Commodity

DYNAMICS OF INDIAN COMMODITY MARKET
STUDENTS COLLOQUIUM REPORT

ON
SUBMITTED TO: Dr. HIMANI JOSHI (Academic Coordinator) SUBMITTED BY:

DIPA SHAH KEYUR SAVALIA BHARAT MAHESHWARI KRISHNA RAJPUT MITESH SHAH NIKITA SANGHVI
DATE OF SUBMISSION 8th APRIL 2010

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ACKNOWLEDGEMENT
An Acknowledgement is the expression of ones thanks giving to the people who have extended their help in every possible way. Help is a voluntary fulfillment of duty, which, all the people mentioned below have performed it to their maximum possible, in a way giving us & our research the utmost important.
At the onset, we wish to express our gratitude to Dr. Himani Joshi, Academic Coordinator, Stevens Business School for her keen interest, constant support & help in completing this report successfully.
We would also like to thanks to the authors, websites for providing us the related information to our projects subject.
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EXECUTIVE SUMMARY
Different web based literature has been studied to understand which are the major players of commodity markets in the world? And what is their way of operation? Which are the major commodity exchanges in India? What is their modus operandi? While we were surveying various web site we came to know the whole commodity market and the exchange takes place in this market is broadly classify into two principle categories that is agriculture and non agriculture commodity market. The first session deals with the significance of commodity market. As commodity market is the place where 2 parties agree to buy and sell a specified and standardized quantity of a commodity at a certain time of future at a price agreed upon at the time of agreement agreed upon irrespective of availing future price. Following the significance of commodity market is the history of the commodity market. The root of commodity market is traced from Japan where Japanese merchants used to store rice in ware houses and later on they have issued Rice tickets. And as the time passes rice tickets are started to accepted as a currency. Patterns of exchange that was prevailing in the market which was auction and the pattern that is currently prevailing in the market which is future is discussed. Major international and national players are described. Various national and international markets and their features in brief are described. The perspective of commodity market in which active and passive mode of commodity market, volatility, liquidity of commodity market and their relation with economy are discussed. Benefits of future commodity markets to agriculturists, farmers are discussed in brief along with price discovery, price risk management, import-export competitiveness, improved product quality-market transparency etc. are discussed. The attractive features of commodity market, various instruments those are available in the market are listed.
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DYNAMICS OF INDIAN COMMODITY MARKET Participants of the commodity market those are hedgers, speculators and arbitrators their power and limitations, functioning etc. are described in brief. A complete working and delivery process of commodity market including various stages are clearly mentioned with the use of flow chart. Spot trade and future trade are also explained well. At the end unresolved issues of commodity market and future prospect of commodity market is written down. Whole commodity market is divided into two broad categories those are agriculture commodities and non agriculture commodities. Agriculture commodities include wheat, rice, pulses, cereals, edible oils, ground nut etc. Non- agriculture commodities includes crude oil, non ferrous metals like gold, silver, nickel, copper etc. We have mainly focused upon the commodity groundnut. What are the essential features of groundnut as a crop and as a commodity? This session would broadly deal with groundnut as a commodity, its cropping pattern, production, major markets and its significance as a commodity traded in exchange.
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TABLE OF CONTENT
S. No.
PARTICULARS
PAGE No.
i. ii. 1.
ACKNOWLEDGEMENT EXECUTIVE SUMMARY INTRODUCTION 1.1 1.2 1.3 1.4 2.1 2.2 3.1 3.2 4.1 4.2 4.3 4.4 4.5 5.1 5.2 5.3 5.4 5.5 5.6 5.7 AN INTRODUCTION MARKET COMMODITY COMMODITY EXCHANGE BRIEF HISTORY
02 03 08
2.
HISTORY OF EVOLUTION OF COMMODITY MARKET COMMODITY MARKETS OF WORLD HISTORY
10
3.
INDIA AND THE COMMODITY MARKET
12
4.
NATIONAL LEVEL COMMODITY EXCHANGES IN INDIA NMCE MCX ICEX NCDEX
PRESENT COMMODITY MARKET
15
5.
COMMODITIES TRADED IN INDIA SPICES
MAJOR REGIONAL COMMODITY EXCHANGES FIBRES AND MANUFACTURERS EDIBLE OILSEED AND OIL PULSES ENERGY PRODUCTS VEGETABLE METALS
18
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DYNAMICS OF INDIAN COMMODITY MARKET 5.8 6. OTHERS 25
COMMODITY FUTURE MARKET 6.1 6.1.1 Characteristics To qualify as a product for future trading 6.2.1 6.2.2 6.2.3 6.2.4 6.2.5 attractive? COMMODITY MARKET COMMODITY
6.2
A perspective
Commodity Future Objective of commodity futures Benefits of commodity future market What makes commodity trading
market 7. 7.1 7.2 7.3 8.1 8.2 8.3 9. 9.1 9.2 10. 9.3
6.3 Comparative analysis of Commodity and Equity 33
INSTRUMENTS AVAILABLE FOR TRADING FORWARD CONTRACTS FUTURE MARKET 7.2.1 OPTIONS
Margin Requirements 37
8.
PARTICIPANTS OF COMMODITY MARKET HEDGERS SPECULATORS ARBITRAGERS
HOW THE COMMODITY MARKET WORKS WORKING PROCEDURE DELIVERY PROCESS
40
REGULATORY FRAMEWORK OF INDIAN COMMODITY MARKET 10.1 10.2 NEED FOR REGULATION FORWARD MARKET COMMISSION
CLEARING AND SETTLEMENT
48
11.
CURRENT SCENARIO OF INDIAN COMMODITY MARKET 11.1 11.2 CURRENT SCENARIO PERFORMANCE ANLYSIS OF INDIAN COMMODITY MARKET BATCH: 2009-2011
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11.3 11.4 12. 13.
DYNAMICS OF INDIAN COMMODITY MARKET UNRESOLVED ISSUES FUTURE PROSPECTS 61 65
FUTURE TRADING IN AGRI COMMODITY IN INDIAN COMMODITY MARKET TRADING IN AGRI COMMODITY GROUNDNUT 13.1 13.2 13.3 13.4 13.5 INTRODUCTION OVERVIEW
GROUNDNUT PRODUCING COUNTRIES INDIAN GROUNDNUT MARKET
PRODUCTION OF GROUNDNUT IN INDIA 72 73 74
14. 15. 16.
INTERESTTING FACTS CONCLUSION ANNEXTURE 1 : COMMONLY USED TERMS IN COMMODITY MARKET ANNEXTURE 2: ATTACHED EXCELL FILES
COMPARISION OF INDIA AND USA
VOLUME AND VALUE OF TRADING IN MAJOR AGRI COMMODITY YEAR 2006 TO 2008 84
17.
REFERENCE
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1. INTRODUCTION
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. While India was gradually becoming the largest consumer of gold in the world, a position it still enjoys, futures markets in bullion were inevitable and began to emerge in Mumbai in 1920.
1.1 AN INTRODUCTION
The vast geographical extent of India and her huge population is aptly complemented by the size of her market. The broadest classification of the Indian Market can be made in terms of the commodity market and the bond market. 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. The cost of goods is estimated in terms of domestic currency. India Commodity Market can be subdivided into the following two categories: Wholesale Market Retail Market Considering the present growth rate, the total valuation of the Indian Retail Market is estimated to cross Rs. 10,000 billion by the year 2010. Demand for commodities is likely to become four times by 2010 than what it was in 2009.
1.2 MARKET
A market is conventionally defined as a place where buyers and sellers meet to exchange goods or services for a consideration. This consideration is usually money. In an Information Technology-enabled environment, buyers and sellers from different locations can transact business in an electronic marketplace. Hence the physical marketplace is not necessary for the exchange of goods or services for a consideration.
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DYNAMICS OF INDIAN COMMODITY MARKET Electronic trading and settlement of transactions has created a revolution in global financial and commodity markets.
1.3 COMMODITY
A commodity is a product that has commercial value, which can be produced, bought, sold, and consumed. Commodities are basically the products of the primary sector of an economy. The primary sector of an economy is concerned with agriculture and extraction of raw materials such as metals, energy (crude oil, natural gas), etc., which serve as basic inputs for the secondary sector of the economy.
1.4 COMMODITY EXCHANGE

