Commodity Market

Commodity Exchanges
Chapter 1:1.1 Introduction
Introduction Commodity market
Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.
1.2 History & Current debate on the Articles

This article focuses on the history and current debates regarding
global commodity markets. It covers physical product (food, metals, electricity) markets but not the ways that services, including those of governments, nor investment, nor debt, can be seen as a commodity. Articles on reinsurance markets,stock markets, bond markets and currency markets cover those concerns separately and in more depth. One focus of this article is the relationship between simple commodity money and the more complex instruments offered in the commodity markets. See List of traded commodities for some commodities and their trading units and places.
VIVEK COLLEGE OF COMMERCE
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1.3 Location of Commodity Market at various place

A commodity exchange is the type of market where commodities are dealt with. Almost any article of trade are bought and sold in commodity exchanges. Most of the leading commodity exchanges are found in USA and the UK. There are commodity exchanges existing in various other countries too. Based on the goods that are being traded and on their location and size, commodity exchanges differ significantly. Certain exchanges are famed for trading in particular products. For example, the Chicago Board of Trade, the largest futures exchange, is famous for its trading activities in coffee and sugar. London is known for its metal exchange and petroleum exchange and so on and so forth. One can find commodity exchanges spread throughout the world in places like Brazil, China, Canada, South Africa, Japan, and Russia, to mention only a few countries. Commodity exchanges commonly deal with agricultural products like Soya products, sun flower seeds, corn, beans, coffee, or other grains. Dairy products and meat are also items which are extensively traded through commodity exchanges. The closing prices set by leading commodity exchanges have huge impact on the trade around the world. Petroleum products like crude oil, gasoline, and precious metals are also dealt widely by commodity exchanges.
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1.4 How can an Investor invest in Commodity Market?

One can trade in futures or options in these commodity exchanges. When it comes to futures, one is bound by a contract which specifies the delivery of a commodity at a specific date, where as in the case of options, it is not so. Buying of options does not bind one to buy anything. Instead, one is given the right to buy certain products for a price, but one need not do so, if required. The flipside with options is that the deal expires after a specified time period.
Most of the commodity exchanges make their closing prices public. Trading is typically done on a large scale. This is the reason why smaller producers and investors dont trade in large commodity exchanges. However, the bigger traders on the commodity exchanges work closely with smaller traders and businesses, giving them an opportunity to trade their products on a global scale. The traders on commodity exchanges charge a fee from the smaller businesses for doing
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Chapter-2:- History of Commodity Market

The modern commodity markets have their roots in the trading of agricultural products. While wheat and corn, cattle and pigs, were widely traded using standard instruments in the 19th century in the United States, other basic foodstuffs such as soybeans were only added quite recently in most markets. For a commodity market to be established, there must be very broad consensus on the variations in the product that make it acceptable for one purpose or another. The economic impact of the development of commodity markets is hard to overestimate. Through the 19th century "the exchanges became effective spokesmen for, and innovators of, improvements in transportation, warehousing, and financing, which paved the way to expanded interstate and international trade
2.1 Early history of commodity markets :Historically, dating from ancient Sumerian use of sheep or goats, other peoples using pigs, rare seashells, or other items as commodity money, people have sought ways to standardize and trade contracts in the delivery of such items, to render trade itself more smooth and predictable. Commodity money and commodity markets in a crude early form are believed to have originated in Sumer where small baked clay tokens in the shape of sheep or goats were used in trade. Sealed in clay vessels with a certain number of such tokens, with that number written on the outside, they represented a promise to
VIVEK COLLEGE OF COMMERCE Page 4
Commodity Exchanges
deliver that number. This made them a form of commodity money - more than an I.O.U. but less than a guarantee by a nation-state or bank. However, they were also known to contain promises of time and date of delivery - this made them like a modern futures contract. Regardless of the details, it was only possible to verify the number of tokens inside by shaking the vessel or by breaking it, at which point the number or terms written on the outside became subject to doubt. Eventually the tokens disappeared, but the contracts remained on flat tablets. This represented the first system of commodity accounting. Classical civilizations built complex global markets trading gold or silver for spices, cloth, wood and weapons, most of which had standards of quality and timeliness. Considering the many hazards of climate, piracy, theft and abuse of military fiat by rulers of kingdoms along the trade routes, it was a major focus of these civilizations to keep markets open and trading in these scarce commodities. Reputation and clearing became central concerns, and the states which could handle them most effectively became very powerful empires, trusted by many peoples to manage and mediate trade and commerce.
2.2
Size of the market :-
The trading of commodities consists of direct physical trading and derivatives trading. Exchange traded commodities have seen an upturn in the volume of trading since the start of the decade. This was largely a result of the growing attraction of commodities as an asset class and a proliferation of investment options which has made it easier to access this market.
Commodity Exchanges
The global volume of commodities contracts traded on exchanges increased by a fifth in 2010, and a half since 2008, to around 2.5 billion million contracts. During the three years up to the end of 2010, global physical exports of commodities fell by 2%, while the outstanding value of OTC commodities derivatives declined by two-thirds as investors reduced risk following a five-fold increase in value outstanding in the previous three years. Trading on exchanges in China and India has gained in importance in recent years due to their emergence as significant commodities consumers and producers. China accounted for more than 60% of exchange-traded commodities in 2009, up on its 40% share in the previous year. Commodity assets under management more than doubled between 2008 and 2010 to nearly $380bn. Inflows into the sector totalled over $60bn in 2010, the second highest year on record, down from the record $72bn allocated to commodities funds in the previous year. The bulk of funds went into precious metals and energy products. The growth in prices of many commodities in 2010 contributed to the increase in the value of commodities funds under management
2.3 Commodity as a new asset class for pension funds and SWFs :In order to further diversify their investments and mitigate the risks associated with inflationary debasement of currencies, an increasing number of pension funds and sovereign wealth funds are allocating more capital to real assets such as a commodities and commodity-related infrastructure. Think-tanks such as the World Pensions Council (WPC) have argued that, unlike
previous recessionary cycles, commodity prices could remain durably at relatively

