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BACHELOR OF COMMERCE FINANCIAL MARKETS SEMESTER V (2011-12)
SUBMITTED BY: RIDDHI J. DOSHI ROLL NO.06
PROJECT GUIDE: PROF. HARESH PARPIANI
K.J.SOMAIYA COLLEGE OF ARTS, & COMMERCE, VIDYAVIHAR (EAST), MUMBAI - 400077
K.J.SOMAIYA COLLEGE OF ARTS, & COMMERCE, VIDYAVIHAR (EAST), MUMBAI - 400077 PROJECT ON: “ COMMODITY MARKETS ”
BACHELOR OF COMMERCE FINANCIAL MARKETS SEMESTER V (2011-2012)
Submitted In Partial Fulfillment of the requirements For the Award of the Degree of Bachelor of Commerce – Financial Markets
RIDDHI J. DOSHI ROLL NO.06
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K.J.SOMAIYA COLLEGE OF ARTS, & COMMERCE, VIDYAVIHAR (EAST), MUMBAI – 400077
This is to certify that MISS. RIDDHI J. DOSHI of B.Com. Financial Markets Semester V (Academic Year) 2011-2012 has successfully Completed Project On “COMMODITY MARKETS” under the guidance of PROF. HARESHPARPIANI.
_________________ Course Coordinator
(Mrs. HARESH PARPIANI)
(Dr. Mrs. SUDHA VYAS)
_________________ Internal ExaminerExternal Examiner
_________________ Project Guide
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Com-Financial Markets– Semester V (2011-2012) hereby declares that I have completed Project on “COMMODITY MARKETS”. DOSHI the student of B. MISS. 06) 4|P a g e . Student’s Signature _______________ RIDDHI J. DOSHI (Roll No. The information submitted is true and original to the best of my knowledge. RIDDHI J. Wherever the data/information has been taken from any book or other sources have been mentioned in bibliography.Commodity Market DECLARATION I.
I find great pleasure in expressing my deepest sense of gratitude towards my project guide “PROF. Lastly I would like to thank My Parents without whose consent & support it would have not been possible for me to complete this project. 06) 5|P a g e .Mrs.Commodity Market ACKNOWLEDGEMENT On the event of completion of my project “COMMODITY MARKETS” I take the opportunity to express my deep sense of gratitude towards all those people without whose guidance.SUDHA. Student’s Signature _______________ RIDDHI J. inspiration. VYASfor giving us this brilliant opportunity to work on this project. whose guidance & inspiration right from the conceptualization to the finishing stages proved to be very essential & valuable in the completion of the completion of the project. HARESH PARPIANI”. I would also like to thank our principal Dr. Any accomplishment requires the effort of many people and this project is not different. DOSHI (Roll No. Heartily thanks to Mumbai University for giving me the opportunity to work on this project. & timely help this project would have never seen the light of day. and friends for their invaluable suggestions & guidance for my project work. I would like to thank Library staff. all my classmates.
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.Commodity Market EXECUTIVE SUMMARY This project is based on commodity markets. 6|P a g e . Commodity markets are now the buzz word all the investors are looking at the commodity market as a revenue generator.e. Finally it covers all important points on the bases of which a person can understand the commodity market & start trading in them. demand & supply scenario etc. the global commodity dynamics as all these influence the Indian commodity Markets their repercussions are seen in the local bourses. In includes FMC i. Forward Market Commissions & the Government played in the markets. The soul of the project is the commodity boosters the reasons who will drive the commodity bourses ahead. It contains analysis of 3 commodities. margins & more importantly volatility. It also throws light on highly traded commodities their volumes.
Present status of commodity market in India? 5. How it trade in stock market of India & other countries? 4. I have adopted the following methodology of study throughout the project. Objectives The objective of this study is to understand. 1. Need & scope of commodity market? 3. What is commodity market? 2. Newspaper magazines. Various internet websites. Opinion of experts. Reference books. Future of commodity market? 7|P a g e .Commodity Market RESEARCH METHODOLOGY The method of data collection for my project is based on both primary as well as secondary data collection.
Commodity Market INDEX Sr. 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 . 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.
a product or material that is bought & sold. money & securities.‖ INTRODUCTION India. It can be classified as every kind of movable property. who claim to understand the equity markets. futures markets trades in commodity are largely used as risk management mechanism on either physical commodity itself or open positions in commodity stock. The idea is to study the importance of commodity derivatives & learn about the market from an Indian point of view. Retail investors. except actionable claims. The article aims at understanding commodity market & how are the commodities traded on exchange. surprisingly has an under developed commodity market. may find commodities an 9|P a g e . a jeweler can hedge his inventory against perceived short term downturn in gold prices by going short in future markets. Unlike the physical market. For instance. The development & growth was shunted due to numerous restriction in the early 70‘s which resulted in vibrant market.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. Commodity actually offers immense potential to become a separate asset class for market-savvy investors. COMMODITY A commodity may be defined as an article. a commodity based economy where two-third of the one billion population depends on agricultural commodities. 2000 (Founder of the World Economic Forum) ―A strong & vibrant cash market is a pre-condition for a successful & transparent futures market. arbitrageurs & speculators.
405 (56) 3. Retail investors should understand the risk & advantages of trading in commodities futures before taking a leap.7) 500.827.7) 519.854 (43) 3.518.7) a)Cash 314. Turnover inFinancialMarkets andCommodityMarket (Rs inCrores) S No.503 b)Derivatives 2.702 (133.inbracketrepresentspercentagetoGDP atmarketprices Source:Sebi bulletin 10 | P a g e .478 12.551 (13) 515.322 (91. the various commodities across the country clock an annual turnover of Rs 1.002 (117) 3.8) NationalStockExchange(a+b) 1. 40.crudeoil.aretraded.494.130.867.035 (27) 2.215 (4.1) Note:Fig.745.073 503.452 19. COMMODITY MARKET Commoditymarketisanimportantconstituentofthefinancialmarketsof any country.531 (84) 3.936 (124.527 4 CommoditiesMarket NA 130.376 (63) 2.000 crore (1.374.energyandsoftcommoditieslike palmoil.230.672 (117.645 II BombayStockExchange(a+b) 316.641.basemetals.057.Itisimportanttodevelopavibrant. 20. In fact.099. Currently.534 1.872 (91) ForexMarket 658.000 (16.147.730 crore (Rs 13.318. viz.coffeeetc.4) TotalStockMarketTurnover(I+II 1.507 (136) 4.active and liquidcommoditymarket.take speculative positions in commoditiesand exploitArbitrageopportunities inthe market.468 2.400 Billion). preciousmetals. But commodities are easy to understand as far as fundamentals of demand & supply are concerned.544. commodities related (& dependent) industries constitute about 58%. the size of the commodities market in India is also quite significant.030 (16. It isthemarketwherea widerangeofproducts.2) 2. With the introduction of futures trading.053 499. 1 2 3 I Marketsegments 2002-03 2003-04 2004-05(E) GovernmentSecuritiesMarket 1. This would help investors hedge their commodityrisk. Of the country‘s GDP of Rs 13.865 2. 20 billion).160.027 b)Derivatives 439..989 1.505 (18.1) ) a)Cash 617.Commodity Market unfathomable market. the size of the commodities market grows many folds here on.
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 .
SoySeeds Maize Guargum.FurnaceOil.E. These commodities canbe broadlyclassifiedintothe following: METAL BULLION FIBER ENERGY SPICES PLANTATIONS PULSES Aluminium.CrudePalmOil.CastorSeeds. Lead.SilverM CottonL Staple.CashewKernel. Steel Long Gold.Jeera.CottonM (Bhavnagar).SoyBean.Cott on Seed.GoldHNI.GroundnutOil.RiceBranRefinedOil.Masur.i-gold.NaturalGas.RefinedSunflowerOil.Rubber Chana.Coffee (Robusta). Kapas Cardamom.RefinedSoyOil. Sponge Iron. Nickel.GoldM.Silver.SteelLong(Govindgarh).SilverHNI.KapasiaKhalli. Copper.Zinc BrentCrudeOil.Soymeal.Sesame CEREALS OTHERS Seed. Mustard Seed (Jaipur). Mustard Seed (Sirsa).SugarS-30 13 | P a g e .SteelFlat.SugarM-30.CoconutOil.CottonYarn. Mentha Oil.RedChilli SourCrudeOil Arecanut.RiceB ran DOC.CrudeOil. Guar Seed. Potato (Agra).CottonSStaple.CoconutCake.Pepper.Commodity Market DIFFERENTTYPESOFCOMMODITIESTRADED: World-overonewillfindthatamarketexitsforalmostallthecommodities known tou s . Polypropylene(PP). Staple.PVC S &OIL SEEDS OIL CastorOil.Mu stard Oil. Potato(Tarkeshwar).YellowPeas PETROCHEMICAL HDPE. Gurchaku.M. Tin. RBD Palmolein.
