View
219
Download
0
Category
Preview:
Citation preview
8/2/2019 Role of Sebi Saurabh
1/76
PROJECT ON
COMMODITY MARKETS
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
8/2/2019 Role of Sebi Saurabh
2/76
Commodity Market
2 | P a g e
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 CommerceFinancial Markets
By
RIDDHI J. DOSHI
ROLL NO.06
8/2/2019 Role of Sebi Saurabh
3/76
Commodity Market
3 | P a g e
K.J.SOMAIYA COLLEGE OF ARTS, & COMMERCE, VIDYAVIHAR (EAST),
MUMBAI400077
CERTIFICATE
This is to certify that MISS. RIDDHI J. DOSHIof B.Com. Financial Markets Semester V (Academic Year) 2011-2012
has successfullyCompleted Project On COMMODITY MARKETSunder the guidance
of PROF. HARESHPARPIANI.
_________________ __________________
Course Coordinator Principal(Mrs. HARESH PARPIANI) (Dr. Mrs. SUDHA VYAS)
_________________ __________________
Internal ExaminerExternal Examiner
_________________
Project Guide(PROF.HARESH PARPIANI)
8/2/2019 Role of Sebi Saurabh
4/76
Commodity Market
4 | P a g e
DECLARATION
I, MISS. RIDDHI J. DOSHI the student of B.Com-Financial Markets
Semester V (2011-2012) hereby declares that I have completed Project
on COMMODITY MARKETS.
Wherever the data/information has been taken from any book or other
sources have been mentioned in bibliography.
The information submitted is true and original to the best of my
knowledge.
Students Signature
_______________
RIDDHI J. DOSHI
(Roll No. 06)
8/2/2019 Role of Sebi Saurabh
5/76
Commodity Market
5 | P a g e
ACKNOWLEDGEMENT
On the event of completion of my projectCOMMODITY MARKETSI take the
opportunity to express my deep sense of gratitude towards all those people without
whose guidance, inspiration, & timely help this project would have never seen the
light of day.
Heartily thanks to Mumbai University for giving me the opportunity to work on
this project. I would also like to thank our principalDr.Mrs.SUDHA. VYASfor
giving us this brilliant opportunity to work on this project.
Any accomplishment requires the effort of many people and this project is not
different. I find great pleasure in expressing my deepest sense of gratitude towards
my project guide PROF.HARESH PARPIANI, 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.
I would like to thank Library staff, all my classmates, and friends for their invaluable
suggestions & guidance for my project work.
Lastly I would like to thank My Parents without whose consent & support it would
have not been possible for me to complete this project.
Students Signature
_______________
RIDDHI J. DOSHI
(Roll No. 06)
8/2/2019 Role of Sebi Saurabh
6/76
Commodity Market
6 | P a g e
EXECUTIVE SUMMARY
This project is based on commodity markets, their significance in the economy
& their contribution towards the GDP of the country. Commodity markets are now
the buzz word all the investors are looking at the commodity market as a revenue
generator.
In includes FMC i.e. Forward Market Commissions & the Government played
in the markets, the global commodity dynamics as all these influence the Indian
commodity Markets their repercussions are seen in the local bourses.
It also throws light on highly traded commodities their volumes, margins & more
importantly volatility. It contains analysis of 3 commodities, demand & supplyscenario etc.
The soul of the project is the commodity boosters the reasons who will drive
the commodity bourses ahead.
Hence this project has covered the recognized exchanges & their
organizational trading & the regulatory setup for future trading in commodities.
Finally it covers all important points on the bases of which a person can
understand the commodity market & start trading in them.
8/2/2019 Role of Sebi Saurabh
7/76
Commodity Market
7 | P a g e
RESEARCH METHODOLOGY
The method of data collection for my project is based on both primary as well as
secondary data collection. I have adopted the following methodology of study
throughout the project.
Various internet websites. Opinion of experts. Reference books. Newspaper magazines.
Objectives
The objective of this study is to understand.
1. What is commodity market?2.Need & scope of commodity market?3.How it trade in stock market of India & other countries?4. Present status of commodity market in India?5. Future of commodity market?
8/2/2019 Role of Sebi Saurabh
8/76
Commodity Market
8 | P a g e
INDEX
Sr. No. Topic Page No
1 Commodity Market Basics 1-15
2 Leading Commodity Markets Of World 16
3 Regulator
4 Leading Commodity Markets Of India 18
5 Commodity Future Trading in India 19-21
6 What makes Commodity Trading Attractive? 22
7 Commodity Trading 23
8 Need for Commodity Derivatives for India 23
9 History Of Development of Commodity Markets 24-26
10 Relevance & Potential Of Commodity Markets in India 27-28
11 Commodity Market Ecosystem 29-30
12 Indias place in World Market 31
13 Working of Commodity Market 32-34
14 Trading of Commodity Market 35-38
15 Merits & Demerits of Commodity Market 38-39
16 Study of Single Commodity Gold 40-45
17 Questionnaire on Gold 46-49
17 Gold Terminology 50
18 MCX Contract Specifications of Gold 51-57
19 Regulatory Body 58-59
20 Role Of Government in Commodity Market 60
21 National Multi-Commodity Exchange Of India 61-63
22 Multi-Commodity Exchange Of India 64-65
23 National Commodity & Derivatives Exchange LTD. 66-71
24 Suggestions
25 Conclusion 26 Bibliography
8/2/2019 Role of Sebi Saurabh
9/76
Commodity Market
9 | P a g e
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, 2000
(Founder of the World Economic Forum)
A strong & vibrant cash market is a pre-condition for a successful & transparent
futures market.
INTRODUCTION
India, a commodity based economy where two-third of the one billion
population depends on agricultural commodities, surprisingly has an under
developed commodity market. Unlike the physical market, futures markets trades in
commodity are largely used as risk management mechanism on either physical
commodity itself or open positions in commodity stock.
For instance, a jeweler can hedge his inventory against perceived short term
downturn in gold prices by going short in future markets.
The article aims at understanding commodity market & how are the
commodities traded on exchange. The idea is to study the importance of commodity
derivatives & learn about the market from an Indian point of view. The development
& growth was shunted due to numerous restriction in the early 70s which resulted in
vibrant market.
COMMODITY
A commodity may be defined as an article, a product or material that is bought
& sold. It can be classified as every kind of movable property, except actionable
claims, money & securities. Commodity actually offers immense potential to become
a separate asset class for market-savvy investors, arbitrageurs & speculators. Retail
investors, who claim to understand the equity markets, may find commodities an
8/2/2019 Role of Sebi Saurabh
10/76
Commodity Market
10 | P a g e
unfathomable market. But commodities are easy to understand as far as
fundamentals of demand & supply are concerned. Retail investors should understand
the risk & advantages of trading in commodities futures before taking a leap.
In fact, the size of the commodities market in India is also quite significant. Of
the countrys GDP ofRs 13, 20,730 crore (Rs 13, 20 billion), commodities related (&
dependent) industries constitute about 58%.
Currently, the various commodities across the country clock an annual
turnover of Rs 1, 40,000 crore (1,400 Billion). With the introduction of futures
trading, the size of the commodities market grows many folds here on.
COMMODITY MARKET
Commoditymarketisanimportantconstituentofthefinancialmarketsof any
country. It isthemarketwherea widerangeofproducts, viz.,
preciousmetals,basemetals,crudeoil,energyandsoftcommoditieslike
palmoil,coffeeetc.aretraded.Itisimportanttodevelopavibrant,active and
liquidcommoditymarket. This would help investors hedge their
commodityrisk,take speculative positions in commoditiesand
exploitArbitrageopportunities inthe market.
Turnover inFinancialMarkets andCommodityMarket
(Rs inCrores)
S No. Marketsegments 2002-03 2003-04 2004-05(E)
1 GovernmentSecuritiesMarket 1,544,376 (63) 2,518,322 (91.2) 2,827,872 (91)
2 ForexMarket 658,035 (27) 2,318,531 (84) 3,867,936 (124.4)
3 TotalStockMarketTurnover(I+II
1,374,405 (56) 3,745,507 (136) 4,160,702 (133.8) I NationalStockExchange(a+b) 1,057,854 (43) 3,230,002 (117) 3,641,672 (117.1)
a)Cash 617,989 1,099,534 1,147,027
b)Derivatives 439,865 2,130,468 2,494,645
II BombayStockExchange(a+b) 316,551 (13) 515,505 (18.7) 519,030 (16.7)
a)Cash 314,073 503,053 499,503
b)Derivatives 2,478 12,452 19,527
4 CommoditiesMarket NA 130,215 (4.7) 500,000 (16.1)
Note:Fig.inbracketrepresentspercentagetoGDP atmarketprices
Source:Sebi bulletin
8/2/2019 Role of Sebi Saurabh
11/76
Commodity Market
11 | P a g e
Ministry of
ConsumerAffairs
FMC(Forwards
MarketCommission)
Commodity
Exchange
NationalExchange
NCDEX MCX NMCE
RegionalExchange
NBOT
20 otherregional
exchanges
8/2/2019 Role of Sebi Saurabh
12/76
Commodity Market
12 | P a g e
Commodities
Ecosystem
MCX
Quality
CertificationAgencies
Hedger
(Exporters /Millers Industry)
Producers(Farmers/Co-operatives/Ins
titutional)
Traders
(speculators)arbi
-trageurs/client)
Consumers
(Retail/Institutio
-nal)
Transporters/
support agencies
Clearing Bank
Warehouses
8/2/2019 Role of Sebi Saurabh
13/76
Commodity Market
13 | P a g e
DIFFERENTTYPESOFCOMMODITIESTRADED:
World-overonewillfindthatamarketexitsforalmostallthecommodities known
to us . These comm odit ies ca nb e broadlyclassifiedintothefollowing:
METAL Aluminium, Copper, Lead, Nickel, Sponge Iron, Steel
Long
BULLION Gold,GoldHNI,GoldM,i-gold,Silver,SilverHNI,SilverM
FIBER CottonL Staple,CottonM
Staple,CottonSStaple,CottonYarn,
ENERGY BrentCrudeOil,CrudeOil,FurnaceOil,NaturalGas,M.E.
