A company report

1. Mercantile Exchange Nepal
Limited: A Commodity Derivative
Exchange

2. Group Members
• Arogya Joshi
• Erika Shakya
• Karna Bahadur Lama
• Manita Budhathoki
• Saroj Shrestha
• Sunita Guragain
• Umesh Pant

3. Table of Contents
1. Derivative Market
2. Mercantile Exchange Nepal
3. Strategic Plan
4. Functions Performed by MEX
5. Major Types of Commodity Derivatives in MEX
6. Market Structure
7. Types of Membership
8. Membership Admission Process
9. Market Mechanism
10. Risk Management
11. Contribution to National Economy
12. Problems and Challenges of Derivative Market in Nepal
13. Risk associates with Derivative Market
14. Present Scenario of Derivative Market
15. Conclusions and Recommendation

4. Derivative Market
• A derivative is a security with a price that is dependent upon or
derived from one or more underlying assets.
• Derivatives either be traded over-the-counter (OTC) or on
an exchange.
.
• Buyers use these to avoid the risks associated with the price
fluctuations of the product or raw material, while sellers try to
lock in a price for their products.

5. Mercantile Exchange Nepal
Limited(MEX)
• Established on 14th August, 2007 and started operation from
5th January, 2009.
• MEX commenced futures and Spot trading in precious metal,
energy, base metal and agro commodities.
• Trading mechanism of MEX is the pure order-matching model
with the state-of -the-art technology.
• Being an ISO 9001:2008 certified exchange, the quality of
services that MEX offers have been of superior standard.
• It has also started delivery of gold and silver.

6. Vision
To envelope the market fundamentals of Nepali commodity eco-
system, incorporating active and meaningful market participation
to generate a full-fledged, transparent and a collaborative market
base to eliminate curtailing prevalent in the commodity business
and ensure fair pricing for the farming community.
Mission
To facilitates electronic derivatives trading through robust and tested
trading platform, Automated Trading System (ATS).
To establish fair price discovery mechanism.
To stand for market integrity and price transparency.
To establish global standard in exchange trading.
To establish an efficient Clearing and a guaranteed settlement
system.

7. Goals
 To make trading, hedging and risk management easier for
anyone with exposure to the markets.
 Enable sellers and buyers to protect price risk of the
commodity from the adverse effects of price volatility in the
market.
 Opportunity to profit in a wide variety of commodities
available around the world.
 To diversify investment portfolio.
 To participate in trading round the clock trading
 Genuine and transparent price discovery mechanism.
 Variety of contract size and period available as per the
necessity and capacity of traders /investors.

8. Strategic Plan
 Promoting local commodity products
 Efficient supply chain management
 Introduction of option
 Focus on customer interest
 Raising awareness of derivative market
 Adopting sophisticated technology
 Easy market access, transparency and flexibility
 Increase the market penetration
 Achieving quality management system

9. Functions Performed by MEX
• Discovery of future as well as current prices.
• Helps to transfer risks
• Margining, monitoring and surveillance of the activities of
various participants
• To provide the platform of efficient trading
• Encourage to increase savings and investment in the long run

10. Organizational Structure
CEO
Member Service
Department
(MSD)
Research and
Development
Department
Compliance
Department
Accounts
Department
Clearing and
Settlement
Department
Committees
BOD

11. Major Types of Commodity
Derivatives in MEX
– Agricultural products: Cocoa, Coffee, Corn,
Cotton, Mini Cotton, Soybean, Soybean oil,
Sugar, Wheat etc.
– Energy Product: Brent Crude, Crude oil,
Mini crude oil, Heating oil, Natural gas, Mini
natural gas etc.
– Special Metals Product: Gold, Mini gold,
Small gold, Silver, Mini silver, Small silver,
Micro silver, Platinum, Palladium etc.
– Base Metal Product: Copper, Mini copper
etc.

12. Market Structure

13. Types of Membership
Membership
Clearing
Membership(CM)
Market
Maker(MM)

14. Membership Admission Process

15. Risk Management
Initial Margin
Mark to Market (MTM) Margins
Daily Price Limit
Daily and Final Settlement
Settlement Guarantee Fund (SGF)

16. Market Mechanism
How Bid and Ask prices are determined?

17. Contribution to National
Economy
• Employment opportunity
• Platform to trade the
commodity
• Pool price and exchange risk
• Marketability and liquidity

18. Problems and Challenges of
Derivative Market in Nepal
– Lack of Regulatory
authority and provisions
– Lack of knowledge among
participants
– Technological difficulties
– Lack of Perfect market
– Lack of Capital and Human
Resources

19. Risk Associated with Derivative
Market

20. Present scenario of Derivative
Market in Nepal
Premature Market
No regulatory body
Lack of awareness
Misconception

21. Conclusion
• Through the use of derivative products, it is possible to
partially or fully transfer price risks by locking in asset prices
• There are no sufficient financial instruments for trading
• The investors are motivated towards earning abnormal profits
from speculation
• Commodity derivative market has vital share to surge the
national economy

22. Recommendation
• Regulatory provision
• Focus on varieties of commodities
• Awareness
• Training and Development
• Promote the efficient and transparent trading
• Increase the market participants

24. ccvggggggggggggggggg