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A PROJECT REPORT ON COMMODITY MARKET
Project Submitted in partial fulfillment of Post Graduate Diploma in Management
Submitted by: PANKAJ KUMAR Roll No. 528 Batch 2007-2009
Under the guidance of: Dr. Shashidharan Kutty - Dy. Director (Banking, Finance & Insurance)
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Introduction Commodity Commodity Market Structure of Commodity Market Different Types of Commodity Traded Turnover of Indian Commodity Exchange Market Share of Commodity Exchanges in India Different Segments in Commodities Market Leading Commodity Markets of World Regulators Leading Commodity Markets of India Volumes in commodity Derivatives Worldwide Commodity Futures Trading in India Introduction Benefits to Industry From Futures Trading Benefits to Exchange Member Why Commodity Futures? What makes commodity trading attractive? NCDEXs Trading System Gold Introduction What makes Gold special Market characteristics Demand & Supply Indian Gold Jewellery Market MCX contract specifications of gold FAQ on Gold Gold Terminology Conclusion Bibliography
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India Commodity Market can be subdivided into the following two categories: • • Wholesale Market Retail Market 4 . The broadest classification of the Indian Market can be made in terms of the commodity market and the bond market. Such markets are social institutions that facilitate exchange of goods for money. 2000 (founder of the World Economic Forum) “A strong and vibrant cash market is a pre-condition for a successful and transparent futures market. The cost of goods is estimated in terms of domestic currency. The commodity market in India comprises of all palpable markets that we come across in our daily lives.” INTRODUCTION The vast geographical extent of India and her huge population is aptly complemented by the size of her market. -Klaus Schwab.India Commodity Market “We are moving from a world in which the big eat the small to one in which the fast eat the slow”.
Such markets are usually selling a wide range of articles both agricultural and manufactured. perishable and durable.The traditional wholesale market in India dealt with whole sellers who bought goods from the farmers and manufacturers and then sold them to the retailers after making a profit in the process. The unorganized retail outlets of the yesteryears consist of small shop owners who are price takers where consumers face a highly competitive price structure. Moreover. The organized sector on the other hand are owned by various business houses like Pantaloons. In fact. With the passage of time the importance of whole sellers began to fade out for the following reasons: The whole sellers in most situations. the extent of the retail market (both organized and unorganized) has evolved in leaps and bounds. It was the retailers who finally sold the goods to the consumers. edible and inedible. the retail outlets belong to both the organized as well as the unorganized sector. Almost every commodity under the sun both agricultural and industrial is now being provided at well distributed retail outlets throughout the country. Reliance. the success stories of the commodity market of India in recent years has mainly centered on the growth generated by the Retail Sector. The improvement in transport facilities made the retailers directly interact with the producers and hence the need for whole sellers was not felt. Tata and others. Modern marketing strategies and other techniques of sales promotion enable such markets to 5 . In recent years. acted as mere parasites who did not add any value to the product but raised its price which was eventually faced by the consumers.
Demand for commodities is likely to become four times by 2010 than what it presently is. It can be classified as every kind of movable property. thus providing an efficient portfolio diversification option. who claim to understand the equity markets. In fact. except Actionable Claims. However the growth of such markets has still centered on the urban areas primarily due to infrastructural limitations. arbitrageurs and speculators.000 billion by the year 2010. 6 . Of the country's GDP of Rs 13. Retail investors should understand the risks and advantages of trading in commodities futures before taking a leap. 20. commodities related (and dependent) industries constitute about 58 per cent. a product or material that is bought and sold. Historically. But commodities are easy to understand as far as fundamentals of demand and supply are concerned.3 billion). may find commodities an unfathomable market. Retail investors. the total valuation of the Indian Retail Market is estimated to cross Rs. COMMODITY A commodity may be defined as an article. Considering the present growth rate.207.draw customers from every section of the society. pricing in commodities futures has been less volatile compared with equity and bonds. the size of the commodities markets in India is also quite significant.730 crore (Rs 13. 10. Commodities actually offer immense potential to become a separate asset class for market-savvy investors. Money & Securities.
