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B.COM IN FINANCIAL MARKET. SEMESTER – V ACADEMIC YEAR: 2010-2011
SUBMITTED BY: NITIN.S.KANDLAPALLI
ROLL NO: 22
G.N.KHALSA OF ARTS, SCIENCE & COMMERCE, MATUNGA (E), MUMBAI- 400019
A PROJECT ON: “COMMODITY MARKET”
B.COM IN FINANCIAL MARKET.
SEMESTER – V ACADEMIC YEAR: 2010-2011
SUBMITTED BY: IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF DEGREE OF BACHELOR OF COMMERCE- FINANCIAL MARKET NITIN.S.KANDLAPALLI
ROLL NO: 22
G.N.KHALSA OF ARTS, SCIENCE & COMMERCE, MATUNGA (E), MUMBAI- 400019
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G.N.KHALSA OF ARTS, SCIENCE & COMMERCE, MATUNGA (E), MUMBAI- 400019
This is to certify that Mr. NITIN.S.KANDLAPALLI of B.Com (BFM) Semester V (2010-2011) has successfully completed the project on COMMODITY MARKET under the guidance of PROF. MANJIRI DATE.
EXTERNAL EXAMINER Principal
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KANDLAPALLI student of B.Com (BFM) Semester V (2010-2011) hereby declare that I have completed the project on COMMODITY MARKET.S. NITIN.Commodity Market DECLARATION I MR. Signature of Student NITIN. The information submitted is true & original to the best of my knowledge.S.KANDLAPALLI Roll No: 22 4|P a g e .
G. for extending her support. She/he has taken pains to go through my project & make necessary corrections as & when needed. Science & Commerce. I would also thank my institution & faculty members without whom this project would have been a distant reality. My deepest thanks to lecturer. Science & Commerce.ajit sihgh of G. for their support.khalsa College of Arts.N. Science & Commerce for support & guidance. Manjiri date guide of the project for guiding & correcting various documents of mine with attention & care. prof. My deep sense of gratitude to Principal dr. 5|P a g e .khalsa College of Arts. I also extend my heartfelt thanks to my family & well wishers.khalsa College of Arts.N. I extend my thanks to the principal of.Commodity Market Acknowledgement I owe a great many thanks to a great many people who helped & supported me doing the writing of this book. Thanks & appreciation to the helpful people at G.N. Matunga (E).
6|P a g e . Forward Market Commissions & the Government played in the markets. their significance in the economy & their contribution towards the GDP of the country. Hence this project has covered the recognized exchanges & their organizational trading & the regulatory setup for future trading in commodities. Finally it covers all important points on the bases of which a person can understand the commodity market & start trading in them.Commodity Market EXECUTIVE SUMMARY This project is based on commodity markets. It also throws light on highly traded commodities their volumes. margins & more importantly volatility. In includes FMC i. Commodity markets are now the buzz word all the investors are looking at the commodity market as a revenue generator. 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. It contains analysis of 3 commodities.e. demand & supply scenario etc.
I have adopted the following methodology of study throughout the project. How it trade in stock market of India & other countries? 4. What is commodity market? 2. Need & scope of commodity market? 3. Various internet websites. 1. Reference books. Future of commodity market? 7|P a g e . Present status of commodity market in India? 5.Commodity Market RESEARCH METHODOLOGY The method of data collection for my project is based on both primary as well as secondary data collection. Opinion of experts. Objectives The objective of this study is to understand. Newspaper magazines.
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. 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 g e .Commodity Market INDEX Sr.
except actionable claims.‖ INTRODUCTION India. Commodity actually offers immense potential to become a separate asset class for market-savvy investors. may find commodities an 9|P a g e . surprisingly has an under developed commodity market. money & securities. The development & growth was shunted due to numerous restriction in the early 70‘s which resulted in vibrant market. futures markets trades in commodity are largely used as risk management mechanism on either physical commodity itself or open positions in commodity stock. It can be classified as every kind of movable property. Retail investors. COMMODITY A commodity may be defined as an article.Commodity Market INDIA COMMODITY MARKET ―We are moving from a world in which the big eat the small to one in which the fast eat the slow‖ -Klaus Schwab. arbitrageurs & speculators. a jeweler can hedge his inventory against perceived short term downturn in gold prices by going short in future markets. The article aims at understanding commodity market & how are the commodities traded on exchange. 2000 (Founder of the World Economic Forum) ―A strong & vibrant cash market is a pre-condition for a successful & transparent futures market. a commodity based economy where two-third of the one billion population depends on agricultural commodities. a product or material that is bought & sold. who claim to understand the equity markets. The idea is to study the importance of commodity derivatives & learn about the market from an Indian point of view. Unlike the physical market. For instance.
147..551 (13) 515.215 (4. With the introduction of futures trading.641. It is important to develop a vibrant.989 1. active and liquid commodity market.7) (16. the various commodities across the country clock an annual turnover of Rs 1.318.7) Note: Fig. But commodities are easy to understand as far as fundamentals of demand & supply are concerned.130.494.730 crore (Rs 13. the size of the commodities market in India is also quite significant.854 (43) 3.478 12. 20. energy and soft commodities like palm oil. viz. precious metals. 20 billion).053 b)Derivatives 2.8) (117.1) Government Securities Market 1. base metals.322 (91. Market segments 1 2 3 I 2002-03 2003-04 2004-05 (E) 2.400 Billion). in bracket represents percentage to GDP at market prices Source: Sebi bulletin (16.4) (133.099. are traded.936 4. COMMODITY MARKET Commodity market is an important constituent of the financial markets of any country.452 4 Commodities Market NA 130.534 b)Derivatives 439. the size of the commodities market grows many folds here on.2) Forex Market 658.057.000 (91) (124.745. commodities related (& dependent) industries constitute about 58%. coffee etc.1) 10 | P a g e .374.872 3.Commodity Market unfathomable market.672 1. take speculative positions in commodities and exploit Arbitrage opportunities in the market. Retail investors should understand the risk & advantages of trading in commodities futures before taking a leap.867.002 (117) (I+ II) a)Cash 617.827.7) a)Cash 314. 40.376 (63) 2. This would help investors hedge their commodity risk.645 519.527 500.518.230.503 19.160.035 (27) 2.000 crore (1. Of the country‘s GDP of Rs 13.027 2. It is the market where a wide range of products.507 (136) National Stock Exchange (a+b) 1. Turnover in Financial Markets and Commodity Market (Rs in Crores) S No.073 503.468 II Bombay Stock Exchange (a+b) 316.702 3. In fact.505 (18. crude oil. Currently.544.865 2.030 499.531 (84) Total Stock Market Turnover 1.405 (56) 3.
Commodity Market Ministry of Consumer Affairs FMC (Forwards Market Commission) Commodity Exchange National Exchange Regional Exchange NCDEX MCX NMCE NBOT 20 other regional exchanges 11 | P a g e .
Commodity Market Quality Certification Agencies Hedger (Exporters / Millers Industry) Warehouses Clearing Bank Commodities Ecosystem MCX Producers (Farmers/Cooperatives/Ins titutional) Transporters/ support agencies Consumers (Retail/Institutio -nal) Traders (speculators)arbi -trageurs/client) 12 | P a g e .
Cotton M Staple. Coffee (Robusta). Cotton L (Bhavnagar). Steel Long (Govindgarh). Yellow Peas PETROCHEMICAL HDPE. Soy Bean. Rice Bran DOC. Copper. Crude Palm Oil. Kapasia Khalli. Cotton Seed. PVC S & OIL SEEDS Castor 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 . Lead. Refined Soy Oil. Rice Bran Refined Oil. Crude Oil. Gold M. Gold HNI. Kapas Cardamom. Silver. Cotton S Staple. Guar Seed. Rubber Arecanut. Mustard Seed (Jaipur). i-gold. Tin. Steel Flat. Sugar S-30 13 | P a g e . Nickel. Refined Sunflower Oil. Pepper. Silver M Staple. E. Natural Gas. Jeera. Mentha Oil. These commodities can be broadly classified into the following: METAL BULLION FIBER ENERGY SPICES PLANTATIONS PULSES Aluminium. Sesame Seed. Cashew Chana. Furnace Oil. Coconut Cake. Red Chilli Sour Crude Oil Kernel. RBD Palmolein. Masur. Gurchaku. Steel Long Gold. Groundnut Oil. M. Soy Seeds CEREALS OTHERS Maize Guargum. Coconut OIL Oil. Mustard Seed (Sirsa). Mustard Oil. Zinc Brent Crude Oil. Cotton Yarn. Soymeal. Potato (Agra). Potato (Tarkeshwar). Castor Seeds. Polypropylene(PP). Sugar M-30. Silver HNI. Sponge Iron.
