Agricultural Market

• The physical supply chain for grains such as corn and wheat would
typically start with private farmers who would grow the crop.
• Store this temporarily in their own silos before selling it to a larger
commercial entity
• These larger commercial entities would include companies such as
Cargill who would then sell the grain to a food producer, who would
convert the commodity into a product that could be consumed by an
end user.
PRICE DRIVERS
• Weather
• Substitution
• Investor Activity
• Current level of inventory
• Protectionism
• Health
• Industrialising countries
• Electricity of supply
• Genetic modification
Major agricultural commodity market
National Commodities and Derivatives Exchange (NCDEX)
• Commodities exchange dealing primarily in agricultural commodities
in India.
• Established in 2003
• India is a one of the largest producers of wheat, rice, milk and many
types of fruits and vegetables.
• NCDEX is seen as a major source for information on spices, as India is
the leading producer and consumer of spices.
• Size of India’s agriculture sector is somewhat hidden internationally
because the populous nation consumes a lot of what it makes.
However, increasing farm-level productivity is making the strength of
India’s agricultural sector more apparent. And, of course, NCDEX plays
a critical role in that agriculture sector.
• In establishing and maintaining an online futures market for crops,
NCDEX has helped increase market transparency.
• This has resulted in farmers in India conduct price discovery, helping
them price their goods more accurately even if they are not active in
the futures market.
• Introduction of online commodity exchanges like NCDEX has greatly
improved the information asymmetry.
Structure of NCDEX
• To create a world class commodity exchange platform for the market
participants.
• To bring professionalism and transparency into commodity trading.
• To inculcate best international practices like de-materialised
technology platforms, low cost solutions and information
dissemination into the trade.
• To provide nationwide reach and consistent offering.
• To bring together the entities that the market can trust.
Shareholders of NCDEX
• National Stock Exchange(NSE)
• ICICI Bank Limited,
• Life Insurance Corporation of India (LIC)
• National Board for Agriculture and Rural Development (NABARD)
• Later on their shares were diluted and more institutions became
shareholders of NCDEX.
• These are Canara Bank, CRISIL Limited, Indian Farmers Fertilisers
Cooperative Limited (IFFCO), Punjab National Bank (PNB), Goldman
Sachs, Intercontinental Exchange (ICE) and Shree Renuka Sugars Ltd.
NCDEX Products
• NCDEX currently offers an array of more than 50 different
commodities for futures trading.
• The commodity segments covered include both agri and non-agri
commodities
• Before identifying a commodity for trading, the Exchange conducts a
thorough research into the characteristics of the product, its market
and potential for futures trading.
Exchange Membership
• Membership of NCDEX is open to any person, association of persons,
partnerships, co-operative societies, companies etc. that fulfills the
eligibility criteria set by the Exchange.
• FIs, NRIs,Banks, MFs etc are not allowed to participate in commodity
exchanges at the moment.
• All the members of the Exchange have to register themselves with the
competent authority before commencing their operations
The members of NCDEX fall into following
categories:
Trading cum Clearing Member (TCM):
• Members can carry out the transactions (Trading, clearing and
settlement) on their own account and also on their clients accounts.
Applicants accepted for admission as TCM are required to pay the
requisite fees/ deposits and also maintain net worth
Professional Clearing Members (PCM):
Members can carry out the settlement and clearing for their clients
who have traded through TCMs or traded as TMs. Applicants accepted
for admission as PCMs are required to pay the requisite fee/ deposits
and also maintain net worth.

Trading Member (TM):

Member who can only trade through their account or on account of
their clients and will however have to clear their trade through
PCMs/STCMs.
Strategic Trading cum Clearing Member (STCM):
This is up gradation from the TCM to STCM. Such member can trade on
their own account, alsoon account of their clients. They can clear and
settle these trades and also clear and settletrades of other trading
members who are only allowed to trade andare not allowed to
settleand clear.
Capital requirements
NCDEX has specified capital requirements for its members. On approval
as a member of NCDEX, the member has to deposit the following
capital:
Base Minimum Capital (BMC)
Base Minimum Capital comprises of the following:
• Interest Free Cash Security Deposit
• Collateral Security Deposit
Interest Free Cash Security Deposit
An amount of Rs. 15 Lacs by Trading cum Clearing Members (TCM) and
Rs. 25 Lacs by Professional Clearing Members (PCM) is to be provided
in cash. The same is to be provided by issuing a cheque / demand draft
payable at Mumbai in favour of National Commodity & Derivatives
Exchange Limited.

