Does Correlation With Copula Modify Dependence Structure?

An
Empirical Study of Rubber Futures Markets

Abstract: Indian commodity futures market has witnessed several upheavals

in the recent past. Commodity as rubber is selected in the study to

investigate dependence among exchanges. Data points considered from July,
2006 to April, 2010 across the exchanges, namely, NMCE, SHFE, TOCOM
and AFET are taken into consideration for modeling the return-series and
dependence structure among exchange-level. Methodology heavily draws on
mainly two types of copulas with correlations, elliptical and Archimedean.
The estimation of correlations takes account of elliptical and Archimedean
copula. Spearmans rank correlation, rho and Kendalls tau are estimated
employing copulas which is a revised form of correlation. Based in
information criterion (SIC) used in the study, Frank copula is found to be
the best fit for NMCE-SHFE and NMCE-TOCOM whereas Clayton copula
seems to be the best one for NMCE-AFET. Highest dependency with respect
to Spearmans rho is found in NMCE-SHFE followed by NMCE-TOCOM, and
NMCE-AFET. It is evident from the study that there is a higher order of comovement between Indian rubber futures market and Chinas rubber
futures market.
Keywords: Correlation, copula, dependence, rubber futures exchanges
JEL Classification: G10

1. Introduction
Indias rubber futures market has been a subject of controversy ever
since National Multi Commodity Exchange (NMCE) initiated trading in
2003. India is the second largest consumer of natural rubber after China,
while it ranks fourth in production at the level of 9.5 lakh metric tonnes (mt)
in 2008-09(for more details, refer Indias Rubber Board Report, 2009).
Several stakeholders are involved in this market like Indias Rubber
Dealers Federation, Automotive Tyre Manufacturers Association, Indias
Rubber Growers Association, Association of Rubber Producing Countries,
Rubber Board, Forward Markets Commission (FMC) and All India Rubber
Industries Association. A key stakeholder is Automotive Tyre
Manufacturers Association (ATMA) that is the final consumer of finished
Natural Rubber (NR). Tyre manufacturers consume more than 60 percent of
Indias domestic natural rubber production. They also import rubber for
consumption sometimes through the duty free route. Participation of ATMA
members in Indias rubber futures market has been minimal right since its
1

inception. In addition, ATMA has been petitioning the Indias government

over these years to ban rubber futures trading due to high spikes in price
level. At present, NMCE imposes a 4 percent final price limit on daily basis
on rubber futures trading (NMCE, 2011).
Rubber futures prices in India relies upon several factors like
domestic and global rubber production, crude oil prices, consumption in
countries like China, synthetic rubber consumption and rubber futures and
spot prices in the international markets to name a few. Futures and spot
prices reflect many of these factors. In addition, price information from all
the major Asian rubber markets is available before Indias market opens for
futures trading. Thus, a great level of dependence might exist between
Indias and other Asian markets. Moreover, Indias rubber futures market
might be expected to be therefore efficient.
Conventional econometric techniques namely, co-integration, Vector
Error Correction Model (VECM), Vector Autoregression Moving Average,
and Multivariate Generalized Autoregressive Heteroscedasticity (MGARCH) models including Constant and Dynamic Conditional Correlations
were used in past studies (Chang et al., 2010). To test rubber futures
efficiency, one may employ co-integration test using Pantula and modified
Pantula principle (Johansen and Juselius, 1990; Hansen and Juselius, 1995
and Hjelm and Johansson, 2005), VECM, weak exogeneity test and
Granger causality for exploring both long- and short-run price/return
relationships (Engle and Granger, 1987). However, these techniques have
limitations due to assumptions of normality or conditional normality and
linearity. Commodity or financial markets are asymmetric with respect to
their price or/and return series. Therefore, conditional normality and
linearity does not hold while measuring dependence between several
markets. To relax these assumptions, we employed copula-based measures
to capture the complete dependence structures between these Asian
markets. Copula-based models are superior in contrast to linear correlationbased measures for modeling dependence structure (Embrechts et al.,
2002; Weiss, 2010).
In this backdrop paper attempts to address the three issues: (a) Is
Indias rubber futures market correlated with Asian markets in Japan,
Thailand, and China? (b) Which of these futures markets above co-move
with Indias market greatly? (c) Is there any non-linearity present? i.e. Does
correlation change after considering the copula?
The remainder of paper proceeds as follows. Section 2 briefs about
Asian and Indias rubber markets. Section 3 reviews related work on
dependence measures specific to rubber markets. Section 4 describes data
and methodology. Section 5 presents results and subsequently, interprets
them. Section 6 presents conclusion.
2

2. Rubber Markets and Futures Trading

Natural rubber is one of the most important agro-based industrial raw
materials in the world. Fluid of some specific plants (Haevea sp.) yields
natural rubber. Synthetic Rubber is also available in the market.
Commercial forms of rubber are sheets, crepes, block rubber and preserved
latex concentrates. Rubber has wide use in manufacturing sector like in tyre
industry, rubber stick, latex glove and condom production. Asia is the most
important market for rubber production and consumption. Asia accounts for
more than 96 percent of total rubber production in the world during 201112. Global NR production was more than 9.5 lakh mt in 2010. Key Asian
rubber markets comprise Thailand, Indonesia, India, China, Malaysia, and
Vietnam. Nevertheless, trading in Japan and China futures markets
influence and dictate international rubber prices.
Tradable rubber varieties in futures platform are mostly variants of
Ribbed Smoked Sheet (RSS) like RSS-1, RSS-3 and RSS-4. RSS-4
outperforms other varieties in rubber futures due to its production and
relatively high trade acceptance among international players. Some of the
major Asian rubber futures exchanges are Tokyo Commodity Exchange
(TOCOM) and Osaka Mercantile Exchange (OME) in Japan in Japan,
Singapore Commodity Exchange (SICOM) in Singapore, Shanghai
Commodity Exchange (SHFE) in China, Agricultural Futures Exchange of
Thailand (AFET) in Thailand and NMCE in India. Spot markets are also well
developed in these countries.
In India, NMCE is the largest rubber futures trading exchange. NMCE
had witnessed a cumulative physical delivery of 49,753 mt of NR from 2003
to 2008. On May 7 2008, Government of India suspended rubber futures
trading for consecutive four months. Trading resumed from the end of 2008.
Rubber spot markets operate at Kottayam, Kochi, Kozhikode and Kannur
which are cities in the state of Kerala in southern India. Appendix-1 (refer
Table-9) presents the contract specifications of rubber futures traded in
NMCE, India. Table-1 reports trade volume and value of RSS-4 at NMCE,
India.
[Insert Table-1 here]
Table-1 shows that rubber futures trade in terms of value and volume
witnessed significant growth rate until 2010-11. In 2011-12, negative
growth rate (- 45.92 %) in trade value and volume was reported (NMCE,
2012). It may be due to the price fluctuations that were witnessed in the
market during this year. This was a major trigger for the present study. If
futures prices fluctuated more than the expected levels, it would prevent
participation in the market and therefore, reduce trading volume and value.
3

This indirectly reflects on the efficiency of the market and also points to the
nature of dependence of Indias futures market with the leading rubber
futures markets of the world. Thus, this paper focuses on investigation of
dependence structures between India and Asian markets.