A commodity exchange is an association or a company or any other body corporate organizing futures trading in commodities for which license has been granted by regulating authority.
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2.
HISTORY OF EVOLUTION OF COMMODITY MARKET
2.1 BRIEF HISTORY

Commodities future trading was evolved from need of assured continuous supply of seasonal agricultural crops. The concept of organized trading in commodities evolved in Chicago, in 1848. But one can trace its roots in Japan. In 19th century Chicago in United States had merged as a major commercial hub. So that wheat producers from Mid-west attracted here to sell their produce to dealers & distributors. Due to lack of organized storage facilities, absence of uniform weighing & grading mechanisms producers often confined to the mercy of dealers discretion. These situations lead to need of establishing a common meeting place for farmers and dealers to transact in spot grain to deliver wheat and receive cash in return. Gradually sellers & buyers started making commitments to exchange the produce for cash in future and thus contract for futures trading evolved; Whereby the producer would agree to sell his produce to the buyer at a future delivery date at an agreed upon price. Trading of wheat in futures became very profitable which encouraged the entry of other commodities in futures market. This created a platform for establishment of a body to regulate and supervise these contracts. Thats why Chicago Board of Trade (CBOT) was established in 1848. In 1870 and 1880s the New York Coffee, Cotton and Produce Exchanges were born. Agricultural commodities were mostly traded but as long as there are buyers and sellers, any commodity can be traded. In 1872, a group of Manhattan dairy merchants got together to bring chaotic condition in New York market to a system in terms of storage, pricing, and transfer of agricultural products. The largest commodity exchange in USA is Chicago Board of Trade, The Chicago Mercantile Exchange, the New York Mercantile Exchange, the New York Commodity Exchange and New York Coffee, sugar and cocoa Exchange. Worldwide there are major futures trading exchanges in over twenty countries including Canada, England, India, France, Singapore, Japan, Australia and New Zealand.
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2.2 COMMODITY MARKETS OF WORLD

