A PROJECT ON: ³COMMODITY MARKET´ ± A BRIGHT SPOT

BACHELOR OF COMMERCE BANKING & INSURANCE.

SEMESTER ± V ACADEMIC YEAR: 2010-2011

SUBMITTED BY: CANUTE FERNANDES

ROLL NO:

NES RATNAM COLLEGE OF ARTS, SCIENCE & COMMERCE, BHANDUP (W), MUMBAI- 400078

Commodity Market

A PROJECT ON: ³COMMODITY MARKET´ ± A BRIGHT SPOT

BACHELOR OF COMMERCE BANKING & INSURANCE.

SEMESTER ± V ACADEMIC YEAR: 2010-2011

SUBMITTED BY: IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF DEGREE OF BACHELOR OF COMMERCE- BANKING & INSURANCE CANUTE FERNANDES

ROLL NO:

NES RATNAM COLLEGE OF ARTS, SCIENCE & COMMERCE, BHANDUP (W), MUMBAI- 400078

2|P a ge

Commodity Market

NES RATNAM COLLEGE OF ARTS, SCIENCE & COMMERCE, BHANDUP (W), MUMBAI- 400078

CERTIFICATE

This is to certify that Mr. Canute Fernandes of B.Com (B&I) Semester V (20102011) has successfully completed the project on COMMODITY MARKET under the guidance of Miss

COURSE CO-ORDINATOR: Mrs. Riya Rupani

INTERNAL EXAMINER Mr. Rajiv Mishra

EXTERNAL EXAMINER Princip al Mrs. Rina Saha

3|P a ge

Signature of Student Canute Fernandes Roll No: 4|P a ge . The information submitted is true & original to the best of my knowledge. CANUTE FERNANDES student of B.Commodity Market DECLARATION I MR.Com (B&I) Semester V (2010-2011) hereby declare that I have completed the project on COMMODITY MARKET.

Science & Commerce. Bhandup (W). Rina Saha of NES Ratnam College of Arts.Commodity Market Acknowledgement I owe a great many thanks to a great many people who helped & supported me doing the writing of this book. Rajiv Mishra guide of the project for guiding & correcting various documents of mine with attention & care. Mr. She/he has taken pains to go through my project & make necessary corrections as & when needed. My deepest thanks to lecturer. NES Ratnam College of Arts. My deep sense of gratitude to Principal Mrs. Science & Commerce for support & guidance. Thanks & appreciation to the helpful people at NES Ratnam College of Arts. for their support. Science & Commerce. I would also thank my institution & faculty members without whom this project would have been a distant reality. I also extend my heartfelt thanks to my family & well wishers. I extend my thanks to the principal of. 5|P a ge . for extending her support.

Commodity Market EXECUTIVE SUMMARY This project is based on commodity markets. Hence this project has covered the recognized e xchanges & their organizational trading & the regulatory setup for future trading in commodities. 6|P a ge . Forward Market Commissions & the Government played in the markets. The soul of the project is the commodity boosters the reasons who will drive the commodity bourses ahead. the global commodity dynamics as all these influence the Indian commodity Markets their repercussions are seen in the local bourses. demand & supply scenario etc. In includes FMC i. Commodity markets are now the buzz word all the investors are looking at the commodity market as a revenue generator. margins & more importantly volatility. It also throws light on highly traded commodities their volumes. their significance in the economy & their contribution towards the GDP of the country. Finally it covers all important points on the bases of which a person can understand the commodity market & start trading in them.e. It contains analysis of 3 commodities.

Objectives The objective of this study is to understand.Commodity Market RESEARCH METHODOLOGY The method of data collection for my project is based on both primary as well as secondary data collection. 1. Present status of commodity market in India? 5. y Opinion of experts. Need & scope of commodity ma rket? 3. y Reference books. I have adopted the following methodology of study throughout the project. How it trade in stock market of India & other countries? 4. y Newspaper magazines. Future of commodity market? 7|P a ge . What is commodity market? 2. y Various internet websites.

Suggestions Conclusion Bibliography Topic Page No 1-15 16 17 18 19-21 22 23 23 24-26 27-28 29-30 31 32-34 35-38 38-39 40-45 46-49 50 51-57 58-59 60 61-63 64-65 66-71 72-73 74 75 8|P a ge . 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 17 18 19 20 21 22 23 24 25 26 Commodity Market Basics Leading Commodity Markets Of World Regulator Leading Commodity Markets Of India Commodity Future Trading in India What makes Commodity Trading Attractive? Commodity Trading Need for Commodity Derivatives for India History Of Development of Commodity Markets Relevance & Potential Of Commodity Markets in India Commodity Market Ecosystem India¶s place in World Market Working of Commodity Market Trading of Commodity Market Merits & Demerits of Commodity Market Study of Single Commodity Gold Questionnaire on Gold Gold Terminology MCX Contract Specifications of Gold Regulatory Body Role Of Government in Commodity Market National Multi-Commodity Exchange Of India Multi-Commodity Exchange Of India National Commodity & Derivatives Exchange LTD. No.Commodity Market INDEX Sr.

except actionable claims. a commodity based economy where two -third of the one billion population depends on agricultural commodities. arbitrageurs & speculators. a product or material that is bought & sold. 2000 (Founder of the World Economic Forum) ³A strong & vibrant cash market is a pre-condition for a successful & transparent futures market. Unlike the physical market. a jeweler can hedge his i nventory against perceived short term downturn in gold prices by going short in future markets. may find commodities an 9|P a ge . Retail investors.Commodity Market INDIA COMMODITY MARKET ³We are moving from a world in which the big eat the small to one in which the fast eat the slow´ -Klaus Schwab. It can be classified as every kind of movable property.´ INTRODUCTION India. who claim to understand the equity markets. The development & growth was shunted due to numerous restriction in the early 70¶s wh ich resulted in vibrant market. money & securities. surprisingly has an u nder developed commodity market. COMMODITY A commodity may be defined as an article. futures markets trades in commodity are largely used as risk management mechanism on either physical commodity itself or open positions in commodity stock. The article aims at understanding commodity market & how are the commodities traded on exchange. The idea is to study the importance of commodity derivatives & learn about the market from an Indian point of view. For instance. Commodity actually offers immense potential to become a separate asset class for market-savvy investors.

Retail investors should understand the risk & advantages of trading in commodities futures before taking a leap.702 3. 20 billion).160.544.494.130. In fact.854 (43) 3. commodities related (& dependent) industries constitute about 58%.452 4 Commodities Market NA 130.1) Government Securities Market 1. the size of the commodities market in India is also qu ite significant.534 b)Derivatives 439.230. the size of the commodities market grows many folds here on.7) a)Cash 314.645 519. the various commodities across the country clock an annual turnover of Rs 1.002 (117) a)Cash 617. It is the market where a wide range of products.745.374.Commodity Market unfathomable market.827.322 (91.. take speculative positions in commodities and exploit Arbitrage opportunities in the market.503 19.531 (84) Total Stock Market Turnover 1.053 b)Derivatives 2.872 3. in bracket represents percentage to GDP at market prices Source: Sebi bulletin (16. crude oil.376 (63) 2.507 (136) National Stock Exchange (a+b) 1.215 (4.099. Currently.318.8) (117.405 (56) 3.027 2. This would help investors hedge their commodity risk.527 500. Turnover in Financial Markets and Commodity Market (Rs in Crores) S No.035 (27) 2.400 Billion). COMMODITY MARKET Commodity market is an important constituent of the financial markets of any country.073 503.147.057.7) (16.518.1) 10 | P a g e .4) (133. energy and soft commodities like palm oil.478 12.936 4.551 (13) 515.000 crore (1. It is important to develop a vibrant. Of the country¶s GDP of Rs 13. are traded. precious metals. 20.468 II Bombay Stock Exchange (a+b) 316.505 (18. But commodities are easy to understand as far as fundamentals of demand & supply are concerned.2) Forex Market 658.867. active and liquid commodity market. coffee etc.641. base metals.865 2.672 1. 40. With the introduction of futures trading.000 (91) (124.730 crore (Rs 13. Market segments 1 2 3 I 2002-03 2003-04 2004-05 (E) 2.030 499.7) Note: Fig. viz.989 1.

Co Ministry of Consumer Affairs FMC (Forwards Market Commission) Commodity Exchange National Exchange Regional Exchange NCDEX MCX NMCE NBOT ¢§¦¥ ¤ £¢¡    od a 20 other regional exchanges § ¨ 11 | ag .

Co Qua ity Certification Agencies support agencies Consumers (Retai /Institutio -na )   " " Transporters/ Traders (specu ators)arbi -trageurs/c ient) 12 |   "  C earing ank ! Commodities cosystem MCX  Warehouses Hedger ( xporters / Mi ers Industry) Producers ( armers/Cooperatives/Ins titutiona )    ©© od a ag  #  .

Yellow Peas PETROCHEMICAL HDPE. Red Chilli Arecanut. Silver. Cotton M Staple. Furnace Oil. Gold HNI. Gold M. M. Rice Bran DOC. Sesame Seed. Sugar M-30. Mentha Oil. i-gold. Polypropylene(PP). Potato (Tarkeshwar). E. Cotton S Staple. Refined Soy Oil. Cashew Kernel. Pepper. Silver HNI. These c ommod i t i e s can be broadly classified into the following: METAL BULLION FIBER ENERGY SPICES PLANTATIONS PULSES Aluminium. Groundnut Oil. Masur. Soy Bean. Guar Seed. Mustard Oil. Steel Long Gold. Refined Sunflower Oil. Jeera. Gurchaku. Kapasia Khalli. Nickel. Castor Seeds. Cotton Yarn. Lead. Silver L CottonM Staple. Soymeal. Sponge Iron. Coconut OIL Oil. Cardamom. Mustard Seed (Jaipur). Potato (Agra). Mustard Seed (Sirsa). Copper. Coconut Cake. PVC S & OIL SEEDS Castor Oil. Rice Bran Refined Oil.Commodity Market DIFFERENT TYPES OF COMMODITIES TRADED: World-over one will find that a market exits for almost all the commodities known to u s. Crude Oil. Coffee (Robusta). Cotton Seed. RBD Palmolein. Sugar S-30 13 | P a g e . Crude Palm Oil. Natural Gas. Brent Crude Oil. Rubber Chana. Soy Seeds CEREALS OTHERS Maize Guargum.