672 (117.503 19.376 (63) 2. are traded.745.989 439. base metals.230.468 (18. energy and soft commodities like palm oil.000 crore (Rs 1.073 2.7) 503.4) 4.478 NA 1.000 (16.7) 316.030 499.872 658. crude oil. the size of the commodities market grows many folds here on. in bracket represents percentage to GDP at market prices Source: Sebi bulletin 7 .8) 3. the various commodities across the country clock an annual turnover of Rs 1.Currently. It is the market where a wide range of products.551 (13) 515. active and liquid commodity market.827.099.027 2.518. 40.645 Total Stock Market Turnover (I+ II) 1.053 12.865 314.1) 1. coffee etc.130. Turnover in Financial Markets and Commodity Market (Rs in Crores) S No.505 519.2) 2.544. With the introduction of futures trading.936 (124.494.318.215 (4. 1 2 3 I Market segments Government Securities Market Forex Market National Stock Exchange (a+b) a)Cash b)Derivatives II Bombay Stock Exchange (a+b) a)Cash b)Derivatives 4 Commodities Market 2002-03 2003-04 2004-05 (E) (91) 1.035 (27) 2.534 2.867.. It is important to develop a vibrant. take speculative positions in commodities and exploit arbitrage opportunities in the market. This would help investors hedge their commodity risk. precious metals.531 (84) 3.002 (117) 617.057.322 (91.527 500.641.1) Note: Fig.854 (43) 3.400 billion).452 130. COMMODITY MARKET Commodity market is an important constituent of the financial markets of any country.507 (136) 1.160.702 (133.374. viz.147.405 (56) 3.7) (16.
STRUCTURE OF COMMODITY MARKET Ministry of Consumer Affairs FMC (Forwards Market Commission) Commodity Exchange National Exchange Regional Exchange NCDEX MCX NMCE NBOT 20 other regional exchanges Warehouses Quality Certification Agencies Hedger (Exporters / Millers Industry) Clearing Bank Commodities Ecosystem MCX Producers (Farmers/Cooperatives/Ins titutional) Transporters/ support agencies Consumers (Retail/Institutio -nal) Traders (speculators)arbi -trageurs/client) 8 .
Mustard Seed (Jaipur). Gurchaku. Coconut Oil. Guar Seed. Coconut Cake. Cashew Kernel. i-gold. Steel Long (Govindgarh). Kapas ENERGY Brent Crude Oil. Mustard Oil. Castor Seeds. Potato (Tarkeshwar). Natural Gas. Mentha Oil.DIFFERENT TYPES OF COMMODITIES TRADED World-over one will find that a market exits for almost all the commodities known to us. Cotton M Staple. Gold HNI. Red Chilli Arecanut. Pepper. M. Refined Soy Oil. Crude Palm Oil. Sesame Seed. Steel Flat. These commodities can be broadly classified into the following: METAL Aluminium. Sour Crude Oil SPICES PLANTATIONS PULSES Cardamom. Cotton S Staple. Zinc BULLION FIBER Gold. Tin. Silver. RBD Palmolein. Furnace Oil. Copper. Sugar M-30. Crude Oil. Coffee (Robusta). Gold M. Potato (Agra). Refined Sunflower Oil. Steel Long (Bhavnagar). Soy Seeds CEREALS OTHERS Maize Guargum. Jeera. Polypropylene(PP). Lead. Cotton Seed. Soy Bean. Rice Bran DOC. Rubber Chana. Nickel. Cotton Yarn. Sugar S-30 9 . Yellow Peas PETROCHEMICALS HDPE. Sponge Iron. PVC OIL & OIL SEEDS Castor Oil. Mustard Seed (Sirsa). Rice Bran Refined Oil. Kapasia Khalli. Masur. Silver HNI. E. Silver M Cotton L Staple. Groundnut Oil. Soymeal.
683 54.997 3.122 Turnover on Commodity Futures Markets (Rs.582 37.206 733.803 944.633 1.149 14.463 67.155.823 2005 961.TURNOVER OF INDIAN COMMODITY EXCHANGES Indian Commodity Futures Market (Rs Crores) Exchanges Multi Commodity Exchange (MCX) NCDEX NMCE(Ahmadabad) NBOT(Indore) Others All Exchanges 2004 165147 266. In Crores) Exchange NCDEX NBOT MCX NMCE ALL EXCHANGES 2003-04 1490 53014 2456 23842 129364 2004-05 FIRST Half 54011 51038 30695 7943 170720 MARKET SHARE OF COMMODITY EXCHANGES IN INDIA 10 .338 13.072 74.375.621.340 2007 2.686 18.739.731 57.479 24.988 58.759 2.591 2.336 571.505.385 53.066 101.066.735 2006 1.
as in equities. settlements etc. processor. there exists the spot and the derivatives segment. Also. 11 .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. wholesaler etc. Derivative trading takes place through exchange-based markets with standardized contracts. 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.
