acceleration took place after the late 1970s. along with lower grades at some of the operations in Nevada. global production is likely to drop slightly over the next two to three years subject always of course to price. how far would it stretch? If we make all the gold ever produced into a thin wire of 5 microns (millionths of a meter) diameter ± the finest one can draw a gold wire. particularly in the deep mines of South Africa where mining is carried out at depths of 3000 meters and proposals to mine even deeper at 4. This is partly for specific operational reasons at some of the larger mines (Grasberg and Porgera). If all the gold was laid around the world. then all the gold would stretch around the circumference of the world an astounding 72 million times approximately! Q8.604 tonnes or 67% of total gold demand in that year.500 meters are being pursued. The reduction in exploration and development expenditure over the past five years is leading a number of analysts to suggest that. 48 | P a g e . Gold production has been growing for years. Typical mining costs are US $238/troy ounce gold average but these can vary widely depending on mining type and ore quality. mine production amounted to 2. Richer ores mined at the surface (open cast mining) is considerably cheaper to mine than underground mining at depth.500tpa. when output was in the region of 1. How much new gold is produced per year? In 2001. This year output will fall short of production levels in 2001. Such mining requires expensive sinking of shafts deep into the ground.Commodity Market Q7.

this gold is further refined by the Wohlwill electrolytic process to 99.5%.Commodity Market Q10. 760 cm3.32 g/cm3. If higher purity is needed or platinum group metal contaminants are present. This is then hauled to the surface and milled to release the gold. a troy ounce of gold would have a volume of 1. A tonne of gold would therefore have a volume of 51. Mine tailings containing low amounts of gold may be treated with cyanide to dissolve the gold and this is then extracted by the carbon in pulp technique before smelting and refining.64 cm3.27cm (Approx. How big is a tonne of gold? Gold is traditionally weighed in Troy Ounces (31. These are then refined to gold bars by the Miller chlorination process to a purity of 99.9% purity. Q12. With the density of gold at 19. 1¶ 3¶¶)? 49 | P a g e . smelted to a gold-rich doré and cast into bars.1035 grammes). The gold is then separated from the rock (gangue) by techniques such as flotation. How does a gold mine work? The gold-containing ore has to be dug from the surface or blasted from the rock face underground. which would be equivalent to a cube of side 37.

18-karat has 750. y Liquidity: The quality possessed by a financial instrument of being 50 | P a g e .0648 grams. y Carat: One-twenty fourth part by mass of the metallic element gold. y Grain: One of the earliest weight units used for measuring gold. etc. y Karat: Unit of fineness. 24 karat gold (or pure gold) has at least 999 parts pure gold per thousand. y Hallmark: Mark. y Standard Gold: Gold having fineness 995 parts per thousand (%) and above without any negative tolerance. etc. y Fineness: The ratio between the mass of gold content and the total mass expressed in parts per thousand (%). free from any other element. or marks. scaled from one to 24. y Find Gold: It is gold having fineness 999 parts per thousand (5) and above without any negative tolerance. parts pure gold and 250 parts alloy. y Kilo Bar: A bar weighing one kilogram ± approximately 32. One grain is equivalent to 0. which indicate the producer of a gold bar and its number. the following definitions shall apply: y Assaying: The method of accurate determination of the gold content of the sample expressed in parts per thousand (%).1507 troy ounces. fineness. y Legal Tender: The coin or currency which the national monetary authority declares to be universally acceptable as a medium of exchange. acceptable for instance in the discharge of debts. y Gold: The metallic element gold.Commodity Market Gold Terminology For the purpose of this standard.