072 74.385 53.463 67.Commodity Market TURNOVER OF INDIAN COMMODITY EXCHANGES Indian Commodity Futures Market (Rs Crore) Exchanges Multi Commodity Exchange NCDEX NMCE(Ahmadabad) NBOT(Indore) Others All Exchanges 2004 165147 266.823 571.505.731 57.149 14.621.633 1.375.735 2.759 2005 961.336 MARKET SHARE OF COMMODITY EXCHANGES IN INDIA 14 | P a g e .066 101.066.803 944.479 24.122 2006 1.683 54.155.338 13.591 2.739.988 58.997 3.206 733.582 37.340 2007 2.686 18.

Bombay Cotton Exchange Ltd. settlements etc. processor. Calcutta Hessain Exchange Ltd. several other exchanges were created in the country to trade in diverse commodities. 15 | P a g e . there exists the spot and the derivatives segment. was established in 1893 following the widespread discontent amongst leading cotton mill owner¶s merchants over functioning of Bombay Cotton Trade Association. was established in 1919 for futures trading in raw jute & jute goods. wholesaler etc. Futures trading in wheat were existent at several places in Punjab & Uttar Pradesh. The Futures trading in oilseed started in 1900 with the establishment of Gujarati Vyapari Mandali.Commodity Market DIFFERENT SEGMENTS IN COMMODITIES MARKET The commodities market exits in two distinct forms namely the Over the Counter (OTC) market and the Exchange based market. The spot markets are essentially over the counter markets and the participation is restricted to people who are involved with that commodity say the farmer. EVOLUTION OF COMMODITY MARKET IN INDIA Bombay Cotton Trade Association Ltd. as in equities. But the most notable futures exchange for wheat was Chambers Of Commerce at Hapur set up in 1913. which carried on futures trading in groundnut. Also. These two associations amalgamated in 1945 to form East India Jute & Hessain Ltd. Futures trading in bullion in Mumbai began in 1920.. But organized futures trading in raw jute began onl y in 1927 with the establishment of East Indian Jute Association Ltd. Derivative t r a d i n g takes place t h r o u g h exchange-based markets with standardized contracts. set up in 1875 was the 1 st organized Futures Market. to conduct organized trading in both Raw Jute & Jute goods. Forward Contracts (Regulation) Act was enacted in 1952 & the FMC was established in 1953 under the Ministry of Consumer Affairs & Public Distribution. castor seed & cotton. In due course.

No. India National National Commodity and Derivatives Exchange (NCDEX). China Bursa Malaysia Derivatives exchange Singapore Commodity Exchange (SICOM) Chicago Mercantile Exchange (CME). 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Global Commodity Exchanges New York Mercantile Exchange (NYMEX) London Metal Exchange (LME) Chicago Board of Trade (CBOT) New York Board of Trade (NYBOT) Kansas Board of Trade Winnipeg Commodity Exchange. US London Metal Exchange Tokyo Commodity Exchange (TOCOM) Shanghai Futures Exchange Sydney Futures Exchange London International Financial Futures and Options Exchange (LIFFE) Multi-Commodity Exchange in India (NMCE). Manitoba Dalian Commodity Exchange. India Multi Commodity Exchange of India Limited (MCX).Commodity Market LEADING COMMODITY MARKETS OF WORLD Some of the leading exchanges of the world are: S. (joint venture between Dubai holding and the New York Mercantile Exchange (NYMEX)) 16 | P a g e . India Dubai Gold & Commodity Exchange (DGCX) Dubai Mercantile Exchange (DME).

Commodity Market REGULATORS: Each exchange is normally regulated by a national governmental (or semi.governmental) regulatory agency: Country Australia Chinese mainland Hong Kong India Pakistan Singapore UK USA Malaysia Regulatory agency Australian Securities and Investments Commission China Securities Regulatory Commission Securities and Futures Commission Securities and Exchange Board of India and Forward Markets Commission (FMC) Securities and Exchange Commission of Pakistan Monetary Authority of Singapore Financial Services Authority Commodity Futures Trading Commission Securities Commission 17 | P a g e .

Commodity Market LEADING COMMODITY MARKETS OF INDIA The government has now allowed national commodity exchanges. Mumbai National Commodity and Derivatives Exchange Ltd (NCDEX). to come up and let them deal in commodity derivatives in an electronic trading environment. Consequently four commodity exchanges have been approved to commence business in this regard. The Forward Markets Commission (FMC) will regulate these exchanges. National Board of Trade (NBOT). Indore National Multi Commodity Exchange (NMCE). screen based trading system for trading. 1 2 3 4 Commodity Market in India Multi Commodity Exchange (MCX). order driven.NO. Ahmadabad 18 | P a g e . similar to the BSE & NSE. These exchanges are expected to offer a nation-wide anonymous. They are: S.

Derivatives as a tool for managing risk first originated in the Commodities markets. Due to the bulky nature of the underlying assets. However there are some features. Even in the case of physical settlement. However there are some features. Spaced out purchases possible rather than large cash purchases and its storage.Commodity Market COMMODITY FUTURES TRADING IN MARKET Introduction Derivatives as a tool for managing risk first originated in the Commodities markets. Greater flexibility. Similarly. which are very peculiar to commodity derivative markets. Benefits to industry from futures trading Hedging the price risk associated with futures contractual commitments. most of these contracts are cash settled. In the case of financial derivatives. the quality of the asset underlying a contract can vary largely. the concept of varying quality of asset does not really exist as far as financial underlying are concerned. The basic concept of a derivative contract remains the same whether the underlying happens to be a commodity or a financial asset. In the case of financial derivatives. certainty and transparency in procuring commodities would aid bank lending. They were then found useful as a hedging tool in financial markets as well. which are very peculiar to commodity derivative markets. physical settlement in commodity derivatives creates the need for warehousing. They were then found useful as a hedging tool in financial markets as well. However in the case of commodities. most of these contracts are cash settled. The basic concept of a derivative contract remains the same whether the underlying happens to be a commodity or a financial asset. financial assets are not bulky and do not need special facility for storage. 19 | P a g e . This becomes an important issue to be managed. Efficient price discovery prevents seasonal price volatility.

Member can trade in multiple commodities from a single point.Commodity Market Facilitate informed lending. and something to trade''. brokerage fees. Why commodity futures? One answer that is heard in the financial sector is "we need commodity futures markets so that we will have volumes. on real time basis. Government intervenes by trying to maintain buffer stocks. like bank credit. state-of-art technology deployment. * Lending for agricultural sector would go up with greater transparency in pricing and storage.finance from Banks to rural households. scalable.what is the role for commodity futures in India's economy? In India agriculture has traditionally been an area with heavy government intervention. etc. and they have import-export restrictions and a host of other interventions. Hedged positions of producers and processors would reduce the risk of default faced by banks. how 20 | P a g e . the question arises about who will maintain the buffer stock. Robust. Commodity Exchanges to act as distribution network to retail agri. information dissemination. they try to fix prices. We have to look at futures market in a bigger perspective -. Benefits to exchange member Access to a huge potential market much greater than the securities and cash market in commodities. Many economists think that we could have major benefits from liberalization of the agricultural sector. In this case. Provide trading limit finance to Traders in commodities Exchanges. Traders would be t r a i n e d to be R u r a l Advisors and Commodity Specialists and through them multiple rural needs would be met.

does not work. and it. which -. which is doing a huge job of storage. They also wo rk very effectively when there is trade in agricultural commodities.in my opinion -.Farmers spend money on fertilizers. These activities produce their own "optimal" buffer stocks. In this fashion. thus if the future price is low the arbitrageur will buy in the futures market. 21 | P a g e . and it will carry signals back to the farmer making sowing decisions today. commodity futures markets are a part and parcel of a program for agricultural liberalization. high yielding varieties. Futures markets are an instrument for achieving that liberalization. smooth prices. resulting in losses. how will farmers get signals that in the future there will be a great need for wheat or rice. The converse is also true. In all these aspects the futures market has a very big role to play. an arbitrager will buy today and sell in the future. how will farmers not be vulnerable that tomorrow the price will crash when the crop comes out. If we think there will be a shortage of wheat tomorrow. the futures prices will go up today. They are worried when making these investments that by the time the crop comes out prices might have dropped. I can sell my wheat at a price. These days. which is fixed today. Next. is a system. Many agriculture economists understand the need of liberalization in the sector. If the future price is high and the present price is low. arbitrageurs on the futures market will use imports and exports to smooth Indian prices using foreign spot markets. Thus a farmer would like to lock in his future price and not be exposed to fluctuations in prices. The third is the role about storage. Today we have the Food Corporation of India. then I can sell my wheat on the futures market. agriculture requires investments . Futures market will produce their own kind of smoothing between the present and the future. which eliminates my risk from price fluctuations. In totality.Commodity Market will we smoothen the price fluctuations. etc. a system of futures markets will improve cropping patterns. if I am growing wheat and am worried that by the time the harvest comes out prices will go down.

compared with. High co-relation with changes in inflation. equities and bonds. A good hedge against any downturn in equities or bonds as there is Little correlation with equity and bond markets. 22 | P a g e . No securities transaction tax levied.Commodity Market WHAT MAKES COMMODITY TRADING ATTRACTIVE? A good low-risk portfolio diversifier A highly liquid asset class. Investors can leverage their investments and multiply potential earnings. bonds and real estate. acting as a counterweight to stocks. Less volatile. Better risk-adjusted returns.