(joint venture between Dubai holding and the New York Mercantile Exchange (NYMEX)) 12 . Manitoba Dalian Commodity Exchange.LEADING COMMODITY MARKETS OF WORLD Some of the leading exchanges of the world are: S. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 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. China Bursa Malaysia Derivatives exchange Singapore Commodity Exchange (SICOM) Chicago Mercantile Exchange (CME). India Multi Commodity Exchange of India Limited (MCX). India National Commodity and Derivatives Exchange (NCDEX). US London Metal Exchange Tokyo Commodity Exchange (TOCOM) Shanghai Futures Exchange Sydney Futures Exchange London International Financial Futures and Options Exchange (LIFFE) 16 17 18 19 20 National Multi-Commodity Exchange in India (NMCE). India Dubai Gold & Commodity Exchange (DGCX) Dubai Mercantile Exchange (DME).
Regulators Each exchange is normally regulated by a national governmental (or semigovernmental) 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 13 .
screen based trading system for trading. They are: S. These exchanges are expected to offer a nation-wide anonymous. Mumbai National Commodity and Derivatives Exchange Ltd (NCDEX).NO.LEADING COMMODITY MARKETS OF INDIA The government has now allowed national commodity exchanges. to come up and let them deal in commodity derivatives in an electronic trading environment. 1 2 Commodity Market in India Multi Commodity Exchange (MCX). The Forward Markets Commission (FMC) will regulate these exchanges. order driven. Indore National Multi Commodity Exchange (NMCE). Mumbai 3 4 National Board of Trade (NBOT). Consequently four commodity exchanges have been approved to commence business in this regard. similar to the BSE & NSE. Ahmadabad VOLUMES IN COMMODITY DERIVATIVES WORLDWIDE 14 .
However there are some features. most of these contracts are cash settled. In the case of financial derivatives. They were then found useful as a hedging tool in financial markets as well. the concept of varying quality of asset does not really 15 . Even in the case of physical settlement.Source: FMC Commodity Futures Trading in India INTRODUCTION Derivatives as a tool for managing risk first originated in the Commodities markets. financial assets are not bulky and do not need special facility for storage. The basic concept of a derivative contract remains the same whether the underlying happens to be a commodity or a financial asset. Similarly. Due to the bulky nature of the underlying assets. physical settlement in commodity derivatives creates the need for warehousing. which are very peculiar to commodity derivative markets.
the quality of the asset underlying a contract can vary largely. state-of-art technology deployment. Efficient price discovery prevents seasonal price volatility. However in the case of commodities. 16 . Provide trading limit finance to Traders in commodities Exchanges. Greater flexibility. BENEFITS TO INDUSTRY FROM FUTURES TRADING Hedging the price risk associated with futures contractual commitments. Hedged positions of producers and processors would reduce the risk of default faced by banks. Commodity Exchanges to act as distribution network to retail agrifinance from Banks to rural households. Spaced out purchases possible rather than large cash purchases and its storage. BENEFITS TO EXCHANGE MEMBER Access to a huge potential market much greater than the securities and cash market in commodities. This becomes an important issue to be managed. Member can trade in multiple commodities from a single point. Robust. * Lending for agricultural sector would go up with greater transparency in pricing and storage. Facilitate informed lending. scalable. on real time basis. certainty and transparency in procuring commodities would aid bank lending.exist as far as financial underlyings are concerned.
what is the role for commodity futures in India's economy? In India agriculture has traditionally been an area with heavy government intervention. the futures prices will go up today. etc. how will we smoothen the price fluctuations. how will farmers not be vulnerable that tomorrow the price will crash when the crop comes out. how will farmers get signals that in the future there will be a great need for wheat or rice. if I am growing wheat and am worried that by the time the harvest comes out prices will go down. like bank credit. In this case. Many economists think that we could have major benefits from liberalization of the agricultural sector. Traders would be trained to be Rural Advisors and Commodity Specialists and through them multiple rural needs would be met. and something to trade''. then I can sell my wheat on the futures 17 . Government intervenes by trying to maintain buffer stocks. brokerage fees. and it will carry signals back to the farmer making sowing decisions today. We have to look at futures market in a bigger perspective -. the question arises about who will maintain the buffer stock. WHY COMMODITY FUTURES? One answer that is heard in the financial sector is "we need commodity futures markets so that we will have volumes. and they have import-export restrictions and a host of other interventions. a system of futures markets will improve cropping patterns. they try to fix prices. Next. information dissemination. If we think there will be a shortage of wheat tomorrow. In all these aspects the futures market has a very big role to play. In this fashion.
