Proper Information about Commodity Exchange

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COMMODITY EXCHANGE
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What are Commodities?

• In economics, a commodity is the generic term for
  any marketable item produced to satisfy wants or
  needs. Economic commodities comprise goods and
  services.

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Commodity Exchange

• 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.
• 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.

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cont

• 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.

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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.

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Early History

• Commodity exchanges began in the middle of the
  19th 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.

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Commodity Exchange and Stock Exchange

• 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.

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Commodity Futures

• Futures are standardized agreements between a
  buyer and a seller to exchange a pre-agreed
  quantity of an asset of pre-specified quality
• at a specific price, and at a pre-specified
  future date
• If the underlying asset is a commodity, the
  futures are called commodity futures.

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Background

• The future commodity trading has long history in
  India and started as early as 1857 .
• 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
• 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.
• 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.

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Regulation

• Forward Controls (Regulation) Act, 1952
• Act applicable to all trades where delivery was
  after more than 11 days.
• Forward Markets commission regulatory body .

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Commodity exchange India

• 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.
• The 3 major national commodity exchanges are
• National Commodity and Derivatives Exchange
  Limited
• Multi Commodity Exchange of India Ltd
• National Multi Commodity Exchange of India Ltd

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National Commodity and Derivatives Exchange
Limited - NCDEX

• 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.
• 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.

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Multi Commodity Exchange of India Ltd - MCX

• 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.
• 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.

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National Multi Commodity Exchange of India Ltd
NMCEIL

• 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.
• It promoting and managing institutions include
• Central Warehousing Corporation CWC
• National Agricultural Cooperative Marketing
  Federation of India Limited NAFED
• Gujarat Agro Industries Corporation Limited -
  GAIC
• National Institute of Agricultural Marketing -
  NIAM
• Gujarat State Agricultural Marketing Board -
  GSAMB
• Neptune Overseas Limited

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Role of Commodity Exchange

• Platform for hedging and speculation
• Standardization of futures
• Facilitation of real price discovery
• Ensuring fair play
• Track of business transacted
• Fixing rules for trading
• Dissemination of information

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Structure of Indian Commodity Futures Exchanges
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FOCUS

• Why do we need this market?
• Price Stability
• Liquidity and Volume
• Integrated Agricultural Market
• Risk trading by the small formers

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