336 MARKET SHARE OFCOMMODITYEXCHANGES ININDIA 14 | P a g e .066.340 2007 2.686 18.582 37.997 3.072 74.149 14.735 2.505.739.683 54.591 2.479 24.731 57.375.633 1.988 58.759 2005 961.463 67.803 944.338 13.155.206 733.Commodity Market TURNOVEROFINDIANCOMMODITYEXCHANGES Indian CommodityFuturesMarket(RsCrore) Exchanges Multi Commodity NCDEX Exchange(MCX) NMCE(Ahmadabad) NBOT(Indore) Others AllExchanges 2004 165147 266.066 101.122 2006 1.823 571.385 53.621.
castor seed & cotton. was established in 1893 following the widespread discontent amongst leading cotton mill owner‘s merchants over functioning of Bombay Cotton Trade Association. settlements etc. was established in 1919 for futures trading in raw jute & jute goods. Derivative t r a d i n g takes place t h r o u g h exchange-based marketswithstandardizedcontracts. wholesaler etc.Also.asin equities. Calcutta Hessain Exchange Ltd.Thespotmarkets areessentiallyoverthecountermarketsandtheparticipationisrestrictedto peoplewho areinvolvedwiththatcommoditysaythefarmer. Forward Contracts (Regulation) Act was enacted in 1952 & the FMC was established in 1953 under the Ministry of Consumer Affairs & Public Distribution. which carried on futures trading in groundnut.Commodity Market DIFFERENT SEGMENTSINCOMMODITIESMARKET ThecommoditiesmarketexitsintwodistinctformsnamelytheOverthe Counter(OTC)marketandthe Exchangebasedmarket.. In due course. to conduct organized trading in both Raw Jute & Jute goods.thereexiststhespotandthederivativessegment. 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. But organized futures trading in raw jute began only in 1927 with the establishment of East Indian Jute Association Ltd. set up in 1875 was the 1st organized Futures Market.processor. But the most notable futures exchange for wheat was Chambers Of Commerce at Hapur set up in 1913. several other exchanges were created in the country to trade in diverse commodities. Futures trading in bullion in Mumbai began in 1920. Bombay Cotton Exchange Ltd. Futures trading in wheat were existent at several places in Punjab & Uttar Pradesh. EVOLUTION OF COMMODITY MARKET IN INDIA Bombay Cotton Trade Association Ltd. 15 | P a g e .
India MultiCommodityExchangeofIndiaLimited(MCX).(jointventurebetweenDubai holding and the NewYorkMercantileExchange(NYMEX)) 16 | P a g e .No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 GlobalCommodityExchanges NewYorkMercantileExchange(NYMEX) LondonMetalExchange(LME) Chicago BoardofTrade(CBOT) NewYorkBoardofTrade(NYBOT) KansasBoardofTrade WinnipegCommodityExchange.Manitoba DalianCommodityExchange.China Bursa MalaysiaDerivatives exchange SingaporeCommodityExchange(SICOM) Chicago MercantileExchange(CME).India NationalCommodityand Derivatives Exchange(NCDEX).Commodity Market LEADING COMMODITYMARKETSOFWORLD Someoftheleading exchanges oftheworldare: S.India DubaiGold&CommodityExchange(DGCX) DubaiMercantileExchange(DME). US LondonMetalExchange Tokyo CommodityExchange(TOCOM) ShanghaiFutures Exchange SydneyFutures Exchange London InternationalFinancialFutures and Options Exchange(LIFFE) NationalMulti-CommodityExchangeinIndia(NMCE).
Commodity Market REGULATORS: Eachexchangeisnormallyregulatedbyanationalgovernmental(orsemigovernmental) regulatoryagency: Country Australia Chinesemainland HongKong India Pakistan Singapore UK USA Malaysia Regulatoryagency AustralianSecurities and Investments Commission China Securities RegulatoryCommission Securities and Futures Commission Securities and ExchangeBoardofIndiaandForward MarketsCommission (FMC) Securities and Exchange Commission ofPakistan MonetaryAuthorityofSingapore FinancialServices Authority Commodity Futures Trading Commission Securities Commission 17 | P a g e .
Consequentlyfourcommodityexchangeshavebeenapprovedtocommencebusinessint his regard.tocomeupandletthemdealincommodityderivativesinan electronic tradingenvironment.similarto theBSE&NSE. 1 2 3 4 CommodityMarketinIndia MultiCommodityExchange(MCX).NO.Ahmadabad 18 | P a g e . order driven.Mumbai National Commodity and Derivatives Exchange Ltd (NCDEX).Indore NationalMultiCommodityExchange(NMCE).Theyare: S.TheForwardMarkets Commission (FMC)willregulatethese exchanges.Commodity Market LEADING COMMODITY MARKETSOFINDIA Thegovernmenthasnowallowednationalcommodityexchanges. screen based trading system for trading. Mumbai NationalBoardofTrade(NBOT). These exchangesareexpectedtooffera nation-wide anonymous.
Howeverinthecaseof commodities.Duetothebulkynatureoftheunderlying assets.Theywerethenfoundusefulasahedgingtoolinfinancialmarkets aswell.Thebasicconceptofaderivativecontractremainsthesamewhether theunderlyinghappenstobeacommodityorafinancialasset.mostofthesecontractsarecashsettled.thequalityoftheassetunderlyingacontractcanvarylargely. This becomes animportantissueto bemanaged.mostofthesecontractsarecashsettled. Inthecaseoffinancialderivatives.Theywerethenfoundusefulasahedgingtoolinfinancialmarkets aswell. Spacedoutpurchasespossibleratherthanlargecashpurchasesandits storage.whichareverypeculiartocommodityderivativemarkets. Benefitstoindustryfromfuturestrading Hedging the price risk associated with futures contractual commitments.financialassetsarenotbulkyanddo notneedspecialfacilityforstorage.physicalsettlementincommodity derivativescreatestheneedfor warehousing.Howeverthere aresomefeatures.Similarly.whichareverypeculiartocommodityderivativemarkets.Commodity Market COMMODITY FUTURES TRADING IN MARKET Introduction DerivativesasatoolformanagingriskfirstoriginatedintheCommodities markets. Inthecaseoffinancialderivatives. Efficientpricediscoveryprevents seasonalpricevolatility.Howeverthere aresomefeatures. Greaterflexibility.theconceptofvaryingqualityofassetdoesnotreally existasfarasfinancial underlyingareconcerned. Eveninthecaseofphysicalsettlement.certaintyandtransparencyinprocuringcommodities wouldaidbank lending. 19 | P a g e .Thebasicconceptofaderivativecontractremainsthesamewhether theunderlyinghappenstobeacommodityorafinancialasset. DerivativesasatoolformanagingriskfirstoriginatedintheCommodities markets.
etc. Inthiscase.Wehavetolookatfutures marketinabigger perspective--whatis theroleforcommodityfutures inIndia's economy? InIndiaagriculturehastraditionallybeenanareawithheavygovernment intervention.*Lendingforagriculturalsectorwouldgoup withgreatertransparencyinpricing and storage. Traderswouldbe t r a i n e d tobe R u r a l AdvisorsandCommodity Specialistsandthroughthemmultipleruralneedswouldbemet. Hedgedpositionsofproducersandprocessorswouldreducetheriskof defaultfacedbybanks. Robust.financefromBanks toruralhouseholds.brokeragefees. Providetrading limitfinanceto Traders incommodities Exchanges. Why commodityfutures? Oneanswerthatisheardinthefinancialsectoris"weneedcommodity futuresmarketssothatwewillhavevolumes.they trytofixprices.like bankcredit.onreal timebasis.Commodity Market Facilitate informedlending.Governmentintervenesbytryingtomaintainbufferstocks. Membercantradeinmultiplecommoditiesfromasinglepoint.howwillfarmersnotbevulnerable 20 | P a g e . Benefitstoexchangemember Accesstoahugepotentialmarketmuchgreaterthanthesecuritiesand cashmarketincommodities.Manyeconomiststhinkthatwecouldhavemajorbenefitsfrom liberalization oftheagriculturalsector.how willwesmoothenthepricefluctuations.andsomething totrade''.andtheyhaveimport-exportrestrictionsandahostofother interventions. mmodityExchangestoactasdistributionnetworktoretailagri.scalable. information dissemination.thequestionarisesaboutwhowillmaintainthebufferstock.state-of-arttechnologydeployment.