which is fixed today. which eliminates my risk from price fluctuations. Futures market will produce their own kind of smoothing between the present and the future. resulting in losses. They also work very effectively when there is trade in agricultural commodities. compared with. 18 . and it is a system.does not work. I can sell my wheat at a price.farmers spend money on fertilizers. high yielding varieties. acting as a counterweight to stocks. Thus a farmer would like to lock in his future price and not be exposed to fluctuations in prices. Futures markets are an instrument for achieving that liberalization. which -. WHAT MAKES COMMODITY TRADING ATTRACTIVE? A good low-risk portfolio diversifier A highly liquid asset class. arbitrageurs on the futures market will use imports and exports to smooth Indian prices using foreign spot markets. These days. If the future price is high and the present price is low. The converse is also true. etc. equities and bonds. They are worried when making these investments that by the time the crop comes out prices might have dropped. Many agriculture economists understand the need of liberalization in the sector. commodity futures markets are a part and parcel of a program for agricultural liberalization. which is doing a huge job of storage.in my opinion -. In totality. agriculture requires investments . an arbitrager will buy today and sell in the future. thus if the future price is low the arbitrageur will buy in the futures market. smooth prices. Today we have the Food Corporation of India. bonds and real estate. These activities produce their own "optimal" buffer stocks.market. Less volatile. The third is the role about storage.
19 . Investors can leverage their investments and multiply potential earnings. 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. Better risk-adjusted returns. High co-relation with changes in inflation.
All contracts expire on the 20th of the expiry month. If it finds a match. its price. TRADING The trading system on the NCDEX provides a fully automated screen based trading for futures on commodities on a nationwide basis as well as online monitoring and surveillance mechanism. Time stamping is done for each trade and provides the possibility for a complete audit trail if required. When any order enters the trading system. trading. time and quantity. the contracts shall expire on the previous trading 20 . It tries to finds a match on the other side of the book. Thus a January expiration contract would expire on the 20th of January and a February expiry contract would cease trading on the 20th of February. the order becomes passive and gets queued in the respective outstanding order book in the system. A brief overview of how transactions happen on the NCDEX’s market. it is an active order. Order matching is essential on the basis of commodity. two month and three month expiry cycles. If the 20th of the expiry month is a trading holiday.The NCDEX System Every market transaction consists of three components i. a trade is generated.e. It supports an order driven market and provides complete transparency of trading operations. NCDEX trades commodity futures contracts having one month. If it does not find a match. clearing and settlement. The exchange notifies the regular lot size and tick size for each of the contracts traded from time to time. The exchange specifies the unit of trading and the delivery unit for futures contracts on various commodities. All quantity fields are in units and price in rupees.
clearing members are informed of the deliverable/ receivable positions and the unmatched positions. Matching done by this process is binding on the clearing members. The cash settlement is only for the incremental gain/loss as determined on the basis of final settlement price. and the final settlement which happens on the last trading day of the futures contract. on the basis of locations and then randomly. commodities already deposited and dematerialized and offered for delivery etc. the MTM settlement which happens on a continuous basis at the end of each day. Only clearing members including professional clearing members (PCMs) only are entitled to clear and settle contracts through the clearing house.day. based on the available information. keeping in view the factors such as available capacity of the vault/warehouse. the matching for deliveries takes place firstly. On the NCDEX. 21 . SETTLEMENT Futures contracts have two types of settlements. At NCDEX. The settlement guarantee fund is maintained and managed by NCDEX. After completion of the matching process. daily MTM settlement and the final MTM settlement in respect of admitted deals in futures contracts are cash settled by debiting/crediting the clearing accounts of CMs with the respective clearing bank. Unmatched positions have to be settled in cash. after the trading hours on the expiry date. New contracts will be introduced on the trading day following the expiry of the near month contract. CLEARING National Securities Clearing Corporation Limited (NSCCL) undertakes clearing of trades executed on the NCDEX.
which he has confirmed to the exchange. the warehouse accepts them. NCDEX on receipt of such information matches the information and arrives at delivery position for a member for a commodity. the final settlement price is the spot price on the expiry day. These commodities have to be assayed by the exchange specified assayer. created during the day or closed out during the day. 22 . Warehouse then ensures that the receipts get updated in the depository system giving a credit in the depositor’s electronic account. The seller intending to make delivery takes the commodities to the designated warehouse. are market to market at the daily settlement price or the final settlement price at the close of trading hours on a day. On the expiry date of a futures contract. The seller the gives the invoice to his clearing member. brought forward. The responsibility of settlement is on a trading cum clearing member for all trades done on his own account and his client’s trades.All positions of a CM. who would courier the same to the buyer’s clearing member. members submit delivery information through delivery request window on the trader workstations provided by NCDEX for all open positions for a commodity for all constituents individually. The commodities have to meet the contract specifications with allowed variances. A professional clearing member is responsible for settling all the participants’ trades. If the commodities meet the specifications. On an appointed date. On the date of expiry. the buyer goes to the warehouse and takes physical possession of the commodities.
