NCDEX

1. NCDEX
“ OPPORTUNITIES IN COMMODITIES
MARKET”
IARI – 8th January 2013

2. Historical Perspective
Forward Markets Commission established1953
FCRA passed, ban on cotton futures removed1952
Cotton derivatives banned by Govt1939
Gold and silver futures trading started in Mumbai1920
Futures trade in oilseeds started1900
Bombay Cotton Trade Association established1875

3. Historical Perspective
Govt extended the list of commodities allowed for futures trading2001
Kabra committee recommended removal of ban on futures trading for most
commodities
1994
Govt removed ban on selected commodities like cotton, Jute, potatoes etc1980
Futures trading in most commodities banned by Govt1966
Gold and silver futures trading banned by Govt1955
Commodity markets revived in India after 4 decades.
2002 Licenses issued for setting up national level multi-
commodity exchanges

4. 4
Regulatory Structure in India
Banking /
NBFCs
RBI
Ministry of Finance
SEBI
Capital
Markets
NABARD
Co-operative Banks &
Regional Rural Banks
Ministry of Consumer
Affairs
FMC
Commodity
Exchanges
Insurance Regulatory
Development Authority
(IRDA)
Insurance
Pension
Funds
SIDBI
State Financial
Institutions
National
Housing Bank
Housing Finance
Companies
Company
Law Board
Corporates
Pension Funds Regulatory
Development Authority
(PFRDA)
Banking /
NBFCs
RBI
Ministry of Finance
SEBI
Capital
Markets
NABARD
Co-operative Banks &
Regional Rural Banks
Ministry of Consumer
Affairs
FMC
Commodity
Exchanges
Insurance Regulatory
Development Authority
(IRDA)
Insurance
Pension
Funds
SIDBI
State Financial
Institutions
National
Housing Bank
Housing Finance
Companies
Company
Law Board
Corporates
Pension Funds Regulatory
Development Authority
(PFRDA)

5. NCD
EX
5
Structure of Indian Commodity
Exchanges
Other Regional
ExchangesNMCE
Commodity Exchanges
ICEX
National
Exchanges
Regional
Exchanges
FMC (Forward Markets
Commission)
NBOT
NCDEX MCX ACE

6. Objectives of an Exchange
 Platform for fair price discovery through: Wide
participation
 Real time information dissemination
 Platform for price risk management
 Exchange neutral to process of price discovery
 Ensure orderly functioning of markets through:
Various Checks & Controls

7. NCD
EX
7
Futures
 A futures contract is essentially an exchange-traded
version of a forward contract
 It is an agreement to buy or sell a specified quantity in
a designated future month at a price agreed upon by
the buyer and the seller
 Terms of each contract are “standardized” in a legal
document called the “contract specification”
 Types of futures contracts:
 Commodity futures
 Financial futures
 Index futures

8. 8
Common Terminology
Margin
Basis
Delivery
unit
Expiry
date
Contract
cycle
Futures
price
Spot
Price
Futures

9. How are commodities traded?
 Futures – Commodity futures are traded on an Exchange
platform
 National Commodity & Derivatives Exchange (NCDEX)
 Multi Commodity Exchange (MCX)
 National Multi Commodity Exchange (NMCE)
 Indian Commodity Exchange (ICEX)
 ACE Commodity Exchange
 Options – Lower risk for market participants, approval
awaited for the FCRA Amendment Bill

10. 10
Indian Agriculture
 Commodities valued at 33% of GDP
 ~14% of GDP from Agriculture
 India ranks second worldwide in farm output
 Farm based economy, particularly in rural areas
 Agro-based industries – Textile, Paper, Starch, Poultry,
Food Processing, Oil Extraction, Beverages, Alcohols and
Spirits etc.
 Derivatives of above industries serve a wider range of
enterprises and industries
 Indian agriculture continues to provide livelihood to more
than 60% of population, directly and indirectly
 Consumption is one of the key drivers of Indian economy

11. About NCDEX
 Owned by distinguished national and global entities
 The shareholders bring with them expertise in areas of
agriculture, banking with focus on rural finance,
commodity and stock markets, physical markets,
investment banking and institution building
 Demutualised- the Exchange is professionally managed
and neither Directors nor management have any vested
interest in trading on the Exchange

12. Stake Holders
Sr. No. Name % of
total
1. Jaypee Capital 22.38
2. Shree Renuka Sugars 12.50
3. National Stock Exchange of India Limited (NSE) 11.1
4. Life Insurance Corporation of India (LIC) 11.1
5. National Bank for Agriculture and Rural Development
(NABARD)
11.1
6. Indian Farmers Fertiliser Cooperative Ltd (IFFCO) 8.88
7. Punjab National Bank (PNB) 7.29
8. Canara Bank 6.03
9. CRISIL Ltd 3.70
10. InterContinental Exchange (ICE) 2.96
11 Goldman Sachs Investments (Mauritius) I Limited 2.96
Total 100