3. Copula: Definition And Operationalization

A copula is a function that connects or couples the multivariate distribution and marginal
distribution function. This implies that a marginal and joint distribution can be separated
employing a copula which, in practice, makes it indispensible to model a multivariate
distribution. It is noteworthy to mention that marginal distribution is unconditional one which is
discrete (usually) or continuous in nature whereas joint bivariate/multivariate distribution is
achieved by identifying co-movement or concordance and co-monotonicity among the variables.
There are two broad classes of copula-elliptical copula and Archimedean copula. The elliptical
copula is generated through the multivariate distribution function. The popular copulas in this
class include the Gaussian (or Normal) and t copula. The elliptical copulas have become popular
in modeling the dependence of financial return series. However, they are not very robust in
modeling important characteristics of financial return data due to typical characteristics reflected
by financial data series. These are, namely, financial returns typically show a fat tail with excess
kurtosis and extreme co-movement in the tail region, which usually make Gaussian copula
inadequate to model financial returns (Mashal and Zeevi, 2002; Dobric and Schmid, 2005; and
Kim, 2010). Second, even though the students t copula has extensively been considered on
account of its relatively good performance, ease in implementation and so on, the t copula shows
symmetric co-movement in order to attain minimum distance (Q-Q plot and KS test) estimation
in the tail area making it unfit for modeling dependence of the financial returns.
The Archimedean copula is derived through a shape generator and is very useful for dependence
modeling because it can model extreme co-movement in the tail regions. Some of the
parsimonious forms of Archimedean copulas are Gumbel, Frank and Clayton. The bivariate
Archimedean copula is well-established and can be effectively employed for financial modeling.
However, the d-dimensional generalization of the Archimedean copula is restricted. The first ddimensional generalization of the Archimedean copula is known as the symmetric (Joe, 1997) or
exchangeable case. A symmetric structure requires only one generator regardless of the
dimensions of a joint distribution. Thus, the number of estimated parameters does not increase
with increase in dimension. Consequently, the same pair-wise dependence is assured for all
variables in the d-dimensional space. Hence, it is not feasible to reflect dependence among
variables, in practice.
The second generalization is known as the asymmetric or nested structure that employs (d-1)
generators, which enable the modeling of the dependence structure more effectively as compared
to the symmetric case. This generalization comprises two methods-fully nested and partially
nested. The main idea of a fully nested structure is to first couple X1 and X2 followed by coupling
the copula of X1 and X2 with X3. Subsequently, the resulting copula is coupled with X4 and so on.
4

In this setting, a higher dimensional copula is obtained by adding one dimension at a time, so
that the number of distinct generator is (d-1). McNeil (2008) illustrates the sampling
architectures of a fully nested case and provides sufficient conditions for generating a proper
copula. A partially nested structure is a combination of an exchangeable and a fully nested
structure. This method considers a maximum of (d-1) distinct generators based on the
dependence structure of the given data. Savu and Trede (2006) opine that a partially structure
provides flexibility in modeling dependence structures.
3.1.

Definitions and Notations

One of the most prominent methods for modeling a multivariate distribution is to bring in a
copula that consistently combines the marginal and joint distribution. By employing the copula
theory, the effects of dependence and marginal distribution in order to describe the joint
distribution of asset returns through the selection of a suitable copula are segregated. The
definition of a copula is as follows:
Definition 1-Copula: A d-dimensional copula is a function C: [0, 1]d
[0,1], which has the
following properties (Cherubini et al, 2004):
C(u) is increasing in each component uk with k {1,,d}
For every vector u [0,1]d, C(u) = 0, if at least one coordinates of the vector u is 0 and C(u) = uk,
if all the coordinates of u are equal to 1 except the kth one.
For every a, b [0,1]d with a b, given a hypercube B = [a,b] = [a1b1] [a2 b2] [an
bn], whose vertices lie in the domain of C, its volume Vc(B) 0.
This definition states that a copula can be thought as a multivariate uniform distribution (wellbehaved) function with uniformly distributed margins. Under differentiable assumption, copulas
density can be obtained by:

C (u1,....u2 ) d C (u1,...u2 ) / u1 ,...u2

(1)

The following theorem is one of the most important theorems that use copulas to construct
multivariate distribution.
Theorem 1-Sklars (1959) Theorem: Let H be a d-dimensional distribution function with margins
F1,,Fd. Then there exists a d-dimensional copula C such that, for x Rd we have:

H ( x1 ,... xd ) C{F1 ( x1 ).... Fd ( xd )}

Moreover, if F1,,Fd are continuous, then C is unique and in discrete case, C is uniquely defined
on Range Fx Fy.

Sklars theorem shows that a joint distribution can be used to separate a marginal distribution and
dependence structure. This holds that the basic idea of dependence modeling through a copula is
to enable the separation of the univariate margins and dependence structure, with the latter being
completely viewed by a copular function (Joe, 1997 and Nelsen, 1999).
Another important property of copula is that it is invariant under strictly increasing
transformations, i.e.:

Cx1 ,... xd Ch1 ( x1 ),...hd ( xd ), if x h n (x) 0

(2)

The above property states that the dependence structure, which is described by a copula among
random variables, remains unchanged under increasing and continuous transformation of the
margins. This invariance property indicates that copulas provide the natural framework required
to study or investigate dependence properties, which remain invariant under increasing
transformation of the margins.
The advantage of employing a copula to model joint density is that, the copula enables modeling
of co-movement among variables with a tail dependence index. Generally, correlation is
considered as the measure of dependencies between two random variables, however, it only
captures the degree of liner relationship not the structure of the dependence, i.e., it does not
entirely describe the dependence structure between the variables. In order to avoid this problem,
two additional dependence measures are commonly used in empirical analysis. These are
Spearmans rank correlation and Kendalls tau. Both these measures are expressed as a function
of the copula, which makes them more feasible in practical application. Kendalls tau and
Spearmans rho are defined as follows:
1