Some of the exchanges of the world are: S. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Global Commodity Exchanges New York Mercantile Exchange (NYMEX) London Metal Exchange (LME) Chicago Board of Trade (CBOT) New York Board of Trade (NYBOT) Kansas Board of Trade Winnipeg Commodity Exchange, Manitoba Dalian Commodity Exchange, China Bursa Malaysia Derivatives exchange Singapore Commodity Exchange (SICOM) Chicago Mercantile Exchange (CME), US London Metal Exchange Tokyo Commodity Exchange (TOCOM) Shanghai Futures Exchange Sydney Futures Exchange London International Financial Futures and Options Exchange (LIFFE) Dubai Gold & Commodity Exchange (DGCX) Dubai Mercantile Exchange (DME), (joint venture between Dubai holding and the New York Mercantile Exchange (NYMEX))
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3.
INDIA AND THE COMMODITY MARKET
3.1 HISTORY OF COMMODITY MARKET IN INDIA

The history of organized commodity derivatives in India goes back to the nineteenth century when Cotton Trade Association started futures trading in 1875, about a decade after they started in Chicago. Over the time derivatives market developed in several commodities in India. Following Cotton, derivatives trading started in oilseed in Bombay (1900), raw jute and jute goods in Calcutta (1912), Wheat in Hapur (1913) and Bullion in Bombay (1920). However many feared that derivatives fuelled unnecessary speculation and were detrimental to the healthy functioning of the market for the underlying commodities, resulting in to banning of commodity options trading and cash settlement of commodities futures after independence in 1952. The parliament passed the Forward Contracts (Regulation) Act, 1952, which regulated contracts in Commodities all over the India. The act prohibited options trading in Goods along with cash settlement of forward trades, rendering a crushing blow to the commodity derivatives market. Under the act only those associations/exchanges, which are granted reorganization from the Government, are allowed to organize forward trading in regulated commodities. The act envisages three tire regulations: (i) (ii) (iii) Exchange which organizes forward trading in commodities can regulate trading on day-to-day basis; Forward Markets Commission provides regulatory oversight under the powers delegated to it by the central Government. The Central Government- Department of Consumer Affairs, Ministry of Consumer Affairs, Food and Public Distribution- is the ultimate regulatory authority. After Liberalization and Globalization in 1990, the Government set up a committee (1993) to examine the role of futures trading. The Committee (headed by Prof. K.N. Kabra) recommended allowing futures trading in 17 commodity groups. It also recommended strengthening Forward Markets Commission, and certain amendments to STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 12
DYNAMICS OF INDIAN COMMODITY MARKET Forward Contracts (Regulation) Act 1952, particularly allowing option trading in goods and registration of brokers with Forward Markets Commission. The Government accepted most of these recommendations and futures trading was permitted in all recommended commodities. It is timely decision since internationally the commodity cycle is on upswing and the next decade being touched as the decade of Commodities. Commodity exchange in India plays an important role where the prices of any commodity are not fixed, in an organized way.
3.2 PRESENT COMMODITY MARKET IN INDIA

Today, commodity exchanges are purely speculative in nature. Before discovering the price, they reach to the producers, endusers, and even the retail investors, at a grassroots level. It brings a price transparency and risk management in the vital market. By Exchange rules and by law, no one can bid under a higher bid, and no one can offer to sell higher than someone elses lower offer. That keeps the market as efficient as possible, and keeps the traders on their toes to make sure no one gets the purchase or sale before they do. Since 2002, the commodities future market in India has experienced an unexpected boom in terms of modern exchanges, number of commodities allowed for derivatives trading as well as the value of futures trading in commodities, which crossed $ 1 trillion mark in 2006. In India there are 25 recognized future exchanges, of which there are four national level multi-commodity exchanges. After a gap of almost three decades, Government of India has allowed forward transactions in commodities through Online Commodity Exchanges, a modification of traditional business known as Adhat and Vayda Vyapar to facilitate better risk coverage and delivery of commodities. The four exchanges are: (i) (ii) (iii) (iv) National Commodity & Derivatives Exchange Limited (NCDEX) Mumbai, Multi Commodity Exchange of India Limited (MCX) Mumbai and National Multi- Commodity Exchange of India Limited (NMCEIL) Ahmedabad. Indian Commodity Exchange Limited (ICEX), Gurgaon
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DYNAMICS OF INDIAN COMMODITY MARKET There are other regional commodity exchanges situated in different parts of India.
EXIHIBIT 3.1:
INDIAN COMMODITY MARKET STRUCTURE
MINISTRY OF CONSUMER AFFAIRS, FOOD AND PUBLIC DISTRIBUTION FORWARD MARKET COMMISION INDIAN COMMODITY EXCHANGE NATIONAL EXCHANGE REGIONAL EXCHANGE 20 OTHER REGIONAL EXCHANGES
NCDEX
MCX
NMCEIL
ICEX
NBOT
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4. NATIONAL LEVEL COMMODITY EXCHANGES IN INDIA