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high levels as Gulf Arab, Latin American and Asian governments are less inclined to accommodate G7 nations on the supply front.
2.4 Commodities trading Spot trading

Spot trading is any transaction where delivery either takes place immediately, or with a minimum lag between the trade and delivery due to technical constraints. Spot trading normally involves visual inspection of the commodity or a sample of the commodity, and is carried out in markets such as wholesale markets. Commodity markets, on the other hand, require the existence of agreed standards so that trades can be made without visual inspection.
Forward contracts
A forward contract is an agreement between two parties to exchange at some fixed future date a given quantity of a commodity for a price defined today. The fixed price today is known as the forward price. Early on these forward contracts were used as a way of getting products from producer to the consumer. These typically were only for food and agricultural products.
Futures contracts
A futures contract has the same general features as a forward contract but is standardized and transacted through a futures exchange. Although more complex today, early forward contracts for example, were used for rice in seventeenth
Commodity Exchanges
century Japan. Modern forward, or futures agreements, began in Chicago in the 1840s, with the appearance of the railroads. Chicago, being centrally located, emerged as the hub between Midwestern farmers and producers and the east coast consumer population centers. In essence, a futures contract is a standardized forward contract in which the buyer and the seller accept the terms in regards to product, grade, quantity and location and are only free to negotiate the price.
Hedging
Hedging, a common practice of farming cooperatives, insures against a poor harvest by purchasing futures contracts in the same commodity. If the cooperative has significantly less of its product to sell due to weather or insects, it makes up for that loss with a profit on the markets, since the overall supply of the crop is short everywhere that suffered the same conditions.
Delivery and condition guarantees

In addition, delivery day, method of settlement and delivery point must all be specified. Typically, trading must end two (or more) business days prior to the delivery day, so that the routing of the shipment can be finalized via ship or rail, and payment can be settled when the contract arrives at any delivery point.
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Standardization
U.S. soybean futures, for example, are of standard grade if they are "GMO or a mixture of GMO and Non-GMO No. 2 yellow soybeans of Indiana, Ohio and Michigan origin produced in the U.S.A. (Non-screened, stored in silo)," and of deliverable grade if they are "GMO or a mixture of GMO and Non-GMO No. 2 yellow soybeans of Iowa, Illinois and Wisconsin origin produced in the U.S.A. (Non-screened, stored in silo)." Note the distinction between states, and the need to clearly mention their status as GMO (Genetically Modified Organism) which makes them unacceptable to most organic food buyers. Similar specifications apply for cotton, orange juice, cocoa, sugar, wheat, corn, barley, pork bellies, milk, feedstuffs, fruits, vegetables, other grains, other beans, hay, other livestock, meats, poultry, eggs, or any other commodity which is so traded. Standardization has also occurred technologically, as the use of the FIX Protocol by commodities exchanges has allowed trade messages to be sent, received and processed in the same format as stocks or equities. This process began in 2001 when the CME launched a FIX-compliant interface and has now been adopted by commodity exchanges around the world.
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2.5 Regulation of commodity markets In the United States, the principal regulator of commodity and futures markets is the Commodity Futures Trading Commission but it is the National Futures Association that enforces rules and regulations put forth by the CFTC.
Oil
Building on the infrastructure and credit and settlement networks established for food and precious metals, many such markets have proliferated drastically in the late 20th century. Oil was the first form of energy so widely traded, and the fluctuations in the oil markets are of particular political interest. Some commodity market speculation is directly related to the stability of certain states, e.g., during the Persian Gulf War, speculation on the survival of the regime of Saddam Hussein in Iraq. Similar political stability concerns have from time to time driven the price of oil. The oil market is an exception. Most markets are not so tied to the politics of volatile regions - even natural gas tends to be more stable, as it is not traded across oceans by tanker as extensively.
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Commodity markets and protectionism

Developing countries (democratic or not) have been moved to harden their currencies, accept International Monetary Fund rules, join theWorld Trade Organization (WTO), and submit to a broad regime of reforms that amount to a hedge against being isolated. China's entry into the WTO signalled the end of truly isolated nations entirely managing their own currency and affairs. The need for stable currency and predictable clearing and rules-based handling of trade disputes, has led to a global trade hegemony - many nations hedging on a global scale against each other's anticipated protectionism, were they to fail to join the WTO. There are signs, however, that this regime is far from perfect. U.S. trade sanctions against Canadian softwood lumber (within NAFTA) and foreign steel (except for NAFTA partners Canada and Mexico) in 2002 signalled a shift in policy towards a tougher regime perhaps more driven by political concerns - jobs, industrial policy, even sustainable forestry and logging practices.
India