4 0 C (u1 , u2 ) dc(u1 , u2 ) 1
0

(3)

s 12 0 C (u1 , u2 )dc(u1 , u2 ) 3
0

(4)

Definition 2-Tail Dependence: let (X1, X2) be a bivariate vector of continuous random variables
with marginal distribution F1 and F2. The coefficients of upper U and lower L tail dependence,
provided that the limit U [0, 1] and L [0, 1] exist, are respectively given by the following
expressions (Kim, 2010):
U : limu 1 P[ X 2 F2 1 (u ) X 1 F11 (u )]

(5)

L : limu 1 P[ X 2 F2 1 (u ) X 1 F11 (u )]

(6)
if U = 0, then the two random variables (X1, X2) are said to be asymptotically independent in the
upper tail. If U [0, 1], then two random variables are said to be asymptotically dependent in
the upper tail. We can express the upper and lower tail dependence using copula as follows,
respectively.
u limu 1[1 2u C (u , u ) / 1 u ]

(7)
6

L limu 1 C (u , u ) / u
(8)
As mentioned earlier, these are two classes of copula-elliptical copula and Archimedean copula.
The elliptical copula is generated from the multivariate distribution function, and the Gaussian
copula (or Normal) and t copula belong to this class. The elliptical copula is not adequate and
robust for modeling the dependence structure of a financial return or a commodity return series.
The reasons are enumerated as follows:
The parameter of the Gaussian copula (or Normal) is a linear correlation which fully
characterizes the dependence of random variables.
The tail dependence of the Gaussian copula (or Normal) is one, only if the correlation is
one, otherwise it is zero. This indicates that the Gaussian copula captures tail dependence
of random variables only for perfectly correlated case (either +1 or -1).
The parameters of t copula are in linear correlation, with the same role as that of the
Gaussian copula (or Normal) and the degree of freedom (v) which attributes to the comovement of random variables. A low degree of freedom corresponds to a strong comovement in the tail area. However, the co-movement generated by the t copula is
symmetrical, which signifies that implies that the tail dependence is identical in the upper
and lower tail areas. The tail index of the t copula can be expressed as: U =L = 2tv+1 {v+11-p/1+p}
Archimedean copulas are derived employing a generator and have various names based on the
names of their respective proponents. The well-known Archimedean copulas are, namely,
Gumbel (Gumbel, 1960), Clayton (Clayton, 1978) and Frank (Frank, 1979). It is noteworthy to
mention that the Gumbel copula also belongs to the extreme value family and therefore is
extensively used in risk modeling. The Archimedean copula is considered as a good option for
modeling financial/commodity assets because it can be used to reflect a series of dependence
structures including extreme co-movement in the tail area among variables.
Archimedean copula is generally expressed in the following form:
C (u , v ) 1[ (u ) (v )]

(9)

Where is a generator of Archimedean copula and -1 is the inverse function of . The

generator is a function : 1- R+ that is continuous, strictly decreasing and convex, and
satisfies (1) = 0.

4. Estimations And Notations

Elliptical copulas are simply the copulas of elliptical distributions. The most commonly used
elliptical distributions are the multivariate normal, and students t copula.
7

3.1. Elliptical Copula

3.1.1. Normal Copula
The normal copula is an elliptical copula expressed by:

C (u , v)

1 (u ) 1 ( v )

1
x 2 2 xy y 2
exp{
}dxdy
2 (1 2 )1/ 2
2(1 2 )

(10)

Where F-1 is the inverse function of the univariate standard normal distribution function, and , is
the linear correlation coefficient, is the copula parameter.
The relationship between Kendalls tau and the normal copula parameter is given by:

( X ,Y ) sin( / 2 )
3.1.2. Students t Copula
The Student t copula is an elliptical copula expressed as:
C ,v (u , v )

t 1v ( u ) t 1v ( v )

1
x 2 2 xy y 2
1

2 (1 2 )1 / 2
v(1 2 )

( v 2) / 2

dxdy

(11)
Where v (degree of freedom) and (linear correlation coefficient) are the
parameters of the copula.
The relationship between Kendalls tau and t copula is given by:

( X ,Y ) sin( / 2 )
3.2. Archimedean Copulas
These are important class of copulas-because of the ease with which they can be constructed and
the properties they posses which are good enough for financial return modeling or risk
management. Archimedean copulas are expressed by the general form written in (9) equation.
It is noteworthy to mention that is the generator of the copula. The general relationship
between Kendalls tau, and the generator of an Archimedean copula (t) for a bivariate data
set can be expressed as:
1

(t )
dt
(t )
0

1 4

(9.1)

For example, the relationship between Kendalls tau, and the Clayton copula parameter,
for a bivariate set is given by:

2
1 .

There are three Archimedean copulas in common use: the Clayton, Frank,
and Gumbel.
3.2.1. Clayton Copula
The Clayton copula is an asymmetric Archimedean copula, exhibiting greater dependence in the
negative tail than in the positive. This copula is expressed by:
C (u , v ) max{( u v 1) 1 / ,0}

(12)

And its generator is:

(t )

1
(t 1)
where (-1, )/{0}

The relationship between Kendalls tau and the Clayton copula parameter is expressed by:

2
1

3.2.2. Frank Copula

The Frank copula is a symmetrical Archimedean copula is given by:
C (u , v)

1
(e u 1)(e v 1)
ln 1

e 1

(13)

And its generator is:

exp( t ) 1

exp( ) 1

(t ) ln
Where,

(-, )/{0}

The relationship between Kendalls tau and the Frank Copula parameter is given by:
[D1( ) - 1} 1

Where

D1 ( )

et
0

t
dt
1 is

a Debye function of the first kind.