They alsoworkveryeffectivelywhenthereistradeinagriculturalcommodities. Ifwethinktherewillbeashortageofwheattomorrow.thusifthefuturepriceislowthearbitrageurwillbuyin thefuturesmarket.thenIcansellmywheatonthefuturesmarket.etc.resultinginlosses.howwillfarmers getsignalsthatinthefuturetherewill beagreatneedforwheatorrice.Thusafarmerwouldliketo lockinhis futurepriceand notbe exposedto fluctuations inprices.commodityfuturesmarketsare apartandparcelofaprogramfor agricultural liberalization.Many agricultureeconomistsunderstandtheneedof liberalizationinthesector.Icansellmywhe atataprice.ifIamgrowingwheatandamworriedthatbythetimetheharvest comesoutpriceswillgodown.Theseactivitiesproducetheirown"optimal"bufferstocks.which--inmy opinion-doesnotwork.agriculture requiresinvestments-Farmersspendmoneyonfertilizers.Futuresmarketwillproducetheirownkindof smoothingbetweenthepresentandthefuture.Thesedays.Ifthefuturepriceishighand thepresentpriceislow.whichisdoingahugejobofstorage. Next.Theyare worriedwhenmakingtheseinvestmentsthatbythetimethecropcomesout pricesmighthavedropped.TodaywehavetheFoodCorporationof India. Inthisfashion.Futuresmarketsareaninstrumentforachieving thatliberalization.isasystem.highyieldingvarieties.whicheliminates myriskfrompricefluctuations.whichisfixedtoday.asystemoffuturesmarketswillimprove cropping patterns. Thethirdistheroleaboutstorage.arbitra geursonthefuturesmarketwilluseimports and exports to smoothIndianprices using foreignspot markets. 21 | P a g e .anditwillcarrysignalsbacktothefarmermakingsowing decisions today. Intotality.Commodity Market thattomorrowthepricewillcrashwhenthecropcomesout. smooth prices.andit.anarbitrager willbuytodayand sell inthefuture.Inall theseaspects thefutures markethas averybigroleto play.The converseisalsotrue.thefuturespriceswill goup today.
comparedwith. Highco-relation withchanges ininflation. Betterrisk-adjustedreturns. Less volatile. Investors canleveragetheirinvestments and multiplypotential earnings.Commodity Market WHATMAKES COMMODITYTRADINGATTRACTIVE? Agoodlow-riskportfolio diversifier Ahighlyliquidassetclass. COMMODITY TRADING 22 | P a g e .acting asacounterweighttostocks. Agoodhedgeagainstanydownturninequities or bonds as thereis Littlecorrelationwithequityand bondmarkets. No securities transaction taxlevied.equities and bonds. bonds and realestate.
commodity trading is going to be the next big thing for investors. the commodity market is still is the nascent stage & is gradually picking up taking a cue from the global market. the commodity market is about three times the size of equities trade market. Agriculture sector is an imp factor in achieving a GDP growth of 8-10%. It is a statutory body set up in 1953 under the Forward Contract (Regulation) Act. it is a regulatory authority which is overseen by the Ministry of Consumer Affairs & Public Distribution. trading is also going to pick up in Gold & Silver. in addition to being a major consumer of bullion & energy products. 1952. In India people have a love for Gold & Silver. presently. 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. In India. Of India. HISTORY OF THE DEVELOPMENT OF COMMODITY MARKETS 23 | P a g e . Globally. All this indicates that India can be promoted as a major centre for trading of commodity derivatives. Govt. After Equity trading.Commodity Market Commodity Trading in India is regulated by FMC headquartered at Mumbai. NEED OF COMMODITY DERIVATIVES FOR INDIA: India is among top 5 producers of most of the commodities.
Farmers usually brought their wheat to Chicago hoping to sell at a good price. The city had very limited storage facility & hence. 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. 24 | P a g e . used to connect to Chicago to sell their wheat to dealers who.Commodity Market Global Scenario: It is widely believed that the futures trade first started about approximately 6. This system was suitable to farmers as well as dealers. Midwest farmers. therefore. In the 1840‘s Chicago had become a commercial centre since it had good railroads & telegraph lines connecting it with the east. In the first few yrs of COBT. in 1730.000 yrs ago in China with rice as a commodity. the farmers were often left at the mercy of the dealers. to exchange cash for immediate delivery of wheat. Aristotle described the use of call options by Thales of Miletus on the capacity of olive oil presses. 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.e. in turn. which lead to higher wheat production. transports it to all over the country. Historically. In ancient Greece. Around the same time good agriculture technologies were developed in the area. Farmers (sellers) & dealers (buyers) slowly started entering into contract for forward exchanges of grain for cash at some particular future date so that farmers could avoid taking the trouble of transporting & storing wheat (at very high costs) if the price was not acceptable. 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. The first organized futures market was the Osaka Rice Exchange. Futures trade first started in the 17th century. 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. CBOT preceded futures exchanges in Europe.
Options were banned on cotton in 1939 by the Government of Bombay to curb widespread speculation. Also. During the 1st half of the 20th century. sugar. The futures trading in oilseed started in 1900 when Gujarati Vyapari Mandali (today‘s NMCX.Commodity Market The farmer knew how much he would be paid for his wheat. Indian Scenario: History of trading in commodities in India dates back to several centuries. including the Calcutta Hessain Exchange Ltd. potatoes. India‘s history of commodity futures market has been turbulent. 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. if the farmer didn‘t want to deliver his wheat. They were called speculators. The price would go up & down depending on what was happening in the wheat market. In 1960s. The hedgers began to efficiently transfer their market risk of holding physical commodity to these speculators by trading in future exchange. In mid-1940‘s. The Forward Contract Regulation Act was passed in 1952. trading in forwards & futures became difficult as a result of price control by Government. there were many commodity futures exchanges. This put a regulatory guideline on forward trading. They also began to change hands before the delivery date. Slowly. Those exchanges traded in jute. 25 | P a g e . 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. turmeric. But organized futures market in India emerged in 1875 when the Bombay Cotton Trade Association was established. he would sell the contract to someone who needed it. If the dealer decided he didn‘t want the wheat. pepper. Ahmadabad) was established. could pass on his obligation to another farmer. etc. This is how the future market in commodities developed in US. However. Such forward contracts became common & were even used subsequently as collateral for bank loans. & the dealer knew his costs of procurement well in advance. that was established in 1927. The contracts slowly got ―standardized‖ on quantity & quality of commodities being traded. The futures trading in Gold began in Mumbai in 1920.
edible oil. Dantwala Committee in 1966. 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. transportation & distribution of agricultural products. In 1996. The Government appointed four committees (Shroff Committee in 1950. cotton. However. These measures weakened the agricultural commodity markets in India. due to fears of increase in commodity prices. the government offered to buy agricultural products at Minimum Support Price (MSP) to ensure that the farmers benefited. Khusro Committee in 1979 & Kabra Committee in 1993) to go into the regulatory aspects of forward & futures trading in India. etc. The Government also managed storage.Commodity Market the Government of India suspended forward trading in several commodities jute. In the post-liberalization era of the Indian economy. the World Bank in association with United Nations Conference on Trade & Development (UNCTAD) conducted a study on Indian Commodities Market. seeds. RELEVANCE & POTENTIAL OF COMMODITY MARKETS IN INDIA 26 | P a g e .
the multiple for physical versus derivatives is much higher at 15-20 times). Many nationalized & private sector banks have announced plans to disburse substantial amounts to finance commodity-trading business.500 + Agricultural Produce Market Cooperative (APMC) mandis. developing exchanges with modern infrastructure & systems such as online trading. where more than 65% of the population are dependent on agriculture. The trading volumes are 27 | P a g e . Many of these commodities would be traded on the futures markets as food-processing industry grows at a phenomenal pace. The Government of India has initiated several measures to stimulate active trading interest in commodities. To add to this.000+ haats (Rural Bazaars) that are seasonal market places of various commodities. It has major markets in regions of urban conglomeration (Cities & Towns) & nearly 7. Indian Commodities Market has an excellent growth potential & has created good opportunities for market players. approving new exchanges. According to the experts in commodity markets. Commodity Markets therefore are of great importance & hold a great potential in case of economies like India.Commodity Market Majority of commodities traded on global commodity exchanges are agri-based. & the list continues to expand. These marketplaces play host to a variety of commodities every day. There is huge domestic market for commodities in India since India consumes a major portion of its agricultural produce locally. & removing legal hurdles to attract more participants have increased the scope of commodities derivatives trading in India. 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. 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. which are trading in more than 85 commodities at present. there is a network of over 27. The Government also has recognized three national level commodity exchanges. India is World‘s leading producer of more than 15 agricultural commodities & is also the world‘s largest consumer of edible oils & gold. The commodity trade segment employs nearly five million plus traders. Steps like lifting the ban on futures trading in commodities.
Commodity Trading & commodity financing are going to be a rapidly growing business in the coming years in India. Commodity derivatives exchanges have been established with a view to minimize risk associated with such price volatility. mutual funds & banks may be able to participate in commodity futures is also expected after the amendments to the FCR Act. With the liberalization of the Indian economy in 1991. If these international participants are allowed to participate in the markets (like in case of capital markets). It is expected that Foreign Institutional Investors (FIIs). since India is largely a net importer of such commodities. 1952. the growth in commodity futures can be expected to be phenomenal. 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.Commodity Market increasing as the list of commodities traded on NCE also continues to expand. COMMODITY MARKETS ECOSYSTEM 28 | P a g e .