National Stock Exchange of India (NSE) Bombay Stock Exchange (BSE) Indian Commodity Exchange (ICEX) Multi Commodity Exchange (MCX) MCX Stock Exchange (MCX-SX) Bharat Diamond Bourse National Commodity and Derivatives Exchange (NCDEX)
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National Multi Commodity Exchange of India (NMCE) National Spot Exchange Ace Derivatives & Commodity Exchange (ACE) United Stock Exchange (USE)
2.6 The Role of Commodity Exchanges in Investment Trading

Commodity exchanges provide investors and traders with the opportunity to invest in commodities by trading futures contracts, options on futures, and
other derivative products. By their very nature, these products are extremely sophisticated financial instruments used only by the savviest investors and the most experienced traders.Although independent traders can and do trade the futures markets, the majority of players in the futures markets are large commercial entities who use the futures markets for price hedgingpurposes. For example, Hershey Foods Corporation is an active participant in cocoa futures because it wants to hedge against the price risk of cocoa, a primary input for making its chocolates. If you decide to trade cocoa futures contracts, you should remember that youre up against some large and experienced market players. At the end of the day, the commodity futures exchanges are your gateway to the futures markets; in fact, they are the commodity futures markets. However, because of the fierce competition in these markets and because of the complexity of exchange traded products, you should only trade directly in the commodity futures markets if you have an iron clad grasp of the technical aspects of the markets and have a rock solid understanding of the market fundamentals.
Commodity Exchanges
If you dont have either, you should stay out of these markets because you could be subjecting yourself to disastrous losses. That said, you can hire a trained professional with experience trading commodity futures to do the trading for you. Commodity futures exchanges serve a very important role in establishing global benchmark prices for crucial commodities such as crude oil, gold, copper, orange juice, and coffee. The exchanges are crucial for both producers and consumers of commodities. Producers, who use commodities as inputs to create finished goods, want to shelter themselves from the daily fluctuations of global commodity prices. Producers may use the commodity exchange to lock in prices for these raw materials for fixed periods of time using futures contracts. This process is known as hedging. Similarly, traders may use the commodity exchange to profit from these fluctuations. This is sometimes known as speculation.
2.7 Economic Importance of Commodity Futures Market INTRODUCTION :Be it currencies, agricultural commodities, live stocks, metals, interest rates or fuels, all of them are effected by the price movements. A risk is always associated with such price movements and can mean a lot in the final analysis over the difference between gain or loss in a company's business which is open to such price risks. The commodity futures industry has played a major role in helping such businesses manage that price risk. For over a century ,the futures industry has played a major role in helping businesses manage those price risks. Futures Industry is a world leader in providing efficient markets and unparallel operational
Commodity Exchanges
procedures for hedging and managing the volatility of the price movements associated with the markets. Futures Industry is in short provides the most cost effective and efficient risk management tool.
Futures markets Vital Roles in the service of the Economy PRICE DISCOVERY
Futures industry do not set prices. They are free markets and just provide platform for trading where the forces that influence prices are brought together in open auction. As this markets assimilates new information through out the day, it translates this information into a single benchmark price-that is agreed upon by both the buyer and the seller. For this reason many knowledgeable business men view the futures as the leading indicator.
PRICE RISK MANAGEMENT

This another economic function provided by the futures industry. The most common method of which is hedging. Hedging, in its simplest form is the practice of offsetting the price risk inherent in the cash market position by taking an equal and opposite position in the futures market to protect from adverse price changes that could negatively impact the profitability of the business Hedging can benefit any-one farmer, grain elevator/operator, merchandiser, producer, exporter, importer, processors etc
Commodity Exchanges
Important factors that makes the Futures Markets successful AUCTION SYSTEM
The foundation of the futures industry is the open out cry auction system. This is the most crucial of all the other factors as it provides the real life example of the basic economic law of supply and demand. Although now the electronic platform is used to carry out this auction system
LIQUIDITY
Futures market work due to liquidity. It provides buyers and sellers with smooth, orderly price movements and enables market participant to enter and exit the markets quickly and efficiently. Liquidity is achieved through the constant participation of buyers and sellers; some of them are speculators, who act as risk takers. Because of this activity, the risk takers narrow the bid /ask spread and provide consistent trading activity so hedgers can execute their trades quickly and efficiently. Finding offsetting hedging trades without the risk takers (Speculators) would be time consuming and if not impossible. A large number of ready buyers and sellers are needed and essential for continuous operation of the futures market and hence the need for speculators. Thus with liquidity enough, the futures market provides an efficient risk management mechanism for those businessmen concerned with the cash market price fluctuation.
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A FAIR RELATIONSHIP BETWEEN CASH/ FUTURES MARKET

