Introduction and Evolution
Derivative markets and its structure
Commodity exchanges in India
Participants of commodity markets
Forward Markets Commission (FMC)
Some facts and figures
Challenges & Conclusion
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• “Organized futures markets in India are now 134
years old, with the first such organization – the
Bombay Cotton Trade Association Ltd.– been set up
in 1875”. The commodity market in India comprises
of all palpable markets that we come across in our
daily lives. Such markets are social institutions that
facilitate exchange of goods for money
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Top Global Commodity Futures
Performances Commodity Future Exchange Volume (Mn Contracts)#
1 CME Group- incl. CBOT & NYMEX –
2 ZCE- Zhengzhou Commodity Exchange-
3 ICE- Intercontinental Exchange –
U.S.A., U.K. & CANADA
4 SHFE- Shanghai Futures Exchange-
5 MCX- INDIA 127.77
6 DCE- Dalian Commodity Exchange-
7 LME- London Metal Exchange- U.K. 64.52
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# Note: Numbers of contracts in Jan- Jun 2011
Evolution of Commodity Future Markets
In 1848, the Chicago Board of Trade, or CBOT, was established to bring farmers and
merchants together. A group of traders got together and created the 'to-arrive' contract
that permitted farmers to lock in to price upfront and deliver the grain later. These to-
arrive contracts proved useful as a device for hedging and speculation on price changes.
Today, derivative contracts exist on a variety of commodities such as corn, pepper,
cotton, wheat, silver, etc.
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COMMODITY “A commodity may be defined as an
article, a product or material that is bought and sold”.
Or A “ underlying asset ”.
COMMODITY MARKET “A market where
commodities are traded is referred to as a commodity
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Derivatives are the tools used to hedge the risk that
arises during the course of buying & selling of assets.”
Key Words : Hedge Risk Buying & Selling Assets
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Commodity Exchanges classified in to…
The five National level multi-commodity exchanges are:
(NCDEX) Mumbai, (MCX) Mumbai, (NMCE)
Ahmadabad (ICEX) , Gurgaon and (ACE), Mumbai
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First demutualised electronic commodity exchange 26th
Nov, 2002. Promoters: CWC, NAFED, GAICL,
GSAMB, NIAM and Neptune Overseas Ltd. (NOL).
Main equity holders are PNB. Head Office:
Ahmadabad. Commodity trades on NMCE Platform:
Agro and non-agro commodities.
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Demutualised nation wide electronic commodity future
exchange. Head office : Mumbai. Nov,2003. Set up by
Financial Technologies (India) Ltd. permanent
recognition from government of India for facilitating
online trading, clearing and settlement operations for
future market across the country. Promoters: NYSE,
State Bank of India and its associated, NABARD, NSE,
LIC, Bank of India, Bank of Baroda, Union Bank of
India, Corporation Bank, Canara Bank, HDFC Bank,
etc. MCX is well known for bullion and metal trading
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• Public limited co. Dec 15, 2003. Promoters: LIC,
NABARD and NSE . Other shareholders : Canara
Bank, Goldman Sachs, Intercontinental Exchange
(ICE), IFFCO and PNB. Head office: Mumbai.
Currently facilitates trading in 57 commodities
mainly in Agro product.
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The company was founded in 1952 and is based in
Mumbai, India. Operates as a screen based online
derivatives exchange for commodities in India. It offers
futures trading in various commodity groups, such as
agricultural products, bullion, base metals, and energy.
The company provides an online multi-commodity
platform; and clearing and settlement infrastructure that
supports the process of trade intermediation, including
registration of trades, settlement of contracts, and
mitigation of counter-party risk.
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ICEX is latest commodity exchange of India. Started
Function from 27 Nov, 2009. Head office: Gurgaon
(Haryana). It is jointly promote by India bulls Financial
Services Ltd. and MMTC Ltd. and has Indian Potash
Ltd. KRIBHCO and IFC.
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Strength with respect to Product Segments of Different
National Multi Commodity Derivative Exchanges
1. NMCE - It is the Pioneer for starting Commodity Future Exchange in India. It started
Operations in 2002. Currently 24 commodities are actively traded on it. Its Strength is
Agricultural commodities. During the year 2009-10 it clocked a turnover of ` 4,55,802.97
crores, 69% was contributed by Agriculture, 22% was contributed by metals and 9% was
contributed by Bullions.
2. MCX – It is the largest commodity exchange in India. Currently 26 commodities are actively
traded on it. Its strength is Bullions, Metals and Energy. During the year 2009-10 it clocked a
turnover of ` 1,27,86,603.86 crores, 1% was contributed by Agricultural commodities, 48%
by Bullions, 24% by energy and 27% by Metal Stocks.
3. NCDEX – Currently 26 commodities are actively traded on it. Its strength is Agricultural
commodities. During the year 2009-10 it clocked a turnover of ` 18,35,169.57 crores, 98%
was contributed by Agriculture, 1.3% by Bullions and Metals and 0.70 % by Energy.
