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COMMODITY A commodity may be defined as an article, a product or material that is bought and sold.

It can be classified as every kind of movable property, except Actionable Claims, Money & Securities. Commodities actually offer immense potential to become a separate asset class for market savvy investors, arbitrageurs and speculators. !etail investors, "ho claim to understand the e#uity markets, may find commodities an unfathomable market. $ut commodities are easy to understand as far as fundamentals of demand and supply are concerned. !etail investors should understand the risks and advantages of trading in commodities futures before taking a leap. %istorically, pricing in commodities futures has been less volatile compared "ith e#uity and bonds, thus providing an efficient portfolio diversification option. In fact, the si&e of the commodities markets in India is also #uite significant. 'f the country(s )*+ of !s ,-, ./,0-/ crore 1!s ,-,./0.billion2, commodities related 1and dependent2 industries constitute about 34 per cent. 0 Currently, the various commodities across the country clock an annual turnover of !s ,, 5/,/// crore 1!s ,,5// billion2. 6ith the introduction of futures trading, the si&e of the commodities market gro"s many folds here on. C'MM'*I78 MA!9:7 Commodity market is an important constituent of the financial markets of any country. It is the market "here a "ide range of products, vi&., precious metals, base metals, crude oil, energy and soft commodities like palm oil, coffee etc. are traded. It is important to develop a vibrant, active and li#uid commodity market. 7his "ould help investors hedge their commodity risk, take speculative positions in commodities and exploit arbitrage opportunities in the market.

DIFFERENT TYPES OF COMMODITIES TRADED 6orld over one "ill find that a market exits for almost all the commodities kno"n to us. 7hese commodities can be broadly classified into the follo"ing; METAL Aluminium, Copper, Lead, Nickel, Sponge Iron, Steel Long (Bhavnagar), Steel Long (Govindgarh), Steel Flat, Tin, inc

BULLION FIBER ENERGY SPICES PLANTATIONS PULSES PETROCHEMICALS OIL & OIL SEEDS

Gold, Gold !NI, Gold ", i#gold, Silver, Silver !NI, Silver " Cotton L Staple, Cotton " Staple, Cotton S Staple, Cotton $arn, %apa& Brent Crude 'il, Crude 'il, Furnace 'il, Natural Ga&, "( )( Sour Crude 'il Cardamom, *eera, +epper, ,ed Chilli Arecanut, Ca&he- %ernel, Co..ee (,o/u&ta), ,u//er Chana, "a&ur, $ello- +ea& !0+), +ol1prop1lene(++), +2C Ca&tor 'il, Ca&tor Seed&, Coconut Cake, Coconut 'il, Cotton Seed, Crude +alm 'il, Groundnut 'il, %apa&ia %halli, "u&tard 'il, "u&tard Seed (*aipur), "u&tard Seed (Sir&a), ,B0 +almolein, ,e.ined So1 'il, ,e.ined Sun.lo-er 'il, ,ice Bran 0'C, ,ice Bran ,e.ined 'il, Se&ame Seed, So1meal, So1 Bean, So1 Seed&

CEREALS OTHERS

"ai3e Guargum, Guar Seed, Gurchaku, "entha 'il, +otato (Agra), +otato (Tarke&h-ar), Sugar "#45, Sugar S#45

,/ 7<!='>:! '? I=*IA= C'MM'*I78 :@C%A=):S Indian Commodity ?utures Market 1!s Crores2 :xchanges .//5 .//3 .//A Multi Commodity ,A3,50 BA,,A-,,A.,,4/:xchange 1MC@2 =C*:@ .AA,--4 ,,/AA,A4A B55,/AA =MC:1Ahmadabad2 ,-,B44 ,4,-43 ,/,,0-, =$'71Indore2 34,5A3-,A430,,5B 'thers A0,4.35,0-3 ,5,3B, All :xchanges 30,,03B .,,33,,.. .,0-B,-5/ 7urnover on Commodity ?utures Markets 1!s. In Crores2 :xchange .//- /5 .//5 /3 ?I!S7 %alf =C*:@ ,5B/ 35/,, =$'7 3-/,5 3,/-4 MC@ .53A -/AB3 =MC: .-45. 0B5ACC :@C%A=):S ,.B-A5 ,0/0./

.//0 .,3/3,./A 0--,50B .5,/0. 05,34. -0,BB0 -,-03,--A

DIFFERENT SEGMENTS IN COMMODITIES MARKET 7he commodities market exits in t"o distinct forms namely the Over the Counter (OTC) market and the Ex han!e "a#e$ market. Also, as in e#uities, there exists the spot and the derivatives segment. 7he spot markets are essentially over the counter markets and the participation is restricted to people "ho are involved "ith that commodity say the farmer, processor, "holesaler etc. *erivative trading takes place through exchange based markets "ith standardi&ed contracts, settlements etc.