In India. it is a regulatory authority which is overseen by the Ministry of Consumer Affairs & Public Distribution. Agriculture sector is an imp factor in achieving a GDP growth of 8-10%. In India people have a love for Gold & S ilver. NEED OF COMMODITY DERIVATIVES FOR INDIA: India is among top 5 producers of most of the commodities. It is a statutory body set up in 1953 under the Forward Contract (Regulation) Act. 1952. 23 | P a g e . the commodity market is about three times the size of equities trade market. in addition to being a major consumer of bullion & energy products. Govt. Globally. Agriculture contributes about 22% of the GDP of Indian economy. It employees around 57% of the labor force on total of 163 million hectors of land. commodity trading is going to be the next big thing for investors. presently. trading is also going to pick up in Gold & Silver. All this indicates that India can be promoted as a major centre for trading of commodity derivatives. Of India. After Equity trading.Commodity Market COMMODITY TRADING Commodity Trading in India is regulated by FMC headquartered at Mumbai. the commodity market is still is the nascent stage & is gradually picking up taking a cue from the global market.

Farmers (sellers) & dealers (buyers) slowly started entering into contract for forward exchanges of grain for cash at some particular future date so that farmers could avoid taking the trouble of transporting & storing wheat (at very high costs) if 24 | P a g e . in 1730. In the 1840¶s Chicago had become a commercial centre since it had good railroads & telegraph lines connecting it with the east. CBOT preceded futures exchanges in Europe. Around the same time good agriculture technologies were developed in the area. Farmers usually brought their wheat to Chicago hoping to sell at a good price. therefore. Midwest farmers. which lead to higher wheat production. The city had very limited storage facility & hence. Aristotle described the use of call options by Thales of Miletus on the capacity of olive oil presses.000 yrs ago in China with rice as a commodity. used to connect to Chicago to sell their wheat to dealers who.Commodity Market HISTORY OF THE DEVELOPMENT OF COMMODITY MARKETS Global Scenario: It is widely believed that the futures trade first started about approximately 6. In ancient Greece. the farmers were often left at the mercy of the dealers. in turn. Futures trade first started in the 17 th century. The first organized futures market was the Osaka Rice Exchange. organized trading in futures began in the US in the mid-19th century with maize contracts at the Chicago Board Of Trade (CBOT) & a bit later cotton contracts in New York. to exchange cash for immediate delivery of wheat. weeks could go by without any transaction taking place & even the weeks could go by without any transaction taking place & even the provision of a daily free lunch did not entice exchange members to actually come to the exchange! Trade took off only in 1856.e. In the first few yrs of COBT. transports it to all over the country. The situation changed for the better in 1848 when a central marketplace was opened where farmers & dealers could meet to deal in ³CASH´ grain i. when new management decided that the mere provision of a trading floor was not sufficient & invested in the establishment of grades & standards as well as nationwide price information system. Historically.

Those exchanges traded i n jute. In mid-1940¶s. Slowly. This is how the future market in commodities developed in US. there were many commodity futures exchanges. if the farmer didn¶t want to deliver his wheat. including the Calcutta Hessain Exchange Ltd. The hedgers began to efficiently transfer their market risk of holding physical commodity to these speculators by trading in future exchange.Commodity Market the price was not acceptable. This system was suitable to farmers as well as dealers. Indian Scenario: History of trading in commodities in India dates back to several centuries. Such forward contracts became common & were even used subsequently as collateral for bank loans. etc. If the dealer decided he didn¶t want the wheat. & the dealer knew his costs of procurement well in advance. During the 1 st half of the 20th century. Ahmadabad) was established. The futures trading in Gold began in Mumbai in 1920. potatoes. India¶s history of commodity futures market has been turbulent. that was established in 1927. pepper. The price would go up & down depending on what was happening in the wheat market. Also. But organized futures market in India emerged in 1875 when the Bombay Cotton Trade Association was established. The farmer knew how much he would be paid for his wheat. could pass on his obligation to another farmer. even those individuals who had no intention of ever buying or selling wheat began trading in these contracts expecting to make some profits based on their knowledge of the situation in the market for wheat. However. he would sell the contract to someone who needed it. They also began to change hands before the delivery date. turmeric. The Forward Contract Regulation 25 | P a g e . They were called speculators. The contracts slowly got ³standardized´ on quantity & quality of commodities being traded. trading in forwards & futures became difficult as a result of price control by Government. The futures trading in oilseed started in 1900 when Gujarati Vyapari Mandali (today¶s NMCX. They hoped to buy contracts at low price & sell them at high price or sell the contracts in advance for high price & buy for lower price. sugar. Options were banned on cotton in 1939 by the Government of Bombay to curb widespread speculation.

In 1960s. The Government appointed four committees (Shroff Committee in 1950. These measures weakened the agricultural commodity markets in India. seeds.Commodity Market Act was passed in 1952. In the post-liberalization era of the Indian economy. the Government of India suspended forward trading in several commodit ies jute. the government offered to buy agricultural products at Minimum Support Price (MSP) to ensure that the farmers benefited. However. transportation & distribution of agricultural products. due to fears of increase in commodity prices. edible oil. This put a regulatory guideline on forward trading. Dantwala Committee in 1966. cotton. In 1996. it was the Kabra Committee & the World Bank-UNCTAD study that finally assessed the scope for forward & futures trading in commodities markets in India & recommended steps to revitalize futures trading. Khusro Committee in 1979 & Kabra Committee in 1993) to go into the regulatory aspects of forward & futures trading in India. etc. 26 | P a g e . The Government also managed storage. the World Bank in association with United Nations Conference on Trade & Development (UNCTAD) conducted a study on Indian Commodities Market.

To add to this.500 + Agricultural Produce Market Cooperative (APMC) mandis. It has major markets in regions of urban conglomeration (Cities & Towns) & nearly 7. there is a network of over 27. These marketplaces play host to a variety of commodities every d ay. developing exchanges with modern infrastructure & systems such as online trading. The Government also has recognized three national level commodity exchanges. global trends indicate that the volume in futures trading trends to be 5 -7 times the size of commodities spot trading in the country (Internationally. India is World¶s leading producer of more than 15 agricultural commodities & is also the world¶s largest consumer of edible oils & gold. The commodity trade segment employs nearly five million plus traders. approving new exchanges. The Government of India has initiated several measures to stimulate active trading interest in commodities. Steps like lifting the ban on futures trading in commodities. Indian Commodities Market has an excellent growth potential & has created go od opportunities for market players. There is huge domestic market for commodities in India since India consumes a major portion of its agricultural produce locally. Many of these commodities would be traded on the futures markets as food-processing industry grows at a phenomenal pace.000+ haats (Rural Bazaars) that are seasonal market places of various commodities. which are trading in more than 85 commodities at present. the multiple f or physical versus derivatives is much higher at 15-20 times). & removing legal hurdles to attract more participants have increased 27 | P a g e . where more than 6 5% of the population are dependent on agriculture. According to the experts in commodity markets.Commodity Market RELEVANCE & POTENTIAL OF COMMODITY MARKETS IN INDIA Majority of commodities traded on global commodity exchanges are agri -based. & the list continues to expand. The potential of the sector has been well identified by the Central Government & the State Government & they have invested substantial resources to boost production of agricultural commodities. Many nationalized & private sector banks have announced plans to disburse substantial amounts to finance commodity -trading business. Commodity Markets therefore are of great importance & hold a great potential in case of economies like India.

Commodity derivatives exchanges have been established with a view to minimize risk associated with such price volatility. The volumes are likely to surge further as a result of the increased interest from the international participants in Indian Commodity Markets. Commodity Trading & commodity financing are going to be a rapidly growing business in the coming years in India. since India is largely a net importer of such commodities. the growth in commodity futures can be expected to be phenomenal. With the liberalization of the Indian economy in 1991. It is expected that Foreign Institutional Investors (FIIs). the commodity prices (especially international commodities such as base metals & energy) have been subject to price volatility in international markets. mutual funds & banks may be able to participate in commodity futures is also expected after the amendments to the FCR Act. If these international participants are allowed to participate in the markets (like in case of capital markets). 1952. The trading volumes are increasing as the list of commodities traded on NCE also continues to expand. 28 | P a g e .Commodity Market the scope of commodities derivatives trading in India.

29 | P a g e . traders. Oil producing companies. 3) Markets & Exchanges: Spot Markets (mandis. Merchandisers. quality testing & certifying companies. Central & State Warehousing Corporations & Private Sector Warehousing Companies.) & Commodity Exchanges (national & regional level) 4) Support Agencies: Depositories/de-materializing agencies. Exporters. wholesalers. The following illustration shows the different components in the commodity markets ecosystem: The commodity markets ecosystem includes the following components: 1) Buyers/Sellers or Consumers/Producers: Farmers. etc. State Civil Suppliers Corporations. APMC mandis. etc. manufacturers. Importers. 5) Lending Agencies: Banks & Financial Institutions.Commodity Market COMMODITY MARKETS ECOSYSTEM After studying the importance of commodity markets & trading in commodity futures. farmers co-operatives. bazaars. etc. 2) Logistics Companies: Storage & transport Companies/operators. distributors. it is essential to understand the different components of the commodity markets ecosystem.