3) Markets & Exchanges: Spot Markets (mandis. Merchandisers. bazaars. APMC mandis. Exporters. manufacturers. wholesalers. it is essential to understand the different components of the commodity markets ecosystem. quality testing & certifying companies. distributors. etc. 2) Logistics Companies: Storage & transport Companies/operators. The users are the producers & consumers of different commodities.Commodity Market After studying the importance of commodity markets & trading in commodity futures. etc. They have 29 | P a g e . 5) Lending Agencies: Banks & Financial Institutions. State Civil Suppliers Corporations. etc. Oil producing companies. Importers. traders. farmers co-operatives.) & Commodity Exchanges (national & regional level) 4) Support Agencies: Depositories/de-materializing agencies. Central & State Warehousing Corporations & Private Sector Warehousing Companies. The following illustration shows the different components in the commodity markets ecosystem: Thecommodity markets ecosystem includes the following components: 1) Buyers/Sellers or Consumers/Producers: Farmers.
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 INDIA‘S PLACE IN WORLD MARKET 30 | P a g e . warehouses for storage. Commodity derivatives exchanges provide a platform for hedging against price risk for these users. & quality testing & certification agencies for assessment & evaluation of commodity quality standards. thus. In turn. exposing themselves to price risk. they depend on logistic companies for transportation of commodities.Commodity Market exposure to the physical commodities market.
Commodity Rice(Paddy) Wheat Pluses Groundnut Rapeseed Sugarcane Tea Coffee(Green) Jute & Jute Fibers Cotton(Lint) India 240 74 13 6 6 315 0.17 12.84 10.74 World 2049 599 55 35 40 1278 2.Commodity Market The following table shows the position of Indian Commodity Market in the International Commodity Market with respect to certain significant commodities.75 0.64 17.02 Share 11.35 23.30 Rank 3rd 2nd 1st 2nd 3rd 2nd 1st 8th 2nd 2.85 43.65 25.08 3.28 1.28 4.14 15.99 7.06 18.09 3rd WORKING OF COMMODITY MARKET 31 | P a g e .00 24.
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. With online commodity trading they could sit in the confines of their home or office and call the shots. by when the buyer or seller either closes (square off) his account or give / take delivery of the commodity. Traders need not visit a commodity market to speculate. the seller should be able to deposit the commodity at warehouse nearest to him and collect the warehouse receipt.At this stage the following is the system implemented -Order receiving -Execution -Matching -Reporting -Surveillance 32 | P a g e .Commodity Market There are two kinds of trades in commodities. But at present in India very few warehouses provide for specific commodities. The underpinning for futures is the warehouse receipt. Following diagram gives idea about working of the Commodity market. The second is futures trade. A person deposits certain amount of say. The commodity trading system consists of certain prescribed steps or stages as follows: 1. 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. Futures have something called an expiry date. A person can buy or sale a commodity future on an exchange based on his expectation of where the price will go. The buyer should be able to take physical delivery at a location of his choice on presenting the warehouse receipt. Today Commodity trading system is fully computerized. goods X in a warehouse and gets a warehouse receipt. in which one pays cash and carries away the goods. Squiring off is done by taking an opposite contract so that the net outstanding is nil. The first is the spot trade. Trading:. For commodity futures to work.
10 STEPS TO INVEST IN COMMODITY MARKET: The future trading in commodities has emerged as a major investment option in India. 2. 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. not many investors know how to tap and benefit from trading in various commodities. Here are 10 steps that you need to know to invest in commodities market. Clearing: . Settlement: . 3.Commodity Market -Price limits -Position limits. 33 | P a g e . But since commodities futures market is a relatively new entrant in India.This stage has following system followed as follows-Marking to market -Receipts and payments -Reporting -Delivery upon expiration or maturity.This stage has following system in place -Matching -Registration -Clearing -Clearing limits -Notation -Margining -Price limits -Position limits -Clearing house. Step 1: Locate a brokerage house with a reputation for service.
Step 9: Clear any or all doubts now .03% to 0. Step 4: Choose the right brokerage plan that optimizes your costs. Step 8: Focus on a few commodities.set stop loss and book profit levels. Step 7: Set aside funds for commodity investing. account opening charges and annual maintenance charges. Step 5: Be clear of the service deliverables from your broker. gather requisite knowledge and pay up the initial amount for margin money. Step 3: Be clear of the rules and regulations especially transaction costs.Commodity Market Step 2: Fill a demat account opening form with a registered brokerage house and a member with the national commodity exchanges. You could require PAN card. brokerage fees ranging from 0. address proof and passport size photos. but remember not at the cost of other traditional investing avenues. TRADING OF COMMODITY MARKET 34 | P a g e .08% on contract value. Step 10: Get ready for investing and track your success and losses all the time. Step 6: Insist on regular reports and special knowledge / training opportunities.
but commodity trading could earn you money!‖ 35 | P a g e .Commodity Market ―Money making is not a commodity.
Investing in Commodities: Commodity investment can be done in a number of ways: By investing in companies that produce commodities. where the settlement date is the next working day after expiry. the margin raises to 0-25% 0f the contract value and the seller is required to pay sales tax on the transaction. the buyer can claim the commodity from the warehouse. a transferable receipt from the warehouse where goods are stored is issued in favour of the buyer. However. the commodities themselves on the ‗spot market‘ for immediate delivery. By purchasing.Commodity Market Investors’ choice: The future market in commodities offers both cash and delivery-based settlement. In the case of delivery-based trades. Trading in any contract month will open on the twenty first day of the month. or selling. If the buyer chooses to take delivery of the commodity. settlement takes place five to seven days after the expiry. This involves high transaction costs and is not a suitable 36 | P a g e . 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. commodity stockiest and wholesalers go for delivery. While speculators and arbitrageurs generally prefer cash settlement. On producing this receipt. The option to square off the deal or to take delivery can be changed before the last day of contract expiry. All contracts settling in cash will be settled on the following day after the contract expiry date. Investors can choose between the two. Commodity trading follows a T+1 settlement system. three months prior to the contract month. in case of delivery-based traders. For example. the December 2004 contracts open on 21 September 2004 and the due date is the 20-day of the delivery month. All open contracts not intended for delivery are cashsettled.
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 .
caratage jewlleryboughtprimarilyindevelopingcountriesasavehiclefor savings. This is an important feature when comparing gold to conventional diversifierslikeT-billsorbonds. 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. Some analystslike tothink ofgoldasa―currency withoutacountry‘. Less thanonethirdofgold‘s total accumulatedholdingscanbeconsideredacommodity.and goldusedinindustry.whichunlikegold.Commodity Market GOLD Introduction Goldis auniqueassetbasedon few basic characteristics.andpartlyacommodity. while commodities havedeclined. goldis primarilya monetaryasset. Thus. Holdingsinthis category include thecentralbankreserves. Whatmakes gold special? Timeless and VeryTimelyInvestment Goldis aneffectivediversifier Goldis theidealgift Goldis highlyliquid Goldresponds when youneeditmost 41 | P a g e . itis primarilya monetaryasset.Itis an internationallyrecognizedassetthatisnotdependentuponanygovernment‘s promise topay.Asmuchastwothirdsofgold‘stotal accumulatedholdingsrelateto―storeofvalue‖considerations. Gold has maintained its value in after-inflation terms over the long run.thejewellery boughtinWesternmarkets foradornment.dohave counter-partyrisk.andhigh.privateinvestments.First.
againstitsdemand.astrategyusedbymany investmentmanagerstoday.other majorinstitutions. thus reducing theintended―cushioning‖effectofthediversified portfolio.Goldheldbycentralbanks. Dueto largestockofgold.Ontheseoccasions. and retailjewelleryis reinvestedinmarket.Commodity Market Market Characteristics Thegoldmarketishighlyliquid.itis arguedthatthecoredriveroftherealpriceofgoldisstockequilibriumratherthanflow equilibrium. Effectiveportfoliodiversifier:Thisphrasesummarizestheusefulnessof goldin termsof―ModernPortfolioTheory‖. Effectivediversificationduring―stress‖periods:Traditionalmethodof portfoliodiversificationoftenfailswhentheyaremostneeded.thatis duringfinancialstress(instability). 42 | P a g e . Usingthisapproach.thecorrelations and volatilities of return for most asset class (including traditional diversifiers.goldcan beusedas a portfolio diversifierto improveinvestmentperformance. such as bond and alternative assets) increase.
