Harnessing technology for futures trading - the NCDEX approach - Mr P. H.

Ravikumar
July 11, 2005

Agenda
Objectives of a commodity exchange NCDEX and technology Strategic plans Technology – to create a well knit world
Price dissemination

About NCDEX

2

Agenda
Objectives of a commodity exchange NCDEX and technology Strategic plans Technology – to create a well knit world
Price dissemination

About NCDEX

3

Objectives of a commodity exchange
Platform for trading for end users (farmers, corporates etc), speculators, investors Price discovery & price dissemination
Farmer to choose crop based on futures prices Farmer to sell forward his crop

Risk management Robust clearing & settlement mechanism

In medium term, we see farmers sell forward (at time of sowing) their expected production by locking into a committed price
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Agenda
Objectives of a commodity exchange NCDEX and technology Strategic plans Technology – to create a well knit world
Price dissemination

About NCDEX

5

NCDEX & technology
NCDEX – technology driven de-mutualised commodity exchange Reaches out through 6600 terminals to 490 cities NCDEX leverages technology to
Ensure a transparent trading platform High data security and speed Take the commodity markets to the masses

The assimilation of technology by common man has been amazing

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Exchange Technology Complexity
Long Trading Sessions High Uptime & Availability - Redundancy Equal Opportunity to all Participants Delay and Response Time Scale of Operation – Rapid Growth Multiple Channel of Connectivity Low Cost of Operation/Scalability Security issues
Transparency & real time price dissemination are our hall marks

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IT Achievements
Average 5 links (25 users) enabled everyday Microsoft enlisted NCDEX in its case study Gilat Telecom showcased NCDEX as one of its success stories Largest Internet Trading Platform NCDEX website popularity has improved by 159% in the last quarter “PC Quest” listed NCDEX among top ten success stories of 2004 State-of-the-art data center
Leveraging technology to reach out to grass root level participants

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IT Architecture
Parameter
Trading System

Achievement
Morning and Evening Sessions – 14 Hours 37 Commodity Contracts 85% trades come from agri commodities 490 plus locations in the country (80% from rural and semi-urban centers) Apprx. 6,700 users (Terrestrial- 900, VSAT-3200 and Internet-2600)

Spread

Commodity Traders

We may have to move to round-the-clock availability for users

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Networking – Connectivity Pace
Brokers connect to the Exchange via
VSats Leased Lines Internet Dial-up links

Mobile connectivity under way

Challenge is to provide low cost & easy access & credible prices

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Connectivity Factor
Dial-Up VSAT Internet Mobile Technology

Institution

Leased Lines & ISDN Leased Lines

Ku, Ext-C, DTH Ku, Ext-C

Dial-up, ADSL Dial-up, ADSL Dial-up Dial-up

GSM, CDMA, GPRS GSM, CDMA, GPRS GSM, CDMA CDMA, corDECT

Commodity Traders Remote Clients Rural Population

Goal is to reach the panchayat level
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Connectivity Numbers
Connectivity Type Links Applied Links Connected Share in Total Volume (%)

VSAT Leased Lines Internet

1352 265 2700

1310 235 1050 +
Concurrent Users

57% 25% 18%

Next to NSE, the widest network among bourses in India

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Trading System
Server Support Spares Uptime Continuum Stratus Server C619 VOS O/s, Appletree In-memory Database AMC support by Stratus through CMC Off-site Spare Maintenance by Stratus (UPS) Replacement within 6 hours Fully fault tolerant system

New Stratus V Series (Intel Xeon Processor) with Technology Fiber Network Interface Stratus T Series (Linux) Servers
We guarantee users 99.999% uptime

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Core Application - Trading Software
Base Application Developed by TCAM Corporation Customisation & Support by TCS Language Communication Front-End Benchmark Programmed in PL/1 TCP/IP based; Multicast enabled Developed by TCS – Windows SDK & VB 70 Trades per Second

New Technology Split Architecture for Multiple Vertical Markets – Agro, Energy, Metals etc Interface Risk Management, Surveillance, Clearing & Settlement, Spot price polling

We currently handle over 7 lakh messages per second
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Other Applications
Internet Proxy Proxy Gateway Server on Red Hat Linux Average 1,000 concurrent users Real-time Monitoring and Alert Generation Red Hat Linux and Oracle database Completely developed in-house with Market Replay and Extensive Reporting features Online checking of member’s margin limits and generation of alerts to members in case of exceeding limits Sharing resources with NSCCL Settlement of Daily Pay-in and Pay-Out Sharing resources with NSCCL