,. C:A*I=) C'MM'*I78 MA!9:7S '? 6'!C* Some of the leading exchanges of the "orld are; S. )lobal Commodity :xchanges =o. , =e" 8ork Mercantile :xchange 1=8M:@2 . Condon Metal :xchange 1CM:2

5 3 A 0 4 B ,/ ,, ,. ,,5 ,3 ,A ,0 ,4 ,B ./

Chicago $oard of 7rade 1C$'72 =e" 8ork $oard of 7rade 1=8$'72 9ansas $oard of 7rade 6innipeg Commodity :xchange, Manitoba *alian Commodity :xchange, China $ursa Malaysia *erivatives exchange Singapore Commodity :xchange 1SIC'M2 Chicago Mercantile :xchange 1CM:2, <S Condon Metal :xchange 7okyo Commodity :xchange 17'C'M2 Shanghai ?utures :xchange Sydney ?utures :xchange Condon International ?inancial ?utures and 'ptions :xchange 1CI??:2 =ational Multi Commodity :xchange in India 1=MC:2, India =ational Commodity and *erivatives :xchange 1=C*:@2, India Multi Commodity :xchange of India Cimited 1MC@2, India *ubai )old & Commodity :xchange 1*)C@2 *ubai Mercantile :xchange 1*M:2, 1Doint venture bet"een *ubai holding and the =e" 8ork Mercantile :xchange 1=8M:@22

,!egulators :ach exchange is normally regulated by a national governmental 1or semi governmental2 regulatory agency; Country !egulatory agency Australia Australian Securities and Investments Commission Chinese China Securities !egulatory Commission mainland %ong 9ong Securities and ?utures Commission India Securities and :xchange $oard of India and ?or"ard Markets Commission 1?MC2 +akistan Securities and :xchange Commission of +akistan Singapore Monetary Authority of Singapore <9 ?inancial Services Authority <SA Commodity ?utures 7rading Commission Malaysia Securities Commission
%ENEFITS TO IND&STRY FROM F&T&RES TRADING , %edging the price risk associated "ith futures contractual commitments. . Spaced out purchases possible rather than large cash purchases and its storage. - :fficient price discovery prevents seasonal price volatility. 5 )reater flexibility, certainty and transparency in procuring commodities "ould aid bank lending.

3 ?acilitate informed lending. A %edged positions of producers and processors "ould reduce the risk of default faced by banks. E Cending for agricultural sector "ould go up "ith greater transparency in pricing and storage. 0 Commodity :xchanges to act as distribution net"ork to retail agri finance from $anks to rural households. 4 +rovide trading limit finance to 7raders in commodities :xchanges. %ENEFITS TO E'C(ANGE MEM%ER , Access to a huge potential market much greater than the securities and cash market in commodities. . !obust, scalable, state of art technology deployment. - Member can trade in multiple commodities from a single point, on real time basis.

,0 , 7raders "ould be trained to be !ural Advisors and Commodity Specialists and through them multiple rural needs "ould be met, like bank credit, information dissemination, etc. 6%8 C'MM'*I78 ?<7<!:SF 'ne ans"er that is heard in the financial sector is G"e need commodity futures markets so that "e "ill have volumes, brokerage fees, and something to trade((. 6e have to look at futures market in a bigger perspective "hat is the role for commodity futures in India(s economyF In India agriculture has traditionally been an area "ith heavy government intervention. )overnment intervenes by trying to maintain buffer stocks, they try to fix prices, and they have import export restrictions and a host of other interventions. Many economists think that "e could have maDor benefits from liberali&ation of the agricultural sector. In this case, the #uestion arises about "ho "ill maintain the buffer stock, ho" "ill "e smoothen the price fluctuations, ho" "ill farmers not be vulnerable that tomorro" the price "ill crash "hen the crop comes out, ho" "ill farmers get signals that in the future there "ill be a great need for "heat or rice. In all these aspects the futures market has a very big role to play. If "e think there "ill be a shortage of "heat tomorro", the futures prices "ill go up today, and it "ill carry signals back to the farmer making so"ing decisions today. In this fashion, a system of futures markets "ill improve cropping patterns.

)(AT MAKES COMMODITY TRADING ATTRACTI*E+ , A good lo" risk portfolio diversifier . A highly li#uid asset class, acting as a counter"eight to stocks, bonds and real estate. - Cess volatile, compared "ith, e#uities and bonds.

,B , Investors can leverage their investments and multiply potential earnings. . $etter risk adDusted returns. - A good hedge against any do"nturn in e#uities or bonds as there is 5 Cittle correlation "ith e#uity and bond markets. 3 %igh co relation "ith changes in inflation. A =o securities transaction tax levied. 7he =C*:@ System :very market transaction consists of three components i.e. trading, clearing and settlement. A brief overvie" of ho" transactions happen on the =C*:@Hs market. 7!A*I=) 7he trading system on the =C*:@ provides a fully automated screen based trading for futures on commodities on a nation"ide basis as "ell as online monitoring and surveillance mechanism. It supports an order driven market and provides complete transparency of trading operations. 'rder matching is essential on the basis of commodity, its price, time and #uantity. All #uantity fields are in units and price in rupees. 7he exchange specifies the unit of trading and the delivery unit for futures contracts on various commodities. 7he exchange notifies the regular lot si&e and tick si&e for each of the contracts traded from time to time. 6hen any order enters the trading system, it is an active order. It tries to finds a match on the other side of the book. If it finds a match, a trade is generated. If it does not find a match, the order becomes passive and gets #ueued in the respective outstanding order book in the system. 7ime stamping is done for each trade and provides the possibility for a complete audit trail if re#uired. =C*:@ trades commodity futures contracts having one month, t"o month and three month expiry cycles. All contracts expire on the ./th of the expiry month. 7hus a Ianuary expiration contract "ould expire on the ./th of Ianuary and a ?ebruary expiry contract "ould cease trading on the ./th of ?ebruary. If the ./th of the expiry month is a trading holiday, the contracts shall expire on the previous trading