SPICES Cardamom,Jeera,Pepper,RedChilli
PLANTATIONS Arecanut,CashewKernel,Coffee (Robusta),Rubber
PULSES Chana,Masur,YellowPeas
PETROCHEMICAL
HDPE, Polypropylene(PP),PVC
OIL &OIL SEEDS CastorOil,CastorSeeds,CoconutCake,CoconutOil,Cott
on
Seed,CrudePalmOil,GroundnutOil,KapasiaKhalli,Mu
stard Oil, Mustard Seed (Jaipur), Mustard Seed
(Sirsa), RBD
Palmolein,RefinedSoyOil,RefinedSunflowerOil,RiceB
ran DOC,RiceBranRefinedOil,Sesame
CEREALS Maize
OTHERS Guargum, Guar Seed, Gurchaku, Mentha Oil, Potato
(Agra),
Potato(Tarkeshwar),SugarM-30,SugarS-30
8/2/2019 Role of Sebi Saurabh
14/76
Commodity Market
14 | P a g e
TURNOVEROFINDIANCOMMODITYEXCHANGES
Indian CommodityFuturesMarket(RsCrore)
Exchan es 2004 2005 2006 2007 Multi Commodit 165147 961 633 1 621 803 2 505 206 NCDEX 266 338 1 066 686 944 066 733 479
NMCE Ahmadabad 13 988 18 385 101 731 24 072 NBOT Indore 58 463 53 683 57 149 74 582
Others 67 823 54 735 14 591 37 997
AllExchan es 571 759 2 155 122 2 739 340 3 375 336
MARKET SHARE OFCOMMODITYEXCHANGES ININDIA
8/2/2019 Role of Sebi Saurabh
15/76
Commodity Market
15 | P a g e
DIFFERENT SEGMENTSINCOMMODITIESMARKET
ThecommoditiesmarketexitsintwodistinctformsnamelytheOverthe
Counter(OTC)marketandthe Exchangebasedmarket.Also,asin
equities,thereexiststhespotandthederivativessegment.Thespotmarkets
areessentiallyoverthecountermarketsandtheparticipationisrestrictedto peoplewho
areinvolvedwiththatcommoditysaythefarmer,processor, wholesaler etc. Derivative
trading takes place throughexchange-basedmarketswithstandardizedcontracts,
settlements etc.
EVOLUTION OF COMMODITY MARKET IN INDIA
Bombay Cotton Trade Association Ltd., set up in 1875 was the 1storganized
Futures Market. Bombay Cotton Exchange Ltd. was established in 1893 following
the widespread discontent amongst leading cotton mill owners merchants over
functioning of Bombay Cotton Trade Association. The Futures trading in oilseed
started in 1900 with the establishment of Gujarati Vyapari Mandali, which carried
on futures trading in groundnut, castor seed & cotton. Futures trading in wheat
were existent at several places in Punjab & Uttar Pradesh. But the most notable
futures exchange for wheat was Chambers Of Commerce at Hapur set up in 1913.
Futures trading in bullion in Mumbai began in 1920. Calcutta Hessain Exchange
Ltd. was established in 1919 for futures trading in raw jute & jute goods. But
organized futures trading in raw jute began only in 1927 with the establishment of
East Indian Jute Association Ltd. These two associations amalgamated in 1945 to
form East India Jute & Hessain Ltd. to conduct organized trading in both Raw Jute
& Jute goods. Forward Contracts (Regulation) Act was enacted in 1952 & the FMC
was established in 1953 under the Ministry of Consumer Affairs & Public
Distribution. In due course, several other exchanges were created in the country to
trade in diverse commodities.
8/2/2019 Role of Sebi Saurabh
16/76
Commodity Market
16 | P a g e
LEADING COMMODITYMARKETSOFWORLD
Someoftheleading exchanges oftheworldare:
S.No. GlobalCommodityExchanges
1 NewYorkMercantileExchange(NYMEX)
2 LondonMetalExchange(LME)
3 Chicago BoardofTrade(CBOT)
4 NewYorkBoardofTrade(NYBOT)
5 KansasBoardofTrade
6 WinnipegCommodityExchange,Manitoba
7 DalianCommodityExchange,China
8 Bursa MalaysiaDerivatives exchange
9 SingaporeCommodityExchange(SICOM)
10 Chicago MercantileExchange(CME), US
11 LondonMetalExchange
12 Tokyo CommodityExchange(TOCOM)
13 ShanghaiFutures Exchange
14 SydneyFutures Exchange
15 London InternationalFinancialFutures and Options
16 NationalMulti-CommodityExchangeinIndia(NMCE),India
17 NationalCommodityand Derivatives Exchange(NCDEX),India
18 MultiCommodityExchangeofIndiaLimited(MCX),India
19 DubaiGold&CommodityExchange(DGCX)
20 DubaiMercantileExchange(DME),(jointventurebetweenDubai
holding and the NewYorkMercantileExchange(NYMEX))
8/2/2019 Role of Sebi Saurabh
17/76
Commodity Market
17 | P a g e
REGULATORS:
Eachexchangeisnormallyregulatedbyanationalgovernmental(orsemi-
governmental) regulatoryagency:
Country Regulatoryagency
Australia AustralianSecurities and Investments Commission
Chinesemainland China Securities RegulatoryCommission
HongKong Securities and Futures Commission
India Securities and ExchangeBoardofIndiaandForward
MarketsCommission (FMC)
Pakistan Securities and Exchange Commission ofPakistan
Singapore MonetaryAuthorityofSingapore
UK FinancialServices Authority
USA Commodity Futures Trading Commission
Malaysia Securities Commission
8/2/2019 Role of Sebi Saurabh
18/76
Commodity Market
18 | P a g e
LEADING COMMODITY MARKETSOFINDIA
Thegovernmenthasnowallowednationalcommodityexchanges,similarto
theBSE&NSE,tocomeupandletthemdealincommodityderivativesinan electronic
tradingenvironment. These exchangesareexpectedtooffera nation-wide
anonymous, order driven, screen based trading system for
trading.TheForwardMarkets Commission (FMC)willregulatethese exchanges.
Consequentlyfourcommodityexchangeshavebeenapprovedtocommencebusinessint
his regard.Theyare:
S.NO. CommodityMarketinIndia
1 MultiCommodityExchange(MCX),Mumbai
2 National Commodity and Derivatives Exchange Ltd (NCDEX),
Mumbai
3 NationalBoardofTrade(NBOT),Indore
4 NationalMultiCommodityExchange(NMCE),Ahmadabad
8/2/2019 Role of Sebi Saurabh
19/76
Commodity Market
19 | P a g e
COMMODITY FUTURES TRADING IN MARKET
DerivativesasatoolformanagingriskfirstoriginatedintheCommodities
markets.Theywerethenfoundusefulasahedgingtoolinfinancialmarkets
aswell.Thebasicconceptofaderivativecontractremainsthesamewhether
theunderlyinghappenstobeacommodityorafinancialasset.Howeverthere
aresomefeatures,whichareverypeculiartocommodityderivativemarkets.
Inthecaseoffinancialderivatives,mostofthesecontractsarecashsettled.
DerivativesasatoolformanagingriskfirstoriginatedintheCommodities
markets.Theywerethenfoundusefulasahedgingtoolinfinancialmarkets
aswell.Thebasicconceptofaderivativecontractremainsthesamewhether
theunderlyinghappenstobeacommodityorafinancialasset.Howeverthere
aresomefeatures,whichareverypeculiartocommodityderivativemarkets.
Inthecaseoffinancialderivatives,mostofthesecontractsarecashsettled.
Eveninthecaseofphysicalsettlement,financialassetsarenotbulkyanddo
notneedspecialfacilityforstorage.Duetothebulkynatureoftheunderlyingassets,physicalsettlementincommodity derivativescreatestheneedfor
warehousing.Similarly,theconceptofvaryingqualityofassetdoesnotreally
existasfarasfinancial underlyingareconcerned.Howeverinthecaseof
commodities,thequalityoftheassetunderlyingacontractcanvarylargely. This becomes
animportantissueto bemanaged.
Hedging the price risk associated with futures contractual commitments.
Spacedoutpurchasespossibleratherthanlargecashpurchasesandits storage.
Efficientpricediscoveryprevents seasonalpricevolatility.