4.1 NMCE (National Multi Commodity Exchange of India Ltd.)
NMCE is the first demutualised electronic commodity exchange of India granted the National exchange on Govt. of India and operational since 26th Nov, 2002. Promoters of NMCE are, Central warehousing corporation (CWC), National Agricultural Cooperative Marketing Federation of India (NAFED), Gujarat Agro-Industries Corporation Limited (GAICL), Gujarat state agricultural Marketing Board (GSAMB), National Institute of Agricultural Marketing (NIAM) and Neptune Overseas Ltd. (NOL). Main equity holders are PNB. The Head Office of NMCE is located in Ahmedabad. There are various commodity trades on NMCE Platform including Agro and non-agro commodities.
4.2 NCDEX (National Commodity & Derivates Exchange Ltd.)

NCDEX is a public limited co. incorporated on April 2003 under the Companies Act 1956, It obtained its certificate for commencement of Business on May 9, 2003. It commenced its operational on Dec 15, 2003. Promoters shareholders are: Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India (NSE) other shareholder of NCDEX are: Canara Bank, CRISIL limited, Goldman Sachs, Intercontinental Exchange (ICE), Indian farmers fertilizer corporation Ltd (IFFCO) and Punjab National Bank (PNB). NCDEX is located in Mumbai and currently facilitates trading in 57 commodities mainly in Agro product.
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4.3 MCX (Multi Commodity Exchange of India Ltd.)

Headquartered in Mumbai, MCX is a demutualised nation wide electronic commodity future exchange. 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. The exchange started operation in Nov, 2003. MCX equity partners include, NYSE Euronext,, State Bank of India and its associated, NABARD NSE, SBI Life Insurance Co. Ltd. , 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 platform.
4.4 ICEX (Indian Commodity Exchange Ltd.)

ICEX is latest commodity exchange of India Started Function from 27 Nov, 09. It is jointly promote by Indiabulls Financial Services Ltd. and MMTC Ltd. and has Indian Potash Ltd. KRIBHCO and IFC among others, as its partners having its head office located at Gurgaon (Haryana). BSE is also planning to set up a Commodity exchange.
UNIQUE FEATURES OF NATIONAL LEVEL COMMODITY EXCHANGES

The unique features of national level commodity exchanges are: They are demutualized, meaning thereby that they are run professionally and there is separation of management from ownership. The independent management does not have any trading interest in the commodities dealt with on the exchange. They provide online platforms or screen based trading as distinct from the open outcry systems (ring trading) seen on conventional exchanges. This ensures transparency in operations as everyone has access to the same information. They allow trading in a number of commodities and are hence multi-commodity exchanges. They are national level exchanges which facilitate trading from anywhere in the country. This corollary of being an online exchange. STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 16
4.5
MAJOR REGIONAL COMMODITY EXCHANGES IN INDIA
a) BATINDA COMMODITY & OIL EXCHANGE LTD. b) THE BOMBAY COMMODITY EXCHANGE c) THE RAJKOT SEEDS OIL AND BULLION MERCHAT d) THE KANPUR COMMODITY EXCHANGE e) THE MEERUT AGRO COMMODITY EXCHANGE THE SPICES AND OILSEEDS EXCHANGE (SANGI) f) AHEMDABAD COMMODITY EXCHANGE g) VIJAY BEOPAR CHAMBER LTD. (MUZAFFARNAGAR) h) INDIA PEPPERS AND SPICE TRADE ASSOCIATION ( KOCHI ) i) RAJDHANI OILS AND SEEDS EXCHANGE ( DELHI ) j) THE CHAMBER OF COMMERCE (HAPUR) k) THE EAST INDIA COTTON ASSOCIATION (MUMBAI) l) THE CENTRAL COMMERCIAL EXCHANGE ( GWALIOR ) m) THE EAST INDIA JUTE & HESSIAN EXCHANGE OF INDIA (KOLKATA) n) FIRST COMMODITY EXCHANGE OF INDIA ( KOCHI ) o) BIKANER COMMODITY EXCHANGE LTD. ( BIKANER ) p) THE COFEE FUTURE EXCHANGE LTD. ( BANGALORE ) q) E SUGAR INDIA LTD. (MUMBAI)
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5.
EXHIBIT 5.1
COMMODITIES TRADED IN INDIA
COMMODITIES IN WHICH FUTURES TRADING IS BEING CONDUCTED IN INDIA
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1. Kapas
A. V797 Kapas 2. 3. Hessian Indian Cotton
A. S06 L S Cotton Ahmedabad B. CottonKadi C. Indian 31 mm cotton D. indian 28 mm cotton E. J34 M S Cotton Bhatinda F. CottonAbohar 4. Sttaple Fibre Yarn 5. 6. 7. 8. 9. Sacking Gram cottonbales cottonseeds Long Staple Cotton A. Jute (B twill-665 Gms) - Kollata A. Gram(Chana) - New Delhi
A. undecorticated cotton seed oilcake
10. Medium Stapple Cotton