Commodity derivatives exchanges provide a platform for hedging against price risk for these users. In turn. Users Logistic Companies Support Agencies Farmers & Farmers Co-operatives Storage & Transport Requirements & Quality Certification Requirements Central & State Warehousing Corporation APMC Mandis Testing & Certifying Companies Traders Spot Market State Civil Suppliers Cooperation Commodity Market Private Sector Warehousing Companies Warehouse Receipt System Lending Agencies 30 | P a g e . they depend on logistic companies for transportation of commodities. thus. They have exposure to the physical commodities market. exposing themselves to price risk.Commodity Market The users are the producers & consumers of different commodities. & quality testing & certification agencies for assessment & evaluation of commodity quality standards. warehouses for storage.

08 3.Commodity Market INDIA¶S PLACE IN WORLD MARKET The following table shows the position of Indian Commodity Market in the International Commodity Market with respect to certain significant commodities.85 43.75 0.74 World 2049 599 55 35 40 1278 2.99 7.28 4.28 1.14 15.30 Rank 3rd 2nd 1st 2nd 3rd 2nd 1st 8th 2nd 2.64 17.84 10.35 23.00 24.17 12.02 Share 11.09 3rd 31 | P a g e .06 18.65 25. Commodity Rice(Paddy) Wheat Pluses Groundnut Rapeseed Sugarcane Tea Coffee(Green) Jute & Jute Fibers Cotton(Lint) India 240 74 13 6 6 315 0.

goods X in a warehouse and gets a warehouse receipt. Today Commodity trading system is fully computerized. The broker maintains an account of all dealing parties in which the daily profit or loss due to changes in the futures price is recorded. the seller should be able to deposit the commodity at warehouse nearest to him and collect the warehouse receipt. The second is futures trade. Which allows him to ask for physical delivery of the goods from the warehouse? But someone trading in commodity futures need not necessarily possess such a receipt to strike a deal. Squiring off is done by taking an opposite contract so that the net outstanding is nil. A person deposits certain amount of say. Futures have something called an expiry date.At this stage the following is the system implemented -Order receiving -Execution -Matching -Reporting 32 | P a g e . With online commodity trading they could sit in the confines of their home or office and call the shots.Commodity Market WORKING OF COMMODITY MARKET There are two kinds of trades in commodities. Trading : . The underpinning for futures is the warehouse receipt. For commodity futures to work. Traders need not visit a commodity market to speculate. But at present in India very few warehouses provide for specific commodities. A person can buy or sale a commodity future on an exchange based on his expectation of where the price will go. The commodity trading system consists of certain prescribed steps or stages as follows: 1. The first is the spot trade. Following diagram gives idea about working of the Commodity market. The buyer should be able to take physical delivery at a location of his cho ice on presenting the warehouse receipt. in which one pays cash and carries away the goods. by when the buyer or seller either closes (square off) his account or give / take delivery of the commodity.

10 STEPS TO INVEST IN COMMODITY MARKET: The future trading in commodities has emerged as a major investment option in India.This stage has following system in place -Matching -Registration -Clearing -Clearing limits -Notation -Margining -Price limits -Position limits -Clearing house. 2.This stage has following system followed as follows-Marking to market -Receipts and payments -Reporting -Delivery upon expiration or maturity. Commodity market performances are equal to that of the stock market and analysts predict that the commodities market will overtake the capital market in trade volumes sooner than later. Here are 10 steps that you need to know to invest in commodities market. But since commodities futures market is a relatively new entrant in India. Clearing: .Commodity Market -Surveillance -Price limits -Position limits. 3. not many investors know how to tap and benefit from trading in various commodities. 33 | P a g e . Settlement: .

set stop loss and book profit levels. Step 6: Insist on regular reports and special knowledge / training opportunities. Step 4: Choose the right brokerage plan that optimizes your costs.03% to 0. Step 3: Be clear of the rules and regulations especially transaction costs. brokerage fees ranging from 0. Step 8: Focus on a few commodities.Commodity Market Step 1: Locate a brokerage house with a reputation for service.08% on contract value. You could require PAN card. account opening charges and annual maintenance charges. Step 9: Clear any or all doubts now . gather requisite knowledge and pay up the initial amount for margin money. address proof and passport size photos. Step 2: Fill a demat account opening form with a registered br okerage house and a member with the national commodity exchanges. 34 | P a g e . Step 5: Be clear of the service deliverables from your broker. Step 10: Get ready for investing and track your success and losses all the time. but remember not at the cost of other traditional investing avenues. Step 7: Set aside funds for commodity investing.

Commodity Market TRADING OF COMMODITY MARKET ³Money making is not a commodity. but commodity trading could earn you money!´ 35 | P a g e .

Trading in any contract month will open on the twenty first day of the month. For example. This involves high transaction costs and is not a suitable 36 | P a g e . the commodities themselves on the µspot market¶ for immediate delivery. y By purchasing. the December 2004 contracts open on 21 September 2004 and the due date is the 20 -day of the delivery month. Investors can choose between the two. settlement takes place five to seven days after the expiry. Many investors already hold shares in such companies or hold units in collective investment schemes such as unit trusts which invest all or part of the fund assets into such companies. The option to square off the deal or to take delivery can be changed before the last day of contract expiry. the buyer can claim the commodity from the warehouse. On producing this receipt. the margin raises to 0-25% 0f the contract value and the seller is required to pay sales tax on the transaction. three months prior to the contract month. in case of deli very-based traders. All contracts settling in cash will be settled on the following day after the contract expiry date. While speculators and arbitrageurs generally prefer cash settlement. a transferable receipt from the warehouse where goods are stored is issued in favour of the buyer. Investing in Commodities: Commodity investment can be done in a number of ways: y By investing in companies that produce commodities. or selling. All open contracts not intended for delivery are cash settled. If the buyer chooses to take delivery of the commodity. where the settlement date is the next working day after expiry. commodity stockiest and wholesalers go for delivery. However. In the case of delivery-based trades. Commodity trading follows a T+1 settlement system.Commodity Market Investors¶ choice: The future market in commodities offers both cash and delivery -based settlement.

It seems an obvious statement but commodities make a return for investors if price rise after purchase. y By purchasing. government policies related to subsidies and taxation and international trading norms as guided by the World Trade Organisation (WTO). 37 | P a g e . his absolute returns would have been above 24%. Gold offers good protection against exchange rate fluctuations. unlike stocks. However. Taking positions in individual commodities is essentially speculative and should only be undertaken by professional investors who can afford to lose large sums of money if things go wrong. against fluctuations in the value of the US dollar against other leading currencies. it is 12-18% in gold. Unlike financial assets. Commodities are also good bets to hedge against inflation. According to study. commodities offer no gain from interest income or dividends. and in particular. or selling via the commodities exchanges for later delivery. 15-25% in silver. Returns from Commodity trading: Absolute returns from stocks and bonds are definitely higher than pure commodities. as pricing in commodity future is less volatile compared to equities and bonds. global weather patterns. But commodity trading carries a lower downside risk than other asset classes. Most trading in commodities is done through µfutures¶ and µoptions¶. commodity prices are dependent on their demand supply position. if an investor had put his money only in silver and bonds from 1997-2003. While the average annual volatility is 25 -30% in benchmark equity indices like the BSE Sensex or NSE¶s Nifty. 10-12% in cotton and 5-10% in government securities.Commodity Market method of investment for individual investors. They generate losses if prices fall.

pepper. The volume for the trading session till 02:00 p. banks are keen to tap the commodity trade -financing front.m. 2009 up to 5:00 p. The daily volume of trading of Rs. Rape Mustard seed and Soya oil. online commodity markets are witnessing good growth in India.way).851 users) participated in trading and put through more than 99. The daily turnover volume at the National Commodity and Derivative Exchange (NCDEX) stood at Rs. Chana. Soya oil. 2009.5% as against the normal lending rate between 11% and 14%.39.Commodity Market Growth of commodity trading: A soft interest rate regime and a weak US dollar have increased the demand for the commodities.2000 crore on the Bombay Stock Exc hange (BSE). 26. urad.970 users) users participated in trading on Aug 3. has achieved a peak daily turnover of Rs. Expecting the turnover on the three online commodity exchanges to spurt to Rs. Active trades were high among others Guar seed.68 billion (one-way). soya bean oil. was Rs.638 trades put through by them.m. sugar. 01.2617 crore on 8 December 2004. In a short span of over a year. Commodities like chana.198 trades.39 billion (one . Though the most popular commodities for trading in India are gold. on the other hand. MCX.1889 crore. soya bean and guar gum. Turmeric. 432 members (1. 38 | P a g e .10000 crore per day. the market is divided equally between bullion and agricultural commodities in terms of trading volumes. Turmeric and Soybeans. Chana. Commercial banks are chasing the commodity industry with attractive lending rates between 8% and 8. On Aug. mustard seeds and wheat contributed to the balance trading volume. Active trades were high in among others Guar seed. There were 457 members (1.2500 crore at NCDEX alone has surpassed that of Rs. silver. It registered a record daily traded volume of Rs. There were more than 93.

Advantages: y The commodity markets try to integrate the fragmented rural markets. y Efficient spot price can be discovered and disseminated. Another major criticism is that the farm gate price is very low when compared to the price paid by the consumer. y Transportation and warehousing facilities would be increased. economic experts say that if the farmer and the consumer are to be benefitted then future trading and spot trading in the rural commodity markets should be encouraged.Commodity Market ADVANTAGES & DISADVANTAGES OF COMMODITY MARKETS. y There would be guarantees for trade and also payments. Small producers have no say in the market and traders dominate. y Multiple commodities can be procured at one centre. 39 | P a g e . Considering all these advantages. Disadvantages: Globally commodity markets are criticized for their part in indulging in speculation and thus increasing the prices. y The bargaining power of the farmers would be increased.

Commodity Market STUDY ON SINGLE COMMODITY: GOLD: 40 | P a g e .