Greaterflexibility,certaintyandtransparencyinprocuringcommoditieswouldaidbank lending.
Introduction
Benefitstoindustryfromfuturestrading
8/2/2019 Role of Sebi Saurabh
20/76
Commodity Market
20 | P a g e
Facilitate informedlending.
Hedgedpositionsofproducersandprocessorswouldreducetheriskof
defaultfacedbybanks.*Lendingforagriculturalsectorwouldgoup
withgreatertransparencyinpricing and storage.
mmodityExchangestoactasdistributionnetworktoretailagri- financefromBanks
toruralhouseholds.
Providetrading limitfinanceto Traders incommodities Exchanges.
Accesstoahugepotentialmarketmuchgreaterthanthesecuritiesand
cashmarketincommodities.
Robust,scalable,state-of-arttechnologydeployment.
Membercantradeinmultiplecommoditiesfromasinglepoint,onreal timebasis.
Traderswouldbe tr a i n e d tobe Ru r a l AdvisorsandCommodity
Specialistsandthroughthemmultipleruralneedswouldbemet,like bankcredit,
information dissemination, etc.
Oneanswerthatisheardinthefinancialsectoris"weneedcommodity
futuresmarketssothatwewillhavevolumes,brokeragefees,andsomething
totrade''.Wehavetolookatfutures marketinabigger perspective--whatis
theroleforcommodityfutures inIndia's economy?InIndiaagriculturehastraditionallybeenanareawithheavygovernment
intervention.Governmentintervenesbytryingtomaintainbufferstocks,they
trytofixprices,andtheyhaveimport-exportrestrictionsandahostofother
interventions.Manyeconomiststhinkthatwecouldhavemajorbenefitsfrom
liberalization oftheagriculturalsector.
Inthiscase,thequestionarisesaboutwhowillmaintainthebufferstock,howwillwesmoothenthepricefluctuations,howwillfarmersnotbevulnerable
Benefitstoexchangemember
Why commodityfutures?
8/2/2019 Role of Sebi Saurabh
21/76
Commodity Market
21 | P a g e
thattomorrowthepricewillcrashwhenthecropcomesout,howwillfarmers
getsignalsthatinthefuturetherewill beagreatneedforwheatorrice.Inall theseaspects
thefutures markethas averybigroleto play.
Ifwethinktherewillbeashortageofwheattomorrow,thefuturespriceswill goup
today,anditwillcarrysignalsbacktothefarmermakingsowing decisions today.
Inthisfashion,asystemoffuturesmarketswillimprove cropping patterns.
Next,ifIamgrowingwheatandamworriedthatbythetimetheharvest
comesoutpriceswillgodown,thenIcansellmywheatonthefuturesmarket.Icansellmywhe
atataprice,whichisfixedtoday,whicheliminates
myriskfrompricefluctuations.Thesedays,agriculture requiresinvestments-
-Farmersspendmoneyonfertilizers,highyieldingvarieties,etc.Theyare
worriedwhenmakingtheseinvestmentsthatbythetimethecropcomesout
pricesmighthavedropped,resultinginlosses.Thusafarmerwouldliketo lockinhis
futurepriceand notbe exposedto fluctuations inprices.
Thethirdistheroleaboutstorage.TodaywehavetheFoodCorporationof
India,whichisdoingahugejobofstorage,andit,isasystem,which--inmy opinion--
doesnotwork.Futuresmarketwillproducetheirownkindofsmoothingbetweenthepresentandthefuture.Ifthefuturepriceishighand
thepresentpriceislow,anarbitrager willbuytodayand sell inthefuture.The
converseisalsotrue,thusifthefuturepriceislowthearbitrageurwillbuyin
thefuturesmarket.Theseactivitiesproducetheirown"optimal"bufferstocks, smooth
prices. They
alsoworkveryeffectivelywhenthereistradeinagriculturalcommodities;arbitrageursonthefuturesmarketwilluseimports and exports to smoothIndianprices using
foreignspot markets.
Intotality,commodityfuturesmarketsare apartandparcelofaprogramfor
agricultural liberalization.Many agricultureeconomistsunderstandtheneedof
liberalizationinthesector.Futuresmarketsareaninstrumentforachieving
thatliberalization.
8/2/2019 Role of Sebi Saurabh
22/76
Commodity Market
22 | P a g e
WHATMAKES COMMODITYTRADINGATTRACTIVE?
Agoodlow-riskportfolio diversifier
Ahighlyliquidassetclass,acting asacounterweighttostocks, bonds and
realestate.
Less volatile,comparedwith,equities and bonds.
Investors canleveragetheirinvestments and multiplypotential earnings.
Betterrisk-adjustedreturns.
Agoodhedgeagainstanydownturninequities or bonds as thereis
Littlecorrelationwithequityand bondmarkets.
Highco-relation withchanges ininflation.
No securities transaction taxlevied.
COMMODITY TRADING
8/2/2019 Role of Sebi Saurabh
23/76
Commodity Market
23 | P a g e
Commodity Trading in India is regulated by FMC headquartered at Mumbai; it
is a regulatory authority which is overseen by the Ministry of Consumer Affairs &
Public Distribution, Govt. Of India. It is a statutory body set up in 1953 under the
Forward Contract (Regulation) Act, 1952.
After Equity trading, commodity trading is going to be the next big thing for
investors. In India people have a love for Gold & Silver, trading is also going to pick
up in Gold & Silver. Globally, the commodity market is about three times the size of
equities trade market. In India, presently, the commodity market is still is the nascent
stage & is gradually picking up taking a cue from the global market.
NEED OF COMMODITY DERIVATIVES FOR INDIA:
India is among top 5 producers of most of the commodities, in addition to beinga major consumer of bullion & energy products. Agriculture contributes about 22% of
the GDP of Indian economy. It employees around 57% of the labor force on total of
163 million hectors of land. Agriculture sector is an imp factor in achieving a GDP
growth of 8-10%. All this indicates that India can be promoted as a major centre for
trading of commodity derivatives.
HISTORY OF THE DEVELOPMENT OF COMMODITY MARKETS
8/2/2019 Role of Sebi Saurabh
24/76
Commodity Market
24 | P a g e
It is widely believed that the futures trade first started about approximately
6,000 yrs ago in China with rice as a commodity. Futures trade first started in the 17th
century. In ancient Greece, Aristotle described the use of call options by Thales ofMiletus on the capacity of olive oil presses. The first organized futures market was the
Osaka Rice Exchange, in 1730.
Historically, organized trading in futures began in the US in the mid-19 th
century with maize contracts at the Chicago Board Of Trade (CBOT) & a bit later
cotton contracts in New York. In the first few yrs of COBT, weeks could go by without
any transaction taking place & even the weeks could go by without any transactiontaking 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, 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.
In the 1840s Chicago had become a commercial centre since it had good
railroads & telegraph lines connecting it with the east. Around the same time good
agriculture technologies were developed in the area, which lead to higher wheat
production. Midwest farmers, therefore, used to connect to Chicago to sell their wheat
to dealers who, in turn, transports it to all over the country.
Farmers usually brought their wheat to Chicago hoping to sell at a good price. The
city had very limited storage facility & hence, the farmers were often left at the mercy
of the dealers. 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. to
exchange cash for immediate delivery of wheat.
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. This system was suitable to farmers as well as dealers.
Global Scenario:
8/2/2019 Role of Sebi Saurabh
25/76
Commodity Market
25 | P a g e
The farmer knew how much he would be paid for his wheat, & the dealer knew his
costs of procurement well in advance.
Such forward contracts became common & were even used subsequently as
collateral for bank loans. The contracts slowly got standardized on quantity &
quality of commodities being traded. They also began to change hands before the
delivery date. If the dealer decided he didnt want the wheat, he would sell the contract
to someone who needed it.Also, if the farmer didnt want to deliver his wheat, could
pass on his obligation to another farmer. The price would go up & down depending on
what was happening in the wheat market.
Slowly, 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. They were called speculators. 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. This is how the future market in
commodities developed in US. The hedgers began to efficiently transfer their market
risk of holding physical commodity to these speculators by trading in future exchange.
History of trading in commodities in India dates back to several centuries. But
organized futures market in India emerged in 1875 when the Bombay Cotton Trade
Association was established. The futures trading in oilseed started in 1900 when
Gujarati Vyapari Mandali (todays NMCX, Ahmadabad) was established. The futures
trading in Gold began in Mumbai in 1920. During the 1sthalf of the 20th century, there
were many commodity futures exchanges, including the Calcutta Hessain Exchange
Ltd. that was established in 1927. Those exchanges traded in jute, pepper, potatoes,
sugar, turmeric, etc.However, Indias history of commodity futures market has been
turbulent. Options were banned on cotton in 1939 by the Government of Bombay to
curb widespread speculation. In mid-1940s, trading in forwards &futures became
difficult as a result of price control by Government. The Forward Contract Regulation
Act was passed in 1952. This put a regulatory guideline on forward trading. In 1960s,
Indian Scenario:
8/2/2019 Role of Sebi Saurabh
26/76
Commodity Market
26 | P a g e
the Government of India suspended forward trading in several commodities jute,
edible oil, seeds, cotton, etc. due to fears of increase in commodity prices. However,
the government offered to buy agricultural products at Minimum Support Price (MSP)
to ensure that the farmers benefited. The Government also managed storage,
transportation & distribution of agricultural products. These measures weakened the
agricultural commodity markets in India.