A. NEW MEDIUM STAPLE COTTON 11. Silk A. Mulberry Raw Silk - Bangalore B. Mulberry Green Cocoons - Ramnagar 12. Mulberry Raw Silk 13. Mulberry Green Cocoons 14. Coffee-Arabica 15. Cotton Long Kadi 16. Cotton Med Abohar 17. Cotton Short Staple 18. Sugar (S-30) 19. Muatardseed Oilcake 20. PPTQ
21. Cement
22. Medium cotton yarn 23. Polyvinchlorid
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1. Pepper Domestic-MG1 2. 3. 4. 5. 6. 7. Turmeric Pepper Domestic-500g/l Black Pepper Int'l-MLS ASTA Black Pepper Int'l-VB ASTA Black pepper Int'l FAQ Pepper
A. Turmeric - Nizamabad
A. Pepper Dommestic-MG1. B. Black Pepper Int'l VB ASTA. C. Black Pepper Int'l-MLS ASTA.
D. Black Pepper Int'l FAQ.

E. Pepper Dommestic-500g/L. F. Pepper - Kochi 8. 9. Cardamom Pepper 550 G/L
10. Red Chilly A. Chilli (Paala) Guntur B. Chilli (Paala) LCA 334 11. Jeera 12. Rubber RSS4 13. Jeera Unjha 14. CUMINSEED 15. Arecanut
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DYNAMICS OF INDIAN COMMODITY MARKET 1. 2. 3. 4. RBD Pamolein Groundnut Oil Sunflower Oil Rapeseed/Mustardseed 18. Cottonseed oil 19. Sesamum (Til or Jiljili) A. Whitish Sesame Seed - Rajkot
A. RBD P'Olein - Kakinada A. Groundnut Expeller Oil
20. Sesamum oil

21. Sesamum OilCake 22. Safflower OilCake 23. Rice Bran 24. Rice Bran Oil 25. Rice Bran OilCake 26. Safflower Oil 27. Sanflower OilCake 28. Sunflower Seed
A. Rapeseed - 42
B. Rape/Mustard seed - Jaipur 5. Rapeseed/Mustardseed Oil A. EXP R/M oil - Jaipur
B. Expeller mustard oil -Sri Ganganagar

6. 7. 8. Rapeseed/Mustardseed oil-Cake Soy bean Soy Meal
29. Crude Palm Oil

A. Crude Palm oil - Kandla 30. Cottonseed - Oilcake A. Cotton Seed Oilcake - Akola
A. Soy bean - Indore A. Soy Meal - Indore B. Yellow Soybean Meal (Export) 9. Soy Oil A. Ref Soya oil - Indore
31. Vanaspati
32. Soybean Oilcake 33. Linseed 34. Linseed Oil 35. Linseed Oilcake 36. Coconut Oilcake 37. Mustard Seed 38. Mustard Seed Jaipur 39. Sesame Seed ( Natural 99.1)
10. Copra
11. CottonSeed A. Cottonbales 12. Safflower
13. Groundnut
A. Groundnut(shell) 14. Castor oil-Int'l 15. Coconut oil 16. Copra cake 17. Groundnut oilCack
40. Castorseed- Disa

41. Mustardseed Oilcake 42. KAPASKHALI 43. Middle east crude oil
5.3 EDIBLE OILSEEDS AND OIL

5.3 EDIBLE OILSEEDS AND OIL

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44. refined sunflower oil
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1. 2.
Masoor Urad
A. masoor grain bold A. Urad - Mumbai
1.
2.
3. 4.
Crude Oil
1.
Potato
Brent Crude Oil

Furnace Oil Natural Gas
3.
Tur / Arhar
A. Lemon Tur - Mumbai B. Maharashtra Lal Tur Akola 4. 5. 6. Moong Yellow Peas Chana
A. Yellow Peas - Mumbai
5.4 PULSES
5.5 ENERGY PRODUCT S
5.6 VEGETABL ES
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DYNAMICS OF INDIAN COMMODITY MARKET 1. 2. 3. 4. 5. 6. Aluminium Ingots Nickel Copper Zinc Lead Tin
A. Copper Cathode
7.