Indiaisworldlargestgoldconsumerwithanannualdemandof800 tonnes.equaltoabout9.SouthAfrica. That'sup12%fromtheyear-agoandrepresentedjustoverone-tenth oftheworld's supply.saidLondonpreciousmetalsconsultancyGFMSLtd.Commodity Market Demand and supply Chinaproduced276metrictonsofgoldlastyear.7 million ounces. TherankingpushesSouthAfricaintosecondplace.sawitsproductiondecline8%to272metric tons. Demand andSupplyofGoldinIndia(intonnes) 2006 Supply MineProduction NetProducerHedging Totalminesupply Officialsectorsales Old goldScrap TotalSupply Demand Fabrication Jewellery Industrial&Dental Subtotalofabovefabrication Bar&coinretail investment Otherretailinvestment ETFs and similar TotalDemand InferredInvestment Source: GFMSLtd.thefirsttimethe Goldgianthaslostitstoprankingsince1905. 573 -140 430 93 303 826 519 111 630 89 -3 113 829 -3 2007 580 -129 451 95 262 808 568 112 680 116 -5 36 827 -19 %change 1 5 2 -13 2 9 1 8 31 -68 0 - 43 | P a g e .who‘slate 19thcentury goldrushledtothe foundingofminingheavyweightAnglo AmericanPlcandishometoglobalproducersGoldFieldsLtdand AngloGoldAshantiLtd.
charmsandsmall giftitemsaccountforup tohalfofwhatis looselycalledjewellery. single shop operations. Illustratively. investment in aliquid risk-free Government security on the same date would have fetched a comfortable positivereturn. Studded(i. onering. mostlyfamily-owned.knownasJariusedinhighqualitysariswornatweddings and specialoccasionsrequiressomewhereintheregionof20tones (0.Theseitemsarepopularasgiftsatweddings and otherfamilyevents.one necklaceand two bangles. and in case capital gains through marked to market is also taken into account.6m oz) annually.Abasicmarriagesetfora brideistwoearrings. On the contrary.the average annualized return would work out to be negative.onenosepin.2oz). Goldthread. Themarketishighlyfragmentedwithanestimated100.000 retailers.000workshopssupplying over300.e.allin22 caratgoldand weighing up to 200grams (6. IndianGoldJewelleryMarket Plain22caratjewelleryisthecoreofconsumptionespeciallyinthe ruralareas. Medallions. if gold had been purchased at end-February 1996 and sold at end-February 2002 at the prevailing rates in the local bullion market. theannualized average return could be as high as 15 per cent. The 44 | P a g e .gem-set)18caratjewelleryisincreasinglypopularinthe cities and is estimatedto haveused31tones (1million oz)in 2001.Commodity Market Risk and Return on Gold Investments The return from investments in gold may be compared with the return on investment inGovernment bonds in the Indian markets.wheregoldissoimportantinjudgingafamily'sstatusata marriage.
a lthoughnotyetwidelyused.Theminimum legalcaratageis 9carat.isbecoming morepopular. FrequentlyAskedQuestionsonGold Q1. 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 voluntaryschemewhich.incenterssuchasMumbai. Thenumberofretailjewelleryoutletshasincreasedgreatlysincethe abolitionofgoldcontrol.Commodity Market industry isbeginningtobemodernizedwithlargefactories. Ahmadabad andBangalore.ashasthenumberofIndianspossessinggoldjewellery.installingthe latestequipment.Whatis Goldandwhyis its chemicalsymbolAu? 45 | P a g e . Hallmarking does notexistinIndiaandunder-caratageiscommonplace.
partsperthousand.Gull(Norwegian) and Kulta(Finnish). Q5.itisestimatedthatallthegoldeverminedamountsto about 145.isshortfortheLatinwordforgold. reflectingoneofthemostobviouspropertiesofgold.whena carat becameused asa measureofthepurityofgoldalloys(seenext Question5).notablyitsexcellentconductivepropertiesandits inabilityto reactwithwateroroxygen.Wheredoes thewordGoldcomefrom? ThewordgoldappearstobederivedfromtheIndo-Europeanroot'yellow'.Thus 18caratsis 18/24thof 1000parts=750fineness. Gold (German).Whyis goldmeasuredincarats? ThisstemsbacktoancienttimesintheMediterranean/MiddleEast. Q2.Ithasseveralpropertiesthathavemadeitveryusefulto mankindovertheyears.Commodity Market Gold is a rare metallic element with a melting point of 1064 degrees centigrade and a boiling point of 2808 degrees centigrade. Q3.e.Au. Gulden(Dutch).Guld(Danish).Howmuchgoldis thereintheworld? Attheendof2001.Thepurityofgoldisnowmeasuredalsointermsiffineness.'Aurum'.whichliterallymeans'GlowingDa wn'.Thisisreflectedinthe similarities ofthe word goldinvariouslanguages: Gold (English).Goud(Afrikaans). Its chemical symbol.i. Q4.WhatisaCarat? 46 | P a g e .000tonnes.
Q6.e.Commodity Market ACarat(KaratinUSA&Germany)wasoriginallyaunitofmass(weight) based on the CarobseedorbeanusedbyancientmerchantsintheMiddle East.thenallthegold wouldstretcharoundthecircumferenceoftheworldanastounding72million times approximately! 47 | P a g e .TheCarobseedisfromtheCaroborlocustbeantree.Howandwhenthischangeoccurredisnotclear.QiratinArabic.ithascometobeusedformeasuringt hepurityofgoldwherepuregold isdefinedas24carats. butis possiblya memberofaruling royalfamilyintheEast.thevalueof 1/24thofaSolidus is about1Keration ofgold.1carat.In termsofpersonalownership.Thislatterhada massofabout4.Forgold.TheRomansalsousedthenameSiliquaforasmallsilvercoin.Whoowns mostgold? Ifwetakenationalgoldreserves.then Indiaisthelargestrepositoryofgoldintermsoftotalgoldwithinthenational boundaries.54grammes.Ifweincludejewelleryownership.which wasone-twentyfourthofthegoldensolidusofConstantine.and nowCaratinmoderntimes)forthebeanoftheCarob tree.thenmostgoldisownedbytheUSA followed byGermanyandtheIMF.i.Thecaratisstill usedassuchfor the weightofgemstones(1caratisabout200mg).e. Q7.howfarwoulditstretch? Ifwemake allthegoldeverproducedintoathinwireof5microns(millionths ofameter)diameter–thefinestonecandrawagoldwire.sotheSiliquawasapproximatelyequivalentin valuetothemassof1Kerationor SiliquaGraecaofgold.i.itisnotknownwhoownsthe most.Ifallthegoldwas laidaroundtheworld.It doesinvolvetheRomanswhoalsousedthenameSiliquaGraeca(Kerationin Greek.
mineproductionamountedto2.Howmuchnewgold is producedperyear? In2001.Thisy earoutputwillfallshortofproductionlevelsin2001.alongwithlowergradesatsomeoftheoperationsinNevada.500tpa.withotheroperations nearingtheendoftheirlives. Thegoldisthenseparatedfromtherock(gangue)bytechniques suchasflotation.Richeroresminedatthesurface(opencast mining)isconsiderablycheapertominethanundergroundminingatdepth.Theseare thenrefinedtogold 48 | P a g e . Q10.Thisis partlyforspecificoperationalreasonsatsomeofthelargermines(Grasberg andPorgera). Suchmining requires expensive sinking ofshaftsdeepinto the ground.Howmuchdoes itcosttorunagold mine? Goldminingisverycapitalintensive.whenoutputwasintheregionof1. Q9. Thereductioninexplorationanddevelopmentexpenditureoverthepastfive yearsisleadinganumberofanalyststosuggestthat. Goldproductionhasbeengrowingforyears.particularlyinthedeepminesofSouth Africawhereminingiscarriedoutatdepthsof3000metersandproposalsto mineeven deeperat4.smeltedtoagold-richdoréandcastintobars.500metersarebeingpursued.Howdoesagoldminework? Thegold-containingorehastobedugfromthesurfaceorblastedfromthe rock faceunderground.604tonnesor67%oftotalgold demandinthatyear.globalproductionislikelytodropslightlyoverthenexttwoto threeyears subjectalwaysofcourseto price.butthe real accelerationtookplaceafterthelate1970s.Commodity Market Q8.Typicalminingcosts areUS$238/troyouncegoldaveragebutthesecanvarywidelydependingon miningtypeandore quality.This isthenhauledto thesurfaceand milledto release thegold.
Commodity Market barsbytheMillerchlorinationprocesstoapurityof99.9%purity.Howbig isatonneof gold? GoldistraditionallyweighedinTroyOunces(31.760cm3.whichwould be equivalentto acubeofside37.atroyounceofgoldwouldhaveavolumeof1.5%.32g/cm3.1035grammes).27cm(Approx.Atonneo fgoldwouldthereforehaveavolumeof51.1‘ 3‘‘)? GoldTerminology 49 | P a g e .Minetailingscontaininglowamountsofgoldmaybetreated withcyanidetodissolvethegoldandthisisthenextractedbythecarbonin pulptechniquebeforesmelting and refining. thisgoldisfurtherrefinedbytheWohlwillelectrolyticprocessto 99.64cm3. Q12.Withthe densityofgoldat19.Ifhigherpurityisneededorplatin umgroupmetalcontaminantsare present.