Go,$ Intro$u t-on )old is a uni#ue asset based on fe" basic characteristics. ?irst, it is primarily a monetary asset, and partly a commodity. As much as t"o thirds of goldHs total accumulated holdings relate to Jstore of valueK considerations. %oldings in this category include the central bank reserves, private investments, and high caratage De"ellery bought primarily in developing countries as a vehicle for savings. 7hus, gold is primarily a monetary asset. Cess than one third of goldHs total accumulated holdings can be considered a commodity, the De"ellery bought in 6estern markets for adornment, and gold used in industry. 7he distinction bet"een gold and commodities is important. )old has maintained its value in after inflation terms over the long run, "hile commodities have declined. Some analysts like to think of gold as a Jcurrency "ithout a countryH. It is an internationally recogni&ed asset that is not dependent upon any governmentHs promise to pay. 7his is an important feature "hen comparing gold to conventional diversifiers like 7 bills or bonds, "hich unlike gold, do have counter party risk. )hat make# !o,$ #.e -a,+ , 7imeless and >ery 7imely Investment . )old is an effective diversifier - )old is the ideal gift 5 )old is highly li#uid

.5 , )old responds "hen you need it most

Market Characteristics , 7he gold market is highly li#uid. )old held by central banks, other maDor institutions, and retail De"ellery is reinvested in market. . *ue to large stock of gold, against its demand, it is argued that the core driver of the real price of gold is stock e#uilibrium rather than flo" e#uilibrium. - :ffective portfolio diversifier; 7his phrase summari&es the usefulness of gold in terms of JModern +ortfolio 7heoryK, a strategy used by many investment managers today. <sing this approach, gold can be used as a portfolio diversifier to improve investment performance. 5 :ffective diversification during JstressK periods; 7raditional method of portfolio diversification often fails "hen they are most needed, that is during financial stress 1instability2. 'n these occasions, the correlations and volatilities of return for most asset class 1including traditional diversifiers, such as bond and alternative assets2 increase,

thus reducing the intended JcushioningK effect of the diversified portfolio. *emand and supply , China produced .0A metric tons of gold last year, e#ual to about B.0 million ounces, said Condon precious metals consultancy )?MS Ctd. 7hat(s up ,.L from the year ago and represented Dust over one tenth of the "orld(s supply. . 7he ranking pushes South Africa into second place, the first time the gold giant has lost its top ranking since ,B/3. South Africa, "hose late .3 ,,Bth century gold rush led to the founding of mining heavy"eight Anglo American +lc and is home to global producers )old ?ields Ctd and Anglo)old Ashanti Ctd, sa" its production decline 4L to .0. metric tons. . India is "orld largest gold consumer "ith an annual demand of 4// tonnes. *emand and Supply of )old in India .//A .//0 Supply Mine +roduction 30=et +roducer %edging ,5/ 7otal mine supply 5-/ 'fficial sector sales B'ld gold Scrap -/7otal Supply 4.A *emand ?abrication Ie"ellery 3,B Industrial & *ental ,,, Subtotal of above fabrication A-/ $ar & coin retail investment 4B 'ther retail investment :7?s and similar ,,7otal *emand 4.B Inferred Investment 1in tonnes2 L change 34/ ,.B 53, B3 .A. 4/4 3A4 ,,. A4/ ,,A 3 -A 4.0 ,B , 3 . ,. B , 4 -, A4 /

Source; )?MS Ctd. .A Indian )old Ie"ellery Market , +lain .. carat De"ellery is the core of consumption especially in the rural areas, "here gold is so important in Dudging a family(s status at a

