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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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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. 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. India Commodity Market can be subdivided into the following two categories: • • Wholesale Market Retail Market 4 . -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”.” INTRODUCTION The vast geographical extent of India and her huge population is aptly complemented by the size of her market. The broadest classification of the Indian Market can be made in terms of the commodity market and the bond market.
Modern marketing strategies and other techniques of sales promotion enable such markets to 5 . The unorganized retail outlets of the yesteryears consist of small shop owners who are price takers where consumers face a highly competitive price structure. Almost every commodity under the sun both agricultural and industrial is now being provided at well distributed retail outlets throughout the country. In recent years. Moreover. 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 retail outlets belong to both the organized as well as the unorganized sector. perishable and durable. In fact. The improvement in transport facilities made the retailers directly interact with the producers and hence the need for whole sellers was not felt. the success stories of the commodity market of India in recent years has mainly centered on the growth generated by the Retail Sector. Tata and others. It was the retailers who finally sold the goods to the consumers. acted as mere parasites who did not add any value to the product but raised its price which was eventually faced by the consumers. The organized sector on the other hand are owned by various business houses like Pantaloons. Such markets are usually selling a wide range of articles both agricultural and manufactured.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. edible and inedible. Reliance. the extent of the retail market (both organized and unorganized) has evolved in leaps and bounds.
the size of the commodities markets in India is also quite significant. But commodities are easy to understand as far as fundamentals of demand and supply are concerned. Considering the present growth rate. Historically. Money & Securities. 20.730 crore (Rs 13. Of the country's GDP of Rs 13. who claim to understand the equity markets.000 billion by the year 2010. Commodities actually offer immense potential to become a separate asset class for market-savvy investors.draw customers from every section of the society. arbitrageurs and speculators. However the growth of such markets has still centered on the urban areas primarily due to infrastructural limitations.3 billion). 10. It can be classified as every kind of movable property. a product or material that is bought and sold. commodities related (and dependent) industries constitute about 58 per cent. except Actionable Claims. the total valuation of the Indian Retail Market is estimated to cross Rs. 6 . Demand for commodities is likely to become four times by 2010 than what it presently is.207. Retail investors should understand the risks and advantages of trading in commodities futures before taking a leap. pricing in commodities futures has been less volatile compared with equity and bonds. In fact. may find commodities an unfathomable market. thus providing an efficient portfolio diversification option. Retail investors. COMMODITY A commodity may be defined as an article.
551 (13) 515.147.507 (136) 1.8) 3.527 500.645 Total Stock Market Turnover (I+ II) 1. Turnover in Financial Markets and Commodity Market (Rs in Crores) S No. take speculative positions in commodities and exploit arbitrage opportunities in the market.030 499. energy and soft commodities like palm oil. coffee etc.745. in bracket represents percentage to GDP at market prices Source: Sebi bulletin 7 .494.160..531 (84) 3.468 (18.073 2.374.000 crore (Rs 1.827.099.702 (133. COMMODITY MARKET Commodity market is an important constituent of the financial markets of any country.057.505 519.7) 316. This would help investors hedge their commodity risk.4) 4.230.405 (56) 3.503 19.318.027 2.872 658.936 (124.130. It is important to develop a vibrant. With the introduction of futures trading.002 (117) 617.215 (4.534 2.1) 1.544.518.478 NA 1.1) Note: Fig.867. the various commodities across the country clock an annual turnover of Rs 1.376 (63) 2. 40. precious metals.035 (27) 2. It is the market where a wide range of products.854 (43) 3.989 439.Currently.672 (117.053 12. active and liquid commodity market. base metals.322 (91. are traded. the size of the commodities market grows many folds here on.7) 503. viz. crude oil.452 130. 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) 1.865 314.2) 2.000 (16.7) (16.641.400 billion).
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 .