3.2.3. Gumbel Copula

The Gumbel copula/Gumbel-Hougard copula is an asymmetric Archimedean copula, exhibiting
greater dependence in the positive tail than in the negative. This copula is expressed by:

C (u , v ) exp ln u ln v

1/

(14)

And its generator is:

(t ) ( ln t )
Where (1, )
The relationship between Kendalls tau and the Gumbel copula parameter is expressed by:

1
1

5. Related Work
Research on dependence structure of rubber markets has also been
minimal. A few literature attempted to investigate price dependence in
energy markets employing copulas and Monte Carlo forecasting techniques.
A few studies explored the relationship between rubber spot and futures
prices on Agricultural Futures Exchange of Thailand (AFET) employing cointegration and error correction model (Romprasert, 2009; Nittayagasetwat
and Nittayagasetwat, 2010). Gregoire et al. (2008) showed how forecasts
for crude oil and natural gas prices could be improved by modeling the
dependence structure between them. Another study in the similar context
explored dependence between futures prices of crude oil and natural gas
(Alexander, 2005). Results showed that degree of dependence was strong.
He, however, mentioned that dependence cannot be modeled correctly by
considering a bivariate normal distribution.
A few studies modeled the dependence structure between the returns
of equity and commodity futures and their evolutions over a long period.
Delatte and Lopez (2012) modeled the dependence between commodity
including metal, agricultural, energy and stock markets by employing
copulas. They found that the dependence between commodity and stock
markets was time varying, symmetric and occurred most of the time as
opposed to mostly in extreme events. Their research established that not
allowing for time-varying parameters in the dependence distribution
generated a bias towards evidence of tail dependence. Similarly,
considering only tail dependence might lead to erroneous evidence of
asymmetry. In addition, some studies attempted to model returns from
portfolios consisting of both commodities and equities under conditional
10

asymmetric dependence using copulas. Pedraz et al. (2012) measured

conditional asymmetric dependence for oil and gold futures and the S&P
500 index. Study concluded that portfolios developed using copula-based
measures achieved more profitable investment ratios and better relative
performance measures than using conventional measures like Markowitzs
mean-variance efficient frontier. They argued that the key factors
attributing to the significant economic difference among methods were
univariate process identification, dynamic dependence including tail and
asymmetric dependence. Karlqvist (2008) conducted a similar kind of
experiment. A few studies contributed to advancement of methods through
a combination of copula and GARCH models, for instance, Hsu et al. (2008)
employed copula-based GARCH models to estimate dynamic hedge-ratio.
They compared dynamic hedging effectiveness with that of other hedging
models including conventional static or non time-varying and GARCH
including CCC-GARCM and DCC-GARCH models. Their study concluded
that copula-based GARCH models performed better than other dynamic
hedging models.
From a review of literature presented above, it is evident that studies
that explored dependence issues by considering the copula in the futures
market are not adequate. Therefore, the present study seems to be relevant
and has significant contribution to the growing body of commodity futures
empirics.

6. Data Description and Method

The study considered daily closing futures prices of rubber futures
contracts from July 2006 to April 2010. Price data were accessed from
Indias and Asian rubber futures markets namely, NMCE, SHFE, TOCOM and
AFET and data series consisted of all-month (near, middle and far) rubber
futures for the mentioned period. We calculated return series taking
logarithmic first difference of price data [ln (Ft/Ft-1)]. In order to arrive at the
common data series of the spot and futures prices, we considered matching
data points resulting in a homogenous time frame for the sample-period. For
ease of estimation, we considered rolling contract (full sample period)
instead of delivery-month wise expiry of the contract assuming that most of
the market participants exhibit their risk averse behavior. In other words,
they often adopt hedging strategy using rubber futures.
We briefly present copula methodology and its congruence to model
the dependence in non-Gaussian world. A copula captures the complete
dependence embedded in a random vector in contrast to linear correlation
(Embrechts et al., 2002). It is a function that connects or couples both
multivariate and marginal distribution function. It separates a marginal
distribution from joint distribution. There are two broad classes of copula:
one is elliptical and other one, Archimedean.
11

Elliptical copula is generated through a multivariate distribution

function. The popular copulas in this class include Gaussian (or Normal) and
t copula. Elliptical copulas have become popular in modeling dependence
structure of financial return series. However, these are not robust in
capturing important characteristics of financial return series due to the
assumption of conditional normality. Financial return series typically show a
fat tail that is excess kurtosis and extreme co-movement in the tail region. As
a result, Gaussian copula becomes inadequate for modeling (Mashal and
Zeevi, 2002; Dobric and Schmid, 2005 and Kim, 2010). Second, although the
students t copula has extensively been considered on account of its
relatively good performance, ease in implementation and so on, however,
Students t copula shows symmetric co-movement in order to attain
minimum distance estimation (MDE is tested by Kolmogorov-Smirnov or K-S
test and subsequently results are depicted through quantile (Q-Q) plot in the
tail area. Eventually, this phenomenon makes it unfit for modeling
dependence.
Shape generator of a distribution density function gives rise to the
Archimedean copula. It is useful for modeling dependence structure. Since
the Archimedean copula is robust one, it can model extreme co-movement in
the tail regions. Some existing forms of Archimedean copula are Gumbel,
Frank and Clayton. The bivariate Archimedean copula is well-established
and can effectively be employed for financial modeling. However, the ddimensional generalization of the Archimedean copula is restricted. The first
d-dimensional generalization of the Archimedean copula refers to a
symmetric (Joe, 1997) or an exchangeable case. A symmetric structure
requires only one generator regardless of the dimensions of a joint
distribution. Thus, the number of estimated parameters does not increase
with an increase in dimension. Therefore, the same pair-wise dependence is
assured for all variables in the d-dimensional space as it is not feasible
always to capture dependence among variables.
The second generalization is the asymmetric or nested structure that
employs (d-1) generators. These enable the modeling of the dependence
structure more effectively compared to the symmetric case. This
generalization comprises two methods: one is fully nested and other one,
partially nested. The main idea of a fully nested structure is to first couple X1
and X2 followed by coupling the copula of X1 and X2 with X3. Subsequently,
the resulting copula is coupled with X4 and so on. Through this process, we
can obtain a higher dimensional copula by adding one dimension at a time,
so that the number of distinct generator remains (d-1). McNeil (2008)
illustrated the sampling architectures of a fully nested case and provided
sufficient conditions for generating a proper copula. On the other hand, a
partially nested structure is a combination of an exchangeable and a fully
nested structure. This method considers a maximum of (d-1) distinct
12

generators based on the dependence structure in the given data set. Savu
and Trede (2006) opined that a partially structure provides flexibility in
modeling dependence structures (for more details on definition, notation and
estimation of copulas, refer Apendix-2).
In this paper, we used all classes of copulas to measure the
dependence structure of rubber futures markets captured by selected
exchanges.