Commodity Market Forthepurposeofthis standard. Gold:Themetallic elementgold.ormarks.24karatgold(orpuregold)hasatleast99 9partspuregoldperthousand. KiloBar:Abarweighingonekilogram–approximately32. Carat:One-twenty fourthpartbymass ofthemetallic elementgold. MCX Contract specifications of gold: 50 | P a g e . 1 a v o i r d u p o i s (ordinary)ounces. StandardGold:Goldhavingfineness995partsperthousand(%)and abovewithoutany negativetolerance.etc.1troyounceis equivalentto31. Legal Tender: The coin or currency which the national monetary authority declares to be universally acceptable as a medium of exchange.whichindicatetheproducerofagoldbar and itsnumber.1034768grams.freefromanyotherelement. Troy O u n c e : A u n i t o f w e i g h t .fineness.1507troy ounces.0648 grams.etc. Liquidity:Thequalitypossessedbyafinancialinstrumentofbeing readilyconvertibleinto cash withoutsignificantloss of value. Karat:Unitoffineness. Fineness:Theratiobetweenthemassofgoldcontentandthetotal mass expressedinpartsperthousand(%). acceptableforinstance inthedischargeofdebts.Thewordounce whenappliedtogoldrefers to atroy ounce.thefollowing definitions shallapply: Assaying:Themethodofaccuratedeterminationofthegoldcontentof thesample expressedinpartsperthousand(%).scaledfromoneto24. FindGold:Itisgoldhavingfineness999partsperthousand(5)andabovewithoutanyn egativetolerance.18-karathas750. Grain:Oneoftheearliestweightunitsusedformeasuringgold. Hallmark:Mark. partspuregoldand 250partsalloy. e q u a l t o a b o u t 1 .One grainis equivalentto 0.
whichwillremainin force fornext2days. ex-Ahmadabad (inclusive of all taxesandleviesrelatingtoimportandcustom duty. but excluding sales tax/VAT.1per10g(minimumpricemovement) 3% 4% Incaseofinitialvolatility.to 2:00p.m.Commodity Market GOLD Nameof Commodity TickerSymbol Trading System Trading Period Trading Session Gold GLDPURMUMK MCXTrading System Mondayto Saturday Mondayto Friday: 10:00a.m.aspecialmarginat suchpercentage(asdeemedfit). Saturday: 10:00a. Maximum Allowable Forindividualclient: 2MT Formemberscollectivelyforallclients:6MTor 15%ofthemarketposition. whicheveris high DELIVERY Delivery unit Deliveryperiod margin 1kg 25%ofthevalueoftheopenpositionduringthe deliveryperiod 51 | P a g e . TRADING Trading Unit PriceQuote 1kg Rs. any other additionaltaxorsurchargeonsalestax.afterwhichthespecial marginwillberelaxed.to 11:30p.m.local taxes and Maximum ordersize TickSize Dailypricelimit InitialMargin SpecialMargin octroi) 10kg Re.will beimposed immediatelyonbothbuyandsellsideinrespect ofalloutstandingpositions.m.Per 10 g.
m. INFORMATIONRELATED TODELIVERY DeliveryLogic Compulsory D e l i v e r y . New Delhi and Hyderabad. Markingof deliverywillbedoneonthetender daysbasedon theintentionsreceivedfromthe sellersafterthetradinghours. Any s e l l e r h a v i n g o p e n positionontheexpirydatefailstodeli verthen thepenaltyasperthepenalprovisionwillbe imposedto thedefaulting seller. Deliverypay-inwillbeon E+1basis. DeliveryLogic SETTLEMENT PERIOD Tender Period DeliveryPeriod Pay-inofcommodities (deliverybyseller member) Compulsory 1stto 6thdayofthecontractexpirymonth.m.on Tender day+1basis By 05.00 p. except Saturdays. Such margin will be additiontoinitial. 1stto 6thdayofthecontractexpirymonth. Pay-inof funds Pay-outof fundsand commodities (deliveryto buyer member) By 11.00a. 52 | P a g e .Onexpiryallthe open positionsshallbemarkedfordelivery.Commodity Market Deliverycenter(s) AtdesignatedclearinghousefacilitiesofGroup4Securitas atthese centers andatadditionaldelivery centers at Chennai.Sundaysand Trading Holidays. On any tender days by 6.00p. ModeofCommunication Tender Period Margin FaxorCourier 5%incremental marginforlast5daysonall outstanding positions. 25%on themarkedquantity.on Tender day+1basis.additionalandspecialmargin as Marginduring delivery period applicable.m.
Additionally.Onexpirydatethe delivery orderrateshallbetheDueDateRate (DDR) and nottheclosing price.Commodity Market Exemption frommargin during tenderand delivery period Marginisexemptedonreceiptofdocumentary evidence(viz.4%ofDORasareplacementcost willbechargedfromdefaultingbuyer/sellerout ofwhich90%willbegiventothecounterparty and10%willberetainedbytheExchangeasadministrative DeliveryCenters expenses. Deliveryorderrate(DOR) Settlement/closingpriceontherespectivetender daysexceptonexpirydate. PenalProvision Apenaltyof2.NewDelhiand Hyderabad Deliverablegradeof underlying commodity Thesellingmemberstenderingdeliverywillhave the optionofdeliveringsuchgradesasperthe contractspecifications. WarehouseReceiptandQuality Certificate) of tendering delivery with the Exchangeduring tenderdays.5%ofDORwillbeimposedon defaultingbuyer/selleroutofwhich2%will be creditedtoIPFand0..5%willbecreditedtothe counter party. 53 | P a g e .Thebuyerhasnooption to select aparticulargradeandthedelivery offered by the seller and allocation by the Exchangeshallbebinding on him. AhmadabadandMumbaiatdesignatedClearingHousefacilit iesofGroup4Securitasat these centers and at additional delivery centers at Chennai.
then the buyer and seller have to mutually negotiate the final settlement proceeds within 1 day from receipt of assayer‘s report.Commodity Market Verification bytheBuyer atthetimeofrelease of delivery Atthetimeoftaking delivery.thebuyercan checkhisdeliveryinfrontofGroup4personnel. then the Exchange will send the goods to a second assayer and in that case. If heissatisfiedwiththequantity.thenhewillissuereceiptof themetals instantly.Iftheassayer‘s certificate differs from the certificate submitted by the seller in respect of quality or weightmaterially. 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. 54 | P a g e .Group4personwill carrythegoodstotheassayer‘sfacilities. if any. will be borne by both the buyers and sellers equally.Ifthe buyerchoosesforassaying. however if they do not agree on any mutually acceptable amount within 1 day. The vault charges during such period of first and second assaying. if any.weightand qualityofmaterial.getit assayedandbringitbacktoGroup4facilities along with assayer‘scertificate. If the buyer does not opt for assaying at the time of lifting delivery. while the cost of second assaying. the report received from such assayer will be final and binding on both buyer and seller.Ifheis notsatisfied withthe metal.he caninsistforassayingbyanyofthe approvedassayersavailableatthatcenter. 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. will be equally divided between the buyer and seller.
Whether the original certificates are accompanied with the Gold Bars Any other validation checks. In such case. Group 4 in front of the selling member‘s clearing agent will Deposit the said metal into their vault. Quality Adjustment The price of gold is on the basis of 995 purity. Then the custodian of Group 4 will cut a serially numbered Group 4 receipt (in triplicate consisting of White. Whether the person carrying Gold is the Designated clearing agent of the member. the sale proceeds will be calculated by way of delivery order rate * 999/ 995 55 | P a g e .Commodity Market Validation Process On receipt of delivery. e. Delivery Process In case any of the above validation fails. get the signature of the seller‘s clearing agent and signing the same for authorization. as they may desire. Pink and Yellow slips). Whether the quantity being delivered is from Exchange approved refinery d. If all validations are through. then the Group 4 Securitas personnel will put the Gold in the vault. the Group 4 personnel will do the following validations: a. b. In case a seller delivers 999 purity. Whether the selling member is the bonafied member of the Exchange. c. hand over the Pink slip to seller‘s clearing agent. only as per Instructions received from the Exchange in writing. send by courier the third copy (Yellow Colour slip) while retaining the White for the records of Group 4 Securitas. the Group 4 Securitas will contact the Exchange office and take any further action. Whether the serial numbers of all the bars is mentioned in the packing list provided. he would get a premium.