4. ICEX – It has just started its operations in Dec-09. Only 8 commodities are actively traded on
it. It is more active in Bullions and metals.
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Have underlying interest in the Commodity
Use futures market to insure against adverse price fluctuations.
They face risk associated with the price of an asset and use future contracts to
reduce this risk.
They are in business to take advantage of a discrepancy between prices in two
Futures price of an asset getting out of line with the cash price, they will take
offsetting positions in the two markets to lock in a profit.
They bet on future movements in the price of an asset. Futures contracts can give
them an extra leverage; that is, they can increase both the potential gains and
potential losses in a speculative venture.
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Participants in Commodity Futures
Agriculture Credit providing agencies
Corporate having price risk exposure in commodities
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FARMERS PARTICIPATION IN
COMMODITY FUTURES MARKET
“ Price discovery and price risk mitigation are the main
objectives of commodity futures markets, which enables
the farmers to take rational decisions about cropping
and marketing of their produce to increase their farm
income”. This creates incentives and resources for
investment in agricultural operations to improve
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REGULATOR : FMC
Regulator: Forward Markets Commission (FMC)
Statutory body set up in 1953 under the Forward Contracts
(Regulation) Act, 1952
Headquarter at Mumbai
Overseen by the Ministry of Consumer Affairs, Food and
Public Distribution, Govt. of India.
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FORWARD MARKETS COMMISSION
Vision: Price discovery and risk management in an
efficient and transparent way in futures trading in
Objectives: “To ensure smooth and orderly development
of the commodity futures markets to enable it to
perform the economic functions of the Price discovery
and price risk management efficiently, through effective
Regulation of the market”.
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What is the need for regulating futures
Regulation needed to :
Create competitive conditions: Benefits of futures markets accrue in
Ensure appropriate risk management system. Absence of such a system : a
major default could create a chain reaction. The resultant financial crisis in a
futures market could create systemic risk.
Ensure fairness and transparency in trading, clearing, settlement and
management of the exchange : To protect and promote the interest of various
stakeholders, particularly non-member users of the market.
a. Absence of regulation: Unscrupulous participants could use these
leveraged contracts for manipulating prices.
b. Could have undesirable influence on the spot prices, thereby affecting
interests of society at large.
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What are the regulatory measures
prescribed by the FMC?
FMC provides regulatory oversight in order to ensure
Financial Integrity : To prevent systematic risk of default by one major
operator or group of operators),
Market Integrity : To ensure that futures prices are truly aligned with the
prospective demand and supply conditions
Protect & Promote interest of customers /non-members.
Regulatory Measures Prescribed
Limit on open position of an individual operator to prevent over trading;
Limit on price fluctuation (daily/weekly) to prevent abrupt upswing or downswing
Special margin deposits to be collected on outstanding purchases or sales to curb
excessive speculative activity.
Minimum/maximum prices to be prescribed to prevent future prices from falling
below the levels that are un remunerative and from rising above the levels not
warranted by genuine supply and demand factors.
Daily Mark-to mark settlement of contracts
Penalize delivery defaults obligations
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Some important facts and figures
• During 2010-11, forward trading was regulated in
commodities at 21 recognized exchanges. The break
up of the total value of commodities traded stood as
• Bullion - ` 54.94 lakh crore (45.98%).
• Base metals - ` 26.88 lakh crore (22.50%).
• Energy products - ` 23.11 lakh crore (19.34%).
• Agricultural commodities- ` 14.56 lakh crore
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The share of various Exchanges in the total value of
trade in 2010-11.
Value of the recognized Exchanges during 2010-11
Name of the Exchanges Value in ` Cr. % share to the total
value of the
MCX 98,41,502.90 82.36
NCDEX, Mumbai 14,10,602.21 11.81
NMCE, Ahmedabad 2,18,410.90 1.83
ICEX, Gurgaon 3,77,729.88 3.16
ACE, Ahmedabad 30,059.63 0.25
NBOT, Indore 51,662.06 0.43
Total of six Exchanges 1,19,29,967.58 99.84
Others 18,974.77 0.16
Grand Total 1,19,48,942.35 100
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Challenges of Commodity Markets In
• Commodity Options
• Warehousing and Standardization
• Lack of Economy of Scale
• Market size of the commodity
• Price of the commodities always fluctuating
• Policies of govt. are not stable
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As majority of Indian investors are not aware of
organized commodity market. Many of them have
wrong impression about commodity market in their
minds. Concerned authorities have to take initiative to
make commodity trading process easy and simple.
Along with Government efforts NGOs should come
forward to educate the people about commodity markets
and to encourage them to invest in to it. There is no
doubt that in near future commodity market will
become Hot spot for Indian farmers .
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Government Of India, Forward Markets Commission
(Ministry Of Consumer Affairs) Food And Public Distribution,
Department Of Consumer Affairs, Annual Report 2010-11
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