local taxes and octroi) Maximum order size Tick Size Daily price limit Initial Margin Special Margin 10 kg Re. ex-Ahmadabad (inclusive of all taxes and levies relating to import and custom duty.m. 1 troy ounce is equivalent to 31.1034768 grams. which will remain in force for next 2 days. but excluding sales tax/VAT. whichever is high DELIVERY 51 | P a g e .m.m. after which the special margin will be relaxed. to 11:30 p. y Troy Ou n c e : A u n i t o f we i g h t . to 2:00 p.m.Commodity Market readily convertible into cash without significant loss of value. Per 10 g. 1 a v o i r d u p o i s (ordinary) ounces. TRADING Trading Unit Price Quote 1 kg Rs. e q u a l t o a b o u t 1 . will be imposed immediately on both buy and sell side in respect of all outstanding positions. The word ounce when applied to gold refers to a troy ounce. MCX Contract specifications of gold: GOLD Name of Commodity Ticker Symbol Trading System Trading Period Trading Session Gold GLDPURMUMK MCX Trading System Monday to Saturday Monday to Friday: 10:00a. a special margin at such percentage (as deemed fit). any other additional tax or surcharge on sales tax. 1 per 10 g (minimum price movement) 3% 4% In case of initial volatility. Maximum Allowable For individual client: 2 MT For members collectively for all clients: 6 MT or 15%of the market position. Saturday: 10:00a.

00 p. Sundays and Trading Holidays. except Saturdays. Marking of delivery will be done on the tender days based on the intentions received from the sellers after the trading hours. additional and special margin as applicable. . Mode of Communication Tender Period Margin Fax or Courier 5% incremental margin for last 5 days on all outstanding positions. INFORMATION RELATED TO DELIVERY Delivery Logic Compulsory D e l i v e r y . Such margin will be addition to initial. Pay-in of funds Pay-out of funds and commodities (delivery to buyer member) By 11. Margin during delivery period 52 | P a g e 25% on the marked quantity.00 a. on Tender day +1 basis By 05.m.m. Delivery pay-in will be on E + 1 basis.m. On expiry all the open p o s i t i o n s s h a l l b e m a r k e d f o r d e l i v e r y . Delivery Logic SETTLEMENT PERIOD Tender Period Delivery Period Pay-in of commodities (delivery by seller member) Compulsory 1st to 6th day of the contract expiry month. New Delhi and Hyderabad.00 p. on Tender day +1 basis. Any s e l l e r h a v i n g o p e n position on the expiry date fails to deliver then the penalty as per the penal provision will be imposed to the defaulting seller. 1st to 6th day of the contract expiry month.Commodity Market Delivery unit Delivery period margin 1 kg 25% of the value of the open position during the delivery period Delivery center(s) At designated clearing house facilities of Group 4 Securitas at these centers and at additional delivery centers at Chennai. On any tender days by 6.

4% of DOR as a replacement cost will be charged from defaulting buyer / seller out of which 90% will be given to the counter party and 10% will be retained by the Exchange as administrative expenses.. Additionally.Commodity Market Exemption from margin during tender and delivery period Margin is exempted on receipt of documentary evidence (viz.5% will be credited to the counter party. Delivery order rate (DOR) Settlement/closing price on the respective tender days except on expiry date. New Delhi and Hyderabad Deliverable grade of underlying commodity The selling members tendering delivery will have the option of delivering such grades as per the contract specifications. On expiry date the delivery order rate shall be the Due Date Rate (DDR) and not the closing price. 53 | P a g e . The buyer has no option to select a particular grade and the delivery offered by the seller and allocation by the Exchange shall be binding on him.5% of DOR will be imposed on defaulting buyer / seller out of which 2% will be credited to IPF and 0. Delivery Centers Ahmadabad and Mumbai at designated Clearing House facilities of Group 4 Securitas at these centers and at additional delivery centers at Chennai. Penal Provision A penalty of 2. Warehouse Receipt and Quality Certificate) of tendering delivery with the Exchange during tender days.