Gold M. Coconut Cake. Rubber Chana. Cotton S Staple. Cashew Kernel. Refined Sunflower Oil. Kapasia Khalli. Copper. Steel Long (Govindgarh). Sugar S-30 9 . Potato (Tarkeshwar). Coconut Oil. Natural Gas. Masur. Mentha Oil. Sponge Iron. Jeera. Silver M Cotton L Staple. Gold HNI. Guar Seed. PVC OIL & OIL SEEDS Castor Oil. Mustard Oil. Refined Soy Oil. Steel Flat. Sour Crude Oil SPICES PLANTATIONS PULSES Cardamom. Silver. Soy Seeds CEREALS OTHERS Maize Guargum. Potato (Agra). Pepper. Mustard Seed (Sirsa). Lead. Coffee (Robusta). Crude Palm Oil. Cotton M Staple. Furnace Oil. Rice Bran Refined Oil. Castor Seeds.DIFFERENT TYPES OF COMMODITIES TRADED World-over one will find that a market exits for almost all the commodities known to us. Cotton Seed. Steel Long (Bhavnagar). RBD Palmolein. Silver HNI. Kapas ENERGY Brent Crude Oil. Nickel. Cotton Yarn. Tin. Zinc BULLION FIBER Gold. These commodities can be broadly classified into the following: METAL Aluminium. Mustard Seed (Jaipur). Gurchaku. Groundnut Oil. Soy Bean. Rice Bran DOC. Sesame Seed. Yellow Peas PETROCHEMICALS HDPE. M. Red Chilli Arecanut. Polypropylene(PP). Soymeal. Sugar M-30. i-gold. Crude Oil. E.
206 733.735 2006 1.803 944.633 1.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 266.759 2.375.988 58.505. 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 .739.463 67.582 37.686 18.338 13.823 2005 961.072 74.997 3.731 57.385 53.621.155.149 14.591 2.066.066 101.340 2007 2.122 Turnover on Commodity Futures Markets (Rs.683 54.336 571.479 24.
as in equities. wholesaler etc.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. Also. processor. 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. settlements etc. Derivative trading takes place through exchange-based markets with standardized contracts. there exists the spot and the derivatives segment. 11 .
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). China Bursa Malaysia Derivatives exchange Singapore Commodity Exchange (SICOM) Chicago Mercantile Exchange (CME). Manitoba Dalian Commodity Exchange. India Dubai Gold & Commodity Exchange (DGCX) Dubai Mercantile Exchange (DME). No.LEADING COMMODITY MARKETS OF WORLD Some of the leading exchanges of the world are: S. 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. (joint venture between Dubai holding and the New York Mercantile Exchange (NYMEX)) 12 .
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 .
Indore National Multi Commodity Exchange (NMCE). Mumbai National Commodity and Derivatives Exchange Ltd (NCDEX). Ahmadabad VOLUMES IN COMMODITY DERIVATIVES WORLDWIDE 14 . These exchanges are expected to offer a nation-wide anonymous. similar to the BSE & NSE. Mumbai 3 4 National Board of Trade (NBOT). order driven. They are: S. to come up and let them deal in commodity derivatives in an electronic trading environment. Consequently four commodity exchanges have been approved to commence business in this regard. 1 2 Commodity Market in India Multi Commodity Exchange (MCX). The Forward Markets Commission (FMC) will regulate these exchanges.NO. screen based trading system for trading.LEADING COMMODITY MARKETS OF INDIA The government has now allowed national commodity exchanges.
physical settlement in commodity derivatives creates the need for warehousing. most of these contracts are cash settled. Due to the bulky nature of the underlying assets. They were then found useful as a hedging tool in financial markets as well. Similarly. The basic concept of a derivative contract remains the same whether the underlying happens to be a commodity or a financial asset. 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. In the case of financial derivatives. which are very peculiar to commodity derivative markets. However there are some features. the concept of varying quality of asset does not really 15 .