Commodity Market

GOLD Introduction Gold is a unique asset based on few basic characteristics. First, it is primarily a monetary asset, and partly a commodity. As much as two thirds of gold¶s total accumulated holdings relate to ³store of value´ considerations. Holdings in this category include the central bank reserves, private investments, and highcaratage jewllery bought primarily in developing countries as a vehicle for savings. Thus, gold is primarily a monetary asset. Less than one third of gold¶s total accumulated holdings can be considered a commodity, the jewellery bought in Western markets for adornment, and gold used in industry. The d i s t i n c t i o n b e t we e n gold a n d c o m m o d i t i e s i s important. Gold has maintained its value in after-inflation terms over the long run, while commodities have declined. Some analysts like to think of gold as a ³currency without a country¶. It is an internationally recognized asset that is not dependent upon any government¶s promise to pay. This is an important feature when comparing gold to conventional diversifiers like T-bills or bonds, which unlike gold, do have counter-party risk.

What makes gold special?

Timeless and Very Timely Investment Gold is an effective diversifier Gold is the ideal gift Gold is highly liquid Gold responds when you need it most

41 | P a g e

Commodity Market

Market Characteristics

y The gold market is highly liquid. Gold held by central banks, other major

institutions, and retail jewellery is reinvested in market.
y

Due to large stock of gold, against its demand, it is argued that the core driver of the real price of gold is stock equilibrium rather than flow equilibrium.

y

Effective portfolio diversifier: This phrase summarizes the usefulness of gold in terms of ³Modern Portfolio Theory´, a strategy used by many investment managers today. Using this approach, gold can be used as a portfolio diversifier to improve investment performance.

y

Effective diversification during ³stress´ periods: Traditional method of portfolio diversification often fails when they are most needed, that is during financial stress (instability). On these occasions, the correlations and volatilities of return for most asset class (including traditional diversifiers, such as bond and alternative assets) increase, thus reducing the intended ³cushioning´ effect of the diversified portfolio.

42 | P a g e

Commodity Market

Demand and supply

y China produced 276 metric tons of gold last year, equal to about 9.7

million ounces, said London precious metals consultancy GFMS Ltd. That's up 12% from the year-ago and represented just over one-tenth of the world's supply.
y The ranking pushes South Africa into second place, the first time the

Gold giant has lost its top ranking since 1905. South Africa, who¶s late 19th century gold rush led to the founding of mining heavyweight Anglo American Plc and is home to global producers Gold Fields Ltd and AngloGold Ashanti Ltd; saw its production decline 8% to 272 metric tons.
y India is world largest gold consumer with an annual demand of 800

tonnes.

Demand and Supply of Gold in India (in tonnes)

2006 Supply Mine Production Net Producer Hedging Total mine supply Official sector sales Old gold Scrap Total Supply Demand Fabrication Jewellery Industrial & Dental Subtotal of above fabrication Bar & coin retail investment Other retail investment ETFs and similar Total Demand Inferred Investment 573 -140 430 93 303 826 519 111 630 89 -3 113 829 -3

2007 580 -129 451 95 262 808 568 112 680 116 -5 36 827 -19

% change 1 5 2 -13 2 9 1 8 31 -68 0 43 | P a g e

one necklace and two bangles. y Medallions. Risk and Return on Gold Investments The return from investments in gold may be compared with the return on investment in Government bonds in the Indian markets. Illustratively.2 oz). gem-set) 18 carat jewellery is increasingly popular in the cities and is estimated to have used 31 tones (1 million oz) in 2001.February 1996 and sold at end-February 2002 at the prevailing rates in the local bullion market. Indian Gold Jewellery Market y Plain 22 carat jewellery is the core of consumption especially in the rural areas. A basic marriage set for a bride is two earrings.e. where gold is so important in judging a family's status at a marriage. and in case capital gains through marked to market is also taken into account. one nose pin. On the contrary. one ring. all in 22 carat gold and weighing up to 200 grams (6. These items are popular as gifts at weddings and 44 | P a g e . charms and small gift items account for up to half of what is loosely called jewellery. th e annualized average return could be as high as 15 per cent. investment in a liquid risk-free Government security on the same date would have fetched a comfortable positive return.Commodity Market Source: GFMS Ltd. y Studded (i. if gold had been purchased at end. the average annualized return would work out to be negative.

Ahmadabad and Bangalore. The Bu re au o f I n d i a n S t a n d a r d s h a s i n t r o d u c e d a voluntary scheme which. known as Jari used in high quality saris worn at weddings and special occasions requires somewhere in the region of 20 tones (0. y The market is highly fragmented with an estimated 100. 45 | P a g e . although not yet widely used.000 workshops supplying over 300. in centers such as Mumbai. y The number of retail jewellery outlets has increased greatly since the abolition of gold control.Commodity Market other family events.000 retailers. y Gold thread. The industry is beginning to be modernized with large factories. installing the latest equipment. The minimum legal caratage is 9 carat. single shop operations. as has the number of Indians possessing gold jewellery.6 m oz) annually. mostly family-owned. y Hallmarking does not exist in India and under-caratage is commonplace. is becoming more popular.

which literally means 'Glowing Dawn'. Au. Its chemical symbol. Gull (Norwegian) and Kulta (Finnish). What is Gold and why is its chemical symbol Au? Gold is a rare metallic element with a melting point of 1064 degrees centigrade and a boiling point of 2808 degrees centigrade. Guld (Danish). Q2. Q3. Gold (German). Where does the word Gold come from? The word gold appears to be derived from the Indo-European root 'yellow'. notably its excellent conductive properties and its inability to react with water or oxygen. reflecting one of the most obvious properties of gold. Gulden (Dutch). Q4. This is reflected in the similarities of the word gold in various languages: Gold (English).Commodity Market Frequently Asked Questions on Gold Q1. It has several properties that have made it very useful to mankind over the years.000 tonnes. 'Aurum'. Goud (Afrikaans). is short for the Latin word for gold. How much gold is there in the world? At the end of 2001. Why is gold measured in carats? 46 | P a g e . it is estimated that all the gold ever mined amounts to about 145.

How and when this change occurred is not clear. For gold. then most gold is owned by the USA followed by Germany and the IMF. i. If we include jewellery ownership. and now Carat in modern times) for the bean of the Carob tree.e.54 grammes. parts per thousand. The Romans also used the name Siliqua for a small silver coin. e. Q5.e. The purity of gold is now measured also in terms if fineness. but is possibly a member of a ruling royal family in the East. Thus 18 carats is 18/24th of 1000 parts = 750 fineness. so the Siliqua was approximately equivalent in value to the mass of 1 Keration or Siliqua Graeca of gold. i.Commodity Market This stems back to ancient times in the Mediterranean /Middle East. it has come to be used for measuring the purity of gold where pure gold is defined as 24 carats. when a carat became used as a measure of the purity of gold alloys (see next Question 5). In terms of personal ownership. which was onetwenty-fourth of the golden solidus of Constantine. 47 | P a g e . Q6. the value of 1/24th of a Solidus is about 1 Keration of gold. i. What is a Carat? A Carat (Karat in USA & Germany) was originally a unit of mass (weight) based on the Carob seed or bean used by ancient merchants in the Middle East. The Carob seed is from the Carob or locust bean tree. Who owns most gold? If we take national gold reserves. 1 carat. then India is the largest repository of gold in terms of total gold within the national boundaries. This latter had a mass of about 4. It does involve the Romans who also used the name Siliqua Graeca (Keration in Greek. it is not known who owns the most. The carat is still used as such for the weight of gem stones (1 carat is about 200 mg). Qirat in Arabic.

500tpa. 48 | P a g e . This year output will fall short of production levels in 2001. Such mining requires expensive sinking of shafts deep into the ground. then all the gold would stretch around the circumference of the world an astounding 72 million times approximately! Q8.Commodity Market Q7. How much new gold is produced per year? In 2001. but the real acceleration took place after the late 1970s. how far would it stretch? If we make all the gold ever produced into a thin wire of 5 microns (millionths of a meter) diameter ± the finest one can draw a gold wire. Gold production has been growing for years. along with lower grades at some of the operations in Nevada. Typical mining costs are US $238/troy ounce gold average but these can vary widely depending on mining type and ore quality. Richer ores mined at the surface (open cast mining) is considerably cheaper to mine than underground mining at depth.604 tonnes or 67% of total gold demand in that year. Q9. The reduction in exploration and development expenditure over the past five years is leading a number of analysts to suggest that. How much does it cost to run a gold mine? Gold mining is very capital intensive. with other operations nearing the end of their lives.500 meters are being pursued. when output was in the region of 1. If all the gold was laid around the world. particularly in the deep mines of South Africa where mining is carried out at depths of 3000 meters and proposals to mine even deeper at 4. global production is likely to drop slightly over the next two to three years subject always of course to price. mine production amounted to 2. This is partly for specific operational reasons at some of the larger mines (Grasberg and Porgera).