The Government appointed four committees (Shroff Committee in 1950,
Dantwala Committee in 1966, Khusro Committee in 1979 & Kabra Committee in
1993) to go into the regulatory aspects of forward & futures trading in India. In 1996,
the World Bank in association with United Nations Conference on Trade &
Development (UNCTAD) conducted a study on Indian Commodities Market.
In the post-liberalization era of the Indian economy, 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.
RELEVANCE & POTENTIAL OF COMMODITY MARKETS IN INDIA
8/2/2019 Role of Sebi Saurabh
27/76
Commodity Market
27 | P a g e
Majority of commodities traded on global commodity exchanges are agri-based.
Commodity Markets therefore are of great importance & hold a great potential in case
of economies like India, where more than 65% of the population are dependent on
agriculture.
There is huge domestic market for commodities in India since India consumes a
major portion of its agricultural produce locally. Indian Commodities Market has an
excellent growth potential & has created good opportunities for market players. India
is Worlds leading producer of more than 15 agricultural commodities & is also the
worlds largest consumer of edible oils & gold. It has major markets in regions of
urban conglomeration (Cities & Towns) & nearly 7,500 + Agricultural Produce
Market Cooperative (APMC) mandis. To add to this, there is a network of over
27,000+ haats (Rural Bazaars) that are seasonal market places of various
commodities. These marketplaces play host to a variety of commodities every day. The
commodity trade segment employs nearly five million plus traders.
The potential of the sector has been well identified by the Central Government
& the State Government & they have invested substantial resources to boost
production of agricultural commodities. Many of these commodities would be traded
on the futures markets as food-processing industry grows at a phenomenal pace.
The Government also has recognized three national level commodity exchanges,
which are trading in more than 85 commodities at present, & the list continues to
expand. According to the experts in commodity markets, 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 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. The Government
of India has initiated several measures to stimulate active trading interest in
commodities. Steps like lifting the ban on futures trading in commodities, approving
new exchanges, developing exchanges with modern infrastructure & systems such as
online trading, & removing legal hurdles to attract more participants have increased
the scope of commodities derivatives trading in India. The trading volumes are
8/2/2019 Role of Sebi Saurabh
28/76
Commodity Market
28 | P a g e
increasing as the list of commodities traded on NCE also continues to expand. The
volumes are likely to surge further as a result of the increased interest from the
international participants in Indian Commodity Markets. If these international
participants are allowed to participate in the markets (like in case of capital markets),
the growth in commodity futures can be expected to be phenomenal. It is expected that
Foreign Institutional Investors (FIIs), mutual funds & banks may be able to participate
in commodity futures is also expected after the amendments to the FCR Act, 1952.
Commodity Trading & commodity financing are going to be a rapidly growing
business in the coming years in India.
With the liberalization of the Indian economy in 1991, the commodity prices
(especially international commodities such as base metals & energy) have been subject
to price volatility in international markets, since India is largely a net importer of such
commodities. Commodity derivatives exchanges have been established with a view to
minimize risk associated with such price volatility.
COMMODITY MARKETS ECOSYSTEM
8/2/2019 Role of Sebi Saurabh
29/76
Commodity Market
29 | P a g e
After studying the importance of commodity markets & trading in commodity
futures, it is essential to understand the different components of the commodity markets
ecosystem. 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, manufacturers,wholesalers, distributors, farmers co-operatives, APMC mandis, traders,
State Civil Suppliers Corporations, Importers, Exporters, Merchandisers,
Oil producing companies, etc.
2)Logistics Companies: Storage & transport Companies/operators, qualitytesting & certifying companies, etc.
3)Markets & Exchanges: Spot Markets (mandis, bazaars, etc.) &Commodity Exchanges (national & regional level)
4) Support Agencies: Depositories/de-materializing agencies, Central &State Warehousing Corporations & Private Sector Warehousing
Companies.
5)Lending Agencies: Banks & Financial Institutions.
The users are the producers & consumers of different commodities. They have
8/2/2019 Role of Sebi Saurabh
30/76
Commodity Market
30 | P a g e
exposure to the physical commodities market, thus, exposing themselves to price risk.
In turn, they depend on logistic companies for transportation of commodities,
warehouses for storage, & quality testing & certification agencies for assessment &
evaluation of commodity quality standards. Commodity derivatives exchanges provide
a platform for hedging against price risk for these users.
INDIAS PLACE IN WORLD MARKET
Logistic Companies
Testing & Certifying
Companies
Farmers & Farmers
Co-operatives
APMC Mandis
Traders
State Civil Suppliers
Cooperation
Central & State
Warehousing
Corporation
Private Sector
Warehousing
Companies
Spot Market
Commodity Market
Warehouse Receipt System
Lending Agencies
Users Support Agencies
Storage & Transport Requirements & Quality
Certification Requirements
8/2/2019 Role of Sebi Saurabh
31/76
Commodity Market
31 | P a g e
The following table shows the position of Indian Commodity Market in the
International Commodity Market with respect to certain significant commodities.
Commodity India World Share Rank
Rice(Paddy) 240 2049 11.17 3rd
Wheat 74 599 12.35 2nd
Pluses 13 55 23.64 1st
Groundnut 6 35 17.14 2nd
Rapeseed 6 40 15.00 3rd
Sugarcane 315 1278 24.65 2nd
Tea 0.75 2.99 25.08 1st
Coffee(Green) 0.28 7.28 3.85 8th
Jute & Jute
Fibers
1.74 4.02 43.30 2nd
Cotton(Lint) 2.06 18.84 10.09 3rd
WORKING OF COMMODITY MARKET
8/2/2019 Role of Sebi Saurabh
32/76
Commodity Market
32 | P a g e
There are two kinds of trades in commodities. The first is the spot trade, in
which one pays cash and carries away the goods. The second is futures trade. The
underpinning for futures is the warehouse receipt. A person deposits certain amount of
say, goods X in a warehouse and gets a warehouse receipt. 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. A
person can buy or sale a commodity future on an exchange based on his expectation of
where the price will go. Futures have something called an expiry date, by when the
buyer or seller either closes (square off) his account or give / take delivery of the
commodity. 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. Squiring off is done by
taking an opposite contract so that the net outstanding is nil.
For commodity futures to work, the seller should be able to deposit the
commodity at warehouse nearest to him and collect the warehouse receipt. The buyer
should be able to take physical delivery at a location of his choice on presenting the
warehouse receipt. But at present in India very few warehouses provide for specific
commodities.
Following diagram gives idea about working of the Commodity market.
Today Commodity trading system is fully computerized.
Traders need not visit a commodity market to speculate. With online commodity
trading they could sit in the confines of their home or office and call the shots.
The commodity trading system consists of certain prescribed steps or stages as
follows:
1. Trading:- At this stage the following is the system implemented --Order receiving
-Execution
-Matching
-Reporting
-Surveillance
8/2/2019 Role of Sebi Saurabh
33/76
Commodity Market
33 | P a g e
-Price limits
-Position limits.
2. Clearing: - This stage has following system in place -
-Matching
-Registration
-Clearing
-Clearing limits
-Notation
-Margining
-Price limits
-Position limits
-Clearing house.
3. Settlement: - This stage has following system followed as follows-
-Marking to market
-Receipts and payments
-Reporting
-Delivery upon expiration or maturity.
The future trading in commodities has emerged as a major investment option in India.
Commodity market performances are equal to that of the stock market and analysts
predict that the commodities market will overtake the capital market in trade volumes
sooner than later. But since commodities futures market is a relatively new entrant in
India, 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.
Step 1: Locate a brokerage house with a reputation for service.
10 STEPS TO INVEST IN COMMODITY MARKET:
8/2/2019 Role of Sebi Saurabh
34/76
Commodity Market
34 | P a g e
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,
address proof and passport size photos.
Step 3: Be clear of the rules and regulations especially transaction costs.
Step 4: Choose the right brokerage plan that optimizes your costs, brokerage fees
ranging from 0.03% to 0.08% on contract value.
Step 5: Be clear of the service deliverables from your broker.
Step 6: Insist on regular reports and special knowledge / training opportunities.
Step 7: Set aside funds for commodity investing, but remember not at the cost of other
traditional investing avenues.
Step 8: Focus on a few commodities, gather requisite knowledge and pay up the initial
amount for margin money, account opening charges and annual maintenance
charges.
Step 9: Clear any or all doubts now - set stop loss and book profit levels.
Step 10: Get ready for investing and track your success and losses all the time.
TRADING OF COMMODITY MARKET
8/2/2019 Role of Sebi Saurabh
35/76
Commodity Market
35 | P a g e
Money making is not a commodity, but commodity trading could earn you money!
8/2/2019 Role of Sebi Saurabh
36/76
Commodity Market
36 | P a g e
The future market in commodities offers both cash and delivery-based settlement.