and gold used in industry. Holdings in this category include the central bank reserves. Some analysts like to think of gold as a “currency without a country’. This is an important feature when comparing gold to conventional diversifiers like T-bills or bonds. What makes gold special? Timeless and Very Timely Investment Gold is an effective diversifier Gold is the ideal gift Gold is highly liquid 23 .Gold Introduction Gold is a unique asset based on few basic characteristics. and partly a commodity. which unlike gold. Less than one third of gold’s total accumulated holdings can be considered a commodity. gold is primarily a monetary asset. First. it is primarily a monetary asset. do have counter-party risk. As much as two thirds of gold’s total accumulated holdings relate to “store of value” considerations. The distinction between gold and commodities is important. while commodities have declined. It is an internationally recognized asset that is not dependent upon any government’s promise to pay. private investments. the jewellery bought in Western markets for adornment. and highcaratage jewellery bought primarily in developing countries as a vehicle for savings. Thus. Gold has maintained its value in after-inflation terms over the long run.
Gold responds when you need it most Market Characteristics The gold market is highly liquid. whose late 24 . On these occasions. Gold held by central banks. Effective portfolio diversifier: This phrase summarizes the usefulness of gold in terms of “Modern Portfolio Theory”. The ranking pushes South Africa into second place. such as bond and alternative assets) increase. Due to large stock of gold. said London precious metals consultancy GFMS Ltd. and retail jewellery is reinvested in market. equal to about 9. the first time the gold giant has lost its top ranking since 1905. against its demand. gold can be used as a portfolio diversifier to improve investment performance. that is during financial stress (instability). a strategy used by many investment managers today. it is argued that the core driver of the real price of gold is stock equilibrium rather than flow equilibrium. Using this approach. That's up 12% from the year-ago and represented just over one-tenth of the world's supply. South Africa. Effective diversification during “stress” periods: Traditional method of portfolio diversification often fails when they are most needed. thus reducing the intended “cushioning” effect of the diversified portfolio. Demand and supply China produced 276 metric tons of gold last year. the correlations and volatilities of return for most asset class (including traditional diversifiers.7 million ounces. other major institutions.
saw its production decline 8% to 272 metric tons. 2006 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 - 25 .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. India is world largest gold consumer with an annual demand of 800 tonnes. Demand and Supply of Gold in India (in tonnes) 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 Source: GFMS Ltd.
The industry is beginning to be modernised with large factories. installing the latest equipment. The Bureau of Indian Standards has introduced a voluntary scheme which.000 retailers.6 m oz) annually. one ring. single shop operations. mostly family-owned. all in 22 carat gold and weighing up to 200 grams (6. A basic marriage set for a bride is two earrings. Ahmadabad and Bangalore. although not yet widely used. as has the number of Indians possessing gold jewellery. is becoming more popular. The minimum legal caratage is 9 carat. Hallmarking does not exist in India and under-caratage is commonplace. Gold thread.2 oz). gem-set) 18 carat jewellery is increasingly popular in the cities and is estimated to have used 31 tonnes (1 million oz) in 2001. The market is highly fragmented with an estimated 100. where gold is so important in judging a family's status at a marriage. one nose pin. 26 .e. These items are popular as gifts at weddings and other family events. Medallions. in centres such as Mumbai. known as Jari used in high quality saris worn at weddings and special occasions requires somewhere in the region of 20 tonnes (0.Indian Gold Jewellery Market Plain 22 carat jewellery is the core of consumption especially in the rural areas. Studded (i. one necklace and two bangles. charms and small gift items account for up to half of what is loosely called jewellery.000 workshops supplying over 300. The number of retail jewellery outlets has increased greatly since the abolition of gold control.
local taxes and octroi) 10 kg Re.m. Per 10 g. will be imposed immediately on both buy and sell side in respect of all outstanding positions. By 11. on Tender day +1 basis. On expiry all the open positions shall be marked for delivery. a special margin at such percentage (as deemed fit). 1 kg Rs.m. to 2:00 p.m. 1st to 6th day of the contract expiry month. Sundays and Trading Holidays. on Tender day +1 basis By 05.00 a. to 11:30 p.00 p. Compulsory 1st to 6th day of the contract expiry month.00 p.MCX Contract Specifications of Gold: GOLD Name of Commodity Ticker Symbol Trading System Trading Period Trading Session TRADING Trading Unit Price Quote Gold GLDPURMUMK MCX Trading System Monday to Saturday Monday to Friday: 10:00a. ex-Ahmedabad (inclusive of all taxes and levies relating to import and custom duty. except Saturdays. whichever is high 1 kg 25% of the value of the open position during the delivery period At designated clearing house facilities of Group 4 Securitas at these centers and at additional delivery centers at Chennai. Delivery pay-in will be on E + 1 basis. On any tender days by 6. New Delhi and Hyderabad.m. any other additional tax or surcharge on sales tax.m.m. Marking of delivery will be done on the tender days based on the intentions received from the sellers after the trading hours. which will remain in force for next 2 days. Maximum order size Tick Size Daily price limit Initial Margin Special Margin Maximum Allowable DELIVERY Delivery unit Delivery period margin Delivery center(s) Delivery Logic SETTLEMENT PERIOD Tender Period Delivery Period Pay-in of commodities (delivery by seller member) Pay-in of funds Pay-out of funds and commodities (delivery to 27 .m. For individual client: 2 MT For members collectively for all clients: 6 MT or 15%of the market position. but excluding sales tax/VAT. Saturday: 10:00a. after which the special margin will be relaxed. 1 per 10 g (minimum price movement) 3% 4% In case of initial volatility.