the report received from such assayer will be final and binding on both buyer and seller. If he is not satisfied with the metal.Commodity Market Verification by the Buyer at the time of release of delivery At the time of taking delivery. weight and quality of material. the buyer can check his delivery in front of Group 4 personnel. Group 4 person will carry the goods to the assayer¶s facilities. The cost of first assaying as well as cost of transportation from Group 4 to assayer¶s facilities to and fro will be borne by the buyer. will be borne by both the buyers and sellers equally. however if they do not agree on any mutually acceptable amount within 1 day. while the cost of second assaying. then he will not have any further recourse to challenge the quantity or quality subsequently and it will be assumed that he has received the quantity and quality as per the bill made by the seller. if any. 54 | P a g e . The vault charges during such period of first and second assaying. then the buyer and seller have to mutually negotiate the final settlement proceeds within 1 day from receipt of assayer¶s report. he can insist for assaying by any of the approved assayers available at that center. then he will issue receipt of the metals instantly. If the buyer does not opt for assaying at the time of lifting delivery. If he is satisfied with the quantity. if any. get it assayed and bring it back to Group 4 facilities along with assayer¶s certificate. will be equally divided between the buyer and seller. If the buyer chooses for assaying. then the Exchange will send the goods to a second assayer and in that case. If the assayer¶s certificate differs from the certificate submitted by the seller in respect of quality or weight materially.

the Group 4 personnel will do the following validations: a. Whether the person carrying Gold is the Designated clearing agent of the member. If all validations are through. hand over the Pink slip to seller¶s clearing agent. Whether the selling member is the bonafied member of the Exchange.Commodity Market Validation Process On receipt of delivery. Then the custodian of Group 4 will cut a serially numbered Group 4 receipt (in triplicate consisting of White. In such case. get the signature of the seller¶s clearing agent and signing the same for authorization. c. Quality Adjustment The price of gold is on the basis of 995 purity. then the Group 4 Securitas personnel will put the Gold in the vault. b. only as per Instructions received from the Exchange in writing. the sale proceeds will be calculated by way of delivery order rate * 999/ 995 55 | P a g e . he would get a premium. Whether the original certificates are accompanied with the Gold Bars Any other validation checks. Pink and Yellow slips). e. the Group 4 Securitas will contact the Exchange office and take any further action. Whether the serial numbers of all the bars is mentioned in the packing list provided. send by courier the third copy (Yellow Colour slip) while retaining the White for the records of Group 4 Securitas. Whether the quantity being delivered is from Exchange approved refinery d. Group 4 in front of the selling member¶s clearing agent will Deposit the said metal into their vault. In case a seller delivers 999 purity. Delivery Process In case any of the above validation fails. as they may desire.

cess and levies The above-mentioned details are required to be sentto Ex-Ahmadabad. Name of the Vault along with the location. Responsibility for contractual liability would be with the original assignee. The Authority letter sent by the Member shall consist of the following details: a. This is calculated by way of taking simple average of last 5 days of the spot market of Ahmadabad. customs to be borne by Seller. Insurance and Transportation charges Extension of delivery period Due date rate (DDR) Borne by the seller till the date of pay-out of delivery and the buyer after the date of pay-out. Endorsement of delivery order The buyer member can endorse delivery order to a client or any third party with full disclosure given to the Exchange. f. PAN card. Name of the authorized representative. As per Exchange decision due to a force majeure or otherwise. driving license.Commodity Market Procedure of taking delivery from the Vault For the purpose of taking delivery of goods fully or partially. c. DDR is calculated on 5th day of the contract month. 56 | P a g e . Election ID. the Member shall send to the Exchange an Authority letter on his letter head. But excluding Sales Tax / VAT. Inclusive of all charges / levies relating to import duty. Signature of the authorized representative. e. d. Vault. Proof of Identity viz. authorizing a representative on his behalf to take the delivery. Name of the Commodity along with quantity. local taxes and octroi to be borne by the Buyer. Photo identity proof duly attested by the Member. any other additional tax or surcharge on sales tax. Taxes. b. duties. Legal obligation The members will provide appropriate tax forms wherever required as per law and as customary and neither of the parties (seller member and buyer member) will unreasonably refuse to do so.