Member can trade in multiple commodities from a single point. Facilitate informed lending. BENEFITS TO EXCHANGE MEMBER Access to a huge potential market much greater than the securities and cash market in commodities. the quality of the asset underlying a contract can vary largely. Commodity Exchanges to act as distribution network to retail agrifinance from Banks to rural households. BENEFITS TO INDUSTRY FROM FUTURES TRADING Hedging the price risk associated with futures contractual commitments. However in the case of commodities. * Lending for agricultural sector would go up with greater transparency in pricing and storage. This becomes an important issue to be managed. Robust. 16 . Hedged positions of producers and processors would reduce the risk of default faced by banks. Spaced out purchases possible rather than large cash purchases and its storage. certainty and transparency in procuring commodities would aid bank lending. Greater flexibility. state-of-art technology deployment.exist as far as financial underlyings are concerned. on real time basis. Efficient price discovery prevents seasonal price volatility. scalable. Provide trading limit finance to Traders in commodities Exchanges.
how will farmers not be vulnerable that tomorrow the price will crash when the crop comes out. the futures prices will go up today. In this fashion. Many economists think that we could have major benefits from liberalization of the agricultural sector. and they have import-export restrictions and a host of other interventions. how will farmers get signals that in the future there will be a great need for wheat or rice. Traders would be trained to be Rural Advisors and Commodity Specialists and through them multiple rural needs would be met. brokerage fees. and something to trade''. In all these aspects the futures market has a very big role to play. If we think there will be a shortage of wheat tomorrow. In this case. like bank credit. Next.what is the role for commodity futures in India's economy? In India agriculture has traditionally been an area with heavy government intervention. information dissemination. etc. and it will carry signals back to the farmer making sowing decisions today. 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. if I am growing wheat and am worried that by the time the harvest comes out prices will go down. how will we smoothen the price fluctuations. a system of futures markets will improve cropping patterns. We have to look at futures market in a bigger perspective -. Government intervenes by trying to maintain buffer stocks. then I can sell my wheat on the futures 17 . they try to fix prices.
If the future price is high and the present price is low. bonds and real estate. high yielding varieties. WHAT MAKES COMMODITY TRADING ATTRACTIVE? A good low-risk portfolio diversifier A highly liquid asset class. agriculture requires investments . acting as a counterweight to stocks. thus if the future price is low the arbitrageur will buy in the futures market. 18 . smooth prices. These days.does not work.farmers spend money on fertilizers.in my opinion -. etc.market. Today we have the Food Corporation of India. and it is a system. They also work very effectively when there is trade in agricultural commodities. which is doing a huge job of storage. These activities produce their own "optimal" buffer stocks. arbitrageurs on the futures market will use imports and exports to smooth Indian prices using foreign spot markets. which -. Thus a farmer would like to lock in his future price and not be exposed to fluctuations in prices. resulting in losses. The third is the role about storage. I can sell my wheat at a price. They are worried when making these investments that by the time the crop comes out prices might have dropped. Futures market will produce their own kind of smoothing between the present and the future. The converse is also true. Futures markets are an instrument for achieving that liberalization. which is fixed today. commodity futures markets are a part and parcel of a program for agricultural liberalization. Less volatile. Many agriculture economists understand the need of liberalization in the sector. equities and bonds. which eliminates my risk from price fluctuations. compared with. In totality. an arbitrager will buy today and sell in the future.
A good hedge against any downturn in equities or bonds as there is Little correlation with equity and bond markets. Investors can leverage their investments and multiply potential earnings. No securities transaction tax levied. High co-relation with changes in inflation. Better risk-adjusted returns. 19 .