he can insist for assaying by any of the approved assayers available at that center. 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. Verification by the Buyer At the time of taking delivery. 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. New Delhi and Hyderabad Deliverable grade of The selling members tendering delivery will have underlying commodity the option of delivering such grades as per the contract specifications.5% will be credited to the counter party. the buyer can at the time of release of check his delivery in front of Group 4 personnel. If the assayer’s 28 .. get it assayed and bring it back to Group 4 facilities along with assayer’s certificate. Margin during delivery 25% on the marked quantity. additional and special margin as applicable. Penal Provision A penalty of 2. On expiry date the delivery order rate shall be the Due Date Rate (DDR) and not the closing price. Additionally. Group 4 person will carry the goods to the assayers facilities. Mode of Communication Fax or Courier Tender Period Margin 5% incremental margin for last 5 days on all outstanding positions. If he is not satisfied with the metal.buyer member) INFORMATION RELATED TO DELIVERY Delivery Logic Compulsory Delivery. Delivery order rate (DOR) Settlement/closing price on the respective tender days except on expiry date. then he will issue receipt of the metals instantly. Warehouse Receipt and Quality period Certificate) of tendering delivery with the Exchange during tender days. If the buyer chooses for assaying. Any seller having open position on the expiry date fails to deliver then the penalty as per the penal provision will be imposed to the defaulting seller. Such margin will be addition to initial. weight and quality of material. delivery If he is satisfied with the quantity. Delivery Centers Ahmedabad and Mumbai at designated Clearing House facilities of Group 4 Securitas at these centers and at additional delivery centers at Chennai. period Exemption from margin Margin is exempted on receipt of documentary during tender and delivery evidence (viz.
while the cost of second assaying. whether the original certificates are accompanied with the Gold Bars Any other validation checks. then the buyer and seller have to mutually negotiate the final settlement proceeds within 1 day from receipt of assayer’s report. Group 4 in 29 . then the Exchange will send the goods to a second assayer and in that case. whether the person carrying Gold is the designated clearing agent of the member. if any. On receipt of delivery. b. c. The cost of first assaying as well as cost of transportation from Group 4 to assayer’s facilities to and fro will be born by the buyer. whether the serial numbers of all the bars is mentioned in the packing list provided. will be equally divided between the buyer and seller. In case any of the above validation fails. if any. send by courier the third copy (Yellow Colour slip) while retaining the White for the records of Group 4 Securitas. 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. however if they do not agree on any mutually acceptable amount within 1 day. then the Group 4 Securitas personnel will put the Gold in the vault. e. will be born by both the buyers and sellers equally. The vault charges during such period of first and second assaying. the report received from such assayer will be final and binding on both buyer and seller. as they may desire. If all validations are through.Validation Process Delivery Process certificate differs from the certificate submitted by the seller in respect of quality or weight materially. only as per instructions received from the Exchange in writing. the Group 4 Securitas will contact the Exchange office and take any further action. whether the quantity being delivered is from Exchange approved refinery d. whether the selling member is the bonafied member of the Exchange. the Group 4 personnel will do the following validations: a. hand over the Pink slip to seller’s clearing agent. get the signature of the seller’s clearing agent and signing the same for authorization. If the buyer does not opt for assaying at the time of lifting delivery. Pink and Yellow slips). Then the custodian of Group 4 will cut a serially numbered Group 4 receipt (in triplicate consisting of White.