5. Results and Discussions

5.1. Descriptive statistics of dependence measures
Both Indias rubber futures and spot price and their return series are
graphically presented through Figure-1 to 2. From October 2007 onwards
futures witnessed major fluctuations and reached peak price in May 2008
(more than INR 10,000 per quintal). Futures had all time high during this
period and eventually, trading was suspended. Rubber futures trading
resumed in December 2008. Gradually, prices tended to move in the bracket
of INR 12,000-15,000 per quintal in December 2010. Then rubber futures
prices moved upward and touched more than INR 17, 000 per quintal in
early 2011.
[Insert Fig-1 to 2 here]
The returns, estimated by considering first difference of logarithmic
futures prices, i.e., rt = ln (Ft/Ft-1), of the four exchanges considered for the
study are analyzed and presented in table-2. Mean returns of futures at the
NMCE are highest whereas at SHFE, the lowest. Returns in each exchange
had negative skewness (negatively skewed) and high kurtosis (leptokurtic).
Negative skewness indicates that the magnitude of loss is more probable
than the gain. The excess kurtosis indicates peaked fait-tailed distribution.
Jarque-Bera (JB) test confirms non-normality of return series. Figure-3
presents futures returns across different exchanges. These returns were
almost identical across exchanges.
[Insert Table- 2 here]
[Insert Fig-3 here]

5.2. Distribution fit to return series

Different information criteria confirmed that the normal distribution
was the best fit for all the series. Figure-4 to 7 presents the probability
density function (pdf) through plotted histograms of futures series.
13

[Insert Fig-4 to 7 here]

5.3. Joint Scatter Plot of NMCE and other Exchanges
Copula is applied to understand the dependency structure between
variables. The primary step to know dependency between two variables is
through correlation. Scatter plot depicts the correlation between two
exchanges. Fig-8 to Fig-10 plot the joint scatter diagrams of returns
between NMCE and other international exchanges. Every scatter plot
features lower tail dependency. The cloudy structure indicates mild to
moderate level of correlation between NMCE and other exchanges.
[Insert Fig-8 to 10 here]

5.4. Correlation estimates using Spearmans rho and Kendalls tau

Table-3 and 4 report the results of the correlation coefficient
estimates. These indicate dependence behavior between different
exchanges. Highest dependence structure was found between NMCE and
SHFE (=0.33, =0.23) followed by NMCE-TOCOM (=0.28, =0.19) and
NMCE-AFET (=0.20, =0.13).
[Insert Table-3 here]
[Insert Table-4 here]

5.5. Copula fit between NMCE and other Asian exchanges

We generated copula parameters employing maximum likelihood
estimation. Different information criteria (AIC, SIC and HQIC, for more
details, see Enders, 1995; Brooks, 2008) were estimated to find out the best
fit copula (Table-5). SIC ranked copulas are presented in table-6. Figure11 to 13 depicts the different copulas between NMCE and other
international exchanges. Both elliptical and Archimedean copulas were not
very scattered indicating dependence. The parameter estimation and
direction of dependence generated by copulas are presented in table-5.
Students t copula had mostly taken the star shape which is visible in Fig10. NMCE-SHFE and NMCE-TOCOM found the best fit with Frank copula.
Normal copula was the best fit for NMCE-SHFE. Clayton copula was the
second best fit for NMCE-TOCOM. For NMCE-AFET, Clayton copula was the
best fit followed by the Frank copula. However, among copula- based
dependence models, Gumbel copula was found to be inferior in modeling
dependence.
[Insert Table-5 here]
[Insert Table-6 here]
[Insert Fig-11 to 13 here]
14

5.6. Correlations with copulas

Equivalent rank correlation was measured using different class of
copulas. Correlation with elliptical copula was directly linked to the
magnitude of covariance and in Archimedean copula it was positively linked
with parameters (). The correlation coefficients had revised by employed
copulas as evident in table-7 and table-8. While correlation value based on
the best fit copula considered, correlation () became 0.57 and 0.29
between the NMCE-SHFE and the NMCE-TOCOM respectively. However, it
was only 0.21 between the NMCE-AFET. Though the value got changed,
nonetheless, the order of dependence remained the same, for instance, the
NMCE-SHFE followed by the NMCE-TOCOM and the NMCE-AFET. This can
be verified through Figure- 23 to 25, direction-1. The direction of positive
dependence was highest between NMCE-SHFE (Fig-23). Figure-24,
direction-4 depicts the mild degree of dependence between NMCE-AFET1.
[Table-7 here]
[Table-8 here]
[Insert Fig-14 to 25 here]

5.7. Discussions
The nature of distribution of the return series across different
exchanges considered show that any investor may be indifferent to any of
these exchanges. The return series of all exchanges showed correlation with
other though the degree of dependency is different. The Indian market is
more correlated with China markets than others.
For a robust
measurement of non-linear dependence across exchanges copula-based
measures were used in this study. Copula has changed the degree of
dependency by marginal amount if the best explaining copula (rank 1) for
India and other markets is only considered. However, the direction has
remained same. SHFE is one of the leading exchanges for rubber futures
and therefore is reflected in the dependence of Indias market on it.
Furthermore, it has implications on reference pricing of rubber futures. In
addition, China and India are the largest consumers of natural rubber in the
world. China leads India in consumption due to the increased growth of its
tyre industry which is the major consuming industry for natural rubber.
India has also been witnessing a substantial increase in the automobile
industry sales for more than a decade and therefore its implication on NR
consumption. Total NR production in the world thus has competing
consumption requirements in India and China which is also reflected
1Based on the formulae, we calculated equivalent Kendalls tau for each class of copula. We
failed to calculate Kendalls tau for Frank copula because of the generation of complex
number. The Debye function generated bi-logarithm which further failed to estimate a final
value.

15

through the data on rubber futures in the leading exchanges of these two
countries.