Tender notice by seller The seller will issue tender notice along with evidence of delivery to the Exchange in a specified format by 6:00 p. Intention to take delivery by buyers Dissemination of information on tendered delivery and buyers interest The Exchange will inform members through TWS regarding tender notice and delivery intentions of the seller¶s members and the buyers respectively by 7.Commodity Market Applicability of Business Rules The general provisions of Byelaws.) STEPS TO BE FOLLOWED FOR DELIVERY On any tender days by 6. (The interpretation or clarification given by the Exchange on any terms of this contract shall be final and binding on the members and others. warehousing. on the respective tender days and on Saturdays by 1:00 p. margining. rules and Business Rules of the Exchange and decisions taken by Forward Markets Commission.00 p. the Member must satisfy the Exchange that he holds stocks of the quantity and quality specified in the Delivery Order at the declared delivery center by producing warehouse receipt. and risk management from time to time. Allocation of delivery As per the closing price on the respective tender days. Board of Directors and Executive Committee of the Exchange in respect of matters specified above will form an integral part of this contract.00 p. The Exchange or FMC as the case may be further prescribe additional measures relating to delivery procedures.m. quality certification.m. and on Saturdays by 12:00 noon. Evidence of stocks in possession At the time of issuing delivery order. 57 | P a g e . Buyer¶s obligation The buyer shall not refuse taking delivery and such refusal will entertain penalty as per the penal provision.m.m.

Commodity Market REGULATORY BODY At present there are three tiers of regulations of forward/future trading system exists in India. Government of India. Forward Markets Commission & Commodity 58 | P a g e . namely.

The regulation is needed to create competitive condition. thereby affecting the interest of appropriate risk management system. This could have undesirable influence on spot prices. In the absence of such a system. In the absence of regulation. The need for regulation arises on account of the fact that the benefits of futures markets accrue in competitive conditions. Hence there is a need of regulatory func tions to be exercised by an exchange.Commodity Market Exchanges. unscrupulous participants could use these leveraged contracts for manipulating prices. a major default could create a reaction. Settlement & management of exchange so as to protect & promote the interest of various stakeholders. clearing. The reluctant financial crisis in a futures market could create systematic risk. Regulation is also needed to ensure fairness & transparency in trading. particularly non -member users of the market. Ministry Of Consumers Affairs FMC Commodity Market Forward Market Commission 59 | P a g e .

Govt. 2. periodical reports on the working of forward markets relating to such goods. 4. supply & prices. & to submit to the Central Government. To make recommendations generally with a view to improving the organization 7 working of forward markets. The functions of the FMC are as follows: 1. in respect of the recognition or withdrawal recognition from any association or in respect of any other matter arising out of the administration of Forward Contract(Regulation) Act. To collect & whenever the commission thinks it necessary. to publish information regarding the trading conditions in respect of goods to which any of the provisions of the act is made applicable. 3. 1952. as it may consider necessary. in exercise o f the powers assigned to it by or under the Act. 5.Commodity Market FMC headquartered at Mumbai. To undertake the inspection of the accounts & other documents of any recognized association or registered association or any member of such association whenever it considers necessary. of India. It is a statutory body set up in 1953 under the Forward Contract (Regulation) Act. including information regarding demand. To advise the Central Govt. 1952. To keep forward markets under observation & to take such action in relation to them. is a regulatory authority which is overseen by the Ministry Of Consumer Affairs & Public Distribution. ROLE OF GOVERNMENT IN COMMODITY MARKET 60 | P a g e .

To encourage large companies to trade in commodity futures.Commodity Market The Government.100 warehouses with all the facilities.500 depository participant accounts have been opened with 32 depository participants. give a major boost to commodity futures trading & take the farmers to the e-age. With 45% of India¶s GDP (or RS 11lakh crore) coming from commodities. Union consumer affairs secretary Labanyendu Mansingh believes this will help the Government save on procurement 7 shortage cost of food grains. The exchanges tieing with other players to provide warehouses services to the traders 7 now NCDEX is to built 1. Legislative changes have been proposed to enable farmers to get loans against the receipt for goods deposited at accredited warehouses. In the process. Already. too. may enter the game. then farmers could get f inance. the Government will minimize corruption in the grains management operations. NCDEX has set up a network of 100 warehouses where commodities are graded & certified & w here such commodity balances can be held electronically in demat form. estimated to cost it close to Rs 25. Mansingh believes the Government could ferret back a part of these savings to farmers to help pay for the cost of delivering & storing food grains from the farms exchange accredited warehouses.000 crore annually. If those proposals become law. which would enable them to avoid distress sales of their produce at times of unfavorable market conditions. The Government of India reckons that it could create a minimum support price like mechanism using commodity futures by entering into contracts for purchase of commodities covered under its programme at the prescribed minimum support price. around 1. exchanges hope that eventually everyone involved in commodities trade across the value chain ± from the farmer to the processor ± will be hedging their positions using futures. NATIONAL MULTI-COMMODITY EXCHANGE OF INDIA 61 | P a g e .

