Commodity exchange


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  • © Altacit Global 2009 Email:
  • Commodity exchange

    1. 1. COMMODITY EXCHANGE Lakshminarayanan Alaguraja Advocate Altacit Global
    2. 2. What are Commodities? <ul><li>In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services. </li></ul>
    3. 3. Commodity Exchange <ul><li>a commodity exchange is defined as an association, or alternatively a company, as well as any corporate body that organizes trading in commodities. Earlier the commodity exchange was more like an open market place where traders would call their bids and purchase commodities. </li></ul><ul><li>A commodities exchange is an exchange where various commodities and derivatives products are traded. Most commodity markets across the world trade in agricultural products and other raw materials. </li></ul>
    4. 4. … cont <ul><li>Commodities exchanges usually trade futures contracts on commodities, such as trading contracts to receive something, say corn, in a certain month. A farmer raising corn can sell a future contract on his corn, which will not be harvested for several months, and guarantee the price he will be paid when he delivers; a breakfast cereal producer buys the contract now and guarantees the price will not go up when it is delivered. This protects the farmer from price drops and the buyer from price rises. </li></ul>
    5. 5. Commodity Market <ul><li>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. </li></ul>
    6. 6. Early History <ul><li>Commodity exchanges began in the middle of the 19 th century, when businessmen began organizing market forums to make buying and selling of commodities easier. These market places provided a place for buyers and sellers to set the quality, standards, and establish rules of business. </li></ul>
    7. 7. Commodity Exchange and Stock Exchange <ul><li>The basic difference between the commodity exchange and stock exchange is that while in commodity exchange non-financial commodities i.e. agro products such as castor, groundnut, sesame etc. and non agro products such as aluminum, zinc, nickel etc. are traded. However in a stock exchange all financial products are traded such as stocks, indexes, interest rate, government securities etc. are traded. </li></ul>
    8. 8. Commodity Futures <ul><li>Futures are standardized agreements between a buyer and a seller to exchange a pre-agreed quantity of an asset of pre-specified quality: </li></ul><ul><ul><li>at a specific price, and at a pre-specified future date </li></ul></ul><ul><li>If the underlying asset is a commodity, the futures are called commodity futures. </li></ul>
    9. 9. Background <ul><li>The future commodity trading has long history in India and started as early as 1857 . </li></ul><ul><li>Due to ongoing global and domestic reforms in agriculture and allied sectors, the government is reducing its direct market intervention and encouraging private participation based on market forces </li></ul><ul><li>This has led to increased exposure of agricultural produce to price and market risks which consequently emphasizes the importance of future markets for price discovery and price risk management. </li></ul><ul><li>As a result, the Government of India issued notifications on April 1, 2003 and permitted futures trading in a wide range of agricultural commodities except options trading. </li></ul>
    10. 10. Regulation <ul><li>Forward Controls (Regulation) Act, 1952 </li></ul><ul><ul><li>Act applicable to all trades where delivery was after more than 11 days. </li></ul></ul><ul><li>Forward Markets commission regulatory body . </li></ul>
    11. 11. Commodity exchange India <ul><li>At present, there are 3 national level commodities exchanges namely National Multi-Commodity Exchange of India (NMCE), National Commodity and Derivatives Exchange Ltd (NCDEX) and Multi Commodity Exchange of India Ltd (MCX) and 21 regional exchanges allowed for derivatives trading of agricultural commodities. </li></ul><ul><li>The 3 major national commodity exchanges are: </li></ul><ul><li>National Commodity and Derivatives Exchange Limited </li></ul><ul><li>Multi Commodity Exchange of India Ltd </li></ul><ul><li>National Multi Commodity Exchange of India Ltd </li></ul>
    12. 12. National Commodity and Derivatives Exchange Limited - NCDEX: <ul><li>This is an online multi-commodity exchange that is promoted and professionally managed by ICICI Bank Limited, Life Insurance Corporation of India, National Bank for Agriculture and Rural Development, National Stock Exchange of India Limited , Punjab National Bank, CRISIL Limited, Indian Farmers Fertiliser Cooperative Limited and Canara Bank. </li></ul><ul><li>NCDEX, located in Mumbai, is a public limited company, which was incorporated on 23rd April 23 2003. this was done under the Companies Act, 1956. on 9th May 2003, it was given its Certificate for Commencement of Business, and it started its business operations on 15th December 2003. </li></ul>
    13. 13. Multi Commodity Exchange of India Ltd - MCX <ul><li>Multi Commodity Exchange of India Ltd. (MCX), is a state-of-the-art electronic commodity futures exchange. The demutualised Exchange has permanent recognition from the Government of India to facilitate online trading, and clearing and settlement operations for commodity futures across the country. The Exchange operates within the regulatory framework of the Forward Contracts Regulation Act, 1952 (FCRA, 1952) and regulations there under. </li></ul><ul><li>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. </li></ul>
    14. 14. National Multi Commodity Exchange of India Ltd – NMCEIL <ul><li>The National Multi-Commodity Exchange of India Limited, is regarded as the first de-mutualised online multi-commodity exchange that has been established in the country. It was incorporated on 20th December 2001, but began business operations on 26th November 2002. </li></ul><ul><li>It promoting and managing institutions include: </li></ul><ul><li>Central Warehousing Corporation – CWC </li></ul><ul><li>National Agricultural Cooperative Marketing Federation of India Limited – NAFED </li></ul><ul><li>Gujarat Agro Industries Corporation Limited - GAIC </li></ul><ul><li>National Institute of Agricultural Marketing - NIAM </li></ul><ul><li>Gujarat State Agricultural Marketing Board - GSAMB </li></ul><ul><li>Neptune Overseas Limited </li></ul>
    15. 15. Role of Commodity Exchange <ul><li>Platform for hedging and speculation </li></ul><ul><li>Standardization of futures </li></ul><ul><li>Facilitation of real price discovery </li></ul><ul><li>Ensuring fair play </li></ul><ul><li>Track of business transacted </li></ul><ul><li>Fixing rules for trading </li></ul><ul><li>Dissemination of information </li></ul>
    16. 16. Structure of Indian Commodity Futures Exchanges
    17. 17. FOCUS <ul><li>Why do we need this market? </li></ul><ul><ul><li>Price Stability </li></ul></ul><ul><ul><li>Liquidity and Volume </li></ul></ul><ul><ul><li>Integrated Agricultural Market </li></ul></ul><ul><ul><li>Risk trading by the small formers </li></ul></ul>