Surveillance

Risk Management

Clearing & Settlement

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Other Applications
Extranet Repository of Exchange common documents & member specific data for both upload and download access (24x7 through ISP) Management of member’s financial transactions and updates from various transacting banks, Office Accounting Member and Client Database Connectivity Details Systematic logging of customer calls Escalation, Follow-up and Analysis of calls Spot & Future commodity prices made available through various channels and media Spot Price Polling (120 centers) Linkages to Trading Module

Finance & Accounts Membership Talisma (CRM) Price Dissemination Polling

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Agenda
Objectives of a commodity exchange NCDEX and technology Strategic plans Technology – to create a well knit world
Price dissemination

About NCDEX

17

Future Technologies for NCDEX
Technology Dial-up VPN Application Allowing NCDEX member to connect and access NCDEX server from anywhere in Airtel Telecom circles without needing to go through Internet. Information about the commodity market status on Mobile with always-on GPRS connection. Price Dissemination Ease of calling NCDEX helpdesk/call center from any where in the country at much lower rates. Price Dissemination Status Initiated Discussions

GPRS

In process

Pull based SMS queries GSM Based Call Center solution Cordect

In process Initiated Discussions

Under pilot implementation

Motorola

Price Dissemination

Feasibility study in progress

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Agenda
Objectives of a commodity exchange NCDEX and technology Strategic plans Technology – to create a well knit world
Price dissemination

About NCDEX

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Enablement of Farmers

NCDEX terminals

Institutions

Banks

Warehouse

Single point front for farmers to meet all needs

Other needs
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Fertilizers

Agri-extensions

Price Dissemination
Commodity prices broadcast through various channels Real time display of Futures & Spot prices through agencies like Moneyline Telerate, Reuters, Telequote Live Quote on National TV Doordarshan and DTH channel Vernacular Display boards at various Mandis & Commodity Warehouses Spot & Future Prices Availability on our Website Price Dissemination for the benefit of farmers and producers through ticker boards installed Co-operative societies, Local Banks & Post offices Release of Price List in leading newspapers

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Price Dissemination
Installed multilingual and unilingual price tickers at New Delhi, Abohar, Ujjain, Bangalore, Kottyam, Indore & Hyderabad
Ticker board in Adilabad - a drought prone tribal district in Andhra Pradesh Ticker boards at Abidjan, Côte D’Ivoire (Ivory Coast) – a center for cashew trade

Disseminating prices through SMS and flash on mobile phones CNBC Awaaz, Free Press Journal carrying daily price quotes Different websites/ portals carrying the price quotes
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Agenda
Objectives of a commodity exchange NCDEX and technology Strategic plans Technology – to create a well knit world
Price dissemination

About NCDEX

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NCDEX – Current shareholders

NABARD 15%

NSE 15%

IFFCO 12%

CRISIL 12%

ICICI Bank 15%

LIC 15%

Canara Bank 8%

PNB 8%

Only institutions are our shareholders
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Independent Board of Directors
Name
Shri U. S. Awasthi Shri R.N. Bharadwaj Shri B.V. Bhargava Shri S.H. Bhojani Shri Dileep Choksi Shri D. S. Kolamkar Smt Ranjana Kumar Shri Ravi Narain Shri Lamon Rutten Shri Ravi Mohan Dr. Ajay Shah Shri H.N. Sinor Shri P. H. Ravikumar
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Organisation
MD, IFFCO Chairman, LIC Chairman, CRISIL Partner, Amarchand Mangaldas & Co. Sr. Partner, C.C Choksi & Co. Director, FMC Chairperson, NABARD MD & CEO, NSE Chief - Finance & Energy, UNCTAD MD, CRISIL Consultant, Ministry of Finance CEO & Secretary, IBA MD, NCDEX

Expertise in
Agriculture Insurance Credit rating/finance Legal Accounting Market Regulation Rural finance/Banking Exchange operation Finance & Energy Credit rating Economics & Finance Banking & Finance Banking & Finance

Product Calendar
Dec 2003
Gold, Silver, Gold, Silver, Crude Palm Crude Palm oil, RBD oil, RBD Palmolein, Palmolein, Cotton, Cotton, Mustard Mustard seed, seed, Mustard oil Mustard oil Soybean, Soybean, Refined soy Refined soy oil oil