Investors can choose between the two. If the buyer chooses to take delivery of the
commodity, a transferable receipt from the warehouse where goods are stored isissued in favour of the buyer. On producing this receipt, the buyer can claim the
commodity from the warehouse. All open contracts not intended for delivery are cash-
settled. While speculators and arbitrageurs generally prefer cash settlement,
commodity stockiest and wholesalers go for delivery. The option to square off the deal
or to take delivery can be changed before the last day of contract expiry. In the case of
delivery-based trades, the margin raises to 0-25% 0f the contract value and the seller
is required to pay sales tax on the transaction.
Trading in any contract month will open on the twenty first day of the month, three
months prior to the contract month. For example, the December 2004 contracts open
on 21 September 2004 and the due date is the 20-day of the delivery month. All
contracts settling in cash will be settled on the following day after the contract expiry
date. Commodity trading follows a T+1 settlement system, where the settlement date is
the next working day after expiry. However, in case of delivery-based traders,
settlement takes place five to seven days after the expiry.
Commodity investment can be done in a number of ways:
By investing in companies that produce commodities. Many investors alreadyhold 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.
By purchasing, or selling, the commodities themselves on the spot market forimmediate delivery. This involves high transaction costs and is not a suitable
Investors choice:
Investing in Commodities:
8/2/2019 Role of Sebi Saurabh
37/76
Commodity Market
37 | P a g e
method of investment for individual investors.
By purchasing, or selling via the commodities exchanges for later delivery.Most trading in commodities is done through futuresand 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.
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 NSEs 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 demand-
supply position, global weather patterns, government policies related to subsidies and
taxation and international trading norms as guided by the World Trade Organisation
(WTO).
Returns from Commodity trading:
8/2/2019 Role of Sebi Saurabh
38/76
Commodity Market
38 | P a g e
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.
Growth of commodity trading:
8/2/2019 Role of Sebi Saurabh
39/76
Commodity Market
39 | P a g e
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.
8/2/2019 Role of Sebi Saurabh
40/76
Commodity Market
40 | P a g e
STUDY ON SINGLE COMMODITY:
GOLD:
8/2/2019 Role of Sebi Saurabh
41/76
Commodity Market
41 | P a g e
GOLD
Goldis auniqueassetbasedon few basic characteristics.First, itis primarilya
monetaryasset,andpartlyacommodity.Asmuchastwothirdsofgoldstotal
accumulatedholdingsrelatetostoreofvalueconsiderations. Holdingsinthis category
include thecentralbankreserves,privateinvestments,andhigh- caratage
jewlleryboughtprimarilyindevelopingcountriesasavehiclefor savings. Thus, goldis
primarilya monetaryasset. Less thanonethirdofgolds total
accumulatedholdingscanbeconsideredacommodity,thejewellery
boughtinWesternmarkets foradornment,and goldusedinindustry.
The dis ti nc ti on b et w ee n gold an d co mm o d it ie s is important. Gold has
maintained its value in after-inflation terms over the long run, while commodities
havedeclined.
Some analystslike tothink ofgoldasacurrency withoutacountry.Itis an
internationallyrecognizedassetthatisnotdependentuponanygovernments promise
topay. This is an important feature when comparing gold to conventional
diversifierslikeT-billsorbonds,whichunlikegold,dohave counter-partyrisk.
Timeless and VeryTimelyInvestment
Goldis aneffectivediversifier
Goldis theidealgift
Goldis highlyliquid
Goldresponds when youneeditmost
Introduction
Whatmakes gold special?
8/2/2019 Role of Sebi Saurabh
42/76
Commodity Market
42 | P a g e
Thegoldmarketishighlyliquid.Goldheldbycentralbanks,other majorinstitutions,and retailjewelleryis reinvestedinmarket.
Dueto largestockofgold,againstitsdemand,itisarguedthatthecoredriveroftherealpriceofgoldisstockequilibriumratherthanflow
equilibrium.
Effectiveportfoliodiversifier:Thisphrasesummarizestheusefulnessof goldintermsofModernPortfolioTheory,astrategyusedbymany
investmentmanagerstoday. Usingthisapproach,goldcan beusedas a portfolio
diversifierto improveinvestmentperformance.
Effectivediversificationduringstressperiods:Traditionalmethodofportfoliodiversificationoftenfailswhentheyaremostneeded,thatis
duringfinancialstress(instability).Ontheseoccasions,thecorrelations and
volatilities of return for most asset class (including traditional diversifiers,
such as bond and alternative assets) increase, thus reducing
theintendedcushioningeffectofthediversified portfolio.
Market Characteristics
8/2/2019 Role of Sebi Saurabh
43/76
Commodity Market
43 | P a g e
Chinaproduced276metrictonsofgoldlastyear,equaltoabout9.7 millionounces,saidLondonpreciousmetalsconsultancyGFMSLtd.
That'sup12%fromtheyear-agoandrepresentedjustoverone-tenth oftheworld's
supply.
TherankingpushesSouthAfricaintosecondplace,thefirsttimetheGoldgianthaslostitstoprankingsince1905.SouthAfrica,whoslate
19thcentury goldrushledtothe foundingofminingheavyweightAnglo
AmericanPlcandishometoglobalproducersGoldFieldsLtdandAngloGoldAshantiLtd;sawitsproductiondecline8%to272metric tons.
Indiaisworldlargestgoldconsumerwithanannualdemandof800 tonnes.
Demand andSupplyofGoldinIndia(intonnes)
2006 2007 %chan eSu l MineProduction 573 580 1 NetProducerHed in -140 -129 -Totalminesu l 430 451 5O icialsectorsales 93 95 2Old oldScra 303 262 -13TotalSu l 826 808 2
DemandFabrication - - -
Jeweller 519 568 9
Industrial&Dental 111 112 1
Subtotalo above abrication 630 680 8 Bar&coinretail investment 89 116 31Otherretailinvestment -3 -5 -
ETFs and similar 113 36 -68TotalDemand 829 827 0
In erredInvestment -3 -19 -Source: GFMSLtd.
Demand and supply
8/2/2019 Role of Sebi Saurabh
44/76
Commodity Market
44 | P a g e
The return from investments in gold may be compared with the return on
investment inGovernment bonds in the Indian markets. Illustratively, if gold had been
purchased at end-February 1996 and sold at end-February 2002 at the prevailing
rates in the local bullion market,the average annualized return would work out to be
negative. On the contrary, investment in aliquid risk-free Government security on the
same date would have fetched a comfortable positivereturn, and in case capital gains
through marked to market is also taken into account, theannualized average return
could be as high as 15 per cent.
Plain22caratjewelleryisthecoreofconsumptionespeciallyintheruralareas,wheregoldissoimportantinjudgingafamily'sstatusata
marriage.Abasicmarriagesetfora brideistwoearrings,onenosepin, onering,one
necklaceand two bangles,allin22 caratgoldand weighing up to 200grams
(6.2oz).
Studded(i.e.gem-set)18caratjewelleryisincreasinglypopularinthe cities and isestimatedto haveused31tones (1million oz)in 2001.
Medallions,charmsandsmall giftitemsaccountforup tohalfofwhatislooselycalledjewellery.Theseitemsarepopularasgiftsatweddings and
otherfamilyevents.
Goldthread,knownasJariusedinhighqualitysariswornatweddings andspecialoccasionsrequiressomewhereintheregionof20tones (0.6m oz) annually.
Themarketishighlyfragmentedwithanestimated100,000workshopssupplyingover300,000 retailers, mostlyfamily-owned, single shop operations. The
Risk and Return on Gold Investments
IndianGoldJewelleryMarket
8/2/2019 Role of Sebi Saurabh
45/76
Commodity Market
45 | P a g e
industry isbeginningtobemodernizedwithlargefactories,installingthe
latestequipment,incenterssuchasMumbai, Ahmadabad andBangalore.
Hallmarking does notexistinIndiaandunder-caratageiscommonplace. TheBureauofIndianStandardshasintroducedavoluntaryschemewhich,a
lthoughnotyetwidelyused,isbecoming morepopular.Theminimum
legalcaratageis 9carat.
Thenumberofretailjewelleryoutletshasincreasedgreatlysincetheabolitionofgoldcontrol,ashasthenumberofIndianspossessinggoldjewellery.
FrequentlyAskedQuestionsonGold
Q1.Whatis Goldandwhyis its chemicalsymbolAu?
8/2/2019 Role of Sebi Saurabh
46/76
Commodity Market
46 | P a g e
Gold is a rare metallic element with a melting point of 1064 degrees centigrade and
a boiling point of 2808 degrees centigrade. Its chemical
symbol,Au,isshortfortheLatinwordforgold,'Aurum',whichliterallymeans'GlowingDa
wn'.Ithasseveralpropertiesthathavemadeitveryusefulto
mankindovertheyears,notablyitsexcellentconductivepropertiesandits inabilityto
reactwithwateroroxygen.
Q2.Wheredoes thewordGoldcomefrom?
ThewordgoldappearstobederivedfromtheIndo-Europeanroot'yellow',
reflectingoneofthemostobviouspropertiesofgold.Thisisreflectedinthe similarities
ofthe word goldinvariouslanguages: Gold (English), Gold
(German),Guld(Danish), Gulden(Dutch),Goud(Afrikaans),Gull(Norwegian) and
Kulta(Finnish).
Q3.Howmuchgoldis thereintheworld?
Attheendof2001,itisestimatedthatallthegoldeverminedamountsto about
145,000tonnes.