If it finds a match. If it does not find a match. the contracts shall expire on the previous trading 20 . The exchange notifies the regular lot size and tick size for each of the contracts traded from time to time. It supports an order driven market and provides complete transparency of trading operations. a trade is generated. time and quantity. clearing and settlement. A brief overview of how transactions happen on the NCDEX’s market. It tries to finds a match on the other side of the book. two month and three month expiry cycles. NCDEX trades commodity futures contracts having one month. 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. All contracts expire on the 20th of the expiry month. If the 20th of the expiry month is a trading holiday. All quantity fields are in units and price in rupees. The exchange specifies the unit of trading and the delivery unit for futures contracts on various commodities. its price. it is an active order. Time stamping is done for each trade and provides the possibility for a complete audit trail if required.e. When any order enters the trading system. 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. the order becomes passive and gets queued in the respective outstanding order book in the system.The NCDEX System Every market transaction consists of three components i. Order matching is essential on the basis of commodity. trading.
commodities already deposited and dematerialized and offered for delivery etc.day. Unmatched positions have to be settled in cash. On the NCDEX. the matching for deliveries takes place firstly. based on the available information. The cash settlement is only for the incremental gain/loss as determined on the basis of final settlement price. keeping in view the factors such as available capacity of the vault/warehouse. 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. Only clearing members including professional clearing members (PCMs) only are entitled to clear and settle contracts through the clearing house. At NCDEX. after the trading hours on the expiry date. 21 . on the basis of locations and then randomly. The settlement guarantee fund is maintained and managed by NCDEX. and the final settlement which happens on the last trading day of the futures contract. SETTLEMENT Futures contracts have two types of settlements. Matching done by this process is binding on the clearing members. After completion of the matching process. clearing members are informed of the deliverable/ receivable positions and the unmatched positions. 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. the MTM settlement which happens on a continuous basis at the end of each day.
The commodities have to meet the contract specifications with allowed variances. created during the day or closed out during the day. On an appointed date. These commodities have to be assayed by the exchange specified assayer. who would courier the same to the buyer’s clearing member. the buyer goes to the warehouse and takes physical possession of the commodities. 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. On the date of expiry. Warehouse then ensures that the receipts get updated in the depository system giving a credit in the depositor’s electronic account. are market to market at the daily settlement price or the final settlement price at the close of trading hours on a day. The seller intending to make delivery takes the commodities to the designated warehouse. the final settlement price is the spot price on the expiry day. 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. 22 . the warehouse accepts them. which he has confirmed to the exchange. A professional clearing member is responsible for settling all the participants’ trades. On the expiry date of a futures contract. If the commodities meet the specifications. NCDEX on receipt of such information matches the information and arrives at delivery position for a member for a commodity. The seller the gives the invoice to his clearing member.
gold is primarily a monetary asset. and highcaratage jewellery bought primarily in developing countries as a vehicle for savings. What makes gold special? Timeless and Very Timely Investment Gold is an effective diversifier Gold is the ideal gift Gold is highly liquid 23 . The distinction between gold and commodities is important. As much as two thirds of gold’s total accumulated holdings relate to “store of value” considerations. it is primarily a monetary asset. do have counter-party risk. It is an internationally recognized asset that is not dependent upon any government’s promise to pay. First. Thus.Gold Introduction Gold is a unique asset based on few basic characteristics. which unlike gold. and gold used in industry. Less than one third of gold’s total accumulated holdings can be considered a commodity. This is an important feature when comparing gold to conventional diversifiers like T-bills or bonds. Some analysts like to think of gold as a “currency without a country’. and partly a commodity. private investments. the jewellery bought in Western markets for adornment. Holdings in this category include the central bank reserves. Gold has maintained its value in after-inflation terms over the long run. while commodities have declined.