Futures contract are so designed that they represent the underlying cash market prices through out the life of the contract .Because without a tight correlation between the cash market prices, futures contract could not serve their intended purpose as risk management tools. Futures prices are kept in line with the cash market prices in two ways. 1. 2. Through the possibility of delivery of the underlying contract and Through the participation of spreaders and arbitrageurs
LEVERAGING
This is the proven method for ensuring the financial integrity of the futures market. This system of the futures markets combines the use of margins and daily cash settlement feature that has proven itself capable of ensuring the financial integrity of the futures industry system and protecting the interest of all concerned.
Integrity of the futures market
COMMODITY EXCHANGES BYE-LAWS AND BUSINESS RULES

The business rules and bylaws o the exchange covers all floor operations/ electronic platforms for wide ranging, self-regulatory procedures designed to support competitive, liquid markets and to protect the interest of all market participants.
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REGULATIONS
The Rules and regulations of the exchanges in India are subject to approval by Forward Markets Commission (FMC) (A division of Government of India, Ministry of Consumer Affairs and Public distribution), which is empowered with the regulation of futures trading and enforcement of these rules and regulations by the exchanges are subject to close FMC scrutiny
CLEARING HOUSES
An independent entity that handles the Exchanges clearing functions is know as the clearing Corporation, and it ensures the integrity of the market place. In this capacity the clearing corporation acts as the guarantor for all trades cleared by it, reconciles all clearing member firm accounts each day to ensure that all gains have been credited and all losses has been collected and adjusts clearing member Margin for the changing market conditions.
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COMMODITY FUTURES TRADING IN INDIA: A ROLE OF NATIONAL COMMODITY EXCHANGES I. INTRODUCTION