Gold
A. Gold-M B. Pure Gold - Mumbai C. Kilo - Gold D. Gold - HNI E. SONA995MUM F. Pure Gold - Mumbai - 1 Kg Silver
8.
A. Silver-M B. Pure Silver - New Delhi - 30 Kg (Mega) C. Pure Silver - New Delhi D. Silver - HNI E. CHANDIDEL 9. Steel A. Steel - Long B. Steel - Flat C. Mild Steel Ingots - Ghaziabad 10. Steel Long Bhavnagar 11. Steel Long Govindgarh
12. sponge iron

13. GOLD AHMEDABAD 14. GOLD DELHI 15. GOLD KOLKATA
16. GOLD MUMBAI

17. GOLD MINI DELHI 18. GOLD MINI KOLKATA 19. GOLD MINI MUMBAI 20. GOLD MINI AHMEDABAD STEVENS BUSINESS SCHOOL
5.7 METALS
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DYNAMICS OF INDIAN COMMODITY MARKET 1. 2. Gur Coffee-Plantation A 14. Rice A. Basmati Rice B. Grade A Parboiled Rice Delhi C. Common Parboiled Rice Delhi D. Indian Raw Rice Parmal E. Indian Parboiled Rice IR-36/IR-64 F. Grade A Raw Rice Delhi G. Common Raw Rice Delhi 15. Wheat A. Wheat - New Delhi SMQ B. Wheat Delhi (New) 16. Raw Jute
A. Gur-chaku - Muzaffarnagar
3.
4.
Potato
Sugar
A. Sugar M Grade - Muzaffarnagar B. Sugar S Grade - Vashi C. Sugar S Grade D. Sugar Grade - M E. Sugar Grade - S 5. Coffee-Robusta Cherry AB 6. 7. 8. Raw Coffee Arabica Parchment Raw Coffee Robusta Cherry Castorseed
A. Raw Jute - Kolkata

17. GuarGum A. GuarGum - Jodhpur 18. Guarseed Bandhani 19. Maize A. Yellow Red Maize - Nizamabad 20. Guar Gum Bandhani 21. CASHEW KERNEL W320 A. Cashew W 320 - Kollam 22. Sugar S 23. Sugar M 24. Sarbati Rice 25. Coffee-Arabica Plantation A
A. Castorseed-5 B. Castorseed - Disa 9. Castor-oil
10. Coffee
A. Coffee-Plantation A. B. Coffee-Robusta Cherry AB. C. Raw Coffee Robusta Cherry. D. Raw Coffee Arabica Parchment. E. Arabica Coffee - Hassan F. Robusta Coffee - Kushalnagar G. Arabica Coffee - Hassan (New) H. Robusta Coffee - Kushalnagar (New) 11. Guarseed A. Guarseed - Jodhpur B. Guarseed - BND 12. CastorOil Cake
26. Cashews W-320-Kollam

27. Mentha Oil 28. Sugar (S30) 29. HIGH DENSITY POL 30. Gurchaku 31. cardamom 32. ISABGULSEED 33. Isabgul
13. Rubber
A. Rubber - Kottayam
5.8 OTHERS
5.8 OTHERS
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6. COMMODITY FUTURE MARKET

6.1 COMMODITY
A commodity may be defined as an article, a product or material that is bought and sold. It can be classified as every kind of movable property, except Actionable Claims, Money & Securities. 6.1.1 TO QUALIFY AS A COMMODITY FOR FUTURES TRADING, AN ARTICLE OR A PRODUCT HAS TO MEET SOME BASIC CHARACTERISTICS: 1. The product must not have gone through any complicated manufacturing activity, except for certain basic processing such as mining, cropping, etc. In other words, the product must be in a basic, raw, unprocessed state. There are of course some exceptions to this rule. For example, metals, which are refined from metal ores, and sugar, which is processed from sugarcane. 2. The product has to be fairly standardized, which means that there cannot be much differentiation in a product based on its quality. For example, there are different varieties of crude oil. Though these different varieties of crude oil can be treated as different commodities and traded as separate contracts, there can be a standardization of the commodities for futures contract based on the largest traded variety of crude oil. This would ensure a fair representation of the commodity for futures trading. This would also ensure adequate liquidity for the commodity futures being traded, thus ensuring price discovery mechanism. 3. A major consideration while buying the product is its price. Fundamental forces of market demand and supply for the commodity determine the commodity prices. 4. Usually, many competing sellers of the product will be there in the market. Their presence is required to ensure widespread trading activity in the physical commodity market. 5. The product should have adequate shelf life since the delivery of a commodity through a futures contract is usually deferred to a later date (also known as expiry of the futures contract). STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 25
6.2 COMMODITY MARKET