marriage. A basic marriage set for a bride is t"o earrings, one nose pin, one ring, one necklace and t"o bangles, all in .. carat gold and "eighing up to .// grams 1A.. o&2. . Studded 1i.e. gem set2 ,4 carat De"ellery is increasingly popular in the cities and is estimated to have used -, tonnes 1, million o&2 in .//,. - Medallions, charms and small gift items account for up to half of "hat is loosely called De"ellery. 7hese items are popular as gifts at "eddings and other family events. 5 )old thread, kno"n as Iari used in high #uality saris "orn at "eddings and special occasions re#uires some"here in the region of ./ tonnes 1/.A m o&2 annually. 3 7he market is highly fragmented "ith an estimated ,//,/// "orkshops supplying over -//,/// retailers, mostly family o"ned, single shop operations. 7he industry is beginning to be modernised "ith large factories, installing the latest e#uipment, in centres such as Mumbai, Ahmadabad and $angalore. A %allmarking does not exist in India and under caratage is commonplace. 7he $ureau of Indian Standards has introduced a voluntary scheme "hich, although not yet "idely used, is becoming more popular. 7he minimum legal caratage is B carat. 0 7he number of retail De"ellery outlets has increased greatly since the abolition of gold control, as has the number of Indians possessing gold De"ellery. .0 MC@ Contract Specifications of )old; )'C* =ame of )old Commodity 7icker Symbol )C*+<!M<M9 7rading System MC@ 7rading System 7rading +eriod Monday to Saturday 7rading Session Monday to ?riday; ,/;//a.m. to ,,;-/ p.m. Saturday; ,/;//a.m. to .;// p.m. 7!A*I=) 7rading <nit , kg +rice Muote !s. +er ,/ g, ex Ahmedabad 1inclusive of all taxes and levies relating to import and custom duty, but excluding sales taxN>A7, any other additional tax or surcharge on sales tax, local taxes and octroi2 Maximum order si&e 7ick Si&e ,/ kg !e. , per ,/ g 1minimum price movement2

*aily price limit Initial Margin Special Margin

Maximum Allo"able *:CI>:!8 *elivery unit *elivery period margin *elivery center1s2

-L 5L In case of initial volatility, a special margin at such percentage 1as deemed fit2, "ill be imposed immediately on both buy and sell side in respect of all outstanding positions, "hich "ill remain in force for next . days, after "hich the special margin "ill be relaxed. ?or individual client; . M7 ?or members collectively for all clients; A M7 or ,3Lof the market position, "hichever is high

, kg .3L of the value of the open position during the delivery period At designated clearing house facilities of )roup 5 Securitas at these centers and at additional delivery centers at Chennai, =e" *elhi and %yderabad. *elivery Cogic Compulsory S:77C:M:=7 +:!I'* 7ender +eriod ,st to Ath day of the contract expiry month. *elivery +eriod ,st to Ath day of the contract expiry month. +ay in of 'n any tender days by A.// p.m. except commodities Saturdays, Sundays and 7rading %olidays. 1delivery by seller Marking of delivery "ill be done on the tender member2 days based on the intentions received from the sellers after the trading hours. 'n expiry all the open positions shall be marked for delivery. *elivery pay in "ill be on : O , basis. +ay in of funds $y ,,.// a.m. on 7ender day O, basis +ay out of funds $y /3.// p.m. on 7ender day O, basis. and commodities 1delivery to .4 buyer member2 I=?'!MA7I'= !:CA7:* 7' *:CI>:!8 *elivery Cogic Compulsory *elivery. Any seller having open position on the expiry date fails to deliver then the penalty as per the penal provision "ill be imposed to the defaulting seller. Mode of ?ax or Courier Communication

7ender +eriod Margin Margin during delivery period :xemption from margin during tender and delivery period *elivery order rate 1*'!2 +enal +rovision

3L incremental margin for last 3 days on all outstanding positions. Such margin "ill be addition to initial, additional and special margin as applicable. .3L on the marked #uantity. Margin is exempted on receipt of documentary evidence 1vi&., 6arehouse !eceipt and Muality Certificate2 of tendering delivery "ith the :xchange during tender days. SettlementNclosing price on the respective tender days except on expiry date. 'n expiry date the delivery order rate shall be the *ue *ate !ate 1**!2 and not the closing price. A penalty of ..3L of *'! "ill be imposed on defaulting buyer N seller out of "hich .L "ill be credited to I+? and /.3L "ill be credited to the counter party. Additionally, 5L of *'! as a replacement cost "ill be charged from defaulting buyer N seller out of "hich B/L "ill be given to the counter party and ,/L "ill be retained by the :xchange as administrative expenses. Ahmedabad and Mumbai at designated Clearing %ouse facilities of )roup 5 Securitas at these centers and at additional delivery centers at Chennai, =e" *elhi and %yderabad 7he selling members tendering delivery "ill have the option of delivering such grades as per the contract specifications. 7he buyer has no option to select a particular grade and the delivery offered by the seller and allocation by the :xchange shall be binding on him. At the time of taking delivery, the buyer can check his delivery in front of )roup 5 personnel. If he is satisfied "ith the #uantity, "eight and #uality of material, then he "ill issue receipt of the metals instantly. If he is not satisfied "ith the metal, he can insist for assaying by any of the approved assayers available at that center. If the buyer chooses for assaying, )roup 5 person "ill carry the goods to the assayers facilities, get it assayed and bring it back to )roup 5 facilities along "ith assayerHs