In the event of high volatility in prices. leading to guaranteed clearing & settlement. NMCE was the 1st commodity exchange to provide trading facility through internet. It is the only Commodity Exchange in the world to have received ISO 9001:2000 certification from British Standard Institutions (BSI). NMCE would bring about the converge of large -scale processors. National Agricultural Co-operative Marketing Federation Of India (NAFED) 4. through VIRTUAL PRIVATE NETWORK (VPN). NMCE was promoted by: 1.Commodity Market NMCE is the 1st demutualized. Central Warehousing Corporation (CWC) 3. traders and farmers along with banks. NMCE follows best international risk management practices. Neptune Overseas Ltd. Gujarat State Agricultural Marketing Board (GSAMB) (It got its recognition in Oct ¶02) 7. The unique strength of NMCE is its settlement via Delivery Backed System. NMCE facilitates electronic derivatives trading through robust & tested trading platform. NMCE was the 1st to initiate process of dematerialization & electronic transfer of warehoused commodity stocks. The contracts are marked to market on daily basis. (NOL) 2. Electron Multi-Commodity Exchange in India. Derivatives Trading Settlement System (DTSS). (GAICL) 6. These deliveries are executed through a sound & reliable Warehouse Receipt System. The system of upfront margining based on value at Risk is followed to ensure financial security of the market. special intra-day clearing & settlement is held. National Institute Of Agricultural Marketing (NIAM) 5. NMCE would provide a common ground for fixation of 62 | P a g e . Gujarat Agro-Industries Corporation Ltd. an imperative in the commodity trading business.

In addition. INFORMATION: On 25th July. grading and testing in tune with trade practices. 2002. y Improving efficiency of marketing through on -line trading in Dematerialization form. 63 | P a g e . In short. y Minimization of settlement risks. Vision National Multi-Commodity Exchange of India Limited is committed to provide world class services of on-line screen Futures trading of permitted commodities and efficient Clearing and guaranteed settlement. y Implementing best quality standards of warehousing. hedging using different and diverse commodities would als o be possible with help of NMCE.Commodity Market future prices of a number of commodities enabling efficient price discovery / forecast. 2001. NMCE¶S Vision & Mission. NMCE is leading transition of highly fragmented. while complying with Statutory /Regulatory requirements. We shall strive to ensure continual improvement of customer services and remain quality leader amongst all commodity exchanges. efficient and competitive environment in the 21 st century. The exchange is operationalised from November 26. the NMCEIL has been granted in -principle approval by the Government to organize futures trading in the edible oil complex. Mission y Continual Improvement in Customer Satisfaction. y Improving efficiency of operations by providing best infrastructure and latest technology. y Improving facilities for structured finance. controlled and restricted commodity economy to globally integrated. y Rationalizing the transaction fees to optimum level.

Commodity Market y Improving quality of services rendered by suppliers. ³Innovation is the way of life at NMCE´ 64 | P a g e . y Promoting awareness about on-line features trading services of NMCE across the length and breadth of the country.