6. Concluding Observations
Literature on Indias rubber futures market has been quite sparse.
Even the application of copula to study dependency in commodity markets
has not been much found. This study was an attempt to bridge this gap. The
study was triggered with the request by ATMA for a ban on rubber futures
in India. The attempt through this study was to discern if Indias rubber
futures market is dependent and efficient. While Indias futures markets are
dependent on all the three exchanges which were taken up for the study,
however, greater dependence was observed between Indias and Chinas
rubber futures markets.
On the informational efficiency front, this study indirectly throws
some lights on exogeneity issue of Indias market with respect to Asian
markets. Nonetheless, exogeneity may be of different forms namely, weak,
strong, super-strong and block (Enders, 1995) that is subject to thorough
examination employing VECM or/and some non linear models like Markovs
Threshold Autoregression (Ciner, 2002; Ghoshray, 2009 and 2010). To this
end, co-integration between Indias and Asian rubber markets could be
explored to ascertain informational efficiency in long-run (Engle and
Granger, 1987; O Hara, 1997). In order to do so, both futures and spot
prices need to be considered. These may be signposts for further expansion
of this study.
Findings of the study might have serious implications for the various
stakeholders. Since futures market for rubber has been found to be
dependent on the Chinese market greatly, however, its functioning has to be
regulated scrupulously considering the nature of contract, its duration,
contract specifications among others. In addition, regulatory framework for
functioning of such a market in the futures may increasingly become
important. In effect, in the presence (absence) of informational efficiency,
participation and volume of trade may increase (decrease) drastically in the
immediate future resulting in a discourse, rationality or anomaly of rubber
futures market.
Linearity and normality assumptions are crucial for application of the
right econometric techniques for analysis. In this study, we used non linear,
empirical distribution assumptions for applying copula-based techniques to
model dependence structures.

16

One way forward in this study might be assessing instantaneous

causality between changes in futures and spot prices/their return series (Li
and Pan, 2009). Our paper has taken a technical view of the market; a
different approach could be to relate to the fundamental analysis of factors
that influence futures prices. A more realistic estimate of dependence
measures can be made using copula-based GARCH models which would
estimate a time-varying hedge ratio and hedging effectiveness of Indias
rubber futures vis--vis other Asian markets (Hsu et al., 2008). These would
help market participants in reducing their exposure to futures in case they
would encounter excessive losses. Therefore, use of these advanced models
can be another interesting direction for further research.

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Tables
Table-1: Trade volume (in lot & lakh) and value (INR Crore) of RSS-4 at
NMCE
19

2008-09
Volume
Value

2.22
1,964

2009-10
2010-11
2011-12
11.62
23.57
14.07
14,246
47,693
30,132

# 1 lot = 1000 kg or 1 metric ton, Source: NMCE, India 2012

Table-2: Descriptive statistics of rubber futures returns across India and

Asian markets
Table-2 shows basic descriptive statistics of rubber futures return across
exchanges. R_NMCE represents rubber futures return in India, likewise
R_SHFE, R_TOCOM and R_AFET return series in China, Japan and Thailand
respectively. In addition to median and range, all moments including mean,
standard deviation, skewness and kurtosis of rubber futures returns were
calculated and the table below presents these.
Mean ( in percent)
Median
Maximum
Minimum
Std. Dev.
Skewness
Kurtosis
Jarque-Bera (J-B)

R_NMCE
0.08

R_SHFE
0.02

R_TOCOM
0.04

R_AFET
0.05

0.0013
0.12
-0.18
0.02
-1.04
15.73
4048.25*

0.0009
0.06
-0.28
0.02
-4.00
55.68
69084.22*

0.0027
0.10
-0.50
0.03
-7.02
115.01
310096.80*

0.0008
0.06
-0.41
0.02
-8.22
140.87
469078.60*

Note-*denotes the rejection of null hypothesis of normality at 5% level of

significance
Source: authors estimation

Table-3: Results of Spearmans rho estimates

Table-3 reports the coefficients of Spearmans rho or rank correlation. Due
to its compatibility with copula-based measures, Spearmans rho estimates
were used to measure the direction and strength of relationship between
any of two exchanges. Each coefficient measured the linear relationship
between two sets of ranked data and showed how they tightly clustered
around a straight line (Altman, 1991). Correlation coefficients tabulated in
the first column indicate a low degree of correlation between NMCE and
other exchanges.
NMCE
0.33*
0.28*
0.20*

NMCE
SHFE
TOCOM
AFET

SHFE
0.59*
0.47*

TOCOM

AFET

0.48*

-correlation coefficient significant at 5% level, Source: authors

estimation

20

Table-4: Results of Kendalls tau estimates

Table-4 presents Kendalls tau, a measure of correlation between any two
exchanges. The usage of Kendalls tau has become popular in non
parametric measures because of its better statistical properties than other
measures (Conover, 1980). The coefficient measures the probabilities of
concordant and disconcordant pairs.
NMCE
-

NMCE
SHFE
TOCOM
AFET

SHFE
0.23*
0.19*
0.13*

TOCOM
0.43*
0.33*

AFET

0.34* -

-correlation coefficient significant at 5% level, Source: authors

estimation

21

Table-5: Copula estimates between exchanges: NMCE-SHFE, NMCE-TOCOM and NMCE-AFET

Table-5 reports the parameters and the direction of both elliptical and the Archimedean copulas. NMCE
is common in every pair for estimating copula parameters between the NMCE and any other exchange.
Three types of information criteria based on maximum likelihood estimation were calculated to select the
best copula fit for the given set of variables (futures return used).
Copula
estimate
s
Normal
(Covaria
nc)
Student
s t (mean
and
covarian
ce)

NMCE-SHFE
Paramet
ers/Dire
ction
0.79
2, 0.79

SIC

AIC

487.
15
585.
49

NMCE-TOCOM
HQIC

SIC

AIC

491.
15

Paramet
ers/Direc
tion
489.8
0.44
1

45.4
1

49.7
7

594.
21

590.8
2

45.7
4

54.4
6

8, 0.44

NMCE-AFET
HQIC

Paramet
ers/Direc
tion
48.08
0.41

SIC

AIC

HQIC

22.77

27.13

25.44

51.07

6, 0.41

29.01

37.73

34.35

43.16

0.31, 4

9.25

17.96

14.58

40.43

1.22, 1

11.04

19.76

16.37

48.15

1.15, 1

16.05

24.77

21.39

Estimates of Various Archimedean Copulas

Clayton
()
Frank ()

1.37, 4

Gumbel
()

1.68, 1

4.24, 1

570.
81
381.
44
507.
05

579.
53
390.
16
515.
77

576.1
4
386.7
7
512.3
8

0.46, 1
0.29, 1
1.23, 4

37.8
3
35.1
0
43.1
8

46.5
5
43.8
2
51.9
0

Source: authors estimation

22

Table-6: Copula-rank based on information criteria used

Table-6 presents ranks of copulas between the NMCE and other exchanges.
We ranked copulas based on the Schwarz Information Criteria (SIC)
resulting in the selection of best goodness-of-fit model. Frank copula
outperformed in most of the cases.
Copula