Commodity Market Q10. Q12. The gold is then separated from the rock (gangue) by techniques such as flotation. If higher purity is needed or platinum group metal contaminants are present.27cm (Approx. Mine tailings containing low amounts of gold may be treated with cyanide to dissolve the gold and this is then extracted by the carbon in pulp technique before smelting and refining.32 g/cm3. These are then refined to gold bars by the Miller chlorination process to a purity of 99. which would be equivalent to a cube of side 37. A tonne of gold would therefore have a volume of 51.5%.64 cm3. 760 cm3. With the density of gold at 19. 1¶ 3¶¶)? 49 | P a g e . a troy ounce of gold would have a volume of 1. this gold is further refined by the Wohlwill electrolytic process to 99. How does a gold mine work? The gold-containing ore has to be dug from the surface or blasted from the rock face underground. smelted to a gold-rich doré and cast into bars. How big is a tonne of gold? Gold is traditionally weighed in Troy Ounces (31.1035 grammes).9% purity. This is then hauled to the surface and milled to release the gold.

or marks. parts pure gold and 250 parts alloy. One grain is equivalent to 0. y Find Gold: It is gold having fineness 999 parts per thousand (5) and above without any negative tolerance. etc. free from any other element. y Legal Tender: The coin or currency which the national monetary authority declares to be universally acceptable as a medium of exchange. y Fineness: The ratio between the mass of gold content and the total mass expressed in parts per thousand (%). y Liquidity: The quality possessed by a financial instrument of being 50 | P a g e .0648 grams. y Kilo Bar: A bar weighing one kilogram ± approximately 32. y Standard Gold: Gold having fineness 995 parts per thousand (%) and above without any negative tolerance. scaled from one to 24.Commodity Market Gold Terminology For the purpose of this standard. the following definitions shall apply: y Assaying: The method of accurate determination of the gold content of the sample expressed in parts per thousand (%). y Karat: Unit of fineness. y Carat: One-twenty fourth part by mass of the metallic element gold. etc. y Grain: One of the earliest weight units used for measuring gold.1507 troy ounces. y Gold: The metallic element gold. y Hallmark: Mark. fineness. 24 karat gold (or pure gold) has at least 999 parts pure gold per thousand. which indicate the producer of a gold bar and its number. acceptable for instance in the discharge of debts. 18-karat has 750.

whichever is high DELIVERY 51 | P a g e . e q u a l t o a b o u t 1 . y Troy Ou n c e : A u n i t o f we i g h t . 1 per 10 g (minimum price movement) 3% 4% In case of initial volatility. 1 a v o i r d u p o i s (ordinary) ounces. Saturday: 10:00a. ex-Ahmadabad (inclusive of all taxes and levies relating to import and custom duty.1034768 grams. local taxes and octroi) Maximum order size Tick Size Daily price limit Initial Margin Special Margin 10 kg Re. The word ounce when applied to gold refers to a troy ounce. after which the special margin will be relaxed. a special margin at such percentage (as deemed fit). TRADING Trading Unit Price Quote 1 kg Rs. but excluding sales tax/VAT.m. will be imposed immediately on both buy and sell side in respect of all outstanding positions.m. 1 troy ounce is equivalent to 31.m.Commodity Market readily convertible into cash without significant loss of value. Per 10 g. to 11:30 p. which will remain in force for next 2 days. any other additional tax or surcharge on sales tax. to 2:00 p. Maximum Allowable For individual client: 2 MT For members collectively for all clients: 6 MT or 15%of the market position. MCX Contract specifications of gold: GOLD Name of Commodity Ticker Symbol Trading System Trading Period Trading Session Gold GLDPURMUMK MCX Trading System Monday to Saturday Monday to Friday: 10:00a.m.

00 a.Commodity Market Delivery unit Delivery period margin 1 kg 25% of the value of the open position during the delivery period Delivery center(s) At designated clearing house facilities of Group 4 Securitas at these centers and at additional delivery centers at Chennai. Margin during delivery period 52 | P a g e 25% on the marked quantity. On expiry all the open p o s i t i o n s s h a l l b e m a r k e d f o r d e l i v e r y . New Delhi and Hyderabad.00 p. 1st to 6th day of the contract expiry month.m. Mode of Communication Tender Period Margin Fax or Courier 5% incremental margin for last 5 days on all outstanding positions. additional and special margin as applicable. Delivery pay-in will be on E + 1 basis.m. on Tender day +1 basis.00 p. Such margin will be addition to initial.m. except Saturdays. . Sundays and Trading Holidays. Marking of delivery will be done on the tender days based on the intentions received from the sellers after the trading hours. on Tender day +1 basis By 05. INFORMATION RELATED TO DELIVERY Delivery Logic Compulsory D e l i v e r y . Any s e l l e r h a v i n g o p e n position on the expiry date fails to deliver then the penalty as per the penal provision will be imposed to the defaulting seller. On any tender days by 6. Delivery Logic SETTLEMENT PERIOD Tender Period Delivery Period Pay-in of commodities (delivery by seller member) Compulsory 1st to 6th day of the contract expiry month. Pay-in of funds Pay-out of funds and commodities (delivery to buyer member) By 11.

Delivery order rate (DOR) Settlement/closing price on the respective tender days except on expiry date.5% of DOR will be imposed on defaulting buyer / seller out of which 2% will be credited to IPF and 0. On expiry date the delivery order rate shall be the Due Date Rate (DDR) and not the closing price..5% will be credited to the counter party. Penal Provision A penalty of 2. Delivery Centers Ahmadabad and Mumbai at designated Clearing House facilities of Group 4 Securitas at these centers and at additional delivery centers at Chennai. New Delhi and Hyderabad Deliverable grade of underlying commodity The selling members tendering delivery will have the option of delivering such grades as per the contract specifications. 53 | P a g e . Warehouse Receipt and Quality Certificate) of tendering delivery with the Exchange during tender days. Additionally.Commodity Market Exemption from margin during tender and delivery period Margin is exempted on receipt of documentary evidence (viz. 4% of DOR as a replacement cost will be charged from defaulting buyer / seller out of which 90% will be given to the counter party and 10% will be retained by the Exchange as administrative expenses. The buyer has no option to select a particular grade and the delivery offered by the seller and allocation by the Exchange shall be binding on him.

then he will issue receipt of the metals instantly. The cost of first assaying as well as cost of transportation from Group 4 to assayer¶s facilities to and fro will be borne by the buyer. If he is satisfied with the quantity. while the cost of second assaying. The vault charges during such period of first and second assaying. if any. if any. then the Exchange will send the goods to a second assayer and in that case. the buyer can check his delivery in front of Group 4 personnel. however if they do not agree on any mutually acceptable amount within 1 day. 54 | P a g e . will be equally divided between the buyer and seller. If the buyer chooses for assaying. he can insist for assaying by any of the approved assayers available at that center.Commodity Market Verification by the Buyer at the time of release of delivery At the time of taking delivery. will be borne by both the buyers and sellers equally. then he will not have any further recourse to challenge the quantity or quality subsequently and it will be assumed that he has received the quantity and quality as per the bill made by the seller. the report received from such assayer will be final and binding on both buyer and seller. weight and quality of material. get it assayed and bring it back to Group 4 facilities along with assayer¶s certificate. If he is not satisfied with the metal. then the buyer and seller have to mutually negotiate the final settlement proceeds within 1 day from receipt of assayer¶s report. Group 4 person will carry the goods to the assayer¶s facilities. If the buyer does not opt for assaying at the time of lifting delivery. If the assayer¶s certificate differs from the certificate submitted by the seller in respect of quality or weight materially.

Group 4 in front of the selling member¶s clearing agent will Deposit the said metal into their vault. hand over the Pink slip to seller¶s clearing agent. the sale proceeds will be calculated by way of delivery order rate * 999/ 995 55 | P a g e . e. get the signature of the seller¶s clearing agent and signing the same for authorization. the Group 4 Securitas will contact the Exchange office and take any further action. Then the custodian of Group 4 will cut a serially numbered Group 4 receipt (in triplicate consisting of White. then the Group 4 Securitas personnel will put the Gold in the vault. as they may desire. only as per Instructions received from the Exchange in writing. In such case. he would get a premium. the Group 4 personnel will do the following validations: a. If all validations are through. Whether the quantity being delivered is from Exchange approved refinery d. Quality Adjustment The price of gold is on the basis of 995 purity. Pink and Yellow slips). send by courier the third copy (Yellow Colour slip) while retaining the White for the records of Group 4 Securitas. Whether the original certificates are accompanied with the Gold Bars Any other validation checks. Whether the selling member is the bonafied member of the Exchange. Whether the serial numbers of all the bars is mentioned in the packing list provided. Whether the person carrying Gold is the Designated clearing agent of the member. c. b.Commodity Market Validation Process On receipt of delivery. In case a seller delivers 999 purity. Delivery Process In case any of the above validation fails.

Endorsement of delivery order The buyer member can endorse delivery order to a client or any third party with full disclosure given to the Exchange. The Authority letter sent by the Member shall consist of the following details: a. local taxes and octroi to be borne by the Buyer. Photo identity proof duly attested by the Member. customs to be borne by Seller. authorizing a representative on his behalf to take the delivery. Name of the authorized representative. b. f. Legal obligation The members will provide appropriate tax forms wherever required as per law and as customary and neither of the parties (seller member and buyer member) will unreasonably refuse to do so. PAN card. As per Exchange decision due to a force majeure or otherwise.Commodity Market Procedure of taking delivery from the Vault For the purpose of taking delivery of goods fully or partially. Taxes. Inclusive of all charges / levies relating to import duty. the Member shall send to the Exchange an Authority letter on his letter head. But excluding Sales Tax / VAT. Name of the Commodity along with quantity. Insurance and Transportation charges Extension of delivery period Due date rate (DDR) Borne by the seller till the date of pay-out of delivery and the buyer after the date of pay-out. cess and levies The above-mentioned details are required to be sentto Ex-Ahmadabad. Vault. driving license. d. Signature of the authorized representative. Name of the Vault along with the location. Election ID. c. Proof of Identity viz. any other additional tax or surcharge on sales tax. Responsibility for contractual liability would be with the original assignee. DDR is calculated on 5th day of the contract month. 56 | P a g e . e. duties. This is calculated by way of taking simple average of last 5 days of the spot market of Ahmadabad.