Collateral Security Deposit

The minimum-security deposit requirement is Rs. 15 Lacs for TCM and
Rs. 25 Lacs for PCM. All Members have to comply with the security
deposit requirement before the activation of their trading terminal.
Government of India Securities
National Commodity Clearing Limited (NCCL) is the approved custodian
for acceptance of Government of India Securities. The securities are
valued on a daily basis and a haircut as prescribed the Exchange is
levied.
Clearing and Settlement System
Clearing
• National Commodity Clearing Limited (NCCL) undertakes clearing of trades
executed on the NCDEX.
• Only clearing members including professional clearing members (PCMs) are
entitled to clear and settle contracts through the clearing house.
• At NCDEX, after the trading hours on the expiry date, based on the
available information, the matching for deliveries takes place firstly, on the
basis of locations and then randomly, keeping in view the factors such as
available capacity of the vault/warehouse, commodities already deposited
and dematerialized and offered for delivery etc.
• Matching done by this process is binding on the clearing members.
• After completion of the matching process, clearing members are
informed of the deliverable/receivable positions and the unmatched
positions. Unmatched positions have to be settled in cash. The cash
settlement is only for the incremental gain/ loss as determined on the
basis of final settlement price
Settlement
• Futures contracts have two types of settlements, the Mark-to Market
(MTM) settlement which happens on a continuous basis at the end of
the day, and the final settlement which happens on the last trading
day of the futures contract.
• On the NCDEX, daily MTM settlement in respect of admitted deals in
futures contracts are cash settled by debiting/ crediting the clearing
accounts of clearing members (CMs) with the respective clearing
bank. All positions of CM, brought forward, created during the day or
closed out during the day, are mark to market at the daily settlement
price or the final settlement price on the contract expiry.
• On an appointed date, the buyer goes to the warehouse and takes
physical possession of the commodities.
Clearing Days and Scheduled Time
Daily Mark to Market settlement where 'T' is the trading day
Mark to Market Pay-in (Payment): T+1 working day.
Mark to Market Pay-out (Receipt): T+1 working day.