Globally, commodity markets have occupied a very important place in the economic growth and progress of countries. The concept of organized trading in commodities evolved in the middle of the 19th century. Chicago had emerged as a major commercial hub with rail roads and telegraph lines connecting it with the rest of the world, there by attracting wheat producers from mid-west to sell their produce to the dealers and distributors. However, lack of organized storage
facilities and the absence of a uniform weighing and grading mechanism often confined the producers to the dealers discretion. There was an inherent need to establish a common meeting place for both farmers and dealers to deal in spot grain to deliver wheat immediately and receive cash in return, which happened in the year 1848. Gradually, the farmers (sellers) and dealers (buyers) started committing to exchange the produce for cash in future. This is how the contract for futures trading evolved where by the producer would agree to sell his produce (wheat) to the buyer at a future date at an agreed upon price. In this way, the farmer knew in advance about what payment he would receive, and the dealer knew about his costs involved. This arrangement was perceived beneficial to both sellers and buyers. These contracts became popular very quickly and started
changing hands even before the delivery date. If a particular dealer felt uninterested in having wheat, he would sell his contract to some one else, who needed it. Similarly, the producer who didnt intend to deliver his wheat would
Commodity Exchanges
pass on the responsibility to another by buying new contract. The price of the contract would depend on the price movement in the wheat market depending upon demand and supply. Commodity markets had a dominant presence in global markets ever since the first commodity exchange Chicago Board of Trade (CBOT) was established in Chicago in the year 1848, which is one of the largest commodity exchanges in the world. In the second half of the 1980s several developing countries established their own commodity future exchanges. Some of the worlds largest exchanges were established in Brazil and China. Some newly liberalized economies, such as Russia and Hungary, have also setup
commodity future exchanges. Commodity exchanges occupy an important place in the world, and it has been estimated that the volume traded on these exchanges are a multiple times those on stock exchanges.
Evolution of Commodity Futures Trading In India :Commodity futures trading in India is almost as old as that in the United States. Indias first organized futures market was the Bombay Cotton Trade Association Ltd., which was set up in 1875. Futures trading in oil seeds started with the setting up of Gujarati Vyapari Mandali in 1900. Gold futures trading began in Mumbai in 1920. During the first half of the 20th century, there were several commodity exchanges trading in jute, pepper, turmeric, potatoes, sugar, etc. However, during 1940s, trading in forwards and futures became difficult as a result of price controls. Major policy decisions taken after independence, mainly because of the scarcity situation then prevailing adversely affected the development of futures and forwards markets in the country. In 1952, the forward contract regulation act was
Commodity Exchanges
passed which controls all transferable forward and futures contracts. This again put restriction on futures trading. During the 1960s and 70s, the Government of India suspended trading in several commodities like cotton, jute, edible oilseeds, etc. As the government felt that these markets were increasing the prices of commodities. The twin policies of government offering to buy agricultural produce at a Minimum Support Price (MSP) and gaining a monopoly in storage, transportation and distribution of agricultural produce along with a ban on futures and options trading were the major factors that weakened the agricultural commodity markets in the country. The ban on futures trading in agricultural commodities were removed in the seventies, but the futures markets never regained the levels of liquidity that they had enjoyed earlier. The government appointed two committees to study the commodity futures sector, that is, the Dantwala Committee in 1966, and the Khusro committee in 1980, which recommended the re-introduction of futures trading in major commodities. The government finally brought back forward trading in agricultural commodities inthe early 1980s. But, it was done for commodities that did not have a very significant role in the economy, that is, castor seed, castor oil, jaggary, jute, pepper, potato and turmeric. Several localized exchanges started trading in the same commodity, each of them with a local broker and wholesale-merchandiser constituency. However, even after a decade, none of the markets achieved the levels of liquidity that existed prior to the ban on commodity futures trading. Once futures trading
became operational, in spite of liberalization, it has been difficult for trade to be transferred from illegal black markets, which have zero tax liability and no reporting requirements to the legal authorities as compared to the regulated markets, where taxes and reporting are part of the legal producers. Further,
Commodity Exchanges
responding to the need for commodity futures in India, in 1994, a committee was set-up for assessing the scope for forwards and futures trading in commodities and for recommending steps to be taken for development of futures trading in India. The committee so instituted was known as the Kabra Committee and much of its recommendations have been implemented. Currently, there are three major National Level Commodity Exchanges and 21 regional exchanges operating in India. The national exchanges include National Multi Commodity Exchange of India Limited (NMCE), Multi Commodity Exchange of India limited (MCX) and National Commodity and Derivatives Exchange Limited (NCDEX), which have been working since 26th November 2002, 10th November 2003 and 15th December 2003 respectively. Need for National Level Commodity Futures Exchange in India To develop active trading interest across commodities, it is necessary to have a common platform of commodity futures exchange where demand and supply forces can act together in bringing out the best price for any commodity. The main economic purpose of futures commodity exchanges as a market place is to enable commodity Producers and processors to sell their produce in advance to protect them against possible price fall for their commodities and allow consumers, traders, processors to buy in advance to protect against possible price increase. In this way they are able to hedge their price risk, by locking the price, which they will receive, and which they will pay respectively. Commodities futures trading is a global
phenomenon and offers tremendous potential to market participants for both profit making on small price correction as well as to hedgers looking at managing price risk on account of price fluctuations. In developed markets, futures trading is conservatively 10 times the size of cash market in commodities. If we
Commodity Exchanges
consider the fact that in the US, futures trading is almost 20 times that of the cash market production, it would only be fair to suggest that the futures market in our country has potential to grow very large. In India, futures trading is now allowed in more than 100 commodities. Most of these allowable commodities are traded through various exchanges in India. Indian economy is directly and indirectly dependent on agricultural produce. The agricultural commodity market already has measure share and with the availability of futures trading on national commodity futures exchanges will provide more liquidity, price discovery and better risk management opportunities Currently, national Commodity Exchanges are also inviting new streams of investors for new trading and business opportunities for diversification. It necessitates national commodity futures exchanges to provide price discovery, better investment opportunities and prudent risk management practices. Future prospect of commodity futures trading in India is upbeat. During the year 2005-06, the total value of commodity futures trade was Rs. 21.34 lakh crore as compared to Rs. 5.71 lakh crore during 2004-05. The volume of trade has also gone up to 6685 lakh tonnes during 2005-06 as compared to 1942 lakh tonnes during 2004-05. In the present era, which is witnessing increased dealings in knowledge of the agricultural produce on commodity exchanges, the role of national commodity exchangesassumes importance. Further, a study of relative importance of a range of agricultural commodities in futures trading and the volume of their trade will light on the likely pattern of futures trading in the country in the days to come. In addition, it would also be informative to investigate the type of relationship between spot and futures trading in facing competitive. This study also helps the policy makers to ascertain the future requirements. In this context, the present study was taken up with the following specific objectives.
Commodity Exchanges
1. To study the organizational set up and the mode of working of the National Level Commodity Exchanges in India 2. To analyze the share of agricultural commodities traded across National Level Commodity Exchanges in India 3. To study the relationship between spot and futures price of the selected agricultural commodities traded in the National Level commodity Exchanges 4. To study the handicaps in futures trading in the country perceived by the members/brokerage houses (hereafter referred to as only members) and their clients
Multi Commodity Exchange :MCX 5th largest commodity exchange in the world"
Multi Commodity Exchange of India Ltd (MCX) (BSE: 534091) is an independentcommodity exchange based in India. It was established in 2003 and is based in Mumbai. The turnover of the exchange for the fiscal year 2009 was US$ 1.24 trillion, and in terms of contracts traded, it was in 2009 the world's sixth largest commodity exchange. ([1]) MCX offers futures trading in bullion, ferrous and non-ferrous metals, energy, and a number of agricultural commodities (mentha oil, cardamom, potatoes, palm oil and others). In 2011, MCX has taken the fifth spot among the global commodity bourses in terms of the number of futures contracts traded. Based on the latest data
Commodity Exchanges
from Futures Industry Association (FIA), during the period between January and June this year, about 127.8 million futures contracts were traded on MCX.[1] MCX has also set up in joint venture the MCX Stock Exchange. Earlier spin-offs from the company include the National Spot Exchange, an electronic spot exchange for bullion and agricultural commodities, and National Bulk Handling Corporation (NBHC) India's largest collateral management company which provides bulk storage and handling of agricultural products. In February 2012, MCX has come out with a public issue of 6,427,378 Equity Shares of Rs. 10 face value in price band of 860 - 1032 Rs. per equity share to raise around $134 million. It is the first ever IPO by an Indian exchange.[2] It is regulated by the Forward Markets Commission.