13. NCDEX Profile
Exchange
architecture
is
vast
and dynamic
Products
Members
Terminals
Accredited
Warehouses
Clearing banks
57 (Included agri, bullion
polymers, energy, metals)
~20,000 in ~700 centers
569 with 2.0 MNT capacity
15
900 Members and
over 7 lack clients

14. NCDEX – Complete exchange
Agri, 39
Base Metal, 5
Precious
Metal, 6
Energy, 4
Ferrous Metal,
1

15. Market Share – Agri. Commodities
NCDEX
MCX
Other
Exchange Share (%)
NCDEX 83.0
MCX 12.0
Others 5.0
100

16. Commodities traded
Guar Seed &
Guar Gum
Other s
Bullion
Metal
Energy
Oil
& Oil Seed
Pulses
Spices
NCDEX

17. NCDEX Products
Spices Oil and Oilseeds Metals
Pepper Castor Seed Steel
Chilli RM Seed Copper
Jeera Cotton Seed Oilcake Zinc
Turmeric Soy Bean Aluminium
Coriander Refined Soy Oil Nickel
Cereals RBD Palmolein Lead
Wheat Plantation Products Energy
Barley Rubber Crude Oil
Maize (Feed/Industrial Grade) Fibres Heating Oil
Pulses Shankar Kapas Thermal Coal
Chana V -797 Kapas Brent Crude Oil
Others Others Natural Gas
Guar Seed Polyvinyl Chloride Gasoline
Potato CER Others
Mentha Oil Precious Metals Polyvinyl Chloride
Guar Gum Gold CER
Sugar Silver
Gur Platinum
Almond
NCD
EX
17

18. Annualized Returns: An Eye Opener
Returns were calculated on spot prices over a period of one year Aug11-Aug12

19. Stock position of commodities at NCDEX accredited warehouses as on 24 May 2012.
BARLEY - 41573 MT
CASTOR SEEDS - 23258 MT
CHANA - 77193 MT
CHILLI - 8130 MT
CORIANDER - 16784 MT
COTTON SEED OIL CAKE - 118300 MT
GOLD - 5 KGS
GOLD 100 GMS - 1200 GMS
GUAR - 43545MT
GUAR GUM - 8388 MT
JEERA - 11131 MT
MAIZE - 8497MT
PEPPER - 1327 MT
POTATO - 1160 MT
RAPESEED MUSTARD - 132702 MT
SILVER - 4979 KGS
STEEL LONG - 3013 MT
SUGAR - 6188 MT
TURMERIC - 6636 MT
WHEAT - 10367 MT
TOTAL DEPOSITS IN EXCESS OF 5 LAC MT

20. Strengths of NCDEX
 Credibility and respect in the market
 Have been the preferred exchange for trading in
agricultural commodities
 Have set benchmark prices for several commodities
 Have a strong, professionally managed board. Directors
have domain expertise in various fields
 Management team comprises a team of well qualified
and experienced members
 Neither the management nor employees have any
investment in commodity futures assuring neutrality

21. 21
Physical Delivery Logic
 Intention Matching
 Compulsory Delivery
 Sellers option
 Staggered delivery

22. 22
Intention Matching
 In case of Intention matching, request from both the buyers
and sellers are sought
 The Intentions should match for
 Quantity – only the minimum quantity of the request will
be matched &
 Warehouse Location
 If the intentions do not match both the
request are cash settled with the final
settlement price

23. 23
Compulsory Delivery
 In case of compulsory delivery all the open position on the
expiry needs to be settled through physical delivery
 Sellers need to deliver
 Buyers need to accept the delivery

24. 24
Sellers Option
 In case of sellers option the seller can opt to deliver at the
warehouse location of his choice
 Seller has the following options
 Warehouse Location
 Quantity
 The buyer can give the intention for preferential warehouse
 The buyer is not guaranteed of delivery at the warehouse
given as preference if there are no sellers available from that
particular location

25. 25
Staggered delivery
 The tender period shall start on 5th of every month in which
the contract is due to expire.
 In case 5th happens to be a Saturday, Sunday or a holiday
then the tender period will start from the next working day.
 Seller shall have an option of marking an intention of delivery
on any day during tender period up to expiry of contract and
corresponding buyer matched by the allocation process put in
place by the exchange will have to take the delivery on T+2
day from the delivery centre where the seller has delivered
the commodity.
 The settlement price for any delivery allocation during the
staggered period( i.e. up to one day prior to expiry) would be
the last available spot price displayed by the exchange.