*elivery Centers

*eliverable grade of underlying commodity

>erification by the $uyer at the time of release of delivery

certificate. If the assayerHs

.B certificate differs from the certificate submitted by the seller in respect of #uality or "eight materially, then the buyer and seller have to mutually negotiate the final settlement proceeds "ithin , day from receipt of assayerHs report, ho"ever if they do not agree on any mutually acceptable amount "ithin , day, then the :xchange "ill send the goods to a second assayer and in that case, the report received from such assayer "ill be final and binding on both buyer and seller. 7he cost of first assaying as "ell as cost of transportation from )roup 5 to assayerHs facilities to and fro "ill be born by the buyer, "hile the cost of second assaying, if any, "ill be e#ually divided bet"een the buyer and seller. 7he vault charges during such period of first and second assaying, if any, "ill be born by both the buyers and sellers e#ually. If the buyer does not opt for assaying at the time of lifting delivery, then he "ill not have any further recourse to challenge the #uantity or #uality subse#uently and it "ill be assumed that he has received the #uantity and #uality as per the bill made by the seller.

>alidation +rocess

*elivery +rocess

'n receipt of delivery, the )roup 5 personnel "ill do the follo"ing validations; a. "hether the person carrying )old is the designated clearing agent of the member. b. "hether the selling member is the bonafied member of the :xchange. c. "hether the #uantity being delivered is from :xchange approved refinery d. "hether the serial numbers of all the bars is mentioned in the packing list provided. e. "hether the original certificates are accompanied "ith the )old $ars Any other validation checks, as they may desire. In case any of the above validation fails, the )roup 5 Securitas "ill contact the :xchange office and take any further action, only as per instructions received from the :xchange in "riting. If all validations are through, then the )roup 5 Securitas personnel "ill put the )old in the vault. 7hen the custodian of )roup 5 "ill cut a serially numbered )roup 5 receipt 1in triplicate consisting of 6hite, +ink and 8ello" slips2, get the signature of the sellerHs clearing agent and signing the same for authori&ation, hand over the +ink slip to sellerHs clearing agent, send by courier the third copy 18ello" Colour slip2 "hile retaining the 6hite for the records of )roup 5 Securitas. )roup 5 in

-/ front of the selling memberHs clearing agent "ill deposit the said metal into their vault. Muality 7he price of gold is on the basis of BB3 purity. In AdDustment case a seller delivers BBB purity, he "ould get a premium. In such case, the sale proceeds "ill be calculated by "ay of delivery order rate E BBBN BB3

+rocedure of taking delivery from the >ault

7axes, duties, cess and levies

:ndorsement of delivery order -,

?or the purpose of taking delivery of goods fully or partially, the Member shall send to the :xchange an Authority letter on his letter head, authorising a representative on his behalf to take the delivery. 7he Authority letter sent by the Member shall consist of the follo"ing details; a. =ame of the authorised representative. b. =ame of the Commodity along "ith #uantity. c. =ame of the >ault along "ith the location. d. Signature of the authorised representative. e. +roof of Identity vi&. +A= card, driving license, :lection I*. f. +hoto identity proof duly attested by the Member. 7he above mentioned details are re#uired to be sent to the :xchange. 'nce the :xchange receives the above mentioned details, the :xchange "ill send *elivery 'rder 1*'2 to the >ault authorities directly. $ased on the *elivery 'rder received, the >ault "ill issue the re#uested #uantity to the authorised representative "ho has to present himself personally at the >ault along "ith the re#uisite photo identity proof in original, the copy of "hich "as sentNcommunicated to the :xchange by its Member. 7he >ault officials "ill, upon final scrutinyNchecking of the identity, deliver goods to the representative of the Member. 7he >ault 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 :xchange. 7he delivery given to the representative shall be final & binding to the Member at all times. :x Ahmedabad. Inclusive of all charges N levies relating to import duty, customs to be borne by Seller. $ut excluding Sales 7ax N >A7, any other additional tax or surcharge on sales tax, local taxes and octroi to be borne by the $uyer. 7he buyer member can endorse delivery order to a client or any third party "ith full disclosure given to the :xchange. !esponsibility for

contractual liability "ould be "ith the original assignee. >ault, Insurance and 7ransportation charges :xtension of delivery period *ue date rate 1**!2 $orne by the seller till the date of pay out of delivery and the buyer after the date of pay out. As per :xchange decision due to a force maDeure or other"ise. **! is calculated on 3th day of the contract month. 7his is calculated by "ay of taking simple average of last 3 days of the spot market of Ahmedabad. Cegal obligation 7he members "ill provide appropriate tax forms "herever re#uired as per la" and as customary and neither of the parties 1seller member and buyer member2 "ill unreasonably refuse to do so. Applicability of 7he general provisions of $yela"s, rules and $usiness !ules $usiness !ules of the :xchange and decisions taken by ?or"ard Markets Commission, $oard of *irectors and :xecutive Committee of the :xchange in respect of matters specified above "ill form and integral part of this contract. 7he :xchange or ?MC as the case may be further prescribe additional measures relating to delivery procedures, "arehousing, #uality certification, margining, risk management from time to time. 17he interpretation or clarification given by the :xchange on any terms of this contract shall be final and binding on the members and others.2 S7:+S 7' $: ?'CC'6:* ?'! *:CI>:!8 Intention to take 'n any tender days by A.// p.m. delivery by buyers *issemination of 7he :xchange "ill inform members through information on 76S regarding tender notice and delivery tendered delivery and intentions of the sellerHs members and the buyers interest buyers respectively by 0.// p.m. on the respective tender days and on Saturdays by ,;// p.m.