Q4.Whyis goldmeasuredincarats?
ThisstemsbacktoancienttimesintheMediterranean/MiddleEast,whena carat
becameused asa measureofthepurityofgoldalloys(seenext
Question5).Thepurityofgoldisnowmeasuredalsointermsiffineness,i.e.
partsperthousand.Thus 18caratsis 18/24thof 1000parts=750fineness.
Q5.WhatisaCarat?
8/2/2019 Role of Sebi Saurabh
47/76
Commodity Market
47 | P a g e
ACarat(KaratinUSA&Germany)wasoriginallyaunitofmass(weight) based on the
CarobseedorbeanusedbyancientmerchantsintheMiddle
East.TheCarobseedisfromtheCaroborlocustbeantree.Thecaratisstill usedassuchfor
the
weightofgemstones(1caratisabout200mg).Forgold,ithascometobeusedformeasuringt
hepurityofgoldwherepuregold
isdefinedas24carats.Howandwhenthischangeoccurredisnotclear.It
doesinvolvetheRomanswhoalsousedthenameSiliquaGraeca(Kerationin
Greek,QiratinArabic,and nowCaratinmoderntimes)forthebeanoftheCarob
tree.TheRomansalsousedthenameSiliquaforasmallsilvercoin,which wasone-twenty-
fourthofthegoldensolidusofConstantine.Thislatterhada
massofabout4.54grammes,sotheSiliquawasapproximatelyequivalentin
valuetothemassof1Kerationor SiliquaGraecaofgold,i.e.thevalueof 1/24thofaSolidus
is about1Keration ofgold,i.e.1carat.
Q6.Whoowns mostgold?
Ifwetakenationalgoldreserves,thenmostgoldisownedbytheUSA followed
byGermanyandtheIMF.Ifweincludejewelleryownership,then
Indiaisthelargestrepositoryofgoldintermsoftotalgoldwithinthenational boundaries.In
termsofpersonalownership,itisnotknownwhoownsthe most, butis possiblya
memberofaruling royalfamilyintheEast.
Q7.Ifallthegoldwas laidaroundtheworld,howfarwoulditstretch?
Ifwemake allthegoldeverproducedintoathinwireof5microns(millionths
ofameter)diameterthefinestonecandrawagoldwire,thenallthegold
wouldstretcharoundthecircumferenceoftheworldanastounding72million times
approximately!
8/2/2019 Role of Sebi Saurabh
48/76
Commodity Market
48 | P a g e
Q8.Howmuchnewgold is producedperyear?
In2001,mineproductionamountedto2,604tonnesor67%oftotalgold
demandinthatyear. Goldproductionhasbeengrowingforyears,butthe real
accelerationtookplaceafterthelate1970s,whenoutputwasintheregionof1,500tpa.Thisy
earoutputwillfallshortofproductionlevelsin2001.Thisis
partlyforspecificoperationalreasonsatsomeofthelargermines(Grasberg
andPorgera),alongwithlowergradesatsomeoftheoperationsinNevada.
Thereductioninexplorationanddevelopmentexpenditureoverthepastfive
yearsisleadinganumberofanalyststosuggestthat,withotheroperations
nearingtheendoftheirlives,globalproductionislikelytodropslightlyoverthenexttwoto
threeyears subjectalwaysofcourseto price.
Q9.Howmuchdoes itcosttorunagold mine?
Goldminingisverycapitalintensive,particularlyinthedeepminesofSouth
Africawhereminingiscarriedoutatdepthsof3000metersandproposalsto mineeven
deeperat4,500metersarebeingpursued.Typicalminingcosts
areUS$238/troyouncegoldaveragebutthesecanvarywidelydependingon
miningtypeandore quality.Richeroresminedatthesurface(opencast
mining)isconsiderablycheapertominethanundergroundminingatdepth. Suchmining
requires expensive sinking ofshaftsdeepinto the ground.
Q10.Howdoesagoldminework?
Thegold-containingorehastobedugfromthesurfaceorblastedfromthe rock
faceunderground.This isthenhauledto thesurfaceand milledto release thegold.
Thegoldisthenseparatedfromtherock(gangue)bytechniques
suchasflotation,smeltedtoagold-richdorandcastintobars.Thesearethenrefinedtogold
8/2/2019 Role of Sebi Saurabh
49/76
Commodity Market
49 | P a g e
barsbytheMillerchlorinationprocesstoapurityof99.5%.Ifhigherpurityisneededorplatin
umgroupmetalcontaminantsare present,
thisgoldisfurtherrefinedbytheWohlwillelectrolyticprocessto
99.9%purity.Minetailingscontaininglowamountsofgoldmaybetreated
withcyanidetodissolvethegoldandthisisthenextractedbythecarbonin
pulptechniquebeforesmelting and refining.
Q12.Howbig isatonneof gold?
GoldistraditionallyweighedinTroyOunces(31.1035grammes).Withthe
densityofgoldat19.32g/cm3,atroyounceofgoldwouldhaveavolumeof1.64cm3.Atonneo
fgoldwouldthereforehaveavolumeof51,760cm3,whichwould be equivalentto
acubeofside37.27cm(Approx.1 3)?
GoldTerminology
8/2/2019 Role of Sebi Saurabh
50/76
Commodity Market
50 | P a g e
Forthepurposeofthis standard,thefollowing definitions shallapply:
Assaying:Themethodofaccuratedeterminationofthegoldcontentof thesampleexpressedinpartsperthousand(%).
Carat:One-twenty fourthpartbymass ofthemetallic elementgold. Fineness:Theratiobetweenthemassofgoldcontentandthetotal mass
expressedinpartsperthousand(%).
FindGold:Itisgoldhavingfineness999partsperthousand(5)andabovewithoutanynegativetolerance.
Gold:Themetallic elementgold,freefromanyotherelement. StandardGold:Goldhavingfineness995partsperthousand(%)and
abovewithoutany negativetolerance.
Grain:Oneoftheearliestweightunitsusedformeasuringgold.One grainisequivalentto 0.0648 grams.
Hallmark:Mark,ormarks,whichindicatetheproducerofagoldbar anditsnumber,fineness,etc.
Karat:Unitoffineness,scaledfromoneto24.24karatgold(orpuregold)hasatleast999partspuregoldperthousand;18-karathas750, partspuregoldand
250partsalloy,etc.
KiloBar:Abarweighingonekilogramapproximately32.1507troy ounces. Legal Tender: The coin or currency which the national monetary authority
declares to be universally acceptable as a medium of exchange;
acceptableforinstance inthedischargeofdebts.
Liquidity:Thequalitypossessedbyafinancialinstrumentofbeingreadilyconvertibleinto cash withoutsignificantloss of value.
Troy Ou n ce :A uni t ofw eig ht ,equaltoabout1.1avoirdupois(ordinary)ounces.Thewordounce
whenappliedtogoldrefers to atroy ounce.1troyounceis
equivalentto31.1034768grams.
MCX Contract specifications of gold:
8/2/2019 Role of Sebi Saurabh
51/76
Commodity Market
51 | P a g e
GOLD
Nameof Commodity Gold
TickerSymbol GLDPURMUMK
Trading System MCXTrading SystemTrading Period Mondayto Saturday
Trading Session Mondayto Friday: 10:00a.m.to 11:30p.m.
Saturday: 10:00a.m.to 2:00p.m.
TRADINGTrading Unit 1kg
PriceQuote Rs.Per 10 g, ex-Ahmadabad (inclusive of all
taxesandleviesrelatingtoimportandcustom duty, but
excluding sales tax/VAT, any other
additionaltaxorsurchargeonsalestax,local taxes and
Maximum ordersize 10kg
TickSize Re.1per10g(minimumpricemovement)
Dailypricelimit 3%
InitialMargin 4%
SpecialMargin Incaseofinitialvolatility,aspecialmarginatsuchpercentage(asdeemedfit),will beimposed
immediatelyonbothbuyandsellsideinrespect
ofalloutstandingpositions,whichwillremainin force
fornext2days,afterwhichthespecial marginwillberelaxed.
Maximum Allowable Forindividualclient: 2MT
Formemberscollectivelyforallclients:6MTor
15%ofthemarketposition, whicheveris high
DELIVERY
Delivery unit 1kg
Deliveryperiod margin 25%ofthevalueoftheopenpositionduringthe deliveryperiod
8/2/2019 Role of Sebi Saurabh
52/76
Commodity Market
52 | P a g e
Deliverycenter(s) AtdesignatedclearinghousefacilitiesofGroup4Securitas
atthese centers andatadditionaldelivery centers at
Chennai, New Delhi and Hyderabad.
DeliveryLogic Compulsory
SETTLEMENT PERIOD
Tender Period 1stto 6thdayofthecontractexpirymonth.
DeliveryPeriod 1stto 6thdayofthecontractexpirymonth.
Pay-inofcommodities
(deliverybyseller
member)
On any tender days by 6.00 p.m. except
Saturdays,Sundaysand Trading Holidays. Markingof
deliverywillbedoneonthetender daysbasedon
theintentionsreceivedfromthe
sellersafterthetradinghours.Onexpiryallthe open
p o s i t i o n s s h a l l b e m a r k e d f o r d e l i v e r y .
Deliverypay-inwillbeon E+1basis.