MCX is India's No. 1 commodity exchange with 83% market share in 2009 The exchange's main competitor is National Commodity & Derivatives
Exchange Ltd ([2])
Globally, MCX ranks no. 1 in silver, no. 2 in natural gas, no. 3 in crude oil
and gold in futures trading ([3])

The highest traded item is gold. MCX has several strategic alliances with leading exchanges across the globe As of early 2010, the normal daily turnover of MCX was about US$ 6 to 8
billion
MCX now reaches out to about 800 cities and towns in India with the help of
about 126,000 trading terminals
MCX COMDEX is India's first and only composite commodity futures price
index
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METAL Aluminium, Copper, Lead, Nickel,
BULLION
Steel Long (Bhavnagar), Steel Gold, Gold HNI, Gold M, i-gold, Silver, Silver Long (Govindgarh), Steel Flat, HNI, Silver M,, Silver Micro Tin, Zinc FIBER ENERGY
Cotton L Staple, Cotton M Staple, Brent Crude Oil, Crude Oil, Furnace Oil, Cotton S Staple, Cotton Yarn, Natural Gas, M. E. Sour Crude Oil, ATF, Kapas, Jute SPICES Cardamom, Jeera, Pepper, Red Chilli, Turmeric, Cumin Seed, Coriander PULSES Chana, Masur, Yellow Peas, Tur, Urad OIL & OIL SEEDS Castor Oil, Castor Seeds, Coconut Cake, Coconut Oil, Cotton Seed, Crude Palm Oil, Groundnut Oil, Kapasia Khalli, Mustard Oil, Mustard Seed (Jaipur), Mustard Seed (Sirsa), RBD Palmolein, Refined Soy Oil, Refined Sunflower Oil, Rice Bran DOC, Rice Bran Refined Oil, Sesame Seed, Soymeal, Soy Bean, Soy Seeds
Electricity(Now delisted), Carbon Credit PLANTATIONS Arecanut, Cashew Kernel, Coffee (Robusta), Rubber PETROCHEMICALS HDPE, Polypropylene(PP), PVC
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CEREALS
OTHERS
Maize, Barley, Rice, Sharbati Rice, Guargum, Guar Seed, Gurchaku, Mentha Oil, Basmati Rice, Wheat Potato (Agra), Potato (Tarkeshwar)
Key shareholders
Financial Technologies (I) Ltd., State Bank of India and its associates, National Bank for Agriculture and Rural Development (NABARD), National Stock Exchange of India Ltd. (NSE), Fid Fund (Mauritius) Ltd. - an affiliate of Fidelity International, Corporation Bank, Union Bank of India, Canara Bank, Bank of India, Bank of Baroda , HDFC Bank,, SBI Life Insurance Co. Ltd., ICICI ventures, IL & FS, Merrill Lynch, and New York Stock Exchange
MCX Stock Exchange

MCX Stock Exchange (MCX-SX) is an India-wide electronic platform for trading in currency futures under the regulatory control of Securities and Exchange Board of India (SEBI) and Reserve Bank of India (RBI). It is jointly promoted by Financial technologies[1] and MCX[2]. It started operations on the 6th of OCtober 2008 [3].
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Products
MCX-SXs product is a currency futures contract. It started live operations on 7 October, 2008, by launching monthly contracts in the USD/INR currency pair. Each USD/INR contract on MCX-SX has a life of 12 months from the month in which it was launched. Specifications of the MCX-SX USDINR contract are as stipulated by RBI and Securities SEBI, and are as follows:
Symbol Instrument Type Unit of trading Underlying Tick size Trading hours Contract cycle Last trading day trading
USDINR FUTCUR 1 (1 unit denotes 1000 USD) The exchange rate in Indian Rupees for a US Dollar Tick size Rs.0.25 paise or INR 0.0025 Monday to Friday 9.00 a.m. to 5.00p.m. 12 month trading cycle. Two working days prior to the last business day of the expiry month at 12 noon. Last working day (excluding Saturdays) of the expiry month. The last working day will be the same as that for Interbank Settlements in Mumbai.
Final day
settlement
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Highlights

MCX-SX initiated trading on Oct 7, 2008 Total Turnover - Rs. 43,571.98 crore* Total number of contracts traded - 8,876,100* Recorded highest turnover - Rs. 1593.04 crore on Jan 22, 2009 Highest number of contracts traded - 324,885 on Jan 22, 2009 Average Daily Volume - 158,501 contracts* Average Daily Turnover - Rs. 778.07 crore* Garnered over 50 % market share in two months of operations Growth of 187% by clocking an average daily turnover of Rs.1003.38 crore
at the end of 2nd month over average daily turnover of Rs. 349.38 crore for the 1st month As on December 31, 2008 since inception Total Volumes Currency Futures volume traded on the Indian Exchanges
National Commodity and Derivatives Exchange :National Commodity & Derivatives Exchange Limited (NCDEX) is an online multicommodity exchange based in India. It was incorporated as a private limited company incorporated on 23 April 2003 under the Companies Act, 1956. It obtained its Certificate for Commencement of Business on 9 May 2003. It has
Commodity Exchanges
commenced its operations on 15 December 2003. NCDEX is a closely held private company which is promoted by national level institutions and has an independent Board of Directors and professionals not having vested interest in commodity markets.
Consortium of Shareholders