a strategy used by many investment managers today. the correlations and volatilities of return for most asset class (including traditional diversifiers. equal to about 9. Effective diversification during “stress” periods: Traditional method of portfolio diversification often fails when they are most needed. other major institutions. Using this approach. South Africa. against its demand. whose late 24 . said London precious metals consultancy GFMS Ltd. and retail jewellery is reinvested in market. Gold held by central banks. Gold responds when you need it most Market Characteristics The gold market is highly liquid. Demand and supply China produced 276 metric tons of gold last year.7 million ounces. Effective portfolio diversifier: This phrase summarizes the usefulness of gold in terms of “Modern Portfolio Theory”. such as bond and alternative assets) increase. That's up 12% from the year-ago and represented just over one-tenth of the world's supply. that is during financial stress (instability). gold can be used as a portfolio diversifier to improve investment performance. it is argued that the core driver of the real price of gold is stock equilibrium rather than flow equilibrium. Due to large stock of gold. The ranking pushes South Africa into second place. the first time the gold giant has lost its top ranking since 1905. On these occasions. thus reducing the intended “cushioning” effect of the diversified portfolio.
India is world largest gold consumer with an annual demand of 800 tonnes. saw its production decline 8% to 272 metric tons. 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.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. 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 .
Ahmadabad and Bangalore. Hallmarking does not exist in India and under-caratage is commonplace. The number of retail jewellery outlets has increased greatly since the abolition of gold control.6 m oz) annually. charms and small gift items account for up to half of what is loosely called jewellery. The industry is beginning to be modernised with large factories. one nose pin. The market is highly fragmented with an estimated 100. one ring. gem-set) 18 carat jewellery is increasingly popular in the cities and is estimated to have used 31 tonnes (1 million oz) in 2001. where gold is so important in judging a family's status at a marriage.2 oz). known as Jari used in high quality saris worn at weddings and special occasions requires somewhere in the region of 20 tonnes (0.e. 26 .000 workshops supplying over 300.Indian Gold Jewellery Market Plain 22 carat jewellery is the core of consumption especially in the rural areas. although not yet widely used. Gold thread. single shop operations. A basic marriage set for a bride is two earrings. mostly family-owned. all in 22 carat gold and weighing up to 200 grams (6. in centres such as Mumbai. Medallions. as has the number of Indians possessing gold jewellery. The minimum legal caratage is 9 carat. installing the latest equipment. Studded (i. is becoming more popular. The Bureau of Indian Standards has introduced a voluntary scheme which. These items are popular as gifts at weddings and other family events. one necklace and two bangles.000 retailers.
Delivery pay-in will be on E + 1 basis.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. any other additional tax or surcharge on sales tax.m. 1 per 10 g (minimum price movement) 3% 4% In case of initial volatility. after which the special margin will be relaxed.00 p.00 p.m.m. except Saturdays. By 11. to 11:30 p. Per 10 g. which will remain in force for next 2 days. will be imposed immediately on both buy and sell side in respect of all outstanding positions. For individual client: 2 MT For members collectively for all clients: 6 MT or 15%of the market position. 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. to 2:00 p. New Delhi and Hyderabad. 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 . Compulsory 1st to 6th day of the contract expiry month. 1st to 6th day of the contract expiry month.m. ex-Ahmedabad (inclusive of all taxes and levies relating to import and custom duty. on Tender day +1 basis By 05.00 a. On expiry all the open positions shall be marked for delivery. a special margin at such percentage (as deemed fit). Saturday: 10:00a. On any tender days by 6. local taxes and octroi) 10 kg Re.m. but excluding sales tax/VAT. Sundays and Trading Holidays. Marking of delivery will be done on the tender days based on the intentions received from the sellers after the trading hours.m.m. on Tender day +1 basis. 1 kg Rs.
buyer member) INFORMATION RELATED TO DELIVERY Delivery Logic Compulsory Delivery.5% of DOR will be imposed on defaulting buyer / seller out of which 2% will be credited to IPF and 0. Margin during delivery 25% on the marked quantity. delivery If he is satisfied with the quantity. Such margin will be addition to initial. 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. Delivery Centers Ahmedabad and Mumbai at designated Clearing House facilities of Group 4 Securitas at these centers and at additional delivery centers at Chennai. get it assayed and bring it back to Group 4 facilities along with assayer’s certificate. Verification by the Buyer At the time of taking delivery. Warehouse Receipt and Quality period Certificate) of tendering delivery with the Exchange during tender days. On expiry date the delivery order rate shall be the Due Date Rate (DDR) and not the closing price. If the assayer’s 28 . 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. he can insist for assaying by any of the approved assayers available at that center. Additionally. Mode of Communication Fax or Courier Tender Period Margin 5% incremental margin for last 5 days on all outstanding positions. Penal Provision A penalty of 2. 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. Delivery order rate (DOR) Settlement/closing price on the respective tender days except on expiry date. additional and special margin as applicable. If he is not satisfied with the metal. If the buyer chooses for assaying. period Exemption from margin Margin is exempted on receipt of documentary during tender and delivery evidence (viz. Group 4 person will carry the goods to the assayers facilities.5% will be credited to the counter party. then he will issue receipt of the metals instantly. weight and quality of material. the buyer can at the time of release of check his delivery in front of Group 4 personnel. 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..
then the buyer and seller have to mutually negotiate the final settlement proceeds within 1 day from receipt of assayer’s report. Then the custodian of Group 4 will cut a serially numbered Group 4 receipt (in triplicate consisting of White. will be equally divided between the buyer and seller. send by courier the third copy (Yellow Colour slip) while retaining the White for the records of Group 4 Securitas.Validation Process Delivery Process certificate differs from the certificate submitted by the seller in respect of quality or weight materially. whether the person carrying Gold is the designated clearing agent of the member. only as per instructions received from the Exchange in writing. whether the quantity being delivered is from Exchange approved refinery d. whether the original certificates are accompanied with the Gold Bars Any other validation checks. the Group 4 Securitas will contact the Exchange office and take any further action. while the cost of second assaying. then the Exchange will send the goods to a second assayer and in that case. as they may desire. the Group 4 personnel will do the following validations: a. If all validations are through. if any. Pink and Yellow slips). then the Group 4 Securitas personnel will put the Gold in the vault. e. whether the selling member is the bonafied member of the Exchange. In case any of the above validation fails. On receipt of delivery. if any. hand over the Pink slip to seller’s clearing agent. If the buyer does not opt for assaying at the time of lifting delivery. 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. 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. the report received from such assayer will be final and binding on both buyer and seller. The vault charges during such period of first and second assaying. whether the serial numbers of all the bars is mentioned in the packing list provided. b. Group 4 in 29 . however if they do not agree on any mutually acceptable amount within 1 day. will be born by both the buyers and sellers equally. get the signature of the seller’s clearing agent and signing the same for authorization. c.
driving license. cess and levies Endorsement of delivery order front of the selling member’s clearing agent will deposit the said metal into their vault. In case a seller delivers 999 purity. Name of the Commodity along with quantity. PAN card. any other additional tax or surcharge on sales tax. Signature of the authorised representative. the copy of which was sent/communicated to the Exchange by its Member. Name of the Vault along with the location. Election ID. Based on the Delivery Order received. Name of the authorised representative. Ex-Ahmedabad. the Exchange will send Delivery Order (DO) to the Vault authorities directly. duties. Once the Exchange receives the above-mentioned details. local taxes and octroi to be borne by the Buyer. But excluding Sales Tax / VAT. Responsibility for 30 . Inclusive of all charges / levies relating to import duty. customs to be borne by Seller. the Member shall send to the Exchange an Authority letter on his letter head. authorising a representative on his behalf to take the delivery. Proof of Identity viz. 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. he would get a premium. 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. deliver goods to the representative of the Member. 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. e. c. The delivery given to the representative shall be final & binding to the Member at all times. Photo identity proof duly attested by the Member. f.Quality Adjustment Procedure of taking delivery from the Vault Taxes. The above-mentioned details are required to be sent to the Exchange. The Authority letter sent by the Member shall consist of the following details: a. In such case. d. upon final scrutiny/checking of the identity. b. The price of gold is on the basis of 995 purity. The Vault officials will. The buyer member can endorse delivery order to a client or any third party with full disclosure given to the Exchange.
on the respective tender days and on Saturdays by 1:00 p. Buyer’s obligation The buyer shall not refuse taking delivery and such refusal will entertain penalty as per the penal provision.m. 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.contractual liability would be with the original assignee. Extension of delivery As per Exchange decision due to a force majeure period or otherwise. Evidence of stocks in At the time of issuing delivery order. quality certification. 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. rules and Rules Business Rules of the Exchange and decisions taken by Forward Markets Commission.m. Vault. 31 .00 p.) STEPS TO BE FOLLOWED FOR DELIVERY Intention to take delivery On any tender days by 6. Applicability of Business The general provisions of Byelaws.m. 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. margining. warehousing. Board of Directors and Executive Committee of the Exchange in respect of matters specified above will form and integral part of this contract. risk management from time to time. The Exchange or FMC as the case may be further prescribe additional measures relating to delivery procedures. Due date rate (DDR) DDR is calculated on 5th day of the contract month. Allocation of delivery As per the closing price on the respective tender days.m. 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. and on Saturdays by 12:00 noon. This is calculated by way of taking simple average of last 5 days of the spot market of Ahmedabad. 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. (The interpretation or clarification given by the Exchange on any terms of this contract shall be final and binding on the members and others.00 p.
Source: MCX Gold Report 1 32 .
Frequently Asked Questions on Gold Q1. Gulden (Dutch). parts per thousand. For gold. This is reflected in the similarities of the word gold in various languages: Gold (English). Q2. The carat is still used as such for the weight of gem stones (1 carat is about 200 mg). is short for the Latin word for gold. 'Aurum'. How much gold is there in the world? At the end of 2001. which literally means 'Glowing Dawn'. Why is gold measured in carats? This stems back to ancient times in the Mediterranean /Middle East. The purity of gold is now measured also in terms if fineness. it has come to be used for measuring the purity of gold where pure gold 33 . 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. reflecting one of the most obvious properties of gold.000 tonnes. 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. e. Its chemical symbol. it is estimated that all the gold ever mined amounts to about 145. Q5. Q3. Thus 18 carats is 18/24th of 1000 parts = 750 fineness. i. Q4. Guld (Danish). notably its excellent conductive properties and its inability to react with water or oxygen. The Carob seed is from the Carob or locust bean tree. Where does the word Gold come from? The word gold appears to be derived from the Indo-European root 'yellow'. It has several properties that have made it very useful to mankind over the years. Gull (Norwegian) and Kulta (Finnish). when a carat became used as a measure of the purity of gold alloys (see next Question 5). Gold (German). Goud (Afrikaans). Au.
Who owns most gold? If we take national gold reserves. How and when this change occurred is not clear. along with lower grades at some of the operations in Nevada. If all the gold was laid around the world. so the Siliqua was approximately equivalent in value to the mass of 1 Keration or Siliqua Graeca of gold.500tpa. If we include jewellery ownership. It does involve the Romans who also used the name Siliqua Graeca (Keration in Greek. Qirat in Arabic. 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.e the value of 1/24th of a Solidus is about 1 Keration of gold.604 tonnes or 67% of total gold demand in that year. then India is the largest repository of gold in terms of total gold within the national boundaries.is defined as 24 carats. In terms of personal ownership. mine production amounted to 2. then most gold is owned by the USA followed by Germany and the IMF. The reduction in exploration and development expenditure over the past five years is leading a number of analysts to suggest that. with other operations nearing the end of their lives. i.e 1 carat. 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. then all the gold would stretch around the circumference of the world an astounding 72 million times approximately! Q8. it is not known who owns the most. Gold production has been growing for years. Q7. i. Q6. The Romans also used the name Siliqua for a small silver coin. which was one-twentyfourth of the golden solidus of Constantine. This latter had a mass of about 4. This year output will fall short of production levels in 2001. now Carat in modern times) for the bean of the Carob tree. global production is likely to drop slightly over the next two to three years subject always of course to price. 34 . but the real acceleration took place after the late 1970s. but is possibly a member of a ruling royal family in the East.54 grammes. when output was in the region of 1.
35 . These are then refined to gold bars by the Miller chlorination process to a purity of 99.Q9. smelted to a gold-rich doré and cast into bars. This is then hauled to the surface and milled to release the gold. this gold is further refined by the Wohlwill electrolytic process to 99. Q12. A tonne of gold would therefore have a volume of 51. Richer ores mined at the surface (open cast mining) is considerably cheaper to mine than underground mining at depth. How big is a tonne of gold? Gold is traditionally weighed in Troy Ounces (31.1035 grammes).32 g/cm3. How does a gold mine work? The gold-containing ore has to be dug from the surface or blasted from the rock face underground. Typical mining costs are US $238/troy ounce gold average but these can vary widely depending on mining type and ore quality. The gold is then separated from the rock (gangue) by techniques such as flotation. Such mining requires expensive sinking of shafts deep into the ground. a troy ounce of gold would have a volume of 1.64 cm3. 760 cm3.27cm (Approx. 1' 3''). With the density of gold at 19. which would be equivalent to a cube of side 37. Q10.5%. 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 4.500 meters are being pursued. If higher purity is needed or platinum group metal contaminants are present. How much does it cost to run a gold mine? Gold mining is very capital intensive. 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.9% purity.
36 . One grain is equivalent to 0.1034768 grams. equal to about 1. parts pure gold and 250 parts alloy. fineness. 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. the following definitions shall apply: Assaying: The method of accurate determination of the gold content of the sample expressed in parts per thousand (%). 18-karat has 750.0648 grams. scaled from one to 24. Gold: The metallic element gold. 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.1 avoirdupois (ordinary) ounces. Kilo Bar: A bar weighing one kilogram – approximately 32. which indicate the producer of a gold bar and its number. etc. Grain: One of the earliest weight units used for measuring gold. Fineness: The ratio between the mass of gold content and the total mass expressed in parts per thousand (%). acceptable for instance in the discharge of debts. Hallmark: Mark. etc. 1 troy ounce is equivalent to 31. Liquidity: The quality possessed by a financial instrument of being readily convertible into cash without significant loss of value. Carat: One-twenty fourth part by mass of the metallic element gold. free from any other element. Troy Ounce: A unit of weight.1507 troy ounces.Gold Terminology For the purpose of this standard. Karat: Unit of fineness. The word ounce when applied to gold refers to a troy ounce. or marks.
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.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. 37 . Online commodity exchanges need to revamp certain laws governing futures in commodities to make the markets more attractive. Their entry As a matter of fact. foreign institutional investors should be given the go-ahead to invest in commodity futures in India. with daily global volumes in commodity trading touching three times that of equities. And. trading in commodities cannot be ignored by Indian investors. commodity trading offers a good option for long-term investors and arbitrageurs and speculators. derivative instruments. now. can help India become a global trading hub for select commodities. The national multi- commodity exchanges have unitedly proposed to the government that in view of the growth of the commodities market. such as futures. For diversification of portfolio beyond shares. will deepen and broad base the commodity futures market. it won't be long before the market sees the emergence of a completely redefined set of retail investors. fixed deposits and mutual funds. Therefore. 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.
bseindia.commodityindia.mcxindia.com www.com www.gov.sebi.org 38 .gold.indiamba.com www. SEBI Bulletin www.com www.com www.in.Bibliography www.business.indiaexpress.org www.nmce.nbotind.mapsofindia.com www.com www.ncdex.com www.
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