:vidence of stocks in possession

7ender notice by seller $uyerHs obligation Allocation of delivery

At the time of issuing delivery order, the Member must satisfy the :xchange that he holds stocks of the #uantity and #uality specified in the *elivery 'rder at the declared delivery center by producing "arehouse receipt. 7he seller "ill issue tender notice along "ith evidence of delivery to the :xchange in a specified format by A;// p.m. and on Saturdays by ,.;// noon. 7he buyer shall not refuse taking delivery and such refusal "ill entertain penalty as per the penal provision. As per the closing price on the respective tender days.

-. Source; MC@ )old !eport , -?re#uently Asked Muestions on )old M,. 6hat is )old and "hy is its chemical symbol AuF )old is a rare metallic element "ith a melting point of ,/A5 degrees centigrade and a boiling point of .4/4 degrees centigrade. Its chemical symbol, Au, is short for the Catin "ord for gold, (Aurum(, "hich literally means ()lo"ing *a"n(. It has several properties that have made it very useful to mankind over the years, notably its excellent conductive properties and its inability to react "ith "ater or oxygen. M.. 6here does the "ord )old come fromF 7he "ord gold appears to be derived from the Indo :uropean root (yello"(, reflecting one of the most obvious properties of gold. 7his is reflected in the similarities of the "ord gold in various languages; )old 1:nglish2, )old 1)erman2, )uld 1*anish2, )ulden 1*utch2, )oud 1Afrikaans2, )ull 1=or"egian2 and 9ulta 1?innish2. M-. %o" much gold is there in the "orldF At the end of .//,, it is estimated that all the gold ever mined amounts to about ,53,/// tonnes. M5. 6hy is gold measured in caratsF 7his stems back to ancient times in the Mediterranean NMiddle :ast, "hen a carat became used as a measure of the purity of gold alloys 1see next Muestion 32. 7he purity of gold is no" measured also in terms if fineness, i. e. parts per thousand. 7hus ,4 carats is ,4N.5th of ,/// parts P 03/ fineness. M3. 6hat is a CaratF A Carat 19arat in <SA & )ermany2 "as originally a unit of mass 1"eight2 based on the Carob seed or bean used by ancient merchants

in the Middle :ast. 7he Carob seed is from the Carob or locust bean tree. 7he carat is still used as such for the "eight of gem stones 1, carat is about .// mg2. ?or gold, it has come to be used for measuring the purity of gold "here pure gold -5 is defined as .5 carats. %o" and "hen this change occurred is not clear. It does involve the !omans "ho also used the name Sili#ua )raeca 19eration in )reek, Mirat in Arabic, no" Carat in modern times2 for the bean of the Carob tree. 7he !omans also used the name Sili#ua for a small silver coin, "hich "as one t"entyfourth of the golden solidus of Constantine. 7his latter had a mass of about 5.35 grammes, so the Sili#ua "as approximately e#uivalent in value to the mass of , 9eration or Sili#ua )raeca of gold, i.e the value of ,N.5th of a Solidus is about , 9eration of gold, i.e , carat. MA. 6ho o"ns most goldF If "e take national gold reserves, then most gold is o"ned by the <SA follo"ed by )ermany and the IM?. If "e include De"ellery o"nership, then India is the largest repository of gold in terms of total gold "ithin the national boundaries. In terms of personal o"nership, it is not kno"n "ho o"ns the most, but is possibly a member of a ruling royal family in the :ast. M0. If all the gold "as laid around the "orld, ho" far "ould it stretchF If "e make all the gold ever produced into a thin "ire of 3 microns 1millionths of a metre2 diameter Q the finest one can dra" a gold "ire, then all the gold "ould stretch around the circumference of the "orld an astounding 0. million times approximatelyR M4. %o" much ne" gold is produced per yearF In .//,, mine production amounted to .,A/5 tonnes or A0L of total gold demand in that year. )old production has been gro"ing for years, but the real acceleration took place after the late ,B0/s, "hen output "as in the region of ,,3//tpa. 7his year output "ill fall short of production levels in .//,. 7his is partly for specific operational reasons at some of the larger mines 1)rasberg and +orgera2, along "ith lo"er grades at some of the operations in =evada. 7he reduction in exploration and development expenditure over the past five years is leading a number of analysts to suggest that, "ith other operations nearing the end of their lives, global production is likely to drop slightly over the next t"o to three years subDect al"ays of course to price. -3 MB. %o" much does it cost to run a gold mineF )old mining is very capital intensive, particularly in the deep mines of South Africa "here mining is carried out at depths of -/// meters and proposals to mine even deeper at 5,3// meters are being pursued. 7ypical mining costs are <S S.-4Ntroy ounce gold average but these