Final settlement for Futures Contracts

The settlement schedule for Final settlement for futures contracts is
given by the Exchange indetail for each commodity.
Timings for Funds settlement:
Pay-in: On Scheduled day as per settlement calendars.
Pay-out: On Scheduled day as per settlement calendars.
Dalian Commodities Exchange
• Dalian Commodities Exchange is located in Dalian, China that
trades futures contracts on a wide variety of commodities. The
exchange the largest trader of agricultural futures in the world.
• The exchange performs several major functions, including providing
venues for futures and options trading, developing and listing
contracts, organizing and supervising trading, clearing, and
settlement; market surveillance and rule enforcement, formulating
and implementing risk management rules, organizing marketing and
investor education events, market data and information services, and
more.
• Dalian Exchange was established on February 28, 1993.
• In 2013, the Dalian Commodities Exchange expanded from its role as
an agricultural commodities exchange to include industrials, such as
iron ore and coke coal. The exchange now has nearly 500,000
participants. In 2015, the DCE was ranked 8th out of the leading
global derivatives exchanges by the Futures Industry Association, as
well as the largest futures market for oils, plastics, coal, metallurgical
coke, and iron ore.
• In 2016, the Futures Industry Association (FIA) reported that the
Dalian Commodities Exchange was the 8th largest exchange in the
world by trading volume.
Eurex Exchange
• Eurex Exchange is an international exchange which primarily offers
trading in European based derivatives and it is the largest European
futures and options market.
• All transactions executed on Eurex Exchange are cleared
through Eurex Clearing which functions as a central counterparty
(CCP) for multi-asset class clearing of the above-mentioned exchange-
traded product range as well as over-the-counter traded products.
• The Exchange is headquartered in Eschborn, Germany, near Frankfurt
am Main and it is operated by Eurex Frankfurt AG and Eurex Zürich
AG, which are public companies wholly owned by the German stock
exchange operator Deutsche Börse AG.
Metal Market
Price drivers
• Government fiscal and monetary policy
• Exchange rates
• Chinese and Indian demand
• Capital spending and exploration
• Substitution
• Production disruption
• Production costs
• Investment demand
• The balance between the industrial demand and supply
Multi Commodity Exchange of India Ltd (MCX)
• Multi Commodity Exchange of India Ltd (MCX) (BSE: 534091) is an
independent commodity exchange based in India.
• It was established in 2003 and is based in Mumbai.
• It is India's largest commodity derivatives exchange where the
clearance and settlements of the exchange happens and
the turnover of the exchange for quarter ended September 2018 was
1.78 billion rupees. MCX offers options trading in gold and futures
trading in non-ferrous metals, bullion, energy, and a number of
agricultural commodities (mentha oil, cardamom, crude palm oil,
cotton and others).
• In 2016, MCX was seventh among the global commodity bourses in
terms of the number of futures contracts traded,
• In February 2012, MCX had come out with a public issue of 6,427,378
Equity Shares of Rs. 10 face value in price band of Rs. 860 to Rs. 1032
per equity share to raise around $134 million. It was the first ever IPO
by an Indian exchange and made MCX India’s only publicly listed
exchange.
• From 28 September 2015, MCX is being regulated by the Securities
and Exchange Board of India (SEBI). Earlier MCX was regulated by the
Forward Markets Commission (FMC), which got merged with the SEBI
on 28 September 2015
Commodities traded include -
• Metal - Aluminium, Aluminium Mini, Copper, Copper Mini, Lead, Lead
Mini, Nickel, Nickel Mini, Zinc, Zinc Mini,Brass(futures)
• Bullion - Gold, Gold Mini, Gold Guinea, Gold Petal, Gold Petal ( New
Delhi), Gold Global, Silver, Silver Mini, Silver Micro, Silver 1000.
• Agro Commodities - Cardamom, Cotton, Crude Palm Oil, Kapas,
Mentha Oil, Castorseed, RBD Palmolien, Black Pepper.
• Energy - Brent Crude Oil, Crude Oil, Crude Oil Mini, Natural Gas.
Clearing and settlement
• All trades executed on MCX are cleared and settled by MCXCCL with
effect from September 03, 2018.
• Clearing and Settlement Division of MCXCCL performs and monitors
all activities relating to delivery and fund settlement through a well-
defined settlement cycle.
Trade Timing
Special Session
• Monday to Friday: 8:45 A.M. to 8:59 A.M. Special Session (order
cancellation session) is held to cancel the pending orders prior to opening
of market.
Normal Session
• Monday to Friday: 09:00 A.M. to 11:30 P.M.
(up to 11:55 P.M. on account of day light savings typically between every
November and March of the following year) Agri-commodities are available
for futures trading up to 5:00 p.m. whereas other commodities such as
Bullions, Metals and Energy products are available up to 11:30 pm / 11.55
PM and International referenceable Agri-commodities are available up to
09:00 pm as notified by SEBI
• How the delivery are facilitated?

The Exchange has a designated warehouse at Thane district in

Maharashtra. The seller has to deliver the metal as per specifications
of the contract. On the last trading day of the contract month all
buyers and sellers having an outstanding Open Interest will have to
compulsorily take or give delivery of the metal. All deliveries will
happen through exchange’s Commodity Receipt Information System
(COMRIS).
• How are the contracts are settled currently?

The Exchange has started disseminating on its website the spot prices
of both the metals twice a day (morning & evening). These prices are
determined through a polling process with the market participants.
The Final Settlement Price (FSP) of the deliverable contracts will be
arrived at by taking the simple average of the last polled prices of the
last three trading days of the contract month.
Shanghai Metal Exchange
• (SHME), one of the national level futures exchanges of China, was
established on 28 May 1992.
• SHME is a non-profit, self-regulating corporation.
• The exchange was created for trading in non-ferrous metals and
currently contracts for several non-ferrous metals
including copper, aluminum, lead, zinc, tin, nickel
London Metal Exchange (LME)
• London Metal Exchange (LME) is a commodities exchange in London,
England, that deals in metal futures.
• Contracts on the exchange include aluminum, copper, cobalt, and
zinc. Trading on the LME can be done in three main ways:
through open outcry, via a telephone system between member
companies, or on the LME Select — an electronic trading platform.
• The LME is a non-ferrous exchange, which means that iron and steel
are not traded on the exchange.
• The LME is one of the main metal markets in the world and allows for
the hedging of metals risk through highly liquid and standardized
exchange-traded futures contracts. The LME also trades plastics on its
exchange and has an LME index option that allows traders to
speculate or hedge the broader metals market as a whole.