Jaypee Capital Renuka Sugars Life Insurance Corporation of India (LIC) National Bank for Agriculture and Rural Development (NABARD) National Stock Exchange of India (NSE) Punjab National Bank (PNB) CRISIL Limited (formerly the Credit Rating Information Services of India
Limited)

Indian Farmers Fertiliser Cooperative Limited (IFFCO) Canara Bank Goldman Sachs IntercontinentalExchange (ICE)
NCDEX is a public limited company incorporated on 23 April 2003 under the Companies Act, 1956. NCDEX is regulated by Forward Market
Commission (FMC) in respect of futures trading in commodities. Besides, NCDEX

Commodity Exchanges
is subjected to various laws of the land like the Companies Act, Stamp Act, Contracts Act, Forward Commission (Regulation) Act and various other legislations, which impinge on its working. On 3 February 2006, the FMC found NCDEX guilty of violating settlement price norms and ordered the exchange to fire one of their executive. NCDEX is located in Mumbai and offers facilities in more than 550 centres in India.
National Spot Exchange

National Spot Exchange is a Commodities exchange in India, and is a joint venture of Financial Technologies (India) Ltd. (FTIL) and National Agricultural Cooperative Marketing Federation of India (NAFED). National Spot Exchange commenced its live trading operations in different commodities on Wednesday, the 15th October, 2008. It began trading in pre-certified cotton bales for Mumbai delivery and imported gold and silver bars for Ahmedabad delivery immediately, and has since added a number of commodities. National Spot Exchange's stated mission is to develop a common Indian market by setting up a nation-wide electronic spot market and providing state of art trading, delivery, and settlement facilities in various commodities.
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Commodity Exchanges
Services offered
Selling - NSEL provides an electronic trading and auction platform to sell
commodities (Agri, bullion and Metals).
Procurement - Bulk buyers can procure the agri-commodities directly from
farmers through electronic platform provided by the NSEL.
Warehousing -
NSEL
provides
warehousing
facilities
for
various
commodities and also facilitate to sell it through the electronic platform to the bulk buyers and millers situated across the country.
Investment - NSEL provides investment instruments. E-series products
launched by NSEL can be bought by the investors for accumulation in the demat account, just like the shares in the equity market. Currently, E-Gold, E-Silver and E-Copper are available to investors.
Arbitrage - A trader can do arbitrage using different prices available for the
same commodity.
Salient features

Single day trading contracts Intra-day trading with settlement of obligation on net basis All positions outstanding at end of the day resulting into compulsory
delivery

Demat delivery facility available Fungibility of delivery between National Spot Exchange and MCX with
common ICIN nos

Commodity Exchanges
Loan facility against pledge of demat / warehouse receipt Cash futures arbitrage opportunity
E-Series product
A new form of commodities investment: Initiative of NSEL with E-Series Products For the first time in India, National Spot Exchange (NSEL) has introduced ESeries products in commodities. Retail investors can now trade and invest in commodities like they invest in equities. This will be a unique market segment, which will function just like cash segment in equities, but offer commodities in the demat form in smaller denominations. The clearing and settlement pay-in and pay-out will be based on a settlement cycle as per the practice in the stock market. This instrument will provide ample opportunity to the masses as secured investment in their product basket of diversification. NSEL launched its first product under the E-Series as E-Gold on Wednesday, the 17th March, 2010. Clients/retail investors who wish to purchase E- GOLD units are required to open their beneficiary account with NSEL empanelled Depository Participants (DPs) and disclose their client ids and DP ids to their respective members to enable them to transfer the units to the respective clients accounts. On receipt of demat ICIN in the CM-POOL account, the member should transfer the same to the beneficiary account of the respective client. NSEL has made necessary arrangements with National Securities Depository Limited (NSDL), and Central Depository Services (India) Ltd. (CDSL) is the depository for holding commodity units in the electronic form.
Commodity Exchanges
Commodities traded with their delivery locations Commodity Arecanut Bajra Castor Seed Castor Oil Chana Kantawala Delivery Centre Shimoga, Channagiri (Karnataka) Jaipur (Rajasthan), HAFED Warehouses Palanpur, Kadi, Jagana, Mehsana, Patan, Chandisar, Gandhidham, Visnagar, Panthawada, Sidhpur ( Gujarat ) Kandla ( Gujarat ) Indore ( Madhya Pradesh) Mumbai, Yeotmal, Nagpur, Wani, Amravati, Akola, Khamgaon, Cotton Bales Dhule, Jalgaon, Aurangabad, Parbhani, ( Nanded, Parli
(Maharashtra),Himmatnagar, Nizamabad (Andhra Pradesh)
Rajkot
Gujarat),
Adilabad,
Delhi, Bikaner, Jaipur, Sri Ganganagar (Rajasthan), Ganj Basoda, Desi Chana VIdisha (Madhya Pradesh), Osmanabad (Maharashtra), Gadag (Karnataka), Ahmedabad, Rajkot (Gujarat), Mumbai (Maharashtra), Kolkata Gold (West Bengal), Hyderabad, Vijayawada (Andhra Pradesh), Chennai (Tamil Nadu), Jaipur (Rajasthan), Delhi Groundnut Guar Seed Jaipur, Bikaner, Jodhpur (Rajasthan), Maliya Hatina (Gujarat) Bikaner, Jaipur (Rajasthan)
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Commodity Exchanges
Guar Gum Jeera Lemon Tur Maize RM seed
Jodhpur (Rajasthan) Jodhpur (Rajasthan) Mumbai (Maharashtra) Maheshkhoont (Bihar), Jalgaon (Maharashtra), Umerkote (Orissa), Davangere (Karnataka) Jaipur, Jodhpur (Rajasthan) Ahmedabad, Rajkot (Gujarat), Mumbai (Maharashtra), Kolkata
Silver
(West Bengal), Hyderabad (Andhra Pradesh), Chennai (Tamil Nadu), Jaipur (Rajasthan)
Urad FAQ Wheat Yellow Peas Soyabean Cottonseed Wash Oil RBD Palmolein
Mumbai (Maharashtra) Rajkot (Gujarat), Jaipur, Chomu (Rajasthan), Delhi, Vidisha (Madhya Pradesh) Mumbai (Maharashtra) Ganj Basoda, Vidisha (Madhya Pradesh), Jalgoan, Nandurbar (Maharashtra) Kadi (Gujarat)
Mundra- Adani, Kandla- Gokul, Kandla- GUJOIL
Page 34
Commodity Exchanges
Trading timings AgriCommodity Monday Friday Saturday Non-Agri Commodity Intra-day (Agri E-Series & Non-agri) 10:00 to 16:00 Product 10.00 23.30 hours No Trading to
- 10.00 to 18.00 10.00 to 23.30 hours hours
10.00 to 14.00 10.00 to 14.00 hours hours
No Trading
Bharat Diamond Bourse