6.2.1 A PERSPECTIVE
A market where commodities are traded is referred to as a commodity market. These commodities include bullion (gold, silver), non-ferrous (base) metals such as copper, zinc, nickel, lead, aluminum, tin, energy (crude oil, natural gas, etc.), agricultural commodities such as soya oil, palm oil, coffee, pepper, cashew, etc. Existence of a vibrant, active, and liquid commodity market is normally considered as a healthy sign of development of a countrys economy. Growth of a transparent commodity market is a sign of development of an economy. It is therefore important to have active commodity markets functioning in a country. 6.2.2 COMMODITY FUTURES
A Commodity futures is an agreement between two parties to buy or sell a specified and standardized quantity of a commodity at a certain time in future at a price agreed upon at the time of entering into the contract on the commodity futures exchange. The need for a futures market arises mainly due to the hedging function that it can perform. Commodity markets, like any other financial instrument, involve risk associated with frequent price volatility. The loss due to price volatility can be attributed to the following reasons: 1. Consumer Preferences: - In the short-term, their influence on price volatility is small since it is a slow process permitting manufacturers, dealers and wholesalers to adjust their inventory in advance. 2. Changes In Supply: - They are abrupt and unpredictable bringing about wild fluctuations in prices. This can especially noticed in agricultural commodities where the weather plays a major role in affecting the fortunes of people involved in this industry. The futures market has evolved to neutralize such risks through a mechanism; namely hedging. STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 26
6.2.3
DYNAMICS OF INDIAN COMMODITY MARKET OBJECTIVES OF COMMODITY FUTURES
Hedging with the objective of transferring risk related to the possession of physical assets through any adverse moments in price. Liquidity and Price discovery to ensure base minimum volume in trading of a commodity through market information and demand supply factors that facilitates a regular and authentic price discovery mechanism. Maintaining buffer stock and better allocation of resources as it augments reduction in inventory requirement and thus the exposure to risks related with price fluctuation declines. Resources can thus be diversified for investments. Price stabilization along with balancing demand and supply position. Futures trading leads to predictability in assessing the domestic prices, which maintains stability, thus safeguarding against any short term adverse price movements. Liquidity in Contracts of the commodities traded also ensures in maintaining the equilibrium between demand and supply. Flexibility, certainty and transparency in purchasing commodities facilitate bank financing. Predictability in prices of commodity would lead to stability, which in turn would eliminate the risks associated with running the business of trading commodities. This would make funding easier and less stringent for banks to commodity market players.
6.2.4
BENEFITS OF COMMODITY FUTURES MARKETS
The primary objectives of any futures exchange are authentic price discovery and an efficient price risk management. The beneficiaries include those who trade in the commodities being offered in the exchange as well as those who have nothing to do with futures trading. It is because of price discovery and risk management through the
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DYNAMICS OF INDIAN COMMODITY MARKET existence of futures exchanges that a lot of businesses and services are able to function smoothly. Price Discovery:-Based on inputs regarding specific market information, the demand and supply equilibrium, weather forecasts, expert views and comments, inflation rates, Government policies, market dynamics, hopes and fears, buyers and sellers conduct trading at futures exchanges. This transforms in to continuous price discovery mechanism. The execution of trade between buyers and sellers leads to assessment of fair value of a particular commodity that is immediately disseminated on the trading terminal. Price Risk Management: - Hedging is the most common method of price risk management. It is strategy of offering price risk that is inherent in spot market by taking an equal but opposite position in the futures market. Futures markets are used as a mode by hedgers to protect their business from adverse price change. This could dent the profitability of their business. Hedging benefits who are involved in trading of commodities like farmers, processors, merchandisers, manufacturers, exporters, importers etc. Import- Export competitiveness: - The exporters can hedge their price risk and improve their competitiveness by making use of futures market. A majority of traders which are involved in physical trade internationally intend to buy forwards. The purchases made from the physical market might expose them to the risk of price risk resulting to losses. The existence of futures market would allow the exporters to hedge their proposed purchase by temporarily substituting for actual purchase till the time is ripe to buy in physical market. In the absence of futures market it will be meticulous, time consuming and costly physical transactions. Predictable Pricing: - The demand for certain commodities is highly price elastic. The manufacturers have to ensure that the prices should be stable in order to protect their market share with the free entry of imports. Futures contracts will enable predictability in domestic prices. The manufacturers can, as a result, STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 28
DYNAMICS OF INDIAN COMMODITY MARKET smooth out the influence of changes in their input prices very easily. With no futures market, the manufacturer can be caught between severe short-term price movements of oils and necessity to maintain price stability, which could only be possible through sufficient financial reserves that could otherwise be utilized for making other profitable investments. Benefits for farmers/Agriculturalists: - Price instability has a direct bearing on farmers in the absence of futures market. There would be no need to have large reserves to cover against unfavorable price fluctuations. This would reduce the risk premiums associated with the marketing or processing margins enabling more returns on produce. Storing more and being more active in the markets. The price information accessible to the farmers determines the extent to which traders/processors increase price to them. Since one of the objectives of futures exchange is to make available these prices as far as possible, it is very likely to benefit the farmers. Also, due to the time lag between planning and production, the market-determined price information disseminated by futures exchanges would be crucial for their production decisions. Credit accessibility: - The absence of proper risk management tools would attract the marketing and processing of commodities to high-risk exposure making it risky business activity to fund. Even a small movement in prices can eat up a huge proportion of capital owned by traders, at times making it virtually impossible to payback the loan. There is a high degree of reluctance among banks to fund commodity traders, especially those who do not manage price risks. If in case they do, the interest rate is likely to be high and terms and conditions very stringent. This possesses a huge obstacle in the smooth functioning and competition of commodities market. Hedging, which is possible through futures markets, would cut down the discount rate in commodity lending.
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DYNAMICS OF INDIAN COMMODITY MARKET Improved product quality: - The existence of warehouses for facilitating delivery with grading facilities along with other related benefits provides a very strong reason to upgrade and enhance the quality of the commodity to grade that is acceptable by the exchange. It ensures uniform standardization of commodity trade, including the terms of quality standard: the quality certificates that are issued by the exchange-certified warehouses have the potential to become the norm for physical trade. Commodities as an asset class for diversification of portfolio risk: Commodities have historically an inverse correlation of daily returns as compared to equities. The skewness of daily returns favors commodities, thereby indicating that in a given time period commodities have a greater probability of providing positive returns as compared to equities. Another aspect to be noted is that the sharpe ratio of a portfolio consisting of different asset classes is higher in the case of a portfolio consisting of commodities as well as equities. Thus, an Investor can effectively minimize the portfolio risk arising due to price fluctuations in other asset classes by including commodities in the portfolio. Commodity derivatives markets are extremely transparent in the sense that the manipulation of prices of a commodity is extremely difficult due to globalisation of economies, thereby providing for prices benchmarked across different countries and continents. For example, gold, silver, crude oil, natural gas, etc. are international commodities, whose prices in India are indicative of the global situation. An option for high net worth investors: With the rapid spread of derivatives trading in commodities, the commodities route too has become an option for high net worth and savvy investors to consider in their overall asset allocation. Useful to the producer: Commodity trade is useful to the producer because he can get an idea of the price likely to prevail on a future date and therefore can decide between various competing commodities, the best that suits him. STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 30
DYNAMICS OF INDIAN COMMODITY MARKET Useful for the consumer: Commodity trade is useful for the consumer because he gets an idea of the price at which the commodity would be available at a future point of time. He can do proper costing/financial planning and also cover his purchases by making forward contracts. Predictable pricing and transparency is an added advantage. 6.2.5 WHAT MAKES COMMODITY TRADING ATTRACTIVE?
A good low-risk portfolio diversifier A highly liquid asset class, acting as a counterweight to stocks, bonds and real estate. Less volatile, compared with, equities and bonds. Investors can leverage their investments and multiply potential earnings. Better risk-adjusted returns. A good hedge against any downturn in equities or bonds as there is Little correlation with equity and bond markets. High co-relation with changes in inflation. No securities transaction tax levied.
6.3 COMPARATIVE ANALYSIS OF COMMODITY AND EQUITY MARKETS