rules and Business Rules of the Exchange and decisions taken by Forward Markets Commission. Intention to take delivery by buyers Dissemination of information on tendered delivery and buyers interest The Exchange will inform members through TWS regarding tender notice and delivery intentions of the seller¶s members and the buyers respectively by 7. (The interpretation or clarification given by the Exchange on any terms of this contract shall be final and binding on the members and others. and on Saturdays by 12:00 noon.00 p. Board of Directors and Executive Committee of the Exchange in respect of matters specified above will form an integral part of this contract.Commodity Market Applicability of Business Rules The general provisions of Byelaws.m. quality certification. Evidence of stocks in possession At the time of issuing delivery order. on the respective tender days and on Saturdays by 1:00 p. 57 | P a g e . margining. The Exchange or FMC as the case may be further prescribe additional measures relating to delivery procedures. warehousing.00 p. and risk management from time to time.) STEPS TO BE FOLLOWED FOR DELIVERY On any tender days by 6.m. Allocation of delivery As per the closing price on the respective tender days. the Member must satisfy the Exchange that he holds stocks of the quantity and quality specified in the Delivery Order at the declared delivery center by producing warehouse receipt.m.m. Tender notice by seller The seller will issue tender notice along with evidence of delivery to the Exchange in a specified format by 6:00 p. Buyer¶s obligation The buyer shall not refuse taking delivery and such refusal will entertain penalty as per the penal provision.

namely. Government of India. Forward Markets Commission & Commodity 58 | P a g e .Commodity Market REGULATORY BODY At present there are three tiers of regulations of forward/future trading system exists in India.

unscrupulous participants could use these leveraged contracts for manipulating prices. Regulation is also needed to ensure fairness & transparency in trading. This could have undesirable influence on spot prices.Commodity Market Exchanges. The reluctant financial crisis in a futures market could create systematic risk. clearing. The need for regulation arises on account of the fact that the benefits of futures markets accrue in competitive conditions. In the absence of regulation. Ministry Of Consumers Affairs FMC Commodity Market Forward Market Commission 59 | P a g e . thereby affecting the interest of appropriate risk management system. Hence there is a need of regulatory func tions to be exercised by an exchange. particularly non -member users of the market. The regulation is needed to create competitive condition. In the absence of such a system. a major default could create a reaction. Settlement & management of exchange so as to protect & promote the interest of various stakeholders.

of India. including information regarding demand. 2. 4. To advise the Central Govt. The functions of the FMC are as follows: 1. To make recommendations generally with a view to improving the organization 7 working of forward markets. to publish information regarding the trading conditions in respect of goods to which any of the provisions of the act is made applicable. To keep forward markets under observation & to take such action in relation to them.Commodity Market FMC headquartered at Mumbai. periodical reports on the working of forward markets relating to such goods. Govt. ROLE OF GOVERNMENT IN COMMODITY MARKET 60 | P a g e . & to submit to the Central Government. is a regulatory authority which is overseen by the Ministry Of Consumer Affairs & Public Distribution. as it may consider necessary. 5. 3. supply & prices. in respect of the recognition or withdrawal recognition from any association or in respect of any other matter arising out of the administration of Forward Contract(Regulation) Act. 1952. It is a statutory body set up in 1953 under the Forward Contract (Regulation) Act. To undertake the inspection of the accounts & other documents of any recognized association or registered association or any member of such association whenever it considers necessary. in exercise o f the powers assigned to it by or under the Act. 1952. To collect & whenever the commission thinks it necessary.

To encourage large companies to trade in commodity futures. In the process. which would enable them to avoid distress sales of their produce at times of unfavorable market conditions. give a major boost to commodity futures trading & take the farmers to the e-age. Already.Commodity Market The Government.100 warehouses with all the facilities. If those proposals become law. The exchanges tieing with other players to provide warehouses services to the traders 7 now NCDEX is to built 1.500 depository participant accounts have been opened with 32 depository participants. may enter the game. then farmers could get f inance. estimated to cost it close to Rs 25. exchanges hope that eventually everyone involved in commodities trade across the value chain ± from the farmer to the processor ± will be hedging their positions using futures. Mansingh believes the Government could ferret back a part of these savings to farmers to help pay for the cost of delivering & storing food grains from the farms exchange accredited warehouses. The Government of India reckons that it could create a minimum support price like mechanism using commodity futures by entering into contracts for purchase of commodities covered under its programme at the prescribed minimum support price. too. With 45% of India¶s GDP (or RS 11lakh crore) coming from commodities. NCDEX has set up a network of 100 warehouses where commodities are graded & certified & w here such commodity balances can be held electronically in demat form. NATIONAL MULTI-COMMODITY EXCHANGE OF INDIA 61 | P a g e . Union consumer affairs secretary Labanyendu Mansingh believes this will help the Government save on procurement 7 shortage cost of food grains. the Government will minimize corruption in the grains management operations. Legislative changes have been proposed to enable farmers to get loans against the receipt for goods deposited at accredited warehouses. around 1.000 crore annually.

Gujarat State Agricultural Marketing Board (GSAMB) (It got its recognition in Oct ¶02) 7. Gujarat Agro-Industries Corporation Ltd. National Institute Of Agricultural Marketing (NIAM) 5. National Agricultural Co-operative Marketing Federation Of India (NAFED) 4. In the event of high volatility in prices. NMCE facilitates electronic derivatives trading through robust & tested trading platform. traders and farmers along with banks. The unique strength of NMCE is its settlement via Delivery Backed System. Central Warehousing Corporation (CWC) 3. These deliveries are executed through a sound & reliable Warehouse Receipt System. NMCE was the 1st to initiate process of dematerialization & electronic transfer of warehoused commodity stocks. NMCE was the 1st commodity exchange to provide trading facility through internet. It is the only Commodity Exchange in the world to have received ISO 9001:2000 certification from British Standard Institutions (BSI). NMCE would provide a common ground for fixation of 62 | P a g e . NMCE follows best international risk management practices. NMCE was promoted by: 1. (GAICL) 6. Derivatives Trading Settlement System (DTSS). through VIRTUAL PRIVATE NETWORK (VPN). The system of upfront margining based on value at Risk is followed to ensure financial security of the market. leading to guaranteed clearing & settlement. an imperative in the commodity trading business. (NOL) 2. special intra-day clearing & settlement is held. The contracts are marked to market on daily basis. Electron Multi-Commodity Exchange in India. NMCE would bring about the converge of large -scale processors. Neptune Overseas Ltd.Commodity Market NMCE is the 1st demutualized.

y Improving efficiency of operations by providing best infrastructure and latest technology. 2002. y Improving efficiency of marketing through on -line trading in Dematerialization form. the NMCEIL has been granted in -principle approval by the Government to organize futures trading in the edible oil complex. Vision National Multi-Commodity Exchange of India Limited is committed to provide world class services of on-line screen Futures trading of permitted commodities and efficient Clearing and guaranteed settlement.Commodity Market future prices of a number of commodities enabling efficient price discovery / forecast. y Implementing best quality standards of warehousing. INFORMATION: On 25th July. NMCE¶S Vision & Mission. y Rationalizing the transaction fees to optimum level. In short. efficient and competitive environment in the 21 st century. y Minimization of settlement risks. In addition. 2001. The exchange is operationalised from November 26. NMCE is leading transition of highly fragmented. controlled and restricted commodity economy to globally integrated. y Improving facilities for structured finance. grading and testing in tune with trade practices. We shall strive to ensure continual improvement of customer services and remain quality leader amongst all commodity exchanges. hedging using different and diverse commodities would als o be possible with help of NMCE. Mission y Continual Improvement in Customer Satisfaction. while complying with Statutory /Regulatory requirements. 63 | P a g e .

Commodity Market y Improving quality of services rendered by suppliers. y Promoting awareness about on-line features trading services of NMCE across the length and breadth of the country. ³Innovation is the way of life at NMCE´ 64 | P a g e .

Headquartered in Mumbai. Corporation Bank.Ferrous & Non Ferrous. Solvent Extractors Association of India. clearing and settlement operations for commodity futures markets across the country. Oils & Oilseeds...wide commodity exchange. Bombay Metal Exchange. Reliance Industries Ltd. Bullions. namely Bombay Bullion Association. Inaugurated in November 2003 by Shri Mukesh Ambani. Spices and other soft commodities. Through the integration of dedicated resources. State Bank of India. Union Bank of India. Corporate.Commodity Market MCX MCX an independent and de-mutulised commodity exchange has permanent recognition from Government of India for facilitating online trading. Metals. Cooperatives. Pulses. Importers. Traders. since inception MCX has recorded many first to its credit. Exporters. Pulses Importers Association and Shetkari Sanghatana. offering multiple commodities for trading with wide reach and penetration and robust infrastructure. robust technology and scalable infrastructure. amongst others MCX being nation. MCX offers futures trading in the following commodity categories: Agri Commodities. Plantations. MCX is led by an expert management team with deep domain knowledge of the commodity futures markets. is well placed to tap this vast potential. Regional Trading Centers. Chairman & Managing Director. Bank of India and Canara Bank. Key shareholders of MCX are Financial Technologies (India) Ltd. MCX has built strategic alliances with some of the largest players in commodities eco-system. Today MCX is offering spectacular growth opportunities and advantages to a large cross section of the participants including Producers / P rocessors. 65 | P a g e . Industry Associations.