155.336 MARKET SHARE OF COMMODITY EXCHANGES IN INDIA 14 | P a g e .479 24.997 3.633 1.823 571.463 67.340 2007 2.066 101.759 2005 961.338 13.072 74.Commodity Market TURNOVER OF INDIAN COMMODITY EXCHANGES Indian Commodity Futures Market (Rs Crore) Exchanges Multi Commodity Exchange NCDEX (MCX) NMCE(Ahmadabad) NBOT(Indore) Others All Exchanges 2004 165147 266.582 37.803 944.206 733.683 54.505.385 53.686 18.735 2.591 2.988 58.122 2006 1.731 57.066.621.739.149 14.375.
was established in 1919 for futures trading in raw jute & jute goods. Calcutta Hessain Exchange Ltd. as in equities. set up in 1875 was the 1st organized Futures Market. Futures trading in bullion in Mumbai began in 1920. Derivative t r a d i n g takes place t h r o u g h exchange-based markets with standardized contracts. Forward Contracts (Regulation) Act was enacted in 1952 & the FMC was established in 1953 under the Ministry of Consumer Affairs & Public Distribution. 15 | P a g e . wholesaler etc.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. These two associations amalgamated in 1945 to form East India Jute & Hessain Ltd. The Futures trading in oilseed started in 1900 with the establishment of Gujarati Vyapari Mandali. Futures trading in wheat were existent at several places in Punjab & Uttar Pradesh.. was established in 1893 following the widespread discontent amongst leading cotton mill owner‘s merchants over functioning of Bombay Cotton Trade Association. 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. In due course. there exists the spot and the derivatives segment. But the most notable futures exchange for wheat was Chambers Of Commerce at Hapur set up in 1913. Also. EVOLUTION OF COMMODITY MARKET IN INDIA Bombay Cotton Trade Association Ltd. which carried on futures trading in groundnut. several other exchanges were created in the country to trade in diverse commodities. castor seed & cotton. But organized futures trading in raw jute began only in 1927 with the establishment of East Indian Jute Association Ltd. settlements etc. to conduct organized trading in both Raw Jute & Jute goods. processor. Bombay Cotton Exchange Ltd.
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. Manitoba Dalian Commodity Exchange. China Bursa Malaysia Derivatives exchange Singapore Commodity Exchange (SICOM) Chicago Mercantile Exchange (CME). (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). No. 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. 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). India National National Commodity and Derivatives Exchange (NCDEX).
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 REGULATORS: Each exchange is normally regulated by a national governmental (or semi.
The Forward Markets Commission (FMC) will regulate these exchanges. 1 2 3 4 Commodity Market in India Multi Commodity Exchange (MCX). They are: S. order driven.Commodity Market LEADING COMMODITY MARKETS OF INDIA The government has now allowed national commodity exchanges. Mumbai National Commodity and Derivatives Exchange Ltd (NCDEX). Indore Mumbai National Multi Commodity Exchange (NMCE). screen based trading system for trading. Ahmadabad 18 | P a g e . Consequently four commodity exchanges have been approved to commence business in this regard. to come up and let them deal in commodity derivatives in an electronic trading environment.NO. similar to the BSE & NSE. National Board of Trade (NBOT). These exchanges are expected to offer a nation-wide anonymous.
This becomes an important issue to be managed. In the case of financial derivatives. However there are some features.Commodity Market COMMODITY FUTURES TRADING IN MARKET Introduction Derivatives as a tool for managing risk first originated in the Commodities markets. However in the case of commodities. Derivatives as a tool for managing risk first originated in the Commodities markets. Greater flexibility. They were then found useful as a hedging tool in financial markets as well. In the case of financial derivatives. Due to the bulky nature of the underlying assets. However there are some features. physical settlement in commodity derivatives creates the need for warehousing. The basic concept of a derivative contract remains the same whether the underlying happens to be a commodity or a financial asset. which are very peculiar to commodity derivative markets. which are very peculiar to commodity derivative markets. They were then found useful as a hedging tool in financial markets as well. Benefits to industry from futures trading Hedging the price risk associated with futures contractual commitments. The basic concept of a derivative contract remains the same whether the underlying happens to be a commodity or a financial asset. 19 | P a g e . the concept of varying quality of asset does not really exist as far as financial underlying are concerned. Spaced out purchases possible rather than large cash purchases and its storage. financial assets are not bulky and do not need special facility for storage. most of these contracts are cash settled. most of these contracts are cash settled. Even in the case of physical settlement. Efficient price discovery prevents seasonal price volatility. Similarly. certainty and transparency in procuring commodities would aid bank lending. the quality of the asset underlying a contract can vary largely.
Government intervenes by trying to maintain buffer stocks. Why commodity futures? One answer that is heard in the financial sector is "we need commodity futures markets so that we will have volumes. etc. state-of-art technology deployment.finance from Banks to rural households. Member can trade in multiple commodities from a single point. In this case. and something to trade''. mmodity Exchanges to act as distribution network to retail agri. how 20 | P a g e .Commodity Market Facilitate informed lending. Robust.what is the role for commodity futures in India's economy? In India agriculture has traditionally been an area with heavy government intervention. Hedged positions of producers and processors would reduce the risk of default faced by banks. Provide trading limit finance to Traders in commodities Exchanges. * Lending for agricultural sector would go up with greater transparency in pricing and storage. and they have import-export restrictions and a host of other interventions. Benefits to exchange member Access to a huge potential market much greater than the securities and cash market in commodities. We have to look at futures market in a bigger perspective -. they try to fix prices. 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. brokerage fees. the question arises about who will maintain the buffer stock. scalable. like bank credit. Many economists think that we could have major benefits from liberalization of the agricultural sector. information dissemination. on real time basis.
They are worried when making these investments that by the time the crop comes out prices might have dropped. how will farmers get signals that in the future there will be a great need for wheat or rice. Next. They also work very effectively when there is trade in agricultural commodities. is a system. The third is the role about storage. which is fixed today. high yielding varieties. These days. how will farmers not be vulnerable that tomorrow the price will crash when the crop comes out. In all these aspects the futures market has a very big role to play. smooth prices. commodity futures markets are a part and parcel of a program for agricultural liberalization. Thus a farmer would like to lock in his future price and not be exposed to fluctuations in prices. then I can sell my wheat on the futures market. Many agriculture economists understand the need of liberalization in the sector. and it will carry signals back to the farmer making sowing decisions today. arbitrageurs on the futures market will use imports and exports to smooth Indian prices using foreign spot markets. In this fashion. which is doing a huge job of storage.Farmers spend money on fertilizers. which -. thus if the future price is low the arbitrageur will buy in the futures market. and it.in my opinion -. Futures market will produce their own kind of smoothing between the present and the future. which eliminates my risk from price fluctuations. If we think there will be a shortage of wheat tomorrow. resulting in losses. agriculture requires investments . I can sell my wheat at a price. an arbitrager will buy today and sell in the future. These activities produce their own "optimal" buffer stocks. if I am growing wheat and am worried that by the time the harvest comes out prices will go down.Commodity Market will we smoothen the price fluctuations. If the future price is high and the present price is low. etc. 21 | P a g e .does not work. the futures prices will go up today. a system of futures markets will improve cropping patterns. Today we have the Food Corporation of India. Futures markets are an instrument for achieving that liberalization. In totality. The converse is also true.
Better risk-adjusted returns. Less volatile. compared with. acting as a counterweight to stocks. Investors can leverage their investments and multiply potential earnings. bonds and real estate. 22 | P a g e . High co-relation with changes in inflation.Commodity Market WHAT MAKES COMMODITY TRADING ATTRACTIVE? A good low-risk portfolio diversifier A highly liquid asset class. A good hedge against any downturn in equities or bonds as there is Little correlation with equity and bond markets. equities and bonds. No securities transaction tax levied.