Pay-inof funds By 11.00a.m.on Tender day+1basis
Pay-outof fundsand
commodities (deliveryto
buyer member)
By 05.00p.m.on Tender day+1basis.
INFORMATIONRELATED TODELIVERY
DeliveryLogic Compulsory De l i v e r y . Any
s e l l e r ha v i ng o p e n positionontheexpirydatefailstodeli
verthen thepenaltyasperthepenalprovisionwillbe
imposedto thedefaulting seller.
ModeofCommunication FaxorCourier
Tender Period Margin 5%incremental marginforlast5daysonall outstanding
positions. Such margin will be
additiontoinitial,additionalandspecialmargin as
Marginduring delivery
period
25%on themarkedquantity.
8/2/2019 Role of Sebi Saurabh
53/76
Commodity Market
53 | P a g e
Exemption frommargin during
tenderand delivery
period
Marginisexemptedonreceiptofdocumentary evidence(viz.,
WarehouseReceiptandQuality
Certificate) of tendering delivery with the
Exchangeduring tenderdays.
Deliveryorderrate(DOR) Settlement/closingpriceontherespectivetenderdaysexceptonexpirydate.Onexpirydatethe delivery
orderrateshallbetheDueDateRate (DDR) and nottheclosing
price.
PenalProvision Apenaltyof2.5%ofDORwillbeimposedon
defaultingbuyer/selleroutofwhich2%will be
creditedtoIPFand0.5%willbecreditedtothe counter party.
Additionally,4%ofDORasareplacementcost
willbechargedfromdefaultingbuyer/sellerout
ofwhich90%willbegiventothecounterparty
and10%willberetainedbytheExchangeas administrative
DeliveryCenters AhmadabadandMumbaiatdesignatedClearingHousefacilit
iesofGroup4Securitasat these centers and at additional
delivery centers at Chennai,NewDelhiand Hyderabad
Deliverablegradeof
underlying commodity
Thesellingmemberstenderingdeliverywillhave the
optionofdeliveringsuchgradesasperthe
contractspecifications.Thebuyerhasnooption to select
apart icula rgrade andthedelivery offered by the seller
and allocation by the Exchangeshallbebinding on him.
8/2/2019 Role of Sebi Saurabh
54/76
Commodity Market
54 | P a g e
Verification bytheBuyer
atthetimeofrelease of
delivery
Atthetimeoftaking delivery,thebuyercan
checkhisdeliveryinfrontofGroup4personnel. If
heissatisfiedwiththequantity,weightand
qualityofmaterial,thenhewillissuereceiptofthemetals
instantly.Ifheis notsatisfied withthe metal,he
caninsistforassayingbyanyofthe
approvedassayersavailableatthatcenter.Ifthe
buyerchoosesforassaying,Group4personwill
carrythegoodstotheassayersfacilities,getit
assayedandbringitbacktoGroup4facilities along with
assayerscertificate.Iftheassayers certificate differs from
the certificate submitted by the seller in respect of
quality or weightmaterially, then the buyer and seller
have to mutually negotiate the final settlement proceeds
within 1 day from receipt of assayers report, however if
they do not agree on any mutually acceptable amount
within 1 day, then the Exchange will send the goods to a
second assayer and in that case, the report received
from such assayer will be final and binding on both buyer
and seller. The cost of first assaying as well as cost of
transportation from Group 4 to assayers facilities to and
fro will be borne by the buyer, while the cost of second
assaying, if any, will be equally divided between the buyer
and seller. The vault charges during such period of first
and second assaying, if any, will be borne by both the
buyers and sellers equally. If the buyer does not opt for
assaying at the time of lifting delivery, 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.
8/2/2019 Role of Sebi Saurabh
55/76
Commodity Market
55 | P a g e
Validation Process On receipt of delivery, the Group 4 personnel will do the
following validations:
a. Whether the person carrying Gold is the Designated
clearing agent of the member.
b. Whether the selling member is the bonafied member of
the Exchange.
c. Whether the quantity being delivered is from Exchange
approved refinery
d. Whether the serial numbers of all the bars is mentioned
in the packing list provided.
e. Whether the original certificates are accompanied with
the Gold Bars Any other validation checks, as they may
desire.
Delivery Process In case any of the above validation fails, the Group 4
Securitas will contact the Exchange office and take any
further action, only as per Instructions received from the
Exchange in writing. If all validations are through, then
the Group 4 Securitas personnel will put the Gold in the
vault. Then the custodian of Group 4 will cut a serially
numbered Group 4 receipt (in triplicate consisting of
White, Pink and Yellow slips), get the signature of the
sellers clearingagent and signing the same for
authorization, hand over the Pink slip to sellers clearing
agent, send by courier the third copy (Yellow Colour slip)
while retaining the White for the records of Group 4
Securitas. Group 4 in front of the selling members
clearing agent will Deposit the said metal into their vault.
Quality Adjustment The price of gold is on the basis of 995 purity. In case a
seller delivers 999 purity, he would get a premium. In such
case, the sale proceeds will be calculated by way of
delivery order rate * 999/ 995
8/2/2019 Role of Sebi Saurabh
56/76
Commodity Market
56 | P a g e
Procedure of taking delivery
from the Vault
For the purpose of taking delivery of goods fully or
partially, the Member shall send to the Exchange an
Authority letter on his letter head, authorizing a
representative on his behalf to take the delivery. The
Authority letter sent by the Member shall consist of the
following details:
a. Name of the authorized representative.
b. Name of the Commodity along with quantity. c. Name of
the Vault along with the location.
d. Signature of the authorized representative.
e. Proof of Identity viz. PAN card, driving license, Election
ID.
f. Photo identity proof duly attested by the
Member.
Taxes, duties, cess and levies Ex-Ahmadabad.
Inclusive of all charges / levies relating to import duty,
customs to be borne by Seller. But excluding Sales Tax /
VAT, any other additional tax or surcharge on sales tax,
local taxes and octroi to be borne by the Buyer.
Endorsement of delivery
order
The buyer member can endorse delivery order to a client
or any third party with full disclosure given to the
Exchange. Responsibility for contractual liability would be
with the original assignee.
Vault, Insurance and
Transportation charges
Borne by the seller till the date of pay-out of delivery and
the buyer after the date of pay-out.
Extension of delivery period As per Exchange decision due to a force majeure or
otherwise.
Due date rate (DDR) DDR is calculated on 5th day of the contract month. This
is calculated by way of taking simple average of last 5
days of the spot market of Ahmadabad.
Legal obligation The members will provide appropriate tax forms wherever
required as per law and as customary and neither of the
parties (seller member and buyer member) will
unreasonably refuse to do so.
8/2/2019 Role of Sebi Saurabh
57/76
Commodity Market
57 | P a g e
Applicability of Business
Rules
The general provisions of Byelaws, rules and
Business Rules of the Exchange and decisions taken by
Forward Markets Commission, Board of Directors and
Executive Committee of the Exchange in respect of matters
specified above will form an integral part of this contract.
The Exchange or FMC as the case may be further
prescribe additional measures relating to delivery
procedures, warehousing, quality certification,
margining, and risk management from time to time. (The
interpretation or clarification given by the Exchange on
any terms of this contract shall be final and binding on the
members and others.)
STEPSTOBEFOLLOWED FORDELIVERYIntention to takedelivery
bybuyers
Onanytender days by 6.00p.m.
Dissemination of
information on tendered
deliveryand buyers interest
The Exchange will informmembersthroughTWS
regardingtendernoticeanddeliveryintentionsof
thesellersmembersandthebuyersrespectively
by7.00p.m.ontherespectivetenderdaysand on Saturdays
by 1:00p.m.
Evidenceofstocks in
possession
Atthetimeofissuingdeliveryorder,theMember
mustsatisfytheExchangethatheholds stocksof
thequantityandqualityspecifiedintheDeliveryOrder at the
declared delivery center by producing warehousereceipt.
Tendernoticebyseller The sellerwillissuetendernoticealongwithevidence of
delivery to the Exchange in a
specifiedformatby6:00p.m.andonSaturdays by 12:00noon.
Buyers obligation Thebuyershallnotrefusetakingdeliveryand such
refusalwillentertainpenaltyasperthepenalprovision.
Allocation ofdelivery Aspertheclosingpriceontherespectivetender days.
8/2/2019 Role of Sebi Saurabh
58/76
Commodity Market
58 | P a g e
REGULATORY BODY
At present there are three tiers of regulations of forward/future trading system exists
in India, namely, Government of India, Forward Markets Commission & Commodity
Exchanges. The need for regulation arises on account of the fact that the benefits offutures markets accrue in competitive conditions. The regulation is needed to create
competitive condition. In the absence of regulation, unscrupulous participants could
use these leveraged contracts for manipulating prices. This could have undesirable
influence on spot prices, thereby affecting the interest of appropriate risk
management system. In the absence of such a system, a major default could create a
reaction. The reluctant financial crisis in a futures market could create systematicrisk. Regulation is also needed to ensure fairness & transparency in trading,
clearing. Settlement & management of exchange so as to protect & promote the
interest of various stakeholders, particularly non-member users of the market. Hence
there is a need of regulatory functions to be exercised by an exchange.