Ferrous & Non Ferrous. MCX is led by an expert management team with deep domain knowledge of the commodity futures markets. Bank of India and Canara Bank. amongst others MCX being nation. since inception MCX has recorded many first to its credit. Inaugurated in November 2003 by Shri Mukesh Ambani. Industry Associations. Chairman & Managing Director. Reliance Industries Ltd. Pulses..Commodity Market MCX MCX an independent and de-mutulised commodity exchange has permanent recognition from Government of India for facilitating online trading. Exporters. Today MCX is offering spectacular growth opportunities and advantages to a large cross section of the participants including Producers / P rocessors. Union Bank of India. Bombay Metal Exchange. is well placed to tap this vast potential. Through the integration of dedicated resources. Pulses Importers Association and Shetkari Sanghatana. MCX offers futures trading in the following commodity categories: Agri Commodities. Spices and other soft commodities. Traders. Headquartered in Mumbai. 65 | P a g e . Metals. namely Bombay Bullion Association. Corporation Bank. MCX has built strategic alliances with some of the largest players in commodities eco-system. Oils & Oilseeds. robust technology and scalable infrastructure. Solvent Extractors Association of India.wide commodity exchange. Plantations. offering multiple commodities for trading with wide reach and penetration and robust infrastructure. Regional Trading Centers.. State Bank of India. Cooperatives. Importers. Corporate. Bullions. clearing and settlement operations for commodity futures markets across the country. Key shareholders of MCX are Financial Technologies (India) Ltd.

49 2.784.74 Sources: Forward Market Commission 66 | P a g e .334.99 101.522.14 779.Commodity Market SHOOTING STARS Top Commodity futures traded across exchanges Commodity Guar seed Silver Soy oil Gold Mustard seed Castor seed Gaur gum Pepper Gur Rubber Crude oil Cotton Other metals Jute Value of futures traded (Rs crore) 129.85 19.327.84 1.66 62.16 618.891.34 13.98 116.745.267.422.527.08 8.412.22 91.28 7.46 14.900.

NCDEX is regulated by Forward Market Commission (FMC) in respect of futures trading in commodities. NCDEX is located in Mumbai and offers facilities in more than 550 centres in India. which impinge on its working. It obtained its certificate for Commencement of Business on May 9. Forward Commission (Regulation) Act and various other legislations. Besides. fibres. Stamp Act. NCDEX is subjected to various laws of the land like the Companies Act. The NCDEX Commodity Index is an equal-weighted spot price index of 20 agricultural commodities covering different groups such as oils and oilseeds. NCDEX also displays the national index futures-essentially. 2003. Currently. Based on the components of the spot price index. 67 | P a g e . On February 3rd. It was incorporated as a private limited company incorporated on April 23. etc. It is the first such index to be launched in India. index futures are not allowed in India under the FCRA (Forward Contracts Regulation Act.Commodity Market NATIONAL COMMODITY AND DERIVATIVES EXCHANGE LTD. 1956. the noarbitrage price if one were to buy futures on the spot index. 2006. 2003 under the Companies Act. It has commenced its operations on December 15. National Commodity & Derivatives Exchange Limited (NCDEX) is an online commodity exchange based in India. which requires compulsory physical settlement of future contracts. the FMC found NCDEX guilty of violating settlement price norms and ordered the exchange to fire one of their executive. Contracts Act. 2003. This price is derived by tracking the futures prices of the index components at the same weightage as the spot index. 1952). NCDEX is a closely hel d private company which is promoted by national level institutions and has an independent Board of Directors and professionals not having vested interest in commodity markets.

Coffee ±Robusta Cotton Seed Oilcake Crude Palm Oil Expeller Mustard Oil Groundnut (in shell) Groundnut Expeller Oil Guar gum Guar Seeds Gur.Commodity Market COMMODITIES TRADED: NCDEX currently facilitates trading of 57 commodities:- Agri. Jeera Jute sacking bags Kidney Beans Indian 28 mm Cotton Indian 31 mm Cotton Masoor Grain Bold Medium Staple Cotton Mentha Oil Mulberry Green Cocoons Mulberry Raw Silk 68 | P a g e .Based commodities: Castor Seed Chana Chilli Coffee ± Arabica.