parties (seller member and buyer member) will The delivery given to the representative shall be final & unreasonably refuse to do so. f.authorized representative who has to present be himself personally at the Vault along with the requisite with the original assignee. c. As per Exchange decision due to a force majeure or The Vault officials will. Once the Exchange Inclusive of all charges / levies relating to import duty. The Authority letter sent by the Member shall consist of the following details: a. VAT. Based on the Delivery Order received. scrutiny/checking of the identity. 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. Endorsement of delivery order Vault. The Vault officials in of any discrepancy or doubt or days of the spot market of Ahmadabad. d. any other additional tax Delivery Order (DO) to the Vault taxes and octroi to be borne by the Buyer. 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. 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. upon final otherwise. the Exchange. e. 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. receives to be borne by Seller. Name of the Vault along with the location. duties. PAN card. customs the Exchange will send or surcharge on sales tax. Photo identity proof duly attested by the Member. Proof of Identity viz. Taxes. binding to the Member at all times. driving license. the Member shall send to the Exchange an Authority letter on his letter head. Name of the authorized representative. But excluding Sales Tax / the above-mentioned details. Insurance and Transportation charges Extension of delivery period Due date rate (DDR) photo identity proof in original. authorizing a representative on his behalf to take the delivery. the contract month.Commodity Market Procedure of taking delivery from the Vault For the purpose of taking delivery of goods fully or partially. b. Election ID. 56 | P a g e Legal obligation . local authorities directly. Member. Signature of the authorized representative. cess and levies The above-mentioned details are required to be sent to Ex-Ahmadabad. Name of the Commodity along with quantity.
warehousing.00p. The Exchange or FMC as the case may be further prescribe additional measures relating to delivery procedures.) STEPSTOBEFOLLOWED FORDELIVERY Onanytender days by 6. Buyer‘s obligation Thebuyershallnotrefusetakingdeliveryand such refusalwillentertainpenaltyasperthepenalprovision.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. margining.00p.theMember mustsatisfytheExchangethatheholds stocksof thequantityandqualityspecifiedintheDeliveryOrder at the declared delivery center by producing warehousereceipt.ontherespectivetenderdaysand on Saturdays by 1:00p.m. Intention to takedelivery bybuyers Dissemination of information on tendered deliveryand buyers interest The Exchange will informmembersthroughTWS regardingtendernoticeanddeliveryintentionsof theseller‘smembersandthebuyersrespectively by7. and risk management from time to time. 57 | P a g e .m. Tendernoticebyseller The sellerwillissuetendernoticealongwithevidence of delivery to the Exchange in a specifiedformatby6:00p.Commodity Market Applicability of Business Rules The general provisions of Byelaws.andonSaturdays by 12:00noon. Evidenceofstocks in possession Atthetimeofissuingdeliveryorder. Board of Directors and Executive Committee of the Exchange in respect of matters specified above will form an integral part of this contract. Allocation ofdelivery Aspertheclosingpriceontherespectivetender days.m. quality certification. rules and Business Rules of the Exchange and decisions taken by Forward Markets Commission.
The regulation is needed to create competitive condition.Commodity Market REGULATORY BODY At present there are three tiers of regulations of forward/future trading system exists in India. This could have undesirable influence on spot prices. In the absence of such a system. clearing. unscrupulous participants could use these leveraged contracts for manipulating prices. Settlement & management of exchange so as to protect & promote the interest of various stakeholders. Government of India. thereby affecting the interest of appropriate risk management system. In the absence of regulation. particularly non-member users of the market. Forward Markets Commission & Commodity Exchanges. Hence there is a need of regulatory functions to be exercised by an exchange. Regulation is also needed to ensure fairness & transparency in trading. a major default could create a reaction. namely. Ministry Of Consumers Affairs FMC Commodity Market 58 | P a g e . The need for regulation arises on account of the fact that the benefits of futures markets accrue in competitive conditions. The reluctant financial crisis in a futures market could create systematic risk.
5. To make recommendations generally with a view to improving the organization 7 working of forward markets. supply & prices. To collect & whenever the commission thinks it necessary. 59 | P a g e . in exercise of the powers assigned to it by or under the Act. To keep forward markets under observation & to take such action in relation to them. 4. The functions of the FMC are as follows: 1.Govt. 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. is a regulatory authority which is overseen by the Ministry Of Consumer Affairs & Public Distribution. as it may consider necessary. 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. of India. periodical reports on the working of forward markets relating to such goods.Commodity Market Forward Market Commission FMC headquartered at Mumbai. To advise the Central Govt. to publish information regarding the trading conditions in respect of goods to which any of the provisions of the act is made applicable. It is a statutory body set up in 1953 under the Forward Contract (Regulation) Act. & to submit to the Central Government. including information regarding demand. 3. 2. 1952.
may enter the game. then farmers could get finance. give a major boost to commodity futures trading & take the farmers to the e-age. Union consumer affairs secretary Labanyendu Mansingh believes this will help the Government save on procurement 7 shortage cost of food grains. Legislative changes have been proposed to enable farmers to get loans against the receipt for goods deposited at accredited warehouses. The exchanges tieing with other players to provide warehouses services to the traders 7 now NCDEX is to built 1. 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.000 crore annually. around 1. 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. the Government will minimize corruption in the grains management operations. which would enable them to avoid distress sales of their produce at times of unfavorable market conditions. too. 60 | P a g e .Commodity Market ROLE OF GOVERNMENT IN COMMODITY MARKET The Government. Already. With 45% of India‘s GDP (or RS 11lakh crore) coming from commodities. In the process. estimated to cost it close to Rs 25.500 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. 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.100 warehouses with all the facilities. If those proposals become law. To encourage large companies to trade in commodity futures.
It is the only Commodity Exchange in the world to have received ISO 9001:2000 certification from British Standard Institutions (BSI). NMCE follows best international risk management practices. (GAICL) 6. an imperative in the commodity trading business. These deliveries are executed through a sound & reliable Warehouse Receipt System. NMCE facilitates electronic derivatives trading through robust & tested trading platform. The unique strength of NMCE is its settlement via Delivery Backed System. NMCE was the 1st commodity exchange to provide trading facility through internet. The system of upfront margining based on value at Riskis followed to ensure financial security of the market. NMCE was promoted by: 1. 61 | P a g e . National Agricultural Co-operative Marketing Federation Of India (NAFED) 4. NMCE was the 1st to initiate process of dematerialization& electronic transfer of warehoused commodity stocks. Central Warehousing Corporation (CWC) 3. leading to guaranteed clearing & settlement. Derivatives Trading Settlement System (DTSS). The contracts are marked to market on daily basis.Commodity Market NATIONAL MULTI-COMMODITY EXCHANGE OF INDIA NMCE is the 1st demutualized. (NOL) 2. special intra-day clearing & settlement is held. Electron Multi-Commodity Exchange in India. Gujarat Agro-Industries Corporation Ltd. Neptune Overseas Ltd. National Institute Of Agricultural Marketing (NIAM) 5. Gujarat State Agricultural Marketing Board (GSAMB) (It got its recognition in Oct ‘02) 7. In the event of high volatility in prices. through VIRTUAL PRIVATE NETWORK (VPN).
In short. Implementing best quality standards of warehousing. The exchange is operationalised from November 26. the NMCEIL has been granted in-principle approval by the Government to organize futures trading in the edible oil complex. 2001. while complying with Statutory /Regulatory requirements. Rationalizing the transaction fees to optimum level. Minimization of settlement risks. grading and testing in 62 | P a g e . NMCE is leading transition of highly fragmented. hedging using different and diverse commodities would also be possible with help of NMCE. efficient and competitive environment in the 21st century. 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. Improving efficiency of operations by providing best infrastructure and latest technology. In addition. traders andfarmers along with banks. INFORMATION: On 25th July. 2002. NMCE’S Vision & Mission.Commodity Market NMCE would bring about the converge of large-scale processors. NMCE would provide a common ground for fixation of future prices of a number of commodities enabling efficient price discovery / forecast. Mission Continual Improvement in Customer Satisfaction. Improving efficiency of marketing through on-line trading in Dematerialization form. controlled and restricted commodity economy to globally integrated. We shall strive to ensure continual improvement of customer services and remain quality leader amongst all commodity exchanges.
Promoting awareness about on-line features trading services of NMCE across the length and breadth of the country. “Innovation is the way of life at NMCE” 63 | P a g e .Commodity Market tune with trade practices. Improving facilities for structured finance. Improving quality of services rendered by suppliers.
Solvent Extractors Association of India. since inception MCX has recorded many first to its credit. Cooperatives. Bombay Metal Exchange.Ferrous & Non Ferrous.. Plantations. Traders. Importers. is well placed to tap this vast potential. Through the integration of dedicated resources. Key shareholders of MCX are Financial Technologies (India) Ltd. Reliance Industries Ltd. Oils & Oilseeds.wide commodity exchange. Pulses. Bullions. State Bank of India. amongst others MCX being nation. Regional Trading Centers.Commodity Market MCX MCX an independent and de-mutulised commodity exchange has permanent recognition from Government of India for facilitating online trading. 64 | P a g e . offering multiple commodities for trading with wide reach and penetration and robust infrastructure. Inaugurated in November 2003 by Shri Mukesh Ambani. Corporation Bank. Bank of India and Canara Bank. Spices and other soft commodities. Chairman & Managing Director. Union Bank of India. MCX offers futures trading in the following commodity categories: Agri Commodities. robust technology and scalable infrastructure. Industry Associations. Pulses Importers Association and Shetkari Sanghatana.. namely Bombay Bullion Association. Corporate. Exporters. clearing and settlement operations for commodity futures markets across the country. MCX is led by an expert management team with deep domain knowledge of the commodity futures markets. Metals. Headquartered in Mumbai. Today MCX is offering spectacular growth opportunities and advantages to a large cross section of the participants including Producers / Processors. MCX has built strategic alliances with some of the largest players in commodities eco-system.
