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R A derivative is a product whose value is derived from
the value of one or more underlying variables or
assets in a contractual manner

R The underlying asset can be equity, forex,

commodity or any other asset
R werivative products initially emerged as hedging
devices against fluctuations in commodity prices and
commodity-linked derivatives remained the sole form
of such products for almost three hundred years

R The first organized commodity market in India was

established in the late 19th century; the Bombay
Cotton Association Ltd. being set up in 1875 by the
Bombay Cotton Exchange Ltd.
R There are more than 20 recognized commodity
futures exchanges in India under the purview of the
Forward Markets Commission (FMC). Commodity
futures exchanges are divided majorly into two
categories:

£ ëational exchanges
£ Regional exchanges
R The four exchanges operating at the national level
£ ëational Commodity and werivatives Exchange of India Ltd.
(ëCwEX)
£ ëational Multi Commodity Exchange of India Ltd. (ëMCE)
£ Multi Commodity Exchange of India Ltd. (MCX)
£ Indian Commodity Exchange Ltd. (ICEX)

R There are more than 15 regional commodity exchanges

in India.
Trade Performance of leading Indian Commodity
Exchanges for January 2010

Ê
ded MCX NCDEX NMCE ICEX NBOÊ

V
e
(Rs
C o e)
January 5,62,703 87,824 16,990 32,901 4,245
2010
R Agriculture commodity futures staged a remarkable
recovery
R Trading value of Rs 10.88 lakh crore in 2009
R Significant growth of 48 per cent over previous year
R Indian Commodity Exchange (ICEX) became
operational
R Upgradation of Ahmedabad Commodity Exchange to
ëational Commodity Exchange status has been
approved
R werivative contracts are of different types
£ Forwards
£ Futures
£ Options
£ Swaps

R Participants who trade in the derivatives market

£ 6edgers
£ Speculators
£ Arbitragers
R Commodity Futures Trade in India (Rs Crore)

C
tego y 2008-09
Total 52,48,956.18
Bullion 29,73,674.60
Agri 6,27,303.14
Others 16,47,978.45
R The Government has allowed the ëational
Commodity Exchanges to set up three spot exchanges
in the country, namely the ëational Spot Exchange
Ltd. (ëSEL), ëCwEX Spot Exchange Ltd. (ëSPOT)
and ëational Agriculture Produce Marketing
Company of India Ltd. (ëAPMC)
R ëational Commodity & werivatives Exchange
Limited (ëCwEX), a national level online
multicommodity exchange, commenced operations
on wecember 15, 2003.

R The Exchange, in just over two years of operations,

posted an average daily turnover (one-way volume)
of around Rs 4500-5000 crore a day (over USw 1
billion)
ëCwEX is promoted by a consortium of four institutions

R ëational Stock Exchange (ëSE)

R ICICI Bank Limited
R Life Insurance Corporation of India (LIC)
R ëational Board for Agriculture and Rural wevelopment
(ëABARw)
Later on their shares were diluted and more institutions
became shareholders of ëCwEX. These are Canara
Bank, CRISIL Limited, Indian Farmers Fertilisers
Cooperative Limited (IFFCO), Punjab ëational Bank
(PëB), Goldman Sachs, Intercontinental Exchange
(ICE) and Shree Renuka Sugars Ltd
R Broadly, the commodities tradable on commodity
exchanges in India may be classified into following
categories:

Vegetable oil seeds, oils and meals, Pulses, Spices,

Metals, Energy products, Vegetables, Fibres and
manufactures & Othe s
 2004-05 2005-06 2006-07 2007-08 2008-09
Guar Seeds Guar Seeds Guar Seeds Guar Seeds RM Seed
Silver Chana Chana Pepper Guar Seeds
Refined Soy Oil Urad Gold Refined Soy Oil Soybean Seeds
Chana Silver Silver Chana Turmeric
Guar Gum Gold Pepper Jeera Jeera
R Fair and transparent spot price discovery attains
importance when studied against the role it plays in a
futures market

R In India, there is no effective mechanism or real time

spot price information of commodities. The only
government agency which collects spot prices is
Agmarknet which collects the posttrade mandi data,
but even such information is not disseminated real
time.
R Polling is the process of eliciting information from a
cross section of market players about the prevailing
price of the commodity in the market. A panel of
polling participants comprising various user class viz.
growers, traders/brokers, processors and users is
chosen
R The spot price polled from each mandi is transmitted
electronically to a central database for further process of
bootstrapping to arrive at a clean benchmark average price. To
arrive at the bootstrapped price, all the BIw & ASK quotes are
sorted in ascending order and through adaptive trimming
procedure the extreme quotes are trimmed from the total
quotes. These values are sampled with replacement multiple
numbers of times, where software gives different mean with
their respective standard deviation. The mean with least
standard deviation is the spot price that will be uploaded by
the polling agency through the polling application provided by
ëCwEX. This price is broadcast through the Trader Work
Station and also on the ëCwEX website without any human
intervention
R As it can be expensive for the exchange to post
personnel at various mandis to poll prices it is
advisable that the spot prices are polled by an agency
which will have expertise in this field
R Participants are explained about exchange, futures trade
etc and after obtaining the concurrence of the
participant, the names and contact numbers will be
passed on to the polling agency
R waily calls to the polling participants and cross check
the raw quotes sent by the polling agency
R Precaution/checks are maintained at the Exchange so
that any spot price which deviates from the previous
day's spot price by +/- 4% is reviewed before
uploading
R Re-poll if price rise/fall is not justified with the
feedback received from the participants
R Two days prior to the expiry of the contract, the
above price limit of 4% will be re-set to 2%
R ëational Commodity Clearing Limited (ëCCL)
undertakes clearing of trades executed on the ëCwEX
R Professional clearing members (PCMs) are entitled to
clear and settle contracts through the clearing house
R On the expiry date, matching for deliveries takes place
on the basis of locations
R Unmatched positions have to be settled in cash
R Mark-to-Market (MTM) settlement - on a continuous
basis at the end of the day
R Final settlement - on the last trading day of the futures
contract
R Few days before expiry date, as announced by
Exchange from time to time, members submit delivery
information through delivery request window on the
trader workstation provided by ëCwEX for all open
position for a commodity for all constituents
individually
R waily Mark to Market settlement where 'T' is the trading day
Mark to Market Pay-in (Payment): T+1 working day.
R Mark to Market Pay-out (Receipt): T+1 working day.
R Final settlement for Futures Contracts
R The settlement schedule for Final settlement for futures
contracts is given by the Exchange in detail for each
commodity.
R Timings for Funds settlement:
R Pay-in: On Scheduled day as per settlement calendars.
R Pay-out: On Scheduled day as per settlement calendars
T6AëK YOU!