Commodity Market Rapeseed.small Sugar. Bullion: Gold 1 kg Gold 100 gm Silver 30 kg Silver 5 kg 69 | P a g e .medium Turmeric Urad (Black Matpe) V-797 Kapas Yellow Peas Yellow Red Maize Yellow Soybean Meal.Mustard Seed Pepper Raw Jute RBD Palmolein Refined Soy Oil Rubber Sesame Seeds Soy Bean Sugar.

Commodity Market Energy: Brent Crude Oil Furnace Oil Light Sweet Crude Oil. Ferrous metals: Mild Steel Ingot Plastics: Polypropylene Linear Low Density Polyethylene Polyvinyl Chloride. Non-ferrous metals: Aluminium Ingot Copper Cathode Nickel Ingot Zinc Cathode 70 | P a g e .

called NCDEXAGRI that covers 20 commodities currently being offered for trading by NCDEX. In NCDEX. Hence. IFFCO. indexes and index futures are not allowed to be traded under the current regulatory structure. the index futures.Commodity Market Facilities offered: NCDEX also offers as an information product. in the areas very relevant to the Exchange. The Managing Director is the only whole -time Director. The institution-shareholders ± Canara Bank. NCDEX also offers as an information product. The Board comprises persons of eminence. highly experienced and is independent. have decided that they will not be taking part in the day -to-day activities of the Exchange. 71 | P a g e . This is a composite index. ICICI Bank Limited. National Bank for Agriculture and Rural Development. in tune with the highest norms of corporate governance. called FUTEXAGRI. This is a spot -price based index. Life Insurance Corporation of India. then the current FUTEXAGRI value should be the no -arbitrage value for the index futures. This is essentially a what-if index. each an authority in his own right. National Stock Exchange of India Limited and Pun jab National Bank. an agricultural commodity index. as of now. However. these are only available for information. CRISIL Limited. It indicates that if futures on the index could be traded. Board of Directors comprises 8 Directors who are well known. Governance: The governance of NCDEX vests with the Board of Directors.

The London Metal Exchange (LXM). was established in New York through the merger of four small exchanges ²the National Metal Exchange.. The Tea Market. SOME INFORMATION ABOUT WORLD WIDE COMMODITY EXCHANGE. cocoa. and the Chicago Mercantile Exchange in Livestock and Livestock futures. In the USA.Commodity Market Worldwide commodity markets. Chicago Mercantile exchange (CME). the National Raw Silk Exchange and the New York Hide Exchange. during the Great Depression. businessmen began organizing market forums to make the buying and selling of commodities easier. etc. In London. are COMEX in New York and TOCOM in Tokyo. The two main futures exchanges. 72 | P a g e . In 1982. spices. the Rubber Exchange of New York. London metal exchange (LME). The major commodity markets are in the United Kingdom and in the USA major commodity markets are in London. a group pf Manhattan diary merchants got together to bring chaotic condition in New York market to a system in terms of storage.still the major international centers for transactions in a vast range of commodities-such markets include the London commodity Exchange (LCE) trading sugar. Chicago. which traded gold. pricing and transfer of agricultural products. New York Mercantile exchange (NYME) is amongst the world¶s largest and best exchanges. The London Gold Market. The London Diamond Market and International Petroleum Exchange (IPE). the New York Mercantile Exchange (NYMEX) deals in metals. In 1933. soft commodities and financial futures. Chicago Board of Trade (CBOT). Sydney and Singapore. the Commodity Exchange. the Chicago Board of Trade (CBOT) in metals. In the middle of the 19th century in the United States. Inc. The London Wool Exchange. rubber.

MCX. 73 | P a g e . A farmer has to trust the exchange the way he trusts State Bank of India.´ says Jignesh Shah.´ says Sanjiv Shah. managing director. corporatized and employ modern management. Modern exchanges have also reduced i nformation asymmetry. executive director of Benchmark Asset Management Company.Commodity Market According to experts:- ³Volumes on commodity exchanges are growing because there is transfer from the mandis to the exchange platform. ³National exchanges have succeeded in creating trust in the minds of stakeholders as they are hi-tech. which has resulted in their growth.