Factors Commodity Markets Gold gives 10-15 % Percentage Returns returns on the conservative basis. Initial Margins Lower in the range of 45-6% Exists on 1-2 month contracts. There is a small difference in prices, Equity Markets Returns in the range of 1520 % on annual basis. Higher in the range of 2540% Significant Arbitrage Opportunities exists.
Arbitrage Opportunities
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DYNAMICS OF INDIAN COMMODITY MARKET but in case of commodities, which it is in large tonnage makes a huge difference. Price movements are Price Movements purely based on the supply and demand. Price changes are due to Price Changes policy changes, changes in tariff and duties. Predictability of future prices is not in the Future Predictability control due to factors like Failure of Monsoon and Formation of El-ninos at Pacific. Volatility Securities Transaction Act Application Lower Volatility Securities Transaction Act is not applicable to commodity futures trading. Prices movements based on the expectation of future performance. Price changes can also be due to Corporate actions, Dividend announcements, Bonus shares / Stock splits. Predictability of futures performance is reasonably high, which is supplemented by the History of management performance. Higher Volatility Securities Transaction Act is applicable to equity markets trading.
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7. INSTRUMENTS AVAILABLE FOR TRADING

In recent years, derivatives have become increasingly popular due to their applications for hedging, speculation and arbitrage. While futures and options are now actively traded on many exchanges, forward contracts are popular on the OTC market. While at the moment only commodity futures trade on the NCDEX, eventually, as the market grows, we also have commodity options being traded.
7.1 FORWARD CONTRACTS

A forward contract is an agreement to buy or sell an asset on a specified date for a specified price. One of the parties to the contract assumes a long position and agrees to buy the underlying asset on a certain specified future date for a certain specified price. The other party assumes a short position and agrees to sell the asset on the same date for the same price. Other contract details like delivery date, price and quantity are negotiated bilaterally by the parties to the contract. The forward contracts are normally traded outside the exchanges. The salient features of forward contracts are: They are bilateral contracts and hence exposed to counter-party risk. Each contract is custom designed, and hence is unique in terms of contract size, expiration date and the asset type and quality. The contract price is generally not available in public domain. On the expiration date, the contract has to be settled by delivery of the asset. If the party wishes to reverse the contract, it has to compulsorily go to the same counterparty, which often results in high prices being charged. However forward contracts in certain markets have become very standardised, as in the case of foreign exchange, thereby reducing transaction costs and increasing transactions volume. This process of standardisation reaches its limit in the organised futures market. STