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COMMODITY FUTURES

Presentation By: Multi Commodity Exchange of India Ltd. (MCX)

Multi Commodity Exchange of India Ltd,

www.mcxindia.com

Commodity Ecosystem

Multi Commodity Exchange of India Ltd,

www.mcxindia.com

Commodity Market Structure


Quality Certification Agencies Warehouses

Spot Market
Hedger (Exporters/ Millers/ Industry) Producers (Farmers/ Co-operatives/ Institutional)

Clearing Bank

Commodities Ecosystem

MCX

Transporters/ Support Agencies

Traders (Speculators) Arbitrageurs/ Client) Consumers (Retail/ Institutional)

Global Commodities Market


Multi Commodity Exchange of India Ltd,

www.mcxindia.com

Commodity Markets - Overview


Indian commodity market set for paradigm shift
Four licenses recently issued by Govt. of India to set-up National Online Multi Commodity Exchanges to ensure a transparent price discovery and risk management mechanism
List of commodities for futures trade increased from 11 in 1990 to over 100 in 2003 Reforms with regard to sale, storage and movement of commodities initiated Shift from administered pricing to free market pricing WTO regime Overseas hedging has been allowed in metals Petro-products marketing companies have been allowed to hedge prices Institutionalization of agriculture
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Multi Commodity Exchange of India Ltd,

Indias Place in World Market


COMMODITY RICE (PADDY) WHEAT PULSES GROUNDNUT RAPESEED SUGARCANE TEA COFFEE(GREEN) JUTE AND JUTE FIBERS COTTON (LINT)
Multi Commodity Exchange of India Ltd,

INDIA 240 74 13 6 6 315 0.75 0.28 1.74 2.06

WORLD 2049 599 55 35 40 1278 2.99 7.28 4.02 18.84

SHARE 11.71 12.35 23.64 17.14 15.00 24.65 25.08 3.85 43.30 10.09

RANK THIRD SECOND FIRST SECOND THIRD SECOND FIRST EIGTH SECOND THIRD
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Business Potential
Size of Physical Market (Rs. Crore) Rs. 43000 cr Conservative Multiplier (Rs. Crore) ( In 3 years) 20 Times Rs. 8,30,000 cr 10 Times Rs. 3,00,000 cr 10 Times Rs. 1,10,000 cr Rs. 12,40,000cr Global Multiplier (Rs. Crore) (In 3 5 Years) 50 Times Rs. 21,50,000 cr 20 Times Rs. 6,00,000 cr 20 Times Rs. 2,20,000 cr Rs. 29,70,000cr

Commodities

Gold & Silver

Edible Oils

Rs. 30000 cr

Metals

Rs.11000 cr

Total

Rs. 84,000 cr

Multi Commodity Exchange of India Ltd,

www.mcxindia.com

About MCX
National Level Online Multi Commodity Futures Exchange Key Promoters Financial Technologies (India) Ltd, Union Bank Corporation Bank, Bank of India, Canara Bank, State Bank of India,

State Bank of Indore

Bank of Baroda

Operations from 300 cities with over 775 members & 3000 TWS First Indian Exchange to enter into an agreement with an International Exchange (TOCOM) Facilitating Cost effective and economic technology. Real-time price & information dissemination through website and info vendors

Multi Commodity Exchange of India Ltd,

www.mcxindia.com

MCX Business Associates


Statutory Auditor Internal Auditor Network services M/s. Deloitte, Haskins & Sells M/s V.Shankar Aiyer & Company HCL Comnet Ltd.(VSAT)S VSNL (Internet) Tata Tele (Leased line) Reliance gateway ( Wireless ) BOI, HDFC, IndusInd, UBI & UTI SGS, Geochem , Dr. Amin Lab., Rubber Board CWC, Gujarat, Kerala, Tamilnadu and UP Group 4 and Brinks Arya

Clearing Banks Quality Certification Agencies Warehouses Bullion Logistics

Multi Commodity Exchange of India Ltd,

www.mcxindia.com

Salient Futures of MCX



On-line monitoring at members and contract level exposure, price, open interest, quantity, client, etc. On-line margin adjustment - Business in relation to deposit System driven control and actions Electronic fund transfer Daily clearing marked to market
Pay-in and pay-out: T+1 working day Exchange approved depositories Seller to submit proof of delivery with proper quality certification to MCX

Multi Commodity Exchange of India Ltd,

www.mcxindia.com

Participants in Commodity Futures


Farmers/ Producers

Merchandisers/ Traders
Importers Exporters Consumers/ Industry Commodity Financers

Agriculture Credit providing agencies


Corporate having price risk exposure in commodities

Multi Commodity Exchange of India Ltd,

www.mcxindia.com

Benefits of Futures Trading


Price discovery for commodity players
A farmer can plan his crop by looking at prices prevailing in the futures market

Hedging against price risk


A farmers can sell in futures to ensure remunerative prices A processor/ manufacturing firm can buy in futures to hedge against volatile raw material costs An exporter can commit to a price to his foreign clients A stockist can hedge his carrying risk to ensure smooth prices of the seasonal commodities round the year

Easy availability of finance Based on hedged positions commodity market players (farmers, processors, manufacturers, exporters) may get easy financing from the banks
Multi Commodity Exchange of India Ltd, www.mcxindia.com

How Commodity Futures Help


Risk Management Growers Short hedge on upcoming produce Traders Short Hedge on stored quantity Manufacturers Long Hedge on input cost, Short hedge on finished products Any price risk that is not managed is a cost; any cost is a direct dent on profitability Price Discovery Futures prices can be used as indicative prices for negotiating the export prices and also upcountry sales
Multi Commodity Exchange of India Ltd, www.mcxindia.com

Profitability Areas in Futures Market


Action Impact

Cover raw material price risk

Certainty in input cost. Certainty in cost of production


Certainty about profits. Certainty in income Less financing requirements; reduced interest cost. Reduces cost of production. Increase in profits

Cover the export commitment

Cover input requirements through futures market

Buy in futures markets

Save on storage management costs. profitability

and storage Increase in

Multi Commodity Exchange of India Ltd,

www.mcxindia.com

MCX vis a vis Other Bullion Exchanges


With Respect to Present Practices of Domestic Bullion Players

(Approx. figs.) Contract Size (grams) Benchmark Market Operational Cost

MCX 1000 Mumbai Low

NYMEX 3110 New York High

TOCOM 1000 Tokyo High

Transaction cost Channel Trade Transparency Channel Financial Integrity Lead Transaction Time Physical Delivery
Multi Commodity Exchange of India Ltd,

0.01 % High High Low Yes

0.08 0.1 % 0.4 % Low Low Low High No Low High No


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Nation-wide Multi Exchanges vis a vis Regional Exchanges


Better Reach in all parts of the country

Wider base for speculators from other markets including securities market
Broad basing of the underlying commodity Industry diffused in several parts of the country may also directly participate Few commodities can be projected viable for an international futures Contract, with participation from global player

Novation of all open positions in the market by the exchange


Best management practices, end of day mark to market, online margining and surveillance, daily pay-in & pay-out are some of the features to woo the players

Multi Commodity Exchange of India Ltd,

www.mcxindia.com

Key Differentiators of MCX


Team
Best Industry Professionals Technology, Exchange Management and Advisory Board with 8 Decades of Exchange Management Expertise Best Support Agencies Warehouses, Quality, Banks & Others Best Intermediaries across the country & in multiple commodities

Technology
State of the art Information Technology Real time price and trade information dissemination Robust risk management system and controls

Techniques (Practices)
Best International practices of Exchange governance Competitive membership fee structure and operational cost. To provide information - international & spot markets and commodity research

Multi Commodity Exchange of India Ltd,

www.mcxindia.com

Whats in it for Industry


Free Markets price commodities best & consistently Globalisation & standardisation - global price convergence Futures Market - Most efficient Market Place Price discovery on futures Exchange with consistent Agriculture policy will give right direction to market for pricing commodities MSP does not serve much purpose in free market regime Problems of different sectors in Agriculture need a different policy with a common direction

Multi Commodity Exchange of India Ltd,

www.mcxindia.com

Future of Commodity Market


India - Largest Consumer - Producer - Exporter Importer Large size intermediaries penetrate commodities market Banks to Finance commodities Futures a secured route RBI permits Banks to hedge their bullion risk through Futures Exchange Other commodities to follow Using Exchange Network for various products & Services BPO & Trade Interest will attract International players Hub for value added services & food processing New class of commodity Traders & Value Investors India to become Hub of Global Trading in Commodities It is a US $ 600 billion Opportunity
Multi Commodity Exchange of India Ltd, www.mcxindia.com

Thank You

Multi Commodity Exchange of India Ltd,

www.mcxindia.com

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