Learning Center
Plans & pricing Sign in
Sign Out



  • pg 1
									          COMMODITY FUTURES

                      Presentation By:
        Multi Commodity Exchange of India Ltd. (MCX)

Multi Commodity Exchange of India Ltd,
                                         Commodity Ecosystem

Multi Commodity Exchange of India Ltd,      
                                         Commodity Market Structure

                                         Certification               Spot Market
                    Warehouses                              (Exporters/

                                         Commodities                 (Farmers/
        Clearing Bank                     Ecosystem                Co-operatives/
                                             MCX                    Institutional)

                  Transporters/                           (Speculators)
                     Support                              Arbitrageurs/
                    Agencies                                 Client)
     Global Commodities                  Institutional)
Multi Commodity Exchange of India Ltd,                             
                                         Commodity Markets - Overview

    Indian commodity market – set for paradigm shift
    •    Four licenses recently issued by Govt. of India to set-up National Online Multi
         Commodity Exchanges – to ensure a transparent price discovery and risk management

    •    List of commodities for futures trade – increased from 11 in 1990 to over 100 in 2003

    •    Reforms with regard to sale, storage and movement of commodities initiated

    •    Shift from administered pricing to free market pricing – WTO regime

    •    Overseas hedging has been allowed in metals

    •    Petro-products marketing companies have been allowed to hedge prices

    •    Institutionalization of agriculture

Multi Commodity Exchange of India Ltd,                                       
                                         India’s Place in World Market

Multi Commodity Exchange of India Ltd,               
                                                       Business Potential

                                            Conservative      Global Multiplier
                         Size of Physical   Multiplier
 Commodities             Market
                                            (Rs. Crore)       (Rs. Crore)
                         (Rs. Crore)
                                            ( In 3 years)     (In 3 – 5 Years)
 Gold & Silver           Rs. 43000 cr       20 Times          50 Times
                                            Rs. 8,30,000 cr   Rs. 21,50,000 cr

 Edible Oils             Rs. 30000 cr       10 Times          20 Times
                                            Rs. 3,00,000 cr   Rs. 6,00,000 cr

 Metals                  Rs.11000 cr        10 Times          20 Times
                                            Rs. 1,10,000 cr   Rs. 2,20,000 cr

 Total                   Rs. 84,000 cr      Rs. 12,40,000cr   Rs. 29,70,000cr

Multi Commodity Exchange of India Ltd,                      
                                                                     About MCX

       National Level Online Multi Commodity Futures Exchange
       Key Promoters –
        Financial Technologies (India) Ltd,       State Bank of India,
              Union Bank
        Corporation Bank,                Bank of India,             Canara Bank,
        State Bank of Indore             Bank of Baroda
       Operations from 300 cities with over 775 members & 3000 TWS
       First Indian Exchange to enter into an agreement with an International
       Exchange (TOCOM)
       Facilitating Cost effective and economic technology.
       Real-time price & information dissemination through website and info vendors

Multi Commodity Exchange of India Ltd,                            
                                               MCX Business Associates

• Statutory Auditor -                    M/s. Deloitte, Haskins & Sells
• Internal Auditor-                      M/s V.Shankar Aiyer & Company
• Network services -                     HCL Comnet Ltd.(VSAT)S
                                                 VSNL (Internet)
                                                 Tata Tele (Leased line)
                                                 Reliance gateway ( Wireless )
• Clearing Banks -                               BOI, HDFC, IndusInd, UBI & UTI
• Quality Certification                  SGS, Geochem , Dr. Amin Lab.,
  Agencies                               Rubber Board
• Warehouses –                           CWC, Gujarat, Kerala, Tamilnadu and UP
• Bullion Logistics –                    Group 4 and Brinks Arya

Multi Commodity Exchange of India Ltd,                        
                               Salient Futures of MCX
      •         On-line monitoring at members and contract level -
                exposure, price, open interest, quantity, client, etc.
      •         On-line margin adjustment - Business in relation to
      •         System driven control and actions
      •         Electronic fund transfer
      •         Daily clearing – marked to market
            –      Pay-in and pay-out: T+1 working day
            –      Exchange approved depositories
            –      Seller to submit proof of delivery with proper quality
                   certification to MCX

Multi Commodity Exchange of India Ltd,                   
                                   Participants in Commodity Futures

     Farmers/ Producers

     Merchandisers/ Traders



     Consumers/ Industry

     Commodity Financers

     Agriculture Credit providing agencies

     Corporate having price risk exposure in commodities

Multi Commodity Exchange of India Ltd,            
                                         Benefits of Futures Trading