The Authority letter sent by the Member shall consist of the following details: a. Based on the Delivery Order received. f. The delivery given to the representative shall be final & binding to the Member at all times. the sale proceeds will be calculated by way of delivery order rate * 999/ 995 For the purpose of taking delivery of goods fully or partially. Ex-Ahmedabad. the Member shall send to the Exchange an Authority letter on his letter head. he would get a premium. PAN card. Photo identity proof duly attested by the Member. d. b. In such case. duties. cess and levies Endorsement of delivery order front of the selling member’s clearing agent will deposit the said metal into their vault.Quality Adjustment Procedure of taking delivery from the Vault Taxes. authorising a representative on his behalf to take the delivery. Name of the Commodity along with quantity. Inclusive of all charges / levies relating to import duty. Once the Exchange receives the above-mentioned details. The buyer member can endorse delivery order to a client or any third party with full disclosure given to the Exchange. The Vault officials will. the copy of which was sent/communicated to the Exchange by its Member. the Exchange will send Delivery Order (DO) to the Vault authorities directly. Name of the authorised representative. The above-mentioned details are required to be sent to the Exchange. upon final scrutiny/checking of the identity. Name of the Vault along with the location. any other additional tax or surcharge on sales tax. driving license. Election ID. But excluding Sales Tax / VAT. local taxes and octroi to be borne by the Buyer. c. customs to be borne by Seller. deliver goods to the representative of the Member. Signature of the authorised representative. Proof of Identity viz. The price of gold is on the basis of 995 purity. the Vault will issue the requested quantity to the authorised representative who has to present himself personally at the Vault along with the requisite photo identity proof in original. Responsibility for 30 . In case a seller delivers 999 purity. The Vault officials in case of any discrepancy or doubt or any other reason may refuse to issue the goods to the representative under the intimation to the Exchange. e.
Evidence of stocks in At the time of issuing delivery order. and on Saturdays by 12:00 noon. The Exchange or FMC as the case may be further prescribe additional measures relating to delivery procedures. by buyers Dissemination of The Exchange will inform members through TWS information on tendered regarding tender notice and delivery intentions of delivery and buyers the seller’s members and the buyers respectively interest by 7. on the respective tender days and on Saturdays by 1:00 p. margining. Extension of delivery As per Exchange decision due to a force majeure period or otherwise. rules and Rules Business Rules of the Exchange and decisions taken by Forward Markets Commission. This is calculated by way of taking simple average of last 5 days of the spot market of Ahmedabad.m. quality certification. the Member possession 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.) STEPS TO BE FOLLOWED FOR DELIVERY Intention to take delivery On any tender days by 6.m. Applicability of Business The general provisions of Byelaws. risk management from time to time. warehousing.00 p. 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. 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. Buyer’s obligation The buyer shall not refuse taking delivery and such refusal will entertain penalty as per the penal provision. Due date rate (DDR) DDR is calculated on 5th day of the contract month.00 p.m.contractual liability would be with the original assignee. 31 . Vault. Allocation of delivery As per the closing price on the respective tender days. (The interpretation or clarification given by the Exchange on any terms of this contract shall be final and binding on the members and others. Insurance and Borne by the seller till the date of pay-out of Transportation charges delivery and the buyer after the date of pay-out.m. Board of Directors and Executive Committee of the Exchange in respect of matters specified above will form and integral part of this contract.
Source: MCX Gold Report 1 32 .
parts per thousand. Where does the word Gold come from? The word gold appears to be derived from the Indo-European root 'yellow'. Gull (Norwegian) and Kulta (Finnish). e. Au. Thus 18 carats is 18/24th of 1000 parts = 750 fineness. Guld (Danish). when a carat became used as a measure of the purity of gold alloys (see next Question 5). it is estimated that all the gold ever mined amounts to about 145. is short for the Latin word for gold. The carat is still used as such for the weight of gem stones (1 carat is about 200 mg). Gulden (Dutch). notably its excellent conductive properties and its inability to react with water or oxygen.Frequently Asked Questions on Gold Q1. How much gold is there in the world? At the end of 2001. which literally means 'Glowing Dawn'. Q4. Why is gold measured in carats? This stems back to ancient times in the Mediterranean /Middle East. Q3. Its chemical symbol. Gold (German). The purity of gold is now measured also in terms if fineness.000 tonnes. 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. For gold. it has come to be used for measuring the purity of gold where pure gold 33 . Goud (Afrikaans). The Carob seed is from the Carob or locust bean tree. 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. Q5. It has several properties that have made it very useful to mankind over the years. 'Aurum'. This is reflected in the similarities of the word gold in various languages: Gold (English). Q2. reflecting one of the most obvious properties of gold. i.