Rank
NMCE-TOCOM

NMCE-SHFE

Normal
Students t
Clayton
Frank
Gumbel

2
5
4
1
3

NMCE-AFET
4
5
2
1
3

4
5
1
2
3

Source: authors estimation

Table-7: Estimates of Spearmans rho rank correlation with copula

Table-7 shows the Spearmans rank correlation coefficients with copula
between futures return across exchanges. Correlation coefficients
moderated by Normal and Students t copula show a moderate to high
degree of correlation. However, Frank copula shows a moderate correlation
for NMCE-SHFE and a low level for NMCE-AFET. Clayton copula which was
found to be the best fit for NMCE-AFET depicts a low correlation between
these exchanges also.
Correlation revised by
Copula
Normal
Students t
Clayton
Frank
Gumbel

NMCESHFE

Spearmans rho
NMCE-TOCOM NMCE-AFET
0.70*
0.73*
0.61*
0.59*
0.60*

0.44*
0.43*
0.27*
0.29*
0.26*

0.38*
0.36*
0.19*
0.21*
0.20*

-significant at 5% level, Source- authors estimation

Table-8: Results of Kendalls tau with Copula

Table-8 reports correlation coefficients measured by Kendalls tau using the
best copula fit. We failed to calculate Kendalls tau for Frank copula as
already mentioned in the paper.
Correlation with
Copula

NMCE-SHFE

Kendalls tau
NMCE-TOCOM

NMCE-AFET
23

0.58*
0.58*
0.41*
0.40*

Normal
Students t
Clayton
Frank
Gumbel

0.29*
0.29*
0.19*
0.19*

0.26*
0.26*
0.13*
0.13*

-significant at 5% level, Source- authors estimation

FIG-1: Indias rubber spot price series

Rubber Spot Prices (in Rs/ Qtl)
12,000

11,000

10,000

9,000

8,000

7,000
50

100

150

200

250

300

350

400

450

500

FIG-2: Indias rubber futures price series (NMCE)

Rubber Futures Prices (in Rs./ Qtl)
13,000
12,000
11,000
10,000
9,000
8,000
7,000
50

100

150

200

250

300

350

400

450

500

24

FIG-3: Pictorial representation of rubber futures returns across exchanges

R_NMCE, R_SHFE, R_TOCOM and R_AFET represent returns at the NMCE,
SHFE, TOCOM and AFET respectively. X-axis denotes the year and Y-axis,
returns in absolute terms (not in percentage).
R _ N MC E

R _ SH FE

.1 2

.1

.0 8
.0 4

.0

.0 0
-.0 4

-. 1

-.0 8
-.1 2

-. 2

-.1 6
-.2 0

-. 3
III
IV
2 00 6

II
I II
20 07

IV

I
20 08

II

III
20 09

IV

I
2 01 0

I II
IV
20 06

II
III
2 00 7

R _ SIC OM

IV

I
2 00 8

II

I II
2 00 9

IV

I
20 10

II

I II
2 00 9

IV

I
20 10

R _ TOKOM

.2

.2

.0

.0

-. 2

-. 2

-. 4

-. 4

-. 6

-. 6
III
IV
2 00 6

II
I II
20 07

IV

I
20 08

II

III
20 09

IV

I
2 01 0

I II
IV
20 06

II
III
2 00 7

IV

I
2 00 8

R _ AFET
.1
.0
-.1
-.2
-.3
-.4
-.5
I II
IV
2 00 6

II
I II
20 07

R_TOCOM

IV

I
2 0 08

II

III
2 00 9

IV

I
2 01 0

R_NMCE

R_SHFE

.12

.1

.08

.2

.04

.0

.00
-.0 4

-.1

-.0 8

.1

-.1 2

-.2

-.1 6
-.2 0

.0

-.3
III
IV
2 0 06

II
III
20 07

IV

I
2 0 08

II

III
2 0 09

IV

I
201 0

III
IV
200 6

II
III
20 07

R_SICOM

-.1
-.2

.0

.0

-.2

-.2

II

III
2 0 09

IV

I
20 10

II

III
2 0 09

IV

I
20 10

-.4

-.6

-.6
III
IV
2 0 06

-.4

I
20 0 8

.2

-.4

-.3

IV

R_ TOKOM

.2

II
III
20 07

IV

I
2 0 08

II

III
2 0 09

IV

I
201 0

III
IV
200 6

II
III
20 07

IV

I
20 0 8

R_AFET
.1
.0

-.5

-.1
-.2

-.6

-.3

06

07

08

09

10

-.4
-.5
III
IV
200 6

II
III
20 07

IV

I
2 00 8

II

III
2 0 09

IV

I
20 10

Figure 4 to 7 explains the histograms of marginal distribution and how

these were fitted to the normal p.d.f. In order to identify the best fit
distribution, both normal p.d.f. and histograms are plotted in the same
figure. The returns across exchanges were tested to fit into the best
distribution. The parameters of distributions were generated through MLE
(Maximum Likelihood Estimation) approach and it was found that normal
distributions and its parameters (mean and variance) captured the actual
mean and variances of the marginal distribution.
FIG-4: Distribution fit and histogram of returns at NMCE

25

Estimated normal p.d.f and Histogram of R_NMCE

FIG-5: Distribution fit and histogram of returns at SHFE

Estimated normal p.d.f and Histogram of R_SHFE

FIG-6: Distribution fit and histogram of returns at TOCOM

26

Estimated normal p.d.f and Histogram of R_TOCOM

FIG-7: Distribution fit and histogram of returns at AFET

Estimated normal p.d.f and Histogram of R_AFET

Joint Scatter Plot with Marginal Distribution H istogram of N MCE & SH FE

.10
.05
.00

R_SHFE

Figure 8 to 10 presents joint scatter plot of returns across various

-.05 scatter plot, marginal distribution of returns at NMCE
exchanges. In every
is plotted in X-axis and marginal distributions of returns at the other
-.10
exchanges in Y- axis
for examining the degree of correlation and returnvariations between
-.15NMCE and any other exchange.
-.20scatter plot of returns between NMCE and SHFE
FIG-8: Joint
-.25

27

-.30

-.20

-.16

-.12

-.08 -.04 .00

R_NMCE

.04

.08

.12

FIG-9: Joint scatter plot of returns between NMCE and TOCOM

Joint Scatter Plot with Marginal Distributions of N MCE & TOCOM
.2
.1

R_TOCOM

.0
-.1
-.2
-.3
-.4
-.5
-.6

Joint Scatter Plot with Marginal Distribution Histogram of NMCE & AFET
.1
.0 -.20 -.16 -.12 -.08 -.04