 • Price discovery for commodity players
       – A farmer can plan his crop by looking at prices prevailing in the futures
 • Hedging against price risk
       – A farmers can sell in futures to ensure remunerative prices
       – A processor/ manufacturing firm can buy in futures to hedge against volatile
         raw material costs
       – An exporter can commit to a price to his foreign clients
       – A stockist can hedge his carrying risk to ensure smooth prices of the seasonal
         commodities round the year
 • Easy availability of finance
   Based on hedged positions commodity market players (farmers,
   processors, manufacturers, exporters) may get easy financing from the

Multi Commodity Exchange of India Ltd,                             
                                         How Commodity Futures Help

 •Risk Management

 Growers – Short hedge on upcoming produce
 Traders – Short Hedge on stored quantity
 Manufacturers – Long Hedge on input cost, Short hedge on finished

 Any price risk that is not managed is a cost; any cost is a direct dent
 on profitability

 •Price Discovery

 Futures prices can be used as indicative prices for negotiating the export
 prices and also upcountry sales

Multi Commodity Exchange of India Ltd,                 
                              Profitability Areas in Futures Market

                        Action                          Impact

   Cover raw material price risk          Certainty in input cost. Certainty in
                                          cost of production

   Cover the export commitment            Certainty about profits. Certainty in

   Cover input requirements through       Less financing requirements; reduced
   futures market                         interest cost. Reduces cost of
                                          production. Increase in profits

   Buy in futures markets                 Save on storage        and storage
                                          management costs.      Increase in

Multi Commodity Exchange of India Ltd,                    
                          MCX vis a vis Other Bullion Exchanges

 With Respect to Present Practices of Domestic Bullion Players
 (Approx. figs.)                           MCX     NYMEX         TOCOM
 Contract Size (grams)                   1000     3110           1000
 Benchmark Market                        Mumbai   New York       Tokyo
 Operational Cost                        Low      High           High
 Transaction cost                        0.01 %   0.08 – 0.1 %   0.4 %
 Channel Trade                           High     Low            Low
 Channel Financial Integrity             High     Low            Low
 Lead Transaction Time                   Low      High           High
 Physical Delivery                       Yes      No             No

Multi Commodity Exchange of India Ltd,                  
                                         Nation-wide Multi Exchanges vis
                                         a vis Regional Exchanges

  •Better Reach in all parts of the country

  •Wider base for speculators from other markets including securities market

  •Broad basing of the underlying commodity

  •Industry diffused in several parts of the country may also
  directly participate

  •Few commodities can be projected viable for an international futures
  Contract, with participation from global player

  •Novation of all open positions in the market by the exchange

  •Best management practices, end of day mark to market, online margining and
  surveillance, daily pay-in & pay-out are some of the features to woo the players

Multi Commodity Exchange of India Ltd,                          
                                              Key Differentiators of MCX

   •    Team
         – Best Industry Professionals – Technology, Exchange Management and Advisory
           Board with 8 Decades of Exchange Management Expertise
         – Best Support Agencies – Warehouses, Quality, Banks & Others
         – Best Intermediaries across the country & in multiple commodities

   •    Technology
         – State of the art Information Technology
         – Real time price and trade information dissemination
         – Robust risk management system and controls

   •    Techniques (Practices)
         – Best International practices of Exchange governance
         – Competitive membership fee structure and operational cost.
         – To provide information - international & spot markets and commodity research

Multi Commodity Exchange of India Ltd,                                     
                                         What’s in it for Industry

 • Free Markets price commodities best & consistently
 • Globalisation & standardisation - global price convergence
 • Futures Market - Most efficient Market Place
 • Price discovery on futures Exchange with consistent
   Agriculture policy will give right direction to market for
   pricing commodities
 • MSP does not serve much purpose in free market regime
 • Problems of different sectors in Agriculture need a different
   policy with a common direction

Multi Commodity Exchange of India Ltd,             
                                         Future of Commodity Market

   • India - Largest Consumer - Producer - Exporter -
   • Large size intermediaries penetrate commodities market
   • Banks to Finance commodities – Futures a secured route
   • RBI permits Banks to hedge their bullion risk through
     Futures Exchange – Other commodities to follow
   • Using Exchange Network for various products & Services
   • BPO & Trade Interest will attract International players
   • Hub for value added services & food processing
   • New class of commodity Traders & Value Investors

    India to become Hub of Global Trading in Commodities
               It is a US $ 600 billion Opportunity
Multi Commodity Exchange of India Ltd,           
                                 Thank You

Multi Commodity Exchange of India Ltd,

To top