can vary "idely depending on mining type and ore #uality. !icher ores mined at the surface 1open cast mining2 is considerably cheaper to mine than underground mining at depth. Such mining re#uires expensive sinking of shafts deep into the ground. M,/. %o" does a gold mine "orkF 7he gold containing ore has to be dug from the surface or blasted from the rock face underground. 7his is then hauled to the surface and milled to release the gold. 7he gold is then separated from the rock 1gangue2 by techni#ues such as flotation, smelted to a gold rich dorT and cast into bars. 7hese are then refined to gold bars by the Miller chlorination process to a purity of BB.3L. If higher purity is needed or platinum group metal contaminants are present, this gold is further refined by the 6ohl"ill electrolytic process to BB.BL purity. Mine tailings containing lo" amounts of gold may be treated "ith cyanide to dissolve the gold and this is then extracted by the carbon in pulp techni#ue before smelting and refining. M,.. %o" big is a tonne of goldF )old is traditionally "eighed in 7roy 'unces 1-,.,/-3 grammes2. 6ith the density of gold at ,B.-. gNcm-, a troy ounce of gold "ould have a volume of ,.A5 cm-. A tonne of gold "ould therefore have a volume of 3,, 0A/ cm-, "hich "ould be e#uivalent to a cube of side -0..0cm 1Approx. ,( -((2. -A )old 7erminology ?or the purpose of this standard, the follo"ing definitions shall apply; , Assaying; 7he method of accurate determination of the gold content of the sample expressed in parts per thousand 1L2. . Carat; 'ne t"enty fourth part by mass of the metallic element gold. - ?ineness; 7he ratio bet"een the mass of gold content and the total mass expressed in parts per thousand 1L2. 5 ?ind )old; It is gold having fineness BBB parts per thousand 132 and above "ithout any negative tolerance. 3 )old; 7he metallic element gold, free from any other element. A Standard )old; )old having fineness BB3 parts per thousand 1L2 and above "ithout any negative tolerance. 0 )rain; 'ne of the earliest "eight units used for measuring gold. 'ne grain is e#uivalent to /./A54 grams. 4 %allmark; Mark, or marks, "hich indicate the producer of a gold bar and its number, fineness, etc. B 9arat; <nit of fineness, scaled from one to .5. .5 karat gold 1or pure gold2 has at least BBB parts pure gold per thousandU ,4 karat has 03/, parts pure gold and .3/ parts alloy, etc.

,/ 9ilo $ar; A bar "eighing one kilogram Q approximately -..,3/0 troy ounces. ,, Cegal 7ender; 7he coin or currency "hich the national monetary authority declares to be universally acceptable as a medium of exchangeU acceptable for instance in the discharge of debts. ,. Ci#uidity; 7he #uality possessed by a financial instrument of being readily convertible into cash "ithout significant loss of value. ,- 7roy 'unce; A unit of "eight, e#ual to about ,., avoirdupois 1ordinary2 ounces. 7he "ord ounce "hen applied to gold refers to a troy ounce. , troy ounce is e#uivalent to -,.,/-50A4 grams. -0 C'=CC<SI'= After almost t"o years that commodity trading is finding favour "ith Indian investors and is been seen as a separate asset class "ith good gro"th opportunities. ?or diversification of portfolio beyond shares, fixed deposits and mutual funds, commodity trading offers a good option for long term investors and arbitrageurs and speculators. And, no", "ith daily global volumes in commodity trading touching three times that of e#uities, trading in commodities cannot be ignored by Indian investors. 'nline commodity exchanges need to revamp certain la"s governing futures in commodities to make the markets more attractive. 7he national multi commodity exchanges have unitedly proposed to the government that in vie" of the gro"th of the commodities market, foreign institutional investors should be given the go ahead to invest in commodity futures in India. 7heir entry "ill deepen and broad base the commodity futures market. As a matter of fact, derivative instruments, such as futures, can help India become a global trading hub for select commodities. 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. Considering the huge volatility "itnessed in the e#uity markets recently "ith the Sensex touching .,/// level commodities could add the re#uired &ing to investors( portfolio. 7herefore, it "on(t be long before the market sees the emergence of a completely redefined set of retail investors.