.00
R_NMCE

.04

.08

.12

-.1
R_AFET

FIG-10: Joint scatter plot of returns between NMCE and AFET

-.2
-.3
-.4
-.5

28
-.20 -.16 -.12 -.08 -.04 .00
R_NMCE

.04

.08

.12

Figure 11 to 13 measures the copula fit between two return series. Normal
& Students t copulas under Elliptical class, and Clayton, Frank, Gumbel
under Archimedean class were tested to find out the best fit between return
series at two exchanges. In every graph, marginal distribution of returns at
NMCE is plotted in X-axis and the marginal distributions of returns at the
other exchanges in Y-axis. Studentst copula has maximum points in the tailregion and takes a star like shape. Clayton and Gumbel copulas are
asymmetric. Clayton copula exhibits a greater dependence in the negative
tail-region and Gumbel copula exhibits relatively more dependence in the
positive tail-region and Frank copula is symmetric.
FIG-11: Copula fit between NMCE SHFE

Normal Copula

Clayton Copula

Students t Copula

Frank Copula

Gumbel Copula

29

FIG-12: Copula fit between NMCE TOCOM

FIG-13: Copula fit between NMCE AFET

Normal Copula

Clayton Copula

Students t Copula

Frank Copula

Gumbel Copula

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FIG-11: Copula fit between NMCE AFET

Normal Copula

Normal Copula

Clayton Copula

Clayton Copula

Students t Copula

Students t Copula

Frank Copula

Frank Copula

Gumbel Copula

Gumbel Copula

Figure-14 to 16 exhibits correlation structures with normal and students t

copula. In the figures below, futures return-distribution at NMCE is plotted
along the X-axis and futures return-distribution at other exchanges in Y-axis.
FIG-14: Correlation with copula (Normal and Students t) between the
NMCE-SHFE

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FIG-15: Correlation with copula (Normal and Students t) between NMCETOCOM

FIG-16: Correlation with copula (Normal and Students t) between NMCEAFET

Figure 17 to 19 shows the correlation pattern with Clayton copula. In the

figures below, futures return-distribution at NMCE is plotted along the Xaxis and futures return-distribution at other exchanges in Y-axis. Upper left,
upper right, lower left and lower right represents the direction 1, 2, 3 and
4, respectively.
FIG-17: Correlation with copula (Clayton) between NMCE and SHFE
Clayton copula selected the direction-4 (lower right) during the estimation
of copula parameters. It shows relatively high positive dependence in
futures return between two exchanges.

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FIG-18: Correlation with copula (Clayton) between NMCE and TOCOMI

In this case, direction-1 (upper left) is selected by Clayton copula which
also signifies a low degree of correlation

FIG-19: Correlation with copula (Clayton) between NMCE and AFET

For NMCE-AFET, direction-4 (lower left) is selected by Clayton copula. It
does not indicate any level of positive correlation of return series between
NMCE and AFET.

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Figure-20 to 22 presents correlation structures between returndistribution across 4 exchanges with Frank copula. X-axis represents the
return-distribution fit at NMCE and Y-axis, return-distribution at other three
exchanges. Left and right part of the figures denotes direction 1 and 2
respectively. In all the cases, correlation with Frank copula selects
direction 1 (left) while estimating copula parameters.
FIG-20: Correlation with copula (Frank) between NMCE and SHFE

FIG-21: Correlation with copula (Frank) between NMCE and TOCOM

FIG-22: Correlation with Copula (Frank) between the NMCE and AFET

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Figure-23 to 25 depicts correlation pattern employing Gumbel copula.

Upper left, upper right, lower left and lower right represents the direction
1, 2, 3 and 4 respectively. While estimating parameters of Gumbel copula, it
selects the direction, 1, 4, 1 for NMCE-SHFE, NMCE-TOCOM and NMCEAFET, respectively.
FIG-23: Correlation with copula (Gumbel) between NMCE and SHFE

FIG-24: Correlation with copula (Gumbel) between NMCE and TOCOM

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FIG-25: Correlation with copula (Gumbel) between NMCE and AFET

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Appendix-1
The contract specification for NMCE rubber futures is as follows: minimum
lot/contract size of trading and delivery unit is 1 metric tonnes (mt). Trading
is from Monday to Friday of each month (except holidays) from 10 A.M. to 5
P.M. On Saturday, the timing is 10 AM to 2 P.M. Tick size (minimum price
difference between different buy (bid) and sell (offer) prices of the same
contract) is kept 1 INR (Indian Rupee). Quotation or base value of coffee
futures is standardized at INR per 100 kg or per quintal. Other
specifications are presented in the table below.
Contract specification of rubber futures in NMCE futures exchange, India
Trading parameters
Asset/Product/Series
Code(s)/Trade terminal
Unit
of
Trading,
Trading time
Delivery Unit
Quotation/Base value
Tick Size
Price Band

Rubber
RUBBER, RUBBERF, RBRMMMYYYY, NMCE
DTSS
1 mt; Monday to Friday-10 am to 5 pm,
Saturday-10 am to 2 pm
1 mt
Rs. per 100 kg or per quintal
Rupee 1/Daily Price Limit: Initial- (+)/(-) 3%, Final-(+)/(-)
4% (3+1)
Compulsory delivery
Delivery logic
Member-12,000 mt or 15% of
total open
Limit on Position
position
Client- 4,000 mt
Near month Limit
Member-5,000 mt or 15% of total OI, Client1,250 mt
No.
of
delivery Maximum 12 contracts monthly or minimum 2
bi-monthly contract running concurrently on
contracts in a year
NMCE
Central Warehousing Corporations (CWC)
Delivery centers
warehouses located in
Cochin/Ernakulam,
Kottayam, Calicut, Malapuram and Trichur of
Kerala state of India
Basis
variety
and Natural rubber (RSS-4)
(a) Coagulated rubber Sheets, properly
Quality Specifications
dried and smoked: block, cuttings, or
other scrap or frothy sheets, weak,
heated or burnt sheets, air dried or
smooth sheets not permissible.
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(b)Slight resinous matter (rust) and slight

amounts of dry mould on wrappers
bale surfaces and interior sheets,
(c) Medium size bark particles, bubbles,
translucent
stains,
slightly
over
smoked rubber are permissible to the
extent shown in the sample.
Source: Accessed from NMCE web site (www.nmce.com) on November 6, 2011

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