Some Suggestions to make futures market as a level playing field for all stake holders:y Creation of awareness among farmers and other rural participants to use the futures trading platform for risk mitigation.: - In many commodities NCDEX forces the delivery on people with long position and when they tend to give back the delivery in next month contract the exchange simply refuses to accept the del ivery on pretext of quality difference and also auctions the product. The traders have to take a delivery or book losses at settlement as there are huge differences between two contracts and also sometimes few contracts are not available for trading for 74 | P a g e . traders as well as consumers will be benefitted from it. so that a large number of varieties produced across the country could be included. y Contract specifications should have wider coverage. And producer s. Concerned authorities have to take initiative to make commodity trading process easy and simple.Commodity Market SUGGESTIONS: As majority of Indian investors are not aware of organized commodity market. Many of them have wrong impression about commodity market in their minds. y Development of physical market through uniform grading and standardization and more transparent price mechanisms. But for this to happen one has to take initiative to standardize and popularize the Commodity Market.g. their perception about is of risky to very risky investment. It makes them specious towards commodity market. Along with Government efforts NGOs should come forward to educate the people about commodity markets and to encourage them to invest into it. y Delivery system of exchanges is not good enough to attract investors. E. y Development of warehousing and facilities to use the warehouse receipt as a financial instrument to encourage participation farmers. There is no doubt that in near future commodity market will become Hot spot for Indian farmers rather than spot market.

under Forward Contracts regulation Act 1952 cash settlement of outstanding contracts at maturity is not allowed. So in practice contracts are settled in Cash but before maturity. y Setting of state level or district level commodities trading helpdesk run by independent organization such as reputed NGO for educating farmers. 75 | P a g e . To avoid this participants square off their positions before maturity. Though over 100 commodities are allowed for Derivatives trading. Again most of the trade takes place only on few exchanges. There is need to modify the law to bring it closer to the wide spread practice and save participants from unnecessary hassle. That means outstanding contracts at maturity should be settled in physical delivery. This problem can possibly be solved by consolidating some exchanges. Only about 1% to 5% of total commodity derivatives traded in country are settled in physical delivery due to insufficiencies in present warehousing system. in practice only a few commodities derivatives are popular for trading. As good delivery system is the back bone of any Commodity trade. A difficult problem in Cash settlement of Commodities Derivatives contract is that.Commodity Market no reason at all. y Warehousing and logistics management structure also needs to be created at state or area level whenever commodity production is above a certain share of national level. y Contract sizes should have an adequate range so that smaller traders can participate and can avoid control of trading by few big parties. warehousing problem has to be handled on a war footing.

it won't be long before the market sees the emergence of a completely redefined set of retail investors. Therefore. Their entry will deepen and broad base the commodity futures market. commodity trading offers a good option for long-term investors and arbitrageurs and speculators. now. Commodity trading in India is poised for a big take-off in India on the back of factors like global economic recovery and increasing demand from China for commodities. can help India become a global trading hub for select commodities.Commodity Market CONCLUSION After almost two years that commodity trading is finding favour with Indian investors and is been seen as a separate asset class with good growth opportunities. such as futures. foreign institutional investors should be given the goahead to invest in commodity futures in India. The national multi. For diversification of portfolio beyond shares.commodity exchanges have unitedly proposed to the government that in view of the growth of the commodities market. As a matter of fact. Considering the huge volatility witnessed in the equity markets recently with the Sensex touching 21000 level commodities could add the required zing to investors¶ portfolio. derivative instruments. Online commodity exchanges need to revamp certain laws governing futures in commodities to make the markets more attractive. And. 76 | P a g e . trading in commodities cannot be ignored by Indian investors. with daily global volumes in commodity trading touching three times that of equities. fixed deposits and mutual funds.

in.com www.com www.com www.com www.com www.org 77 | P a g e .nmce. SEBI Bulletin www.gov.indiamba.sebi.com www.commodityindia.mcxindia.gold.mapsofindia.indiaexpress.com www.bseindia.org www.business.com www.Commodity Market BIBLIOGRAPHY www.ncdex.nbotind.

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