74 Sources: Forward Market Commission 66 | P a g e .84 1.28 7.784.16 618.327.267.49 2.412.334.98 116.46 14.422.900.66 62.745.Commodity Market SHOOTING STARS Top Commodity futures traded across exchanges Commodity Guar seed Silver Soy oil Gold Mustard seed Castor seed Gaur gum Pepper Gur Rubber Crude oil Cotton Other metals Jute Value of futures traded (Rs crore) 129.85 19.891.527.34 13.99 101.22 91.08 8.14 779.522.

the FMC found NCDEX guilty of violating settlement price norms and ordered the exchange to fire one of their executive. 1956. 2003 under the Companies Act. NCDEX is regulated by Forward Market Commission (FMC) in respect of futures trading in commodities. Besides. 1952). This price is derived by tracking the futures prices of the index components at the same weightage as the spot index. NCDEX is subjected to various laws of the land like the Companies Act. Forward Commission (Regulation) Act and various other legislations. which requires compulsory physical settlement of future contracts. 2006. index futures are not allowed in India under the FCRA (Forward Contracts Regulation Act. 2003. National Commodity & Derivatives Exchange Limited (NCDEX) is an online commodity exchange based in India. It obtained its certificate for Commencement of Business on May 9. 67 | P a g e . the noarbitrage price if one were to buy futures on the spot index. The NCDEX Commodity Index is an equal-weighted spot price index of 20 agricultural commodities covering different groups such as oils and oilseeds. etc. NCDEX also displays the national index futures-essentially. It was incorporated as a private limited company incorporated on April 23.Commodity Market NATIONAL COMMODITY AND DERIVATIVES EXCHANGE LTD. fibres. Currently. Based on the components of the spot price index. NCDEX is located in Mumbai and offers facilities in more than 550 centres in India. It is the first such index to be launched in India. which impinge on its working. On February 3rd. 2003. Contracts Act. Stamp Act. NCDEX is a closely hel d private company which is promoted by national level institutions and has an independent Board of Directors and professionals not having vested interest in commodity markets. It has commenced its operations on December 15.

Based commodities: Castor Seed Chana Chilli Coffee ± Arabica. Jeera Jute sacking bags Kidney Beans Indian 28 mm Cotton Indian 31 mm Cotton Masoor Grain Bold Medium Staple Cotton Mentha Oil Mulberry Green Cocoons Mulberry Raw Silk 68 | P a g e . Coffee ±Robusta Cotton Seed Oilcake Crude Palm Oil Expeller Mustard Oil Groundnut (in shell) Groundnut Expeller Oil Guar gum Guar Seeds Gur.Commodity Market COMMODITIES TRADED: NCDEX currently facilitates trading of 57 commodities:- Agri.

medium Turmeric Urad (Black Matpe) V-797 Kapas Yellow Peas Yellow Red Maize Yellow Soybean Meal. Bullion: Gold 1 kg Gold 100 gm Silver 30 kg Silver 5 kg 69 | P a g e .small Sugar.Mustard Seed Pepper Raw Jute RBD Palmolein Refined Soy Oil Rubber Sesame Seeds Soy Bean Sugar.Commodity Market Rapeseed.

Non-ferrous metals: Aluminium Ingot Copper Cathode Nickel Ingot Zinc Cathode 70 | P a g e .Commodity Market Energy: Brent Crude Oil Furnace Oil Light Sweet Crude Oil. Ferrous metals: Mild Steel Ingot Plastics: Polypropylene Linear Low Density Polyethylene Polyvinyl Chloride.

It indicates that if futures on the index could be traded. This is essentially a what-if index. Life Insurance Corporation of India. CRISIL Limited. 71 | P a g e . IFFCO. called FUTEXAGRI. these are only available for information. National Bank for Agriculture and Rural Development.Commodity Market Facilities offered: NCDEX also offers as an information product. indexes and index futures are not allowed to be traded under the current regulatory structure. then the current FUTEXAGRI value should be the no -arbitrage value for the index futures. as of now. In NCDEX. in tune with the highest norms of corporate governance. ICICI Bank Limited. National Stock Exchange of India Limited and Pun jab National Bank. in the areas very relevant to the Exchange. highly experienced and is independent. called NCDEXAGRI that covers 20 commodities currently being offered for trading by NCDEX. This is a composite index. NCDEX also offers as an information product. an agricultural commodity index. The Board comprises persons of eminence. Governance: The governance of NCDEX vests with the Board of Directors. This is a spot -price based index. Board of Directors comprises 8 Directors who are well known. The institution-shareholders ± Canara Bank. However. have decided that they will not be taking part in the day -to-day activities of the Exchange. each an authority in his own right. the index futures. The Managing Director is the only whole -time Director. Hence.

businessmen began organizing market forums to make the buying and selling of commodities easier. a group pf Manhattan diary merchants got together to bring chaotic condition in New York market to a system in terms of storage. the National Raw Silk Exchange and the New York Hide Exchange. The London Diamond Market and International Petroleum Exchange (IPE). The two main futures exchanges. The London Metal Exchange (LXM). are COMEX in New York and TOCOM in Tokyo. soft commodities and financial futures. London metal exchange (LME). In 1982.. Inc. the Rubber Exchange of New York. the New York Mercantile Exchange (NYMEX) deals in metals. In the middle of the 19th century in the United States. The London Gold Market. The London Wool Exchange. Chicago Board of Trade (CBOT). rubber. pricing and transfer of agricultural products. In London. Chicago Mercantile exchange (CME). spices. The Tea Market. and the Chicago Mercantile Exchange in Livestock and Livestock futures. which traded gold.still the major international centers for transactions in a vast range of commodities-such markets include the London commodity Exchange (LCE) trading sugar. was established in New York through the merger of four small exchanges ²the National Metal Exchange. the Commodity Exchange. the Chicago Board of Trade (CBOT) in metals. during the Great Depression. cocoa. In the USA. The major commodity markets are in the United Kingdom and in the USA major commodity markets are in London. etc. Chicago. SOME INFORMATION ABOUT WORLD WIDE COMMODITY EXCHANGE. New York Mercantile exchange (NYME) is amongst the world¶s largest and best exchanges. In 1933.Commodity Market Worldwide commodity markets. Sydney and Singapore. 72 | P a g e .

Modern exchanges have also reduced i nformation asymmetry. ³National exchanges have succeeded in creating trust in the minds of stakeholders as they are hi-tech.´ says Sanjiv Shah. which has resulted in their growth.Commodity Market According to experts:- ³Volumes on commodity exchanges are growing because there is transfer from the mandis to the exchange platform.´ says Jignesh Shah. MCX. managing director. 73 | P a g e . executive director of Benchmark Asset Management Company. A farmer has to trust the exchange the way he trusts State Bank of India. corporatized and employ modern management.

y Delivery system of exchanges is not good enough to attract investors. their perception about is of risky to very risky investment.g. y Development of warehousing and facilities to use the warehouse receipt as a financial instrument to encourage participation farmers. The traders have to take a delivery or book losses at settlement as there are huge differences between two contracts and also sometimes few contracts are not available for trading for 74 | P a g e . There is no doubt that in near future commodity market will become Hot spot for Indian farmers rather than spot market. Many of them have wrong impression about commodity market in their minds.: - In many commodities NCDEX forces the delivery on people with long position and when they tend to give back the delivery in next month contract the exchange simply refuses to accept the del ivery on pretext of quality difference and also auctions the product. so that a large number of varieties produced across the country could be included. traders as well as consumers will be benefitted from it. y Contract specifications should have wider coverage. E. Concerned authorities have to take initiative to make commodity trading process easy and simple.Commodity Market SUGGESTIONS: As majority of Indian investors are not aware of organized commodity market. Some Suggestions to make futures market as a level playing field for all stake holders:y Creation of awareness among farmers and other rural participants to use the futures trading platform for risk mitigation. It makes them specious towards commodity market. And producer s. y Development of physical market through uniform grading and standardization and more transparent price mechanisms. But for this to happen one has to take initiative to standardize and popularize the Commodity Market. Along with Government efforts NGOs should come forward to educate the people about commodity markets and to encourage them to invest into it.

This problem can possibly be solved by consolidating some exchanges. y Setting of state level or district level commodities trading helpdesk run by independent organization such as reputed NGO for educating farmers. y Contract sizes should have an adequate range so that smaller traders can participate and can avoid control of trading by few big parties. That means outstanding contracts at maturity should be settled in physical delivery. in practice only a few commodities derivatives are popular for trading. warehousing problem has to be handled on a war footing. A difficult problem in Cash settlement of Commodities Derivatives contract is that. under Forward Contracts regulation Act 1952 cash settlement of outstanding contracts at maturity is not allowed.Commodity Market no reason at all. Only about 1% to 5% of total commodity derivatives traded in country are settled in physical delivery due to insufficiencies in present warehousing system. y Warehousing and logistics management structure also needs to be created at state or area level whenever commodity production is above a certain share of national level. To avoid this participants square off their positions before maturity. 75 | P a g e . Though over 100 commodities are allowed for Derivatives trading. So in practice contracts are settled in Cash but before maturity. As good delivery system is the back bone of any Commodity trade. Again most of the trade takes place only on few exchanges. There is need to modify the law to bring it closer to the wide spread practice and save participants from unnecessary hassle.

For diversification of portfolio beyond shares.commodity exchanges have unitedly proposed to the government that in view of the growth of the commodities market. foreign institutional investors should be given the goahead to invest in commodity futures in India. 76 | P a g e . now. can help India become a global trading hub for select commodities. fixed deposits and mutual funds. The national multi. As a matter of fact. with daily global volumes in commodity trading touching three times that of equities. 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. such as futures. Considering the huge volatility witnessed in the equity markets recently with the Sensex touching 21000 level commodities could add the required zing to investors¶ portfolio. commodity trading offers a good option for long-term investors and arbitrageurs and speculators. derivative instruments. trading in commodities cannot be ignored by Indian investors.Commodity Market CONCLUSION After almost two years that commodity trading is finding favour with Indian investors and is been seen as a separate asset class with good growth opportunities. Online commodity exchanges need to revamp certain laws governing futures in commodities to make the markets more attractive. Therefore. Their entry will deepen and broad base the commodity futures market. it won't be long before the market sees the emergence of a completely redefined set of retail investors. And.

org 77 | P a g e .com www.indiamba.gov.mapsofindia.com www.indiaexpress.com www.ncdex.nmce. SEBI Bulletin www.commodityindia.com www.bseindia.com www.com www.com www.Commodity Market BIBLIOGRAPHY www.org www.business.com www.sebi.mcxindia.in.nbotind.gold.

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