Bharat Diamond Bourse (BDB) is world largest diamond bourse(exchange) based inMumbai, Maharashtra, India. Spread over 20 acre plot, the Complex is designed to house around 2,500 small and large Diamond Traders in addition to Custom House, Banks and other service providers who will cater to the Gem and Jewellery Trade. There are 8 towers each 9 floors. The total constructed area is 2,000,000 sq ft (190,000 m2). with two basements of additional 1,000,000 sq ft (93,000 m2). The facilities at BDB will include offices of diamond traders, four walk-in vaults, 24,500 safe deposit boxes, a 6,200-square-foot (580 m2) trading floor, strong rooms, lockers, customs clearance facilities with all the modern facilities required to carry day to day business. It is located in G Block of Bandra
Commodity Exchanges
Kurla Complex, Mumbai. It expected to have inflow of more than 20,000-30,000 people daily.
History
In 1984, The project was started by a group of Mumbai based diamond traders. Mumbai Metropolitan Region Development Authority given 20 acre for 80 years lease. The project initially involved public sector Minerals and Metals Trading Corporation. It withdrew from the project later and BDB taken it from there. Then it was re-started in 1992. But disputes between the BDB committee, its architects and contractors and payment defaults by members during the 1995-99 property slump put the project on hold in 1998. It was restarted in 2001. The construction cost of an estimated 1,100 crore (US$219.45 million)was collected from members.
India Diamond Industry

Indias diamond industry, which is estimated to grow by an average 10 to 15 percent each year in the next five years, accounts for 70-75 percent of total diamond exports in world and employs 850,000 people, making it the largest cutting hub by value and number of employees. Last year, the countrys import of rough diamonds rose 24.5 percent to 149.8 million carats against a year earlier, and export of cut and polished diamonds witnessed a surge of 28.3 percent to 59.9 million carat. The currently market is located at operahouse and Prasad Chambers
Commodity Exchanges
(Charni Road). The people engaged in this industry are mostly Gujarati and Marvadi. The religion which they belongs to are Jain, Swami Narayan, Hindu. The place where diamond market is located is declared as non-veg free zone
Page 37
Commodity Exchanges
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Commodity Exchanges
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Commodity Exchanges
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Commodity Exchanges
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Commodity Exchanges
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Commodity Exchanges
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Commodity Exchanges
Constituents Barley
LTP Change 1389.5
-3.51
Castor Seed
4229
-2.71
Chana
4495
-2.77
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Commodity Exchanges
Coriander
4836
0.14
Cotton Seed Oilcake 1578
-1.25
Jeera
15620
-3.71
Mustardseed
4356
-1.69
Pepper
44050
0.50
Ref Soya Oil
781.8
-0.88
Turmeric
5766
-4.00
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Commodity Exchanges
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Commodity Market

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Commodity Exchanges

Chapter 1:1.1 Introduction

Introduction Commodity market

1.2 History & Current debate on the Articles

VIVEK COLLEGE OF COMMERCE

1.3 Location of Commodity Market at various place

VIVEK COLLEGE OF COMMERCE

1.4 How can an Investor invest in Commodity Market?

VIVEK COLLEGE OF COMMERCE

Chapter-2:- History of Commodity Market

Size of the market :-

previous recessionary cycles, commodity prices could remain durably at relatively

VIVEK COLLEGE OF COMMERCE

2.4 Commodities trading Spot trading

Delivery and condition guarantees

VIVEK COLLEGE OF COMMERCE

VIVEK COLLEGE OF COMMERCE

VIVEK COLLEGE OF COMMERCE