In terms of personal ownership. It does involve the Romans who also used the name Siliqua Graeca (Keration in Greek. 34 . global production is likely to drop slightly over the next two to three years subject always of course to price. but the real acceleration took place after the late 1970s. i. The reduction in exploration and development expenditure over the past five years is leading a number of analysts to suggest that.604 tonnes or 67% of total gold demand in that year. This latter had a mass of about 4. now Carat in modern times) for the bean of the Carob tree.54 grammes. then India is the largest repository of gold in terms of total gold within the national boundaries. Qirat in Arabic. mine production amounted to 2. Gold production has been growing for years. Q6. Q7. If we include jewellery ownership. how far would it stretch? If we make all the gold ever produced into a thin wire of 5 microns (millionths of a metre) diameter – the finest one can draw a gold wire.500tpa.e 1 carat. then all the gold would stretch around the circumference of the world an astounding 72 million times approximately! Q8. This is partly for specific operational reasons at some of the larger mines (Grasberg and Porgera). How much new gold is produced per year? In 2001. so the Siliqua was approximately equivalent in value to the mass of 1 Keration or Siliqua Graeca of gold. i. If all the gold was laid around the world. it is not known who owns the most. when output was in the region of 1. The Romans also used the name Siliqua for a small silver coin. along with lower grades at some of the operations in Nevada.is defined as 24 carats. which was one-twentyfourth of the golden solidus of Constantine. but is possibly a member of a ruling royal family in the East. then most gold is owned by the USA followed by Germany and the IMF.e the value of 1/24th of a Solidus is about 1 Keration of gold. How and when this change occurred is not clear. Who owns most gold? If we take national gold reserves. with other operations nearing the end of their lives. This year output will fall short of production levels in 2001.
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. Such mining requires expensive sinking of shafts deep into the ground. 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. 760 cm3. Q10.9% purity. These are then refined to gold bars by the Miller chlorination process to a purity of 99. Typical mining costs are US $238/troy ounce gold average but these can vary widely depending on mining type and ore quality.Q9. 1' 3'').27cm (Approx. If higher purity is needed or platinum group metal contaminants are present. The gold is then separated from the rock (gangue) by techniques such as flotation. With the density of gold at 19. Q12. 35 .1035 grammes). How much does it cost to run a gold mine? Gold mining is very capital intensive.500 meters are being pursued. which would be equivalent to a cube of side 37. smelted to a gold-rich doré and cast into bars. a troy ounce of gold would have a volume of 1. How does a gold mine work? The gold-containing ore has to be dug from the surface or blasted from the rock face underground.5%. How big is a tonne of gold? Gold is traditionally weighed in Troy Ounces (31.64 cm3. this gold is further refined by the Wohlwill electrolytic process to 99. This is then hauled to the surface and milled to release the gold. Richer ores mined at the surface (open cast mining) is considerably cheaper to mine than underground mining at depth.32 g/cm3.
etc. 24 karat gold (or pure gold) has at least 999 parts pure gold per thousand. Find Gold: It is gold having fineness 999 parts per thousand (5) and above without any negative tolerance. which indicate the producer of a gold bar and its number.1034768 grams. 18-karat has 750. The word ounce when applied to gold refers to a troy ounce. One grain is equivalent to 0. parts pure gold and 250 parts alloy. etc.Gold Terminology For the purpose of this standard. the following definitions shall apply: Assaying: The method of accurate determination of the gold content of the sample expressed in parts per thousand (%). Fineness: The ratio between the mass of gold content and the total mass expressed in parts per thousand (%). Karat: Unit of fineness. scaled from one to 24.1 avoirdupois (ordinary) ounces. 1 troy ounce is equivalent to 31. Grain: One of the earliest weight units used for measuring gold.1507 troy ounces. Gold: The metallic element gold. Standard Gold: Gold having fineness 995 parts per thousand (%) and above without any negative tolerance. 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. fineness. Liquidity: The quality possessed by a financial instrument of being readily convertible into cash without significant loss of value. Hallmark: Mark. or marks. equal to about 1. Kilo Bar: A bar weighing one kilogram – approximately 32. Carat: One-twenty fourth part by mass of the metallic element gold. 36 . Troy Ounce: A unit of weight. free from any other element.0648 grams.
fixed deposits and mutual funds. 37 . 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. For diversification of portfolio beyond shares. such as futures. commodity trading offers a good option for long-term investors and arbitrageurs and speculators. Online commodity exchanges need to revamp certain laws governing futures in commodities to make the markets more attractive. now. And. can help India become a global trading hub for select commodities. will deepen and broad base the commodity futures market. foreign institutional investors should be given the go-ahead to invest in commodity futures in India. Therefore. Their entry As a matter of fact. it won't be long before the market sees the emergence of a completely redefined set of retail investors. trading in commodities cannot be ignored by Indian investors.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. The national multi- commodity exchanges have unitedly proposed to the government that in view of the growth of the commodities market. derivative instruments. 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. with daily global volumes in commodity trading touching three times that of equities.
ncdex.nbotind.com www.com www.indiamba.nmce.gov.com www.Bibliography www.gold.mapsofindia.commodityindia.business.com www.org 38 .com www.mcxindia.com www.in.bseindia.org www.sebi.indiaexpress. SEBI Bulletin www.com www.com www.
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