26. NCD
EX
26
Contract Specification - RMSEED
Parameters Details
Basis Ex-warehouse Jaipur(exclusive of VAT/sales tax)
Additional Delivery
centers
Alwar, Kota, Sri Ganganagar, Hapur, Bikaner & Agra
Unit of trading 10 MT
Delivery unit 10 MT
Quatation Rs per quintal
Tick size Re 1

27. Contract Specification - RMSEED
NCD
EX
27
Parameters Details
Quantity Variation +/- 2%
Delivery Logic Compulsory Delivery
Price Limit (+/-) 3% (+ / -) 1%
Position Limits Member-wise: 75,000 MT
Client-wise : 15,000 MT
For near month contracts :
Member: 21,000 MT
Client: 4,200 MT

28. Contract Specification - RMSEED
NCD
EX
28
Parameters Basis Quality allowances
Moisture content 5% basis  5% to 6.5% at 1:1 discount or part there of
 Above 6.5 % rejected
Oil content
(at 5% moisture
content level)
42% basis  42% to 37% at 1:1 discount or part there of
 More than 42% accepted at 1:1 premium or part there of
 Below 37% rejected
FFA 1.5 max None
Foreign Matters 0.25%
basis
 0.25% to 2% at 1:1 discount or part there of
 Above 2% rejected

29. Precautions
 Trade through registered members only
 Learn the fundamentals of the commodity yourself,
before taking positions
 Study large research reports
 Thoroughly read contract specs and product note of the
commodity you trade in
 Use stop-losses to limit your losses and trailing stop-
losses to protect your profits
 Do not misuse margin leverage

30. Trading Strategies

31. Trading on NCDEX Platform
1. Hedging
2. Speculation/ Investors
3. Arbitrage
4. Spread trading

32. Market Participants
 Hedgers(Farmers,Processors)
 Face risk associated with the price of an asset
 Use futures market to reduce a particular risk they
face
 Lock in a price using derivatives
 Speculators
 Wish to bet on future movements in the price of an
asset
 Derivatives offer them leverage
 Arbitragers
 Take advantage of discrepancy between prices of the
same product across different markets
 Eg. Futures price and spot price

33. Hedgers
 Usually people related to physical markets
 They use it as a tool to hedge against price risk
 Sole objective is to “Lock-into” a price, which they
consider to be their “Optimum price”

34. Arbitragers
 Spot Price + Cost of Carry + Interest on Capital =
Futures Price
 Any deviation from this provides an opportunity for
Arbitrage
 Arbitragers take advantage of the price difference between
contracts of two different months of the same commodity,
or two different markets.
 Two types of Arbitrage:
 Cash and Carry
 Calendar Spread

35. Cash and Carry Arbitrage & Calendar
Spread
 Spot to Future:
 Buy Physical goods in Spot
 Sell Futures on NCDEX
 Get the physical goods assayed, deposited in exchange
WH and dematted
 Deliver the dematted goods on expiry of futures contract
 Future to Future:
 Buy Near Month Futures & Sell Far Month Futures on
NCDEX
 Receive demat delivery on expiry of near month
 Deliver the same on expiry of far month
 Do check the FEDwise stock positions for any risk of
getting expired goods

36. Arbitrage
 Buying in spot, selling on futures and giving
deliveries
 Example:
 Spot price of soya bean = Rs.2500/quintal
 Cost of carry (1 month, incl. warehousing,
assaying, demat charges, interest cost etc.) =
Rs.60/qunital
 Near month soya bean price = Rs.2600/quintal
 Profit = 2600-(2500+60) = Rs.40/quintal
 Profit % = Rs.1.56% per month
36

37. Spreads
 Spread - Spread is the difference between
prices of two futures contracts of the same
underlying commodity.
 Calendar Spread - Buying a futures contract
in one month and selling in a different month
for the same commodity.
37

38. Why are Spreads
 Cost of Carry - The cost of carry of a
commodity is the sum of all the costs
including interest (financing costs), insurance,
storage costs and other miscellaneous costs.
Usually the price of a commodity future in the
exchange is the spot prices plus cost of carry.
 Future expectations - Expected
increase/decrease in prices due to reasons like
fresh arrivals, rainfall, government
interventions, prices of substitutes , short
term demand/supply.
38

39. Spread Margin
 It is half of the margin on the higher side of
the spread position.
 Spread margin does not include special
margin, cash margin or additional margin.
39

40. Type Of Spreads
 Bull Spread: Buying the near month
futures contract and simultaneously selling
the far month futures contract.
 Bear Spread: Selling the near month
futures and buying the far month contract
40

41. Things that an Investor/ Speculator should
study first
 Crop Cycle
 Domestic Production/ Consumption Scenario
 Export & Import Policies
 Trade Dynamics
 International Price Linkages
 Open Interest
 FED Stocks in Exchange WHs/ Info on website

42. N-charts
42

43.  Kanhaiya Jha 09350274983
 Gaurav Middha 09711159060
 Customer Care
askus@ncdex.com
022-6640 6609-13