Bangladesh government has recently taken an initiative to establish a commodity exchange market. The immediate past caretaker government at a meeting on April 16, 2007 took the initiative to cond ct a !easibility st dy on the establishment o! this type o! market. "ven tho gh the concept o! commodity exchange market is ne# to s, it has long been in practice in the #estern co ntries. $ecently this concept is gaining pop larity in many o! the Asian co ntries s ch as %ndia and &hina, #ho are already acc stomed to this market and have been in operation since 1''( and 2002 respectively. Besides %ndia, in )o th Asian context, *akistan and +epal have also established the commodity exchange market in their co ntries in 2007 and 200' respectively. )ri ,anka is on the verge o! introd cing the commodity exchange. Among the A!rican nations, "thiopia initiated the commodity exchange market in April 200- !ollo#ed by .enya. A!rican co ntry /hana is also considering initiating this type o! market immediately. The A!rican commodity exchange markets trade only agric lt ral prod ces, #hereas, the %ndian commodity exchange market is trading 20 goods consisting o! cash crops, !ood grains, plantations, spices, oil seeds and metals *akistan commodity exchange market trades gold, cotton, yarn, s gar, rice and #heat in their exchange centre in .arachi, #hile +epal is exchanging cash crops, !ood grains, vegetables, spices, oil seeds, metals and b llion. The traditional de!inition o! commodity exchange market is that it is an organised market !or p rchase and sale o! en!orceable contracts to deliver commodities s ch as #heat, rice, gold, or cotton or a !inancial instr ment like 1) Treas ry bills or " rodollars at some ! t re date. ) ch contracts are kno#n as ! t res and are bo ght and sold by means o! a competitive a ction process on the commodity exchange. This market in e!!ect provides ins rance against the risk o! price changes by trans!erring that risk to spec lators #ho are #illing to ass me it 2"ncyclopaedia Britannica, 200'3. &ommodity exchanges are divided ro ghly into three main types4 metal exchange, ! el exchange, and so!t 2agric lt ral3 commodity exchange. This market is also called commodity ! t res market. The main p rpose o! this market is to establish a dynamic, e!!icient, and orderly marketing system that stabilises volatility in daily commodity market and helps set p a better ! nctioning domestic market. 5hile ens ring transparency, setting p an agro6based commodities exchange market 2in Bangladesh3 #ill protect the !armers !rom price drops and the b yers !rom price hikes. 7armers can lock in prices thro gh !or#ard contracting and can red ce risk o! drastic price drop. %t also helps the !armers take a more ed cated planting decision depending on ! t res prices. "vent ally it #ill empo#er !armers8 choices. The existence o! a commodity market helps increase the li9 idity or #orking capital o! the !armers. %nstead o! borro#ing !rom traditional so rces like banks or s rers #ith high interests, this market assists !armers to acc m late ! nds #itho t any interest.

)pec lators and investors in:ect cash to the system thro gh b ying and selling the ! t res contracts. &ommodity exchange market has the option to permit international traders to operate in the domestic market. ;o#ever sometimes their nreg lated access aggravates domestic in!lation. "thiopia is one s ch example. %ts neighbo ring !ood6de!icient co ntries bo ght prod cts and its domestic prices do bled. The p rpose o! establishing this market in Bangladesh is many !olds. This type o! market is s pposed to help the government e!!ectively monitor the movement o! prices o! essential commodities and l bricate the s pply chain. Another ma:or ob:ective is to create competitiveness and bring e!!iciency in market mechanism. %t is also help! l in protecting drastic price !all a!ter b mper harvest. %n o r co ntry it is s ally observed that a!ter a b mper harvest, the prices o! agric lt ral commodities like paddy and potato !all drastically. The commodity exchange market can protect this severe !all by selling the prod ct in ! t re market. ;o#ever establishment o! s ch a market re9 ires some basic in!rastr ct re, storage capacity and manpo#er, and e!!icient comp ter net#ork. %t #ill also re9 ire trading !loor, #areho se delivery locations, and electronic price tickers. The h ge investment that is necessary may come !rom government treas ry, donor ! nds or !rom private sector. This market also needs strong 9 ality certi!ication and standardisation !acilities, #hich #ill re9 ire a strong standard testing instit tion. To ! l!il this Bangladesh #ill need to strengthen the B)T%, its existing standard testing instit tion. A net#ork o! #areho ses in s rpl s areas, a net#ork o! remote access terminal centres in ma:or markets and market in!ormation points at district level need to be created. To establish #areho ses, private sector investment can be an option b t the 9 estion remains #hether the private investors are interested to set p #areho ses at their o#n cost. "ns ring incessant electricity s pply is another important challenge, #hich #ill have to be met !rom the existing scarce stock nless signi!icant investment takes place in this sector. This market may red ce the n mber o! intermediaries by establishing a direct relationship bet#een !armers and traders. B t ens ring !armers8 participation #ill be to gh. %t is ass med that only big !armers #ill be able to enter this market beca se o! their greater capacity, #hereas the small !armers #ill have to rely on intermediaries. The government #ill have to think ho# the small and medi m !armers can take part in this market. To r n the market e!!ectively, a reg latory and monitoring body #ill be needed. ;o#ever there are some 9 estions attached to it 66 #hether this exchange market #ill be reg lated by the <inistry o! 7inance or the <inistry o! &ommerce or by the )ec rities and "xchange &ommission= #hat the legal in!rastr ct re #ill be= #hether it #ill be sel!6reg latory or a p blic6private :oint company, etc. ;o#ever be!ore initiating this kind o! market, the government sho ld assess its prospects in the context o! Bangladesh and eval ate the experiences o! other ,>&s and per!ormances o! neighbo ring co ntries. Be!ore la nching a ! ll6!ledged version o! this market, the government can also implement a pilot pro:ect #ith less price sensitive prod cts like potato and : te.

The writer is a research associate for Centre for Policy Dialogue (CPD), who can be reached at alamin@cpd.org.bd. Views e pressed here do not necessarily reflect those of CPD.