Apr-Dec 2004
Guar seed, Guar seed, Jute Jute sacking, sacking, Chana, Chana, Rubber, Rubber, Pepper, Pepper, Wheat, Wheat, Castor Castor seed, Guar seed, Guar gum, Raw gum, Raw jute, Urad, jute, Urad, Yellow Yellow peas, peas, Sugar, Sugar, Turmeric, Turmeric, Soymeal Soymeal

Jan – May 2005
Gur, Rice, Gur, Rice, Maize, Raw Maize, Raw silk, silk, Cocoon, Cocoon, Jeera, Jeera, Chilli, Steel, Chilli, Steel, Cashew, Cashew, Cottonseed Cottonseed oilcake, oilcake, Sesame Sesame seed, Tur, seed, Tur, Arabica & Arabica & Robusta Robusta Coffee, Coffee, Copper Copper Cathode Cathode

In pipeline
Other base Other base Metals, Metals, Energy Energy Products, Products, More More Agricultural Agricultural products products

Each product is selected after an in-depth research & market feedback
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Average daily volumes
3000 2500 2231
Peak Volume for a single day

Rs cr
2575

2015 1619

2095

2000

Rs. 4271 cr on Mar 30 ‘05

1500 1231 1000 691 500 21 0
Q 1 2 0 0 4 Q 2 2 0 0 4 Q 3 2 0 0 4 O ctN o v 0 4 D e c - '0 4 J a n '0 5

1444 1229

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F e b '0 5 M a r '0 5 A p r '0 5 M a y '0 5 Ju n e '0 5

Impressive growth of NCDEX with 85% volume contribution from agriculture Volumes in Steel & Copper picking up- daily average steel trade- 10,000 tonnes

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Deliveries to Open Interest – June 2005
June deliverables in Metric tonnes 2697 7990 1270 940 110 12810 756 9779 36352 Deliveries to Open Interest 99% 98% 88% 87% 85% 84% 83%

COMMODITY 1 2 3 4 5 6 7 JEERA URAD CASTOR SEED GUARGUM SUGAR S SUGAR M PEPPER Others Total quantity for delivery

Open Interest 2721 8160 1450 1085 130 15260 910

Deliveries in over 18 commodities
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Price dissemination: Choose your crop
Radio TV Channels E-chaupals N-logue

News agencies PCOs

Newspapers & journals Kisan call centres AGMARKNET
IFFCO, HAFED Warehouses

Bank branches

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Impact of NCDEX on Prices
Guar Seed Price (Rs/qtl) FY 02 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 823 821 698 758 FY 03 840 1575 1434 1439 FY 04 1217 847 978 958 FY 05 1082 1625 1669 1534 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Raw Jute Price (Rs qtl) FY 02 1146 1042 1042 1167 FY 03 1008 857 827 804 FY 04 842 823 784 794 FY 05 1056 1405 1557 1303

Castor Seed price (Rs/20 kgs) FY 02 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 197 224 211 211 FY 03 247 263 297 363 FY 04 375 287 292 300 FY 05 304 357 348 305

Prices are those received by the farmers after adjusting for the taxes and other incidentals. The Prices are from the following mandis: Bikaner, Calcutta and Ahmedabad. Numbers marked in red pertain to Prices after trading was enabled on NCDEX.
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Thank You.

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Overview of mandis
Operating since 1920’s Around 11000 mandis in the country

7400 are approved market yards under APMC Act 1500 contribute to about 70% volumes
Function throughout the year

Some are seasonal Auctions at different periods of time throughout the day
Can be single produce centers or deal with multiple products Mandis not networked Function under the state administration and guided by respective APMC Act

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The present system: Agmark Major progress in past five years Covers over 300 commodities in 739 markets Disseminates prices free Prices are not provided in real time Limited variation by grades / quality Limited scope for user-feedback into work

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The ideal mandi system : the enablers
Widest geographical participation Prior access to information on prices and other related matters to participants, esp. farmers Extensive use of technology Low cost easily accessible robust grading facility Efficient physical exchange with excellent infrastructure Seamless funding and payment mechanisms with presence of banks No impediment to free movement of commodities

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Electronically connecting Mandis to NCDEX
A mammoth task and responsibility involving substantial costs and infrastructural development The process would involve two steps:
Putting up terminals & electronic boards in the selected mandis. Connecting all the mandi terminals with central hub of the Exchange through the Internet so that live data gets transmitted to these terminals on a real time basis.

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