It is a statutory body set up in 1953 under the Forward Contract (Regulation) Act. In India. commodity trading is going to be the next big thing for investors. trading is also going to pick up in Gold & Silver. Govt.Commodity Market COMMODITY TRADING Commodity Trading in India is regulated by FMC headquartered at Mumbai. in addition to being a major consumer of bullion & energy products. 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. the commodity market is about three times the size of equities trade market. In India people have a love for Gold & Silver. 23 | P a g e . All this indicates that India can be promoted as a major centre for trading of commodity derivatives. NEED OF COMMODITY DERIVATIVES FOR INDIA: India is among top 5 producers of most of the commodities. 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%. Globally. the commodity market is still is the nascent stage & is gradually picking up taking a cue from the global market. Of India. After Equity trading. presently. 1952.
Farmers usually brought their wheat to Chicago hoping to sell at a good price. 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. Farmers (sellers) & dealers (buyers) slowly started entering into contract for forward exchanges of grain for cash at some particular future date so that farmers 24 | P a g e . In ancient Greece. Midwest farmers. therefore. 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. In the 1840‘s Chicago had become a commercial centre since it had good railroads & telegraph lines connecting it with the east. The first organized futures market was the Osaka Rice Exchange. 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. to exchange cash for immediate delivery of wheat.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 the first few yrs of COBT.000 yrs ago in China with rice as a commodity.e. the farmers were often left at the mercy of the dealers. Futures trade first started in the 17th century. The city had very limited storage facility & hence. which lead to higher wheat production. CBOT preceded futures exchanges in Europe. in 1730. used to connect to Chicago to sell their wheat to dealers who. transports it to all over the country. in turn. The situation changed for the better in 1848 when a central marketplace was opened where farmers & dealers could meet to deal in ―CASH‖ grain i. Around the same time good agriculture technologies were developed in the area. Aristotle described the use of call options by Thales of Miletus on the capacity of olive oil presses.
The futures trading in Gold began in Mumbai in 1920. Options were banned on cotton in 1939 by the Government of Bombay to curb widespread speculation. that was established in 1927. could pass on his obligation to another farmer. The contracts slowly got ―standardized‖ on quantity & quality of commodities being traded. If the dealer decided he didn‘t want the wheat. The farmer knew how much he would be paid for his wheat. But organized futures market in India emerged in 1875 when the Bombay Cotton Trade Association was established. During the 1st half of the 20th century. They were called speculators. India‘s history of commodity futures market has been turbulent. 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. The futures trading in oilseed started in 1900 when Gujarati Vyapari Mandali (today‘s NMCX. pepper. including the Calcutta Hessain Exchange Ltd. there were many commodity futures exchanges. The price would go up & down depending on what was happening in the wheat market. if the farmer didn‘t want to deliver his wheat.Commodity Market could avoid taking the trouble of transporting & storing wheat (at very high costs) if the price was not acceptable. & the dealer knew his costs of procurement well in advance. Those exchanges traded in jute. potatoes. Also. Ahmadabad) was established. Indian Scenario: History of trading in commodities in India dates back to several centuries. However. This system was suitable to farmers as well as dealers. This is how the future market in commodities developed in US. Slowly. They also began to change hands before the delivery date. Such forward contracts became common & were even used subsequently as collateral for bank loans. he would sell the contract to someone who needed it. In mid-1940‘s. The hedgers began to efficiently transfer their market risk of holding physical commodity to these speculators by trading in future exchange. trading in forwards & futures became 25 | P a g e . etc. 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. turmeric.
Commodity Market difficult as a result of price control by Government. due to fears of increase in commodity prices. In 1996. the Government of India suspended forward trading in several commodities jute. 26 | P a g e . 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. The Forward Contract Regulation Act was passed in 1952. The Government also managed storage. In 1960s. transportation & distribution of agricultural products. The Government appointed four committees (Shroff Committee in 1950. the government offered to buy agricultural products at Minimum Support Price (MSP) to ensure that the farmers benefited. This put a regulatory guideline on forward trading. seeds. the World Bank in association with United Nations Conference on Trade & Development (UNCTAD) conducted a study on Indian Commodities Market. cotton. edible oil. These measures weakened the agricultural commodity markets in India. However. etc. Khusro Committee in 1979 & Kabra Committee in 1993) to go into the regulatory aspects of forward & futures trading in India. Dantwala Committee in 1966. In the post-liberalization era of the Indian economy.
India is World‘s leading producer of more than 15 agricultural commodities & is also the world‘s largest consumer of edible oils & gold. According to the experts in commodity markets. Steps like lifting the ban on futures trading in commodities. Many nationalized & private sector banks have announced plans to disburse substantial amounts to finance commodity-trading business. developing exchanges with modern infrastructure & systems such as 27 | P a g e . These marketplaces play host to a variety of commodities every day.000+ haats (Rural Bazaars) that are seasonal market places of various commodities.Commodity Market RELEVANCE & POTENTIAL OF COMMODITY MARKETS IN INDIA Majority of commodities traded on global commodity exchanges are agri-based. The commodity trade segment employs nearly five million plus traders. To add to this. Many of these commodities would be traded on the futures markets as food-processing industry grows at a phenomenal pace.500 + Agricultural Produce Market Cooperative (APMC) mandis. the multiple for physical versus derivatives is much higher at 15-20 times). Indian Commodities Market has an excellent growth potential & has created good opportunities for market players. approving new exchanges. Commodity Markets therefore are of great importance & hold a great potential in case of economies like India. The Government of India has initiated several measures to stimulate active trading interest in commodities. & the list continues to expand. 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. where more than 65% of the population are dependent on agriculture. there is a network of over 27. 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. There is huge domestic market for commodities in India since India consumes a major portion of its agricultural produce locally. The Government also has recognized three national level commodity exchanges. which are trading in more than 85 commodities at present. It has major markets in regions of urban conglomeration (Cities & Towns) & nearly 7.
mutual funds & banks may be able to participate in commodity futures is also expected after the amendments to the FCR Act. Commodity derivatives exchanges have been established with a view to minimize risk associated with such price volatility. With the liberalization of the Indian economy in 1991. The volumes are likely to surge further as a result of the increased interest from the international participants in Indian Commodity Markets. the commodity prices (especially international commodities such as base metals & energy) have been subject to price volatility in international markets. since India is largely a net importer of such commodities. If these international participants are allowed to participate in the markets (like in case of capital markets). 1952.Commodity Market online trading. It is expected that Foreign Institutional Investors (FIIs). 28 | P a g e . & removing legal hurdles to attract more participants have increased the scope of commodities derivatives trading in India. Commodity Trading & commodity financing are going to be a rapidly growing business in the coming years in India. the growth in commodity futures can be expected to be phenomenal. The trading volumes are increasing as the list of commodities traded on NCE also continues to expand.
quality testing & certifying companies. etc. 5) Lending Agencies: Banks & Financial Institutions. State Civil Suppliers Corporations. wholesalers. farmers co-operatives. 3) Markets & Exchanges: Spot Markets (mandis. it is essential to understand the different components of the commodity markets ecosystem. etc. Importers. 2) Logistics Companies: Storage & transport Companies/operators. traders. etc. Exporters. bazaars.Commodity Market COMMODITY MARKETS ECOSYSTEM After studying the importance of commodity markets & trading in commodity futures. 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. 29 | P a g e .) & Commodity Exchanges (national & regional level) 4) Support Agencies: Depositories/de-materializing agencies. Oil producing companies. manufacturers. Merchandisers. distributors. Central & State Warehousing Corporations & Private Sector Warehousing Companies. APMC mandis.
In turn. & quality testing & certification agencies for assessment & evaluation of commodity quality standards. thus. Users Logistic Companies Support Agencies Farmers & Farmers Co-operatives Storage & Transport Requirements & Quality Certification 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 .Commodity Market The users are the producers & consumers of different commodities. exposing themselves to price risk. Commodity derivatives exchanges provide a platform for hedging against price risk for these users. they depend on logistic companies for transportation of commodities. They have exposure to the physical commodities market. warehouses for storage.
99 7.65 25.30 Rank 3rd 2nd 1st 2nd 3rd 2nd 1st 8th 2nd 2.14 15.85 43.08 3.35 23.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. Commodity Rice(Paddy) Wheat Pluses Groundnut Rapeseed Sugarcane Tea Coffee(Green) Jute & Jute Fibers Cotton(Lint) India 240 74 13 6 6 315 0.75 0.06 18.00 24.09 3rd 31 | P a g e .28 4.84 10.02 Share 11.74 World 2049 599 55 35 40 1278 2.17 12.28 1.64 17.