Ministry Of Consumers Affairs
FMC
Commodity Market
8/2/2019 Role of Sebi Saurabh
59/76
Commodity Market
59 | P a g e
FMC headquartered at Mumbai, is a regulatory authority which is overseen by
theMinistry Of Consumer Affairs & Public Distribution,Govt. of India.It is a
statutory body set up in 1953 under the Forward Contract (Regulation) Act, 1952.
The functions of the FMC are as follows:
1. To advise the Central Govt. in respect of the recognition or withdrawalrecognition from any association or in respect of any other matter
arising out of the administration of Forward Contract(Regulation) Act,
1952.
2. To keep forward markets under observation & to take such action inrelation to them, as it may consider necessary, in exercise of the powers
assigned to it by or under the Act.
3. To collect & whenever the commission thinks it necessary, to publishinformation regarding the trading conditions in respect of goods to
which any of the provisions of the act is made applicable, including
information regarding demand, supply & prices, & to submit to the
Central Government, periodical reports on the working of forward
markets relating to such goods.
4. To make recommendations generally with a view to improving theorganization 7 working of forward markets.
5. To undertake the inspection of the accounts & other documents of anyrecognized association or registered association or any member of such
association whenever it considers necessary.
Forward Market Commission
8/2/2019 Role of Sebi Saurabh
60/76
Commodity Market
60 | P a g e
ROLE OF GOVERNMENT IN COMMODITY MARKET
The Government, too, may enter the game. The Government of India reckons
that it could create a minimum support price like mechanism using commodity futuresby entering into contracts for purchase of commodities covered under its programme
at the prescribed minimum support price.
Union consumer affairs secretary Labanyendu Mansingh believes this will help
the Government save on procurement 7 shortage cost of food grains, estimated to cost
it close to Rs 25,000 crore annually. Mansingh believes the Government could ferret
back a part of these savings to farmers to help pay for the cost of delivering & storingfood grains from the farms exchange accredited warehouses.
In the process, the Government will minimize corruption in the grains
management operations, give a major boost to commodity futures trading & take the
farmers to the e-age. Legislative changes have been proposed to enable farmers to get
loans against the receipt for goods deposited at accredited warehouses. If those
proposals become law, then farmers could get finance, which would enable them toavoid distress sales of their produce at times of unfavorable market conditions.
With 45% of Indias GDP (or RS 11lakh crore) coming from commodities,
exchanges hope that eventually everyone involved in commodities trade across the
value chainfrom the farmer to the processorwill be hedging their positions using
futures. To encourage large companies to trade in commodity futures, NCDEX has set
up a network of 100 warehouses where commodities are graded & certified & wheresuch commodity balances can be held electronically in demat form. Already, around
1,500 depository participant accounts have been opened with 32 depository
participants. The exchanges tieing with other players to provide warehouses services
to the traders 7 now NCDEX is to built 1,100 warehouses with all the facilities.
8/2/2019 Role of Sebi Saurabh
61/76
Commodity Market
61 | P a g e
NATIONAL MULTI-COMMODITY EXCHANGE OF INDIA
NMCE is the 1stdemutualized, Electron Multi-Commodity Exchange in India.
NMCE was promoted by:
1.Neptune Overseas Ltd. (NOL)2. Central Warehousing Corporation (CWC)3.National Agricultural Co-operative Marketing Federation Of India
(NAFED)
4.National Institute Of Agricultural Marketing (NIAM)5. Gujarat Agro-Industries Corporation Ltd. (GAICL)6. Gujarat State Agricultural Marketing Board (GSAMB) (It got its
recognition in Oct 02)
7.NMCE facilitates electronic derivatives trading through robust & testedtrading platform, Derivatives Trading Settlement System (DTSS).
It is the only Commodity Exchange in the world to have received ISO9001:2000 certification from British Standard Institutions (BSI).
NMCE was the 1stcommodity exchange to provide trading facility through
internet, through VIRTUAL PRIVATE NETWORK (VPN).
NMCE follows best international risk management practices. The contracts are
marked to market on daily basis. The system of upfront margining based on value at
Riskis followed to ensure financial security of the market. In the event of highvolatility in prices, special intra-day clearing & settlement is held.
NMCE was the 1stto initiate process of dematerialization& electronic transfer
of warehoused commodity stocks.
The unique strength of NMCE is its settlement via Delivery Backed System, an
imperative in the commodity trading business. These deliveries are executed through
a sound & reliable Warehouse Receipt System, leading to guaranteed clearing &
settlement.
8/2/2019 Role of Sebi Saurabh
62/76
Commodity Market
62 | P a g e
NMCE would bring about the converge of large-scaleprocessors, traders
andfarmers along with banks. NMCE would provide a common ground for fixation of
future prices of a number of commodities enabling efficient price discovery / forecast.
In addition, hedging using different and diverse commodities would also be possible
with help of NMCE.
In short, NMCE is leading transition of highly fragmented, controlled and
restricted commodity economy to globally integrated, efficient and competitive
environment in the 21st
century.
On 25th
July, 2001, the NMCEIL has been granted in-principle approval by the
Government to organize futures trading in the edible oil complex. The exchange is
operationalised from November 26, 2002.
NMCES Vision & Mission.
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, while complying with Statutory
/Regulatory requirements. We shall strive to ensure continual improvement of
customer services and remain quality leader amongst all commodity exchanges.
Continual Improvement in Customer Satisfaction. Improving efficiency of marketing through on-line trading in Dematerialization
form.
Minimization of settlement risks. Improving efficiency of operations by providing best infrastructure and latest
technology.
Rationalizing the transaction fees to optimum level. Implementing best quality standards of warehousing, grading and testing in
INFORMATION:
Vision
Mission
8/2/2019 Role of Sebi Saurabh
63/76
Commodity Market
63 | P a g e
tune with trade practices.
Improving facilities for structured finance. Improving quality of services rendered by suppliers. Promoting awareness about on-line features trading services of NMCE across
the length and breadth of the country.
Innovation is the way of life atNMCE
8/2/2019 Role of Sebi Saurabh
64/76
Commodity Market
64 | P a g e
MCX
MCX an independent and de-mutulised commodity exchange has permanentrecognition from Government of India for facilitating online trading, clearing and
settlement operations for commodity futures markets across the country. Key
shareholders of MCX are Financial Technologies (India) Ltd., State Bank of India,
Union Bank of India, Corporation Bank, Bank of India and Canara Bank.
Headquartered in Mumbai, MCX is led by an expert management team with
deep domain knowledge of the commodity futures markets. Through the integration ofdedicated resources, robust technology and scalable infrastructure, since inception
MCX has recorded many first to its credit.
Inaugurated in November 2003 by Shri Mukesh Ambani, Chairman &
Managing Director, Reliance Industries Ltd., MCX offers futures trading in the
following commodity categories: Agri Commodities, Bullions, Metals- Ferrous &
Non Ferrous, Pulses, Oils & Oilseeds, Plantations, Spices and other softcommodities.
MCX has built strategic alliances with some of the largest players in
commodities eco-system, namely Bombay Bullion Association, Bombay Metal
Exchange, Solvent Extractors Association of India, Pulses Importers Association and
Shetkari Sanghatana.
Today MCX is offering spectacular growth opportunities and advantages to alarge cross section of the participants including Producers / Processors, Traders,
Corporate, Regional Trading Centers, Importers, Exporters, Cooperatives, Industry
Associations, amongst others MCX being nation- wide commodity exchange, offering
multiple commodities for trading with wide reach and penetration and robust
infrastructure, is well placed to tap this vast potential.
8/2/2019 Role of Sebi Saurabh
65/76
Commodity Market
65 | P a g e
Top Commodity futures traded across exchanges
Commodity Value of futures traded (Rs crore)
Guar seed 129,522.98
Silver 116,267.99
Soy oil 101,527.66
Gold 62,784.85
Mustard seed 19,422.46
Castor seed 14,327.34
Gaur gum 13,412.08
Pepper 8,334.28
Gur 7,891.49
Rubber 2
Crude oil 1,900.14
Cotton 779.16
Other metals 618.22
Jute
Sources: Forward Market Commission
SHOOTING STARS
8/2/2019 Role of Sebi Saurabh
66/76
Commodity Market
66 | P a g e
NATIONAL COMMODITY AND DERIVATIVES EXCHANGE LTD.
The NCDEX Commodity Index is an equal-weighted spot price index of 20
agricultural commodities covering different groups such as oils and oilseeds, fibres,
etc.
It is the first such index to be launched in India. Based on the components of the
spot price index, NCDEX also displays the national index futures-essentially, the no-
arbitrage price if one were to buy futures on the spot index. This price is derived by
tracking the futures prices of the index components at the same weightage as the spot
index. Currently, index futures are not allowed in India under the FCRA (Forward
Contracts Regulation Act, 1952), which requires compulsory physical settlement of
future contracts.
National Commodity & Derivatives Exchange Limited (NCDEX) is an online
commodity exchange based in India. It was incorporated as a private limited company
incorporated on April 23, 2003 under the Companies Act, 1956. It obtained its
certificate for Commencement of Business on May 9, 2003. It has commenced its
operations on December 15, 2003. NCDEX is a closely held private company which is
promoted by national level institutions and has an independent Board of Directors
and profes
Recommended