98 116.334.16 618.22 91.08 8.745.784.327.891.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) 129.14 779.412.900.66 62.84 1.74 Sources: Forward Market Commission 65 | P a g e .28 7.49 2.422.527.99 101.267.85 19.46 14.522.34 13.
On February 3rd. 2003. 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. 1952). NCDEX is subjected to various laws of the land like the Companies 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. 2003. National Commodity & Derivatives Exchange Limited (NCDEX) is an online commodity exchange based in India. fibres. the FMC found NCDEX guilty of violating settlement price norms and ordered the exchange to fire one of their executive. etc. 2003 under the Companies Act. 1956. Besides. 2006. It obtained its certificate for Commencement of Business on May 9.Commodity Market NATIONAL COMMODITY AND DERIVATIVES EXCHANGE LTD. Based on the components of the spot price index. which impinge on its working. which requires compulsory physical settlement of future contracts. 66 | P a g e . It was incorporated as a private limited company incorporated on April 23. It has commenced its operations on December 15. NCDEX also displays the national index futures-essentially. NCDEX is located in Mumbai and offers facilities in more than 550 centres in India. index futures are not allowed in India under the FCRA (Forward Contracts Regulation Act. This price is derived by tracking the futures prices of the index components at the same weightage as the spot index. the noarbitrage price if one were to buy futures on the spot index. Contracts Act. It is the first such index to be launched in India. Currently. NCDEX is regulated by Forward Market Commission (FMC) in respect of futures trading in commodities. Stamp Act.
Commodity Market COMMODITIES TRADED: NCDEX currently facilitates trading of 57 commodities:- Agri.Based commodities: Castor Seed Chana Chilli Coffee – Arabica. 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 .
Bullion: Gold 1 kg Gold 100 gm Silver 30 kg Silver 5 kg 68 | P a g e .Mustard Seed Pepper Raw Jute RBD Palmolein Refined Soy Oil Rubber Sesame Seeds Soy Bean Sugar.medium Turmeric Urad (Black Matpe) V-797 Kapas Yellow Peas Yellow Red Maize Yellow Soybean Meal.small Sugar.Commodity Market Mulberry Green Cocoons Mulberry Raw Silk Rapeseed.
Non-ferrous metals: Aluminium Ingot Copper Cathode Nickel Ingot Zinc Cathode 69 | 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.
NCDEX also offers as an information product. The Managing Director is the only whole-time Director. 70 | P a g e . the index futures. then the current FUTEXAGRI value should be the no-arbitrage value for the index futures. Hence. The Board comprises persons of eminence. In NCDEX. in the areas very relevant to the Exchange. CRISIL Limited. National Bank for Agriculture and Rural Development. Life Insurance Corporation of India. This is a composite index. each an authority in his own right. However. indexes and index futures are not allowed to be traded under the current regulatory structure. Governance: The governance of NCDEX vests with the Board of Directors. called FUTEXAGRI. highly experienced and is independent. called NCDEXAGRI that covers 20 commodities currently being offered for trading by NCDEX. these are only available for information. Board of Directors comprises 8 Directors who are well known. This is essentially a what-if index. National Stock Exchange of India Limited and Punjab National Bank. It indicates that if futures on the index could be traded.Commodity Market Facilities offered: NCDEX also offers as an information product. The institution-shareholders – Canara Bank. This is a spot-price based index. have decided that they will not be taking part in the day-to-day activities of the Exchange. IFFCO. in tune with the highest norms of corporate governance. ICICI Bank Limited. an agricultural commodity index. as of now.
In 1933. during the Great Depression. Chicago Mercantile exchange (CME). the Commodity Exchange. London metal exchange (LME). Inc. In the USA. In 1982. and the Chicago Mercantile Exchange in Livestock and Livestock futures. In the middle of the 19th century in the United States. SOME INFORMATION ABOUT WORLD WIDE COMMODITY EXCHANGE. 71 | P a g e . The two main futures exchanges. cocoa. soft commodities and financial futures. Chicago. the New York Mercantile Exchange (NYMEX) deals in metals. Chicago Board of Trade (CBOT). The London Metal Exchange (LXM). The London Gold Market. spices.. In London. etc. Sydney and Singapore. the Rubber Exchange of New York. New York Mercantile exchange (NYME) is amongst the world‘s largest and best exchanges. the Chicago Board of Trade (CBOT) in metals. are COMEX in New York and TOCOM in Tokyo. rubber. businessmen began organizing market forums to make the buying and selling of commodities easier. The Tea Market. was established in New York through the merger of four small exchanges—the National Metal Exchange.still the major international centers for transactions in a vast range of commodities-such markets include the London commodity Exchange (LCE) trading sugar. pricing and transfer of agricultural products. the National Raw Silk Exchange and the New York Hide Exchange.Commodity Market Worldwide commodity markets. The major commodity markets are in the United Kingdom and in the USA major commodity markets are in London. The London Diamond Market and International Petroleum Exchange (IPE). The London Wool Exchange. a group pf Manhattan diary merchants got together to bring chaotic condition in New York market to a system in terms of storage. which traded gold.
executive director of Benchmark Asset Management Company. managing director. ―National exchanges have succeeded in creating trust in the minds of stakeholders as they are hi-tech. which has resulted in their growth.Commodity Market According to experts:- ―Volumes on commodity exchanges are growing because there is transfer from the mandis to the exchange platform. 72 | P a g e .‖ says Sanjiv Shah. Modern exchanges have also reduced information asymmetry. MCX.‖ says Jignesh Shah. corporatized and employ modern management. A farmer has to trust the exchange the way he trusts State Bank of India.
Commodity Market SUGGESTIONS: As majority of Indian investors are not aware of organized commodity market. It makes them specious towards commodity market. Many of them have wrong impression about commodity market in their minds. E.: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. traders as well as consumers will be benefitted from it. Development of warehousing and facilities to use the warehouse receipt as a financial instrument to encourage participation farmers. Delivery system of exchanges is not good enough to attract investors. Concerned authorities have to take initiative to make commodity trading process easy and simple. 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. Along with Government efforts NGOs should come forward to educate the people about commodity markets and to encourage them to invest into it. so that a large number of varieties produced across the country could be included.g. 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. And producers. 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 . their perception about is of risky to very risky investment. Development of physical market through uniform grading and standardization and more transparent price mechanisms. Contract specifications should have wider coverage.
To avoid this participants square off their positions before maturity. warehousing problem has to be handled on a war footing. So in practice contracts are settled in Cash but before maturity. 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. 74 | P a g e . 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. in practice only a few commodities derivatives are popular for trading. Setting of state level or district level commodities trading helpdesk run by independent organization such as reputed NGO for educating farmers. As good delivery system is the back bone of any Commodity trade. That means outstanding contracts at maturity should be settled in physical delivery. under Forward Contracts regulation Act 1952 cash settlement of outstanding contracts at maturity is not allowed. Again most of the trade takes place only on few exchanges. This problem can possibly be solved by consolidating some exchanges. A difficult problem in Cash settlement of Commodities Derivatives contract is that. Though over 100 commodities are allowed for Derivatives trading.Commodity Market no reason at all. Only about 1% to 5% of total commodity derivatives traded in country are settled in physical delivery due to insufficiencies in present warehousing system.
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.Commodity Market CONCLUSION Afte ralmos ttwo yeas tha tcommodity trading is finding favou rwith Indian investors and is been seen as a separate asset class with good growth opportunities. 75 | P a g e .with daily global volumes in commodity trading touching three times that of equities.Their entry will deepenand broadbase the commodity futures market. 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.such as futures. As a matter of fact.Therefore. And.For diversification of portfolio b yond shares.can help India become a global trading hub for select commodities.derivative instruments. The national multi.trading in commodities cannot be ignored by Indian investors.commodity exchanges have unitedly proposed to the government that in view of the growth of the commodities market.fixed deposits and mutual funds. It won'tbe long before the market sees the emergence of acompletely re-defined set of retail investors. now. Online commodity exchanges need to revamp certain laws governing futures in commodities to maket more attractive. foreign institutional investors should be given the go-ahead to invest in commodity futures in India.commodity trading offers a good option for long-term investors and arbitrageurs and speculators.
com www.org 76 | P a g e .in.com www.indiaexpress.commodityindia.gold.comwww.comwww.mapsofindia.nbotind.gov.com www.business.Commodity Market BIBLIOGRAPHY www.indiamba.SEBI Bulletin www.com www.bseindia.org www.com www.com www.sebi.nmce.ncdex.mcxindia.
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