The buyer should be able to take physical delivery at a location of his choice on presenting the warehouse receipt. With online commodity trading they could sit in the confines of their home or office and call the shots. 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. goods X in a warehouse and gets a warehouse receipt. Today Commodity trading system is fully computerized. in which one pays cash and carries away the goods. Futures have something called an expiry date. Traders need not visit a commodity market to speculate. Squiring off is done by taking an opposite contract so that the net outstanding is nil. The second is futures trade. The commodity trading system consists of certain prescribed steps or stages as follows: 1.Commodity Market WORKING OF COMMODITY MARKET There are two kinds of trades in commodities. The underpinning for futures is the warehouse receipt. For commodity futures to work. A person can buy or sale a commodity future on an exchange based on his expectation of where the price will go. A person deposits certain amount of say. But at present in India very few warehouses provide for specific commodities. 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. by when the buyer or seller either closes (square off) his account or give / take delivery of the commodity. the seller should be able to deposit the commodity at warehouse nearest to him and collect the warehouse receipt. The first is the spot trade. Following diagram gives idea about working of the Commodity market.At this stage the following is the system implemented -Order receiving -Execution -Matching 32 | P a g e . Trading : .
This stage has following system in place -Matching -Registration -Clearing -Clearing limits -Notation -Margining -Price limits -Position limits -Clearing house. 2. 10 STEPS TO INVEST IN COMMODITY MARKET: The future trading in commodities has emerged as a major investment option in India. Clearing: . 3.Commodity Market -Reporting -Surveillance -Price limits -Position limits. Settlement: . not many investors know how to tap and benefit from trading in various commodities.This stage has following system followed as follows-Marking to market -Receipts and payments -Reporting -Delivery upon expiration or maturity. 33 | P a g e . 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. But since commodities futures market is a relatively new entrant in India.
You could require PAN card. address proof and passport size photos. Step 5: Be clear of the service deliverables from your broker.03% to 0. Step 9: Clear any or all doubts now .set stop loss and book profit levels. Step 10: Get ready for investing and track your success and losses all the time. Step 2: Fill a demat account opening form with a registered brokerage house and a member with the national commodity exchanges. Step 1: Locate a brokerage house with a reputation for service. but remember not at the cost of other traditional investing avenues. Step 6: Insist on regular reports and special knowledge / training opportunities. Step 4: Choose the right brokerage plan that optimizes your costs. Step 7: Set aside funds for commodity investing. account opening charges and annual maintenance charges.08% on contract value. Step 8: Focus on a few commodities. gather requisite knowledge and pay up the initial amount for margin money. 34 | P a g e . brokerage fees ranging from 0.Commodity Market Here are 10 steps that you need to know to invest in commodities market. Step 3: Be clear of the rules and regulations especially transaction costs.
but commodity trading could earn you money!‖ 35 | P a g e .Commodity Market TRADING OF COMMODITY MARKET ―Money making is not a commodity.
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 margin raises to 0-25% 0f the contract value and the seller is required to pay sales tax on the transaction. In the case of delivery-based trades. For example. 36 | P a g e . commodity stockiest and wholesalers go for delivery. in case of delivery-based traders. Trading in any contract month will open on the twenty first day of the month. On producing this receipt. Investing in Commodities: Commodity investment can be done in a number of ways: By investing in companies that produce commodities. However. three months prior to the contract month. Commodity trading follows a T+1 settlement system. All contracts settling in cash will be settled on the following day after the contract expiry date. Investors can choose between the two. a transferable receipt from the warehouse where goods are stored is issued in favour of the buyer. All open contracts not intended for delivery are cashsettled. If the buyer chooses to take delivery of the commodity. the December 2004 contracts open on 21 September 2004 and the due date is the 20-day of the delivery month.Commodity Market Investors’ choice: The future market in commodities offers both cash and delivery-based settlement. settlement takes place five to seven days after the expiry. the buyer can claim the commodity from the warehouse. While speculators and arbitrageurs generally prefer cash settlement. where the settlement date is the next working day after expiry. The option to square off the deal or to take delivery can be changed before the last day of contract expiry.
By purchasing, or selling, the commodities themselves on the ‗spot market‘ for immediate delivery. This involves high transaction costs and is not a suitable method of investment for individual investors.
By purchasing, or selling via the commodities exchanges for later delivery. Most trading in commodities is done through ‗futures‘ and ‗options‘. 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. It seems an obvious statement but commodities make a return for investors if price rise after purchase. They generate losses if prices fall. Unlike financial assets, commodities offer no gain from interest income or dividends.
Returns from Commodity trading:
Absolute returns from stocks and bonds are definitely higher than pure commodities. But commodity trading carries a lower downside risk than other asset classes, as pricing in commodity future is less volatile compared to equities and bonds. While the average annual volatility is 25-30% in benchmark equity indices like the BSE Sensex or NSE‘s Nifty, it is 12-18% in gold, 15-25% in silver, 10-12% in cotton and 5-10% in government securities. According to study, if an investor had put his money only in silver and bonds from 1997-2003, his absolute returns would have been above 24%. Commodities are also good bets to hedge against inflation. Gold offers good protection against exchange rate fluctuations, and in particular, against fluctuations in the value of the US dollar against other leading currencies. However, unlike stocks, commodity prices are dependent on their demandsupply position, global weather patterns, government policies related to subsidies and taxation and international trading norms as guided by the World Trade Organisation (WTO).
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Growth of commodity trading:
A soft interest rate regime and a weak US dollar have increased the demand for the commodities. In a short span of over a year, online commodity markets are witnessing good growth in India. The daily volume of trading of Rs.2500 crore at NCDEX alone has surpassed that of Rs.2000 crore on the Bombay Stock Exchange (BSE). It registered a record daily traded volume of Rs.2617 crore on 8 December 2004. Commodities like chana, urad, soya bean oil, sugar, pepper, mustard seeds and wheat contributed to the balance trading volume. MCX, on the other hand, has achieved a peak daily turnover of Rs.1889 crore. Though the most popular commodities for trading in India are gold, silver, soya bean and guar gum, the market is divided equally between bullion and agricultural commodities in terms of trading volumes. Expecting the turnover on the three online commodity exchanges to spurt to Rs.10000 crore per day, banks are keen to tap the commodity trade-financing front. Commercial banks are chasing the commodity industry with attractive lending rates between 8% and 8.5% as against the normal lending rate between 11% and 14%. On Aug. 01, 2009; 432 members (1,851 users) participated in trading and put through more than 99,198 trades. The volume for the trading session till 02:00 p.m. was Rs. 26.68 billion (one-way). Active trades were high in among others Guar seed, Turmeric, Chana, Rape Mustard seed and Soya oil. The daily turnover volume at the National Commodity and Derivative Exchange (NCDEX) stood at Rs.39.39 billion (one- way). There were 457 members (1,970 users) users participated in trading on Aug 3, 2009 up to 5:00 p.m. There were more than 93,638 trades put through by them. Active trades were high among others Guar seed, Soya oil, Chana, Turmeric and Soybeans.
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ADVANTAGES & DISADVANTAGES OF COMMODITY MARKETS.
Advantages: The commodity markets try to integrate the fragmented rural markets. Multiple commodities can be procured at one centre. Efficient spot price can be discovered and disseminated. The bargaining power of the farmers would be increased. Transportation and warehousing facilities would be increased. There would be guarantees for trade and also payments. Considering all these advantages, 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.
Disadvantages: Globally commodity markets are criticized for their part in indulging in speculation and thus increasing the prices. Another major criticism is that the farm gate price is very low when compared to the price paid by the consumer. Small producers have no say in the market and traders dominate.
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Commodity Market STUDY ON SINGLE COMMODITY: GOLD: 40 | P a g e .
and partly a commodity. As much as two thirds of gold‘s total accumulated holdings relate to ―store of value‖ considerations. What makes gold special? Timeless and Very Timely Investment Gold is an effective diversifier Gold is the ideal gift Gold is highly liquid 41 | P a g e . do have counter-party risk. and gold used in industry. private investments. First. The d i s t i n c t i o n b e t w e e n gold a n d c o m m o d i t i e s i s important. gold is primarily a monetary asset. and highcaratage jewllery bought primarily in developing countries as a vehicle for savings. Gold has maintained its value in after-inflation terms over the long run. Some analysts like to think of gold as a ―currency without a country‘. Thus. it is primarily a monetary asset. the jewellery bought in Western markets for adornment. Less than one third of gold‘s total accumulated holdings can be considered a commodity. which unlike gold. 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.Commodity Market GOLD Introduction Gold is a unique asset based on few basic characteristics. Holdings in this category include the central bank reserves. while commodities have declined.
42 | P a g e . Due to large stock of gold. Using this approach. other major institutions. Effective portfolio diversifier: This phrase summarizes the usefulness of gold in terms of ―Modern Portfolio Theory‖. the correlations and volatilities of return for most asset class (including traditional diversifiers. gold can be used as a portfolio diversifier to improve investment performance. that is during financial stress (instability). such as bond and alternative assets) increase. On these occasions. against its demand. Gold held by central banks. and retail jewellery is reinvested in market.Commodity Market Gold responds when you need it most Market Characteristics The gold market is highly liquid. Effective diversification during ―stress‖ periods: Traditional method of portfolio diversification often fails when they are most needed. a strategy used by many investment managers today. thus reducing the intended ―cushioning‖ effect of the diversified portfolio. it is argued that the core driver of the real price of gold is stock equilibrium rather than flow equilibrium.
equal to about 9. South Africa. That's up 12% from the year-ago and represented just over one-tenth of the world's supply. the first time the Gold giant has lost its top ranking since 1905. 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 573 -140 430 93 303 826 519 111 630 2007 580 -129 451 95 262 808 568 112 680 % change 1 5 2 -13 2 9 1 8 43 | P a g e . saw its production decline 8% to 272 metric tons.Commodity Market Demand and supply China produced 276 metric tons of gold last year.7 million ounces. India is world largest gold consumer with an annual demand of 800 tonnes. The ranking pushes South Africa into second place. said London precious metals consultancy GFMS Ltd. 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.
e.February 1996 and sold at end-February 2002 at the prevailing rates in the local bullion market. one necklace and two bangles. and in case capital gains through marked to market is also taken into account. investment in a liquid risk-free Government security on the same date would have fetched a comfortable positive return. Indian Gold Jewellery Market Plain 22 carat jewellery is the core of consumption especially in the rural areas. one nose pin. gem-set) 18 carat jewellery is increasingly popular in the cities 44 | P a g e .2 oz). Studded (i. the average annualized return would work out to be negative. the annualized average return could be as high as 15 per cent. if gold had been purchased at end. A basic marriage set for a bride is two earrings. all in 22 carat gold and weighing up to 200 grams (6. On the contrary.Commodity Market Bar & coin retail investment Other retail investment ETFs and similar Total Demand Inferred Investment Source: GFMS Ltd. one ring. where gold is so important in judging a family's status at a marriage. 89 -3 113 829 -3 116 -5 36 827 -19 31 -68 0 - 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.
installing the latest equipment.Commodity Market and is estimated to have used 31 tones (1 million oz) in 2001. single shop operations. is becoming more popular. The market is highly fragmented with an estimated 100. These items are popular as gifts at weddings and other family events. known as Jari used in high quality saris worn at weddings and special occasions requires somewhere in the region of 20 tones (0. as has the number of Indians possessing gold jewellery. Medallions. The number of retail jewellery outlets has increased greatly since the abolition of gold control. although not yet widely used. in centers such as Mumbai.6 m oz) annually. charms and small gift items account for up to half of what is loosely called jewellery. mostly family-owned. The minimum legal caratage is 9 carat. Ahmadabad and Bangalore. 45 | P a g e . The industry is beginning to be modernized with large factories.000 retailers. Gold thread.000 workshops supplying over 300. Hallmarking does not exist in India and under-caratage is commonplace. The B u r e a u 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.
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. is short for the Latin word for gold. which literally means 'Glowing Dawn'. Q2. notably its excellent conductive properties and its inability to react with water or oxygen. It has several properties that have made it very useful to mankind over the years. Gull (Norwegian) and Kulta (Finnish). Goud (Afrikaans). Guld (Danish). reflecting one of the most obvious properties of gold. Q3. Gulden (Dutch). 'Aurum'.000 tonnes. 46 | P a g e . This is reflected in the similarities of the word gold in various languages: Gold (English). How much gold is there in the world? At the end of 2001. Where does the word Gold come from? The word gold appears to be derived from the Indo-European root 'yellow'. Au. Its chemical symbol. Gold (German). it is estimated that all the gold ever mined amounts to about 145.Commodity Market Frequently Asked Questions on Gold Q1.
i. Q5. so the Siliqua was approximately equivalent in value to the mass of 1 Keration or Siliqua Graeca of gold. How and when this change occurred is not clear. e. the value of 1/24th of a Solidus is about 1 Keration of gold. For gold. then most gold is owned by the USA followed by Germany and the IMF. 1 carat. parts per thousand.e. It does involve the Romans who also used the name Siliqua Graeca (Keration in Greek. 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. Who owns most gold? If we take national gold reserves. it has come to be used for measuring the purity of gold where pure gold is defined as 24 carats.54 grammes. Why is gold measured in carats? This stems back to ancient times in the Mediterranean /Middle East. which was onetwenty-fourth of the golden solidus of Constantine. This latter had a mass of about 4. when a carat became used as a measure of the purity of gold alloys (see next Question 5). If we include jewellery ownership. The Carob seed is from the Carob or locust bean tree. The Romans also used the name Siliqua for a small silver coin.Commodity Market Q4. then India is the largest repository of gold in terms of total gold within the national 47 | P a g e . The purity of gold is now measured also in terms if fineness. i. i. Q6. Qirat in Arabic. Thus 18 carats is 18/24th of 1000 parts = 750 fineness.e. and now Carat in modern times) for the bean of the Carob tree. The carat is still used as such for the weight of gem stones (1 carat is about 200 mg).
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. with other operations nearing the end of their lives.500tpa. but the real acceleration took place after the late 1970s.Commodity Market boundaries. then all the gold would stretch around the circumference of the world an astounding 72 million times approximately! Q8. How much does it cost to run a gold mine? Gold mining is very capital intensive. This is partly for specific operational reasons at some of the larger mines (Grasberg and Porgera). global production is likely to drop slightly over the next two to three years subject always of course to price. Richer ores mined at the surface (open cast mining) is 48 | P a g e . Q9.604 tonnes or 67% of total gold demand in that year. when output was in the region of 1. The reduction in exploration and development expenditure over the past five years is leading a number of analysts to suggest that. mine production amounted to 2. 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. This year output will fall short of production levels in 2001. it is not known who owns the most.500 meters are being pursued. Gold production has been growing for years. Typical mining costs are US $238/troy ounce gold average but these can vary widely depending on mining type and ore quality. In terms of personal ownership. along with lower grades at some of the operations in Nevada. Q7. but is possibly a member of a ruling royal family in the East. If all the gold was laid around the world. How much new gold is produced per year? In 2001.
Q10. If higher purity is needed or platinum group metal contaminants are present.32 g/cm3.Commodity Market considerably cheaper to mine than underground mining at depth. Q12. smelted to a gold-rich doré and cast into bars. A tonne of gold would therefore have a volume of 51. How does a gold mine work? The gold-containing ore has to be dug from the surface or blasted from the rock face underground. this gold is further refined by the Wohlwill electrolytic process to 99. which would be equivalent to a cube of side 37.9% purity.1035 grammes).27cm (Approx.5%. The gold is then separated from the rock (gangue) by techniques such as flotation. Such mining requires expensive sinking of shafts deep into the ground.64 cm3. This is then hauled to the surface and milled to release the gold. 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. With the density of gold at 19. How big is a tonne of gold? Gold is traditionally weighed in Troy Ounces (31. 760 cm3. 1‘ 3‘‘)? 49 | P a g e . a troy ounce of gold would have a volume of 1. These are then refined to gold bars by the Miller chlorination process to a purity of 99.
0648 grams. Carat: One-twenty fourth part by mass of the metallic element gold. 24 karat gold (or pure gold) has at least 999 parts pure gold per thousand. One grain is equivalent to 0. free from any other element. fineness. parts pure gold and 250 parts alloy.1507 troy ounces. Kilo Bar: A bar weighing one kilogram – approximately 32. Fineness: The ratio between the mass of gold content and the total mass expressed in parts per thousand (%). or marks. Find Gold: It is gold having fineness 999 parts per thousand (5) and above without any negative tolerance. 18-karat has 750. etc. the following definitions shall apply: Assaying: The method of accurate determination of the gold content of the sample expressed in parts per thousand (%). Karat: Unit of fineness. Grain: One of the earliest weight units used for measuring gold. Legal Tender: The coin or currency which the national monetary 50 | P a g e . which indicate the producer of a gold bar and its number.Commodity Market Gold Terminology For the purpose of this standard. Gold: The metallic element gold. etc. Hallmark: Mark. Standard Gold: Gold having fineness 995 parts per thousand (%) and above without any negative tolerance. scaled from one to 24.
a special margin at such percentage (as deemed fit). Saturday: 10:00a. 1 per 10 g (minimum price movement) 3% 4% In case of initial volatility. but excluding sales tax/VAT. to 2:00 p. acceptable for instance in the discharge of debts. ex-Ahmadabad (inclusive of all taxes and levies relating to import and custom duty. Liquidity: The quality possessed by a financial instrument of being readily convertible into cash without significant loss of value. 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. will be imposed immediately on both buy and sell side in respect of all outstanding positions. 1 a v o i r d u p o i s (ordinary) ounces.m.m. which will remain in force for next 2 days.1034768 grams. Troy O u n c e : A u n i t o f w e i g h t . to 11:30 p. 51 | P a g e .m. local taxes and octroi) Maximum order size Tick Size Daily price limit Initial Margin Special Margin 10 kg Re. any other additional tax or surcharge on sales tax. e q u a l t o a b o u t 1 . TRADING Trading Unit Price Quote 1 kg Rs. The word ounce when applied to gold refers to a troy ounce. Per 10 g.Commodity Market authority declares to be universally acceptable as a medium of exchange. after which the special margin will be relaxed.m. 1 troy ounce is equivalent to 31.
m.00 p.m. 1st to 6th day of the contract expiry month.Commodity Market Maximum Allowable For individual client: 2 MT For members collectively for all clients: 6 MT or 15%of the market position.00 a.00 p. Delivery pay-in will be on E + 1 basis. on Tender day +1 basis By 05. except Compulsory Saturdays. Pay-in of funds Pay-out of funds and commodities (delivery to buyer member) By 11. Delivery Logic SETTLEMENT PERIOD Tender Period Delivery Period Pay-in of commodities (delivery by seller member) 1st to 6th day of the contract expiry month. 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. New Delhi and Hyderabad.m. Marking of delivery will be done on the tender days based on the intentions received from the sellers after the trading hours. 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 . Sundays and Trading Holidays. Mode of Communication Fax or Courier 52 | P a g e . on Tender day +1 basis. INFORMATION RELATED TO DELIVERY Delivery Logic Compulsory D e l i v e r y . whichever is high DELIVERY 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.
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. Warehouse Receipt and Quality Certificate) of tendering delivery with the Exchange during tender days. Margin during delivery period Exemption from margin during tender and delivery period 25% on the marked quantity.. Delivery Centers Ahmadabad and Mumbai at designated Clearing House facilities of Group 4 Securitas at these centers and at additional delivery centers at Chennai. On expiry date the delivery order rate shall be the Due Date Rate (DDR) and not the closing price.Commodity Market Tender Period Margin 5% incremental margin for last 5 days on all outstanding positions. Margin is exempted on receipt of documentary evidence (viz. Additionally. Delivery order rate (DOR) Settlement/closing price on the respective tender days except on expiry date. 53 | P a g e . additional and special margin as applicable.5% will be credited to the counter party. 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. Penal Provision A penalty of 2.5% of DOR will be imposed on defaulting buyer / seller out of which 2% will be credited to IPF and 0. Such margin will be addition to initial. 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.
If the assayer‘s certificate differs from the certificate submitted by the seller in respect of quality or weight materially. if any. weight and quality of material. however if they do not agree on any mutually acceptable amount within 1 day.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. If the buyer chooses for assaying. he can insist for assaying by any of the approved assayers available at that center. get it assayed and bring it back to Group 4 facilities along with assayer‘s certificate. Group 4 person will carry the goods to the assayer‘s facilities. 54 | P a g e . The vault charges during such period of first and second assaying. 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. the buyer can check his delivery in front of Group 4 personnel. 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. If he is satisfied with the quantity. the report received from such assayer will be final and binding on both buyer and seller. while the cost of second assaying. then the buyer and seller have to mutually negotiate the final settlement proceeds within 1 day from receipt of assayer‘s report. if any. If he is not satisfied with the metal. then he will issue receipt of the metals instantly. If the buyer does not opt for assaying at the time of lifting delivery. will be equally divided between the buyer and seller. then the Exchange will send the goods to a second assayer and in that case.
Delivery Process In case any of the above validation fails. he would get a premium. get the signature of the seller‘s clearing agent and signing the same for authorization. Whether the selling member is the bonafied member of the Exchange. Whether the person carrying Gold is the Designated clearing agent of the member. c. Whether the serial numbers of all the bars is mentioned in the packing list provided. In case a seller delivers 999 purity. Group 4 in front of the selling member‘s clearing agent will Deposit the said metal into their vault. If all validations are through. then the Group 4 Securitas personnel will put the Gold in the vault. the Group 4 Securitas will contact the Exchange office and take any further action.Commodity Market Validation Process On receipt of delivery. as they may desire. send by courier the third copy (Yellow Colour slip) while retaining the White for the records of Group 4 Securitas. the Group 4 personnel will do the following validations: a. only as per Instructions received from the Exchange in writing. Then the custodian of Group 4 will cut a serially numbered Group 4 receipt (in triplicate consisting of White. b. Whether the quantity being delivered is from Exchange approved refinery d. e. Pink and Yellow slips). hand over the Pink slip to seller‘s clearing agent. In such case. Quality Adjustment The price of gold is on the basis of 995 purity. Whether the original certificates are accompanied with the Gold Bars Any other validation checks. the sale proceeds will be calculated by way of delivery order rate * 999/ 995 55 | P a g e .
Proof of Identity viz. driving license. Insurance and Transportation charges Extension of delivery period Due date rate (DDR) photo identity proof in original. cess and levies The above-mentioned details are required to be sent to Ex-Ahmadabad. customs the Exchange will send or surcharge on sales tax. scrutiny/checking of the identity. the Exchange. Based on the Delivery Order received. the Vault will The buyer member can endorse delivery order to a client issue the requested or any third party with full disclosurequantity the to given to the Responsibility for contractual liability would Exchange. authorizing a representative on his behalf to take the delivery. Name of the Vault along with the location. parties (seller member and buyer member) will The delivery given to the representative shall be final & unreasonably refuse to do so.Commodity Market Procedure of taking delivery from the Vault For the purpose of taking delivery of goods fully or partially. The Authority letter sent by the Member shall consist of the following details: a. any other reason may refuse to issue the goods The members will provide appropriate tax forms wherever to the representative under the intimation to the required as per law and as customary and neither of the Exchange. Photo identity proof duly attested by the Member. c. The Vault officials in of any discrepancy or doubt or days of the spot market of Ahmadabad. As per Exchange decision due to a force majeure or The Vault officials will. f.authorized representative who has to present be himself personally at the Vault along with the requisite with the original assignee. VAT. local authorities directly. Taxes. This DDR is calculated on 5th day of deliver goods to the representative of the of taking simple average of last 5 case is calculated by way Member. duties. Name of the authorized representative. the Member shall send to the Exchange an Authority letter on his letter head. Once the Exchange Inclusive of all charges / levies relating to import duty. d. 56 | P a g e Legal obligation . receives to be borne by Seller. e. Name of the Commodity along with quantity. b. PAN card. the copy of which was Borne by the seller till the date of pay-out of delivery and sent/communicated to the Exchange by its the buyer after the date of pay-out. binding to the Member at all times. Member. any other additional tax Delivery Order (DO) to the Vault taxes and octroi to be borne by the Buyer. upon final otherwise. Endorsement of delivery order Vault. But excluding Sales Tax / the above-mentioned details. Election ID. Signature of the authorized representative. the contract month.
m. and on Saturdays by 12:00 noon. The Exchange or FMC as the case may be further prescribe additional measures relating to delivery procedures. Allocation of delivery As per the closing price on the respective tender days. rules and Business Rules of the Exchange and decisions taken by Forward Markets Commission.m.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. 57 | P a g e . 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.Commodity Market Applicability of Business Rules The general provisions of Byelaws.m. margining.00 p.m. (The interpretation or clarification given by the Exchange on any terms of this contract shall be final and binding on the members and others. 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. on the respective tender days and on Saturdays by 1:00 p. warehousing. Evidence of stocks in possession At the time of issuing delivery order. 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. quality certification. and risk management from time to time. Buyer‘s obligation The buyer shall not refuse taking delivery and such refusal will entertain penalty as per the penal provision.) STEPS TO BE FOLLOWED FOR DELIVERY On any tender days by 6.
Government of India. thereby affecting the interest of appropriate risk management system. Ministry Of Consumers Affairs FMC Commodity Market 58 | P a g e . particularly non-member users of the market. namely. clearing. Regulation is also needed to ensure fairness & transparency in trading. Settlement & management of exchange so as to protect & promote the interest of various stakeholders. In the absence of such a system.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. The reluctant financial crisis in a futures market could create systematic risk. Forward Markets Commission & Commodity Exchanges. In the absence of regulation. The regulation is needed to create competitive condition. This could have undesirable influence on spot prices. Hence there is a need of regulatory functions to be exercised by an exchange. The need for regulation arises on account of the fact that the benefits of futures markets accrue in competitive conditions. a major default could create a reaction.
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. It is a statutory body set up in 1953 under the Forward Contract (Regulation) Act. 4. 5. To collect & whenever the commission thinks it necessary.Commodity Market Forward Market Commission FMC headquartered at Mumbai. is a regulatory authority which is overseen by the Ministry Of Consumer Affairs & Public Distribution. To keep forward markets under observation & to take such action in relation to them. as it may consider necessary. supply & prices. to publish information regarding the trading conditions in respect of goods to which any of the provisions of the act is made applicable. 3. 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. in exercise of the powers assigned to it by or under the Act. The functions of the FMC are as follows: 1. 1952. of India. To make recommendations generally with a view to improving the organization 7 working of forward markets. 59 | P a g e . & to submit to the Central Government. periodical reports on the working of forward markets relating to such goods. To advise the Central Govt. Govt. including information regarding demand. 2.
In the process. Union consumer affairs secretary Labanyendu Mansingh believes this will help the Government save on procurement 7 shortage cost of food grains. With 45% of India‘s GDP (or RS 11lakh crore) coming from commodities. give a major boost to commodity futures trading & take the farmers to the e-age. too. NCDEX has set up a network of 100 warehouses where commodities are graded & certified & where such commodity balances can be held electronically in demat form. then farmers could get finance.000 crore annually. 60 | P a g e . If those proposals become law.Commodity Market ROLE OF GOVERNMENT IN COMMODITY MARKET The Government. Legislative changes have been proposed to enable farmers to get loans against the receipt for goods deposited at accredited warehouses. which would enable them to avoid distress sales of their produce at times of unfavorable market conditions. 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. may enter the game. Already. The exchanges tieing with other players to provide warehouses services to the traders 7 now NCDEX is to built 1. estimated to cost it close to Rs 25. around 1. To encourage large companies to trade in commodity futures.100 warehouses with all the facilities. 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. the Government will minimize corruption in the grains management operations.500 depository participant accounts have been opened with 32 depository participants. 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.
National Institute Of Agricultural Marketing (NIAM) 5. NMCE was the 1st to initiate process of dematerialization & electronic transfer of warehoused commodity stocks. NMCE follows best international risk management practices. Gujarat State Agricultural Marketing Board (GSAMB) (It got its recognition in Oct ‘02) 7. In the event of high volatility in prices. 61 | P a g e . Central Warehousing Corporation (CWC) 3. These deliveries are executed through a sound & reliable Warehouse Receipt System. (NOL) 2. through VIRTUAL PRIVATE NETWORK (VPN). The system of upfront margining based on value at Risk is followed to ensure financial security of the market. special intra-day clearing & settlement is held. NMCE facilitates electronic derivatives trading through robust & tested trading platform. leading to guaranteed clearing & settlement. NMCE was the 1st commodity exchange to provide trading facility through internet. The contracts are marked to market on daily basis.Commodity Market NATIONAL MULTI-COMMODITY EXCHANGE OF INDIA NMCE is the 1st demutualized. NMCE was promoted by: 1. Gujarat Agro-Industries Corporation Ltd. (GAICL) 6. National Agricultural Co-operative Marketing Federation Of India (NAFED) 4. It is the only Commodity Exchange in the world to have received ISO 9001:2000 certification from British Standard Institutions (BSI). Neptune Overseas Ltd. Derivatives Trading Settlement System (DTSS). The unique strength of NMCE is its settlement via Delivery Backed System. Electron Multi-Commodity Exchange in India. an imperative in the commodity trading business.
traders and farmers along with banks. Implementing best quality standards of warehousing. the NMCEIL has been granted in-principle approval by the Government to organize futures trading in the edible oil complex. grading and testing in 62 | P a g e . hedging using different and diverse commodities would also be possible with help of NMCE. 2002. efficient and competitive environment in the 21st century. NMCE’S Vision & Mission. NMCE is leading transition of highly fragmented. Minimization of settlement risks. In addition. 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. INFORMATION: On 25th July. Rationalizing the transaction fees to optimum level. Improving efficiency of operations by providing best infrastructure and latest technology. Improving efficiency of marketing through on-line trading in Dematerialization form. controlled and restricted commodity economy to globally integrated. 2001. NMCE would provide a common ground for fixation of future prices of a number of commodities enabling efficient price discovery / forecast. In short. while complying with Statutory /Regulatory requirements. We shall strive to ensure continual improvement of customer services and remain quality leader amongst all commodity exchanges.Commodity Market NMCE would bring about the converge of large-scale processors. The exchange is operationalised from November 26. Mission Continual Improvement in Customer Satisfaction.
Promoting awareness about on-line features trading services of NMCE across the length and breadth of the country.Commodity Market tune with trade practices. Improving quality of services rendered by suppliers. Improving facilities for structured finance. “Innovation is the way of life at NMCE” 63 | P a g e .
Industry Associations. 64 | P a g e . offering multiple commodities for trading with wide reach and penetration and robust infrastructure. Bank of India and Canara Bank. Bullions. Pulses Importers Association and Shetkari Sanghatana. namely Bombay Bullion Association. clearing and settlement operations for commodity futures markets across the country. Traders. MCX has built strategic alliances with some of the largest players in commodities eco-system. Metals.wide commodity exchange. Cooperatives.Commodity Market MCX MCX an independent and de-mutulised commodity exchange has permanent recognition from Government of India for facilitating online trading. since inception MCX has recorded many first to its credit. Chairman & Managing Director. Solvent Extractors Association of India. Union Bank of India.Ferrous & Non Ferrous. Corporate. Bombay Metal Exchange. Through the integration of dedicated resources. Spices and other soft commodities. robust technology and scalable infrastructure. is well placed to tap this vast potential. Oils & Oilseeds. Key shareholders of MCX are Financial Technologies (India) Ltd. Regional Trading Centers. Inaugurated in November 2003 by Shri Mukesh Ambani. Reliance Industries Ltd. State Bank of India. Plantations. MCX is led by an expert management team with deep domain knowledge of the commodity futures markets. amongst others MCX being nation. Headquartered in Mumbai. MCX offers futures trading in the following commodity categories: Agri Commodities. Pulses. Today MCX is offering spectacular growth opportunities and advantages to a large cross section of the participants including Producers / Processors... Exporters. Importers. Corporation Bank.
745.84 1.327.522.334.28 7.74 Sources: Forward Market Commission 65 | P a g e .900.46 14.891.99 101.14 779.527.08 8.34 13.16 618.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) 129.412.422.85 19.49 2.267.98 116.784.66 62.22 91.
index futures are not allowed in India under the FCRA (Forward Contracts Regulation Act. On February 3rd. etc. It is the first such index to be launched in India. the noarbitrage price if one were to buy futures on the spot index. Forward Commission (Regulation) Act and various other legislations. The NCDEX Commodity Index is an equal-weighted spot price index of 20 agricultural commodities covering different groups such as oils and oilseeds. Stamp Act. NCDEX is a closely held 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. NCDEX is regulated by Forward Market Commission (FMC) in respect of futures trading in commodities. NCDEX is located in Mumbai and offers facilities in more than 550 centres in India. Currently. 2003 under the Companies Act. National Commodity & Derivatives Exchange Limited (NCDEX) is an online commodity exchange based in India. the FMC found NCDEX guilty of violating settlement price norms and ordered the exchange to fire one of their executive. Based on the components of the spot price index. NCDEX is subjected to various laws of the land like the Companies Act. This price is derived by tracking the futures prices of the index components at the same weightage as the spot index. 1952). It obtained its certificate for Commencement of Business on May 9. 2003.Commodity Market NATIONAL COMMODITY AND DERIVATIVES EXCHANGE LTD. 66 | P a g e . NCDEX also displays the national index futures-essentially. which requires compulsory physical settlement of future contracts. It was incorporated as a private limited company incorporated on April 23. fibres. Besides. 2006. which impinge on its working. 2003. It has commenced its operations on December 15. Contracts Act. 1956.
Coffee –Robusta Cotton Seed Oilcake Crude Palm Oil Expeller Mustard Oil Groundnut (in shell) Groundnut Expeller Oil Guar gum Guar Seeds Gur. Jeera Jute sacking bags Kidney Beans Indian 28 mm Cotton Indian 31 mm Cotton Masoor Grain Bold Medium Staple Cotton Mentha Oil 67 | P a g e .Based commodities: Castor Seed Chana Chilli Coffee – Arabica.Commodity Market COMMODITIES TRADED: NCDEX currently facilitates trading of 57 commodities:- Agri.
Mustard Seed Pepper Raw Jute RBD Palmolein Refined Soy Oil Rubber Sesame Seeds Soy Bean Sugar.small Sugar.medium Turmeric Urad (Black Matpe) V-797 Kapas Yellow Peas Yellow Red Maize Yellow Soybean Meal.Commodity Market Mulberry Green Cocoons Mulberry Raw Silk Rapeseed. Bullion: Gold 1 kg Gold 100 gm Silver 30 kg Silver 5 kg 68 | P a g e .
Ferrous metals: Mild Steel Ingot Plastics: Polypropylene Linear Low Density Polyethylene Polyvinyl Chloride.Commodity Market Energy: Brent Crude Oil Furnace Oil Light Sweet Crude Oil. Non-ferrous metals: Aluminium Ingot Copper Cathode Nickel Ingot Zinc Cathode 69 | P a g e .
as of now. In NCDEX. called FUTEXAGRI. This is essentially a what-if index. This is a spot-price based index. 70 | P a g e . indexes and index futures are not allowed to be traded under the current regulatory structure. Board of Directors comprises 8 Directors who are well known. have decided that they will not be taking part in the day-to-day activities of the Exchange. It indicates that if futures on the index could be traded. This is a composite index. in the areas very relevant to the Exchange. CRISIL Limited. Life Insurance Corporation of India. IFFCO. highly experienced and is independent. the index futures. each an authority in his own right. then the current FUTEXAGRI value should be the no-arbitrage value for the index futures. The institution-shareholders – Canara Bank. these are only available for information. Hence. The Managing Director is the only whole-time Director. NCDEX also offers as an information product. National Bank for Agriculture and Rural Development. However. called NCDEXAGRI that covers 20 commodities currently being offered for trading by NCDEX.Commodity Market Facilities offered: NCDEX also offers as an information product. The Board comprises persons of eminence. National Stock Exchange of India Limited and Punjab National Bank. in tune with the highest norms of corporate governance. ICICI Bank Limited. Governance: The governance of NCDEX vests with the Board of Directors. an agricultural commodity index.
In 1982. In the middle of the 19th century in the United States. The major commodity markets are in the United Kingdom and in the USA major commodity markets are in London. Inc. a group pf Manhattan diary merchants got together to bring chaotic condition in New York market to a system in terms of storage. New York Mercantile exchange (NYME) is amongst the world‘s largest and best exchanges. London metal exchange (LME). soft commodities and financial futures. during the Great Depression. spices. The London Wool Exchange. and the Chicago Mercantile Exchange in Livestock and Livestock futures. Sydney and Singapore. In the USA. In London. In 1933. the Rubber Exchange of New York.Commodity Market Worldwide commodity markets. cocoa. etc. The London Diamond Market and International Petroleum Exchange (IPE). the National Raw Silk Exchange and the New York Hide Exchange.. the New York Mercantile Exchange (NYMEX) deals in metals. The two main futures exchanges. SOME INFORMATION ABOUT WORLD WIDE COMMODITY EXCHANGE. The Tea Market.still the major international centers for transactions in a vast range of commodities-such markets include the London commodity Exchange (LCE) trading sugar. 71 | P a g e . which traded gold. The London Metal Exchange (LXM). Chicago Board of Trade (CBOT). The London Gold Market. the Commodity Exchange. Chicago Mercantile exchange (CME). rubber. are COMEX in New York and TOCOM in Tokyo. businessmen began organizing market forums to make the buying and selling of commodities easier. the Chicago Board of Trade (CBOT) in metals. Chicago. was established in New York through the merger of four small exchanges—the National Metal Exchange. pricing and transfer of agricultural products.
managing director. which has resulted in their growth. executive director of Benchmark Asset Management Company. corporatized and employ modern management.‖ says Jignesh Shah. MCX. ―National exchanges have succeeded in creating trust in the minds of stakeholders as they are hi-tech. Modern exchanges have also reduced information asymmetry. A farmer has to trust the exchange the way he trusts State Bank of India. 72 | P a g e .Commodity Market According to experts:- ―Volumes on commodity exchanges are growing because there is transfer from the mandis to the exchange platform.‖ says Sanjiv Shah.
It makes them specious towards commodity market. Delivery system of exchanges is not good enough to attract investors. Development of warehousing and facilities to use the warehouse receipt as a financial instrument to encourage participation farmers. Contract specifications should have wider coverage.Commodity Market SUGGESTIONS: As majority of Indian investors are not aware of organized commodity market. so that a large number of varieties produced across the country could be included. Many of them have wrong impression about commodity market in their minds. Along with Government efforts NGOs should come forward to educate the people about commodity markets and to encourage them to invest into it.: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 delivery on pretext of quality difference and also auctions the product. their perception about is of risky to very risky investment. 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 73 | P a g e . E. traders as well as consumers will be benefitted from it.g. Some Suggestions to make futures market as a level playing field for all stake holders: Creation of awareness among farmers and other rural participants to use the futures trading platform for risk mitigation. But for this to happen one has to take initiative to standardize and popularize the Commodity Market. There is no doubt that in near future commodity market will become Hot spot for Indian farmers rather than spot market. Concerned authorities have to take initiative to make commodity trading process easy and simple. Development of physical market through uniform grading and standardization and more transparent price mechanisms. And producers.
Contract sizes should have an adequate range so that smaller traders can participate and can avoid control of trading by few big parties. There is need to modify the law to bring it closer to the wide spread practice and save participants from unnecessary hassle. Setting of state level or district level commodities trading helpdesk run by independent organization such as reputed NGO for educating farmers. This problem can possibly be solved by consolidating some exchanges. in practice only a few commodities derivatives are popular for trading. Only about 1% to 5% of total commodity derivatives traded in country are settled in physical delivery due to insufficiencies in present warehousing system. A difficult problem in Cash settlement of Commodities Derivatives contract is that. Again most of the trade takes place only on few exchanges. To avoid this participants square off their positions before maturity. Though over 100 commodities are allowed for Derivatives trading. under Forward Contracts regulation Act 1952 cash settlement of outstanding contracts at maturity is not allowed. 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. warehousing problem has to be handled on a war footing.Commodity Market no reason at all. 74 | P a g e . So in practice contracts are settled in Cash but before maturity. That means outstanding contracts at maturity should be settled in physical delivery. As good delivery system is the back bone of any Commodity trade.
now. The national multi. 75 | P a g e . it won't be long before the market sees the emergence of a completely redefined set of retail investors.commodity exchanges have unitedly proposed to the government that in view of the growth of the commodities market. trading in commodities cannot be ignored by Indian investors. 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 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. As a matter of fact. such as futures. foreign institutional investors should be given the goahead to invest in commodity futures in India. 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. For diversification of portfolio beyond shares. commodity trading offers a good option for long-term investors and arbitrageurs and speculators. Their entry will deepen and broad base the commodity futures market. derivative instruments. Online commodity exchanges need to revamp certain laws governing futures in commodities to make the markets more attractive. Therefore. And. can help India become a global trading hub for select commodities. fixed deposits and mutual funds.
business.com www.mcxindia.com www.org 76 | P a g e .sebi.nmce.indiamba.Commodity Market BIBLIOGRAPHY www.ncdex.com www.mapsofindia.nbotind.com www.in.com www.commodityindia.com www.com www.indiaexpress. SEBI Bulletin www.gov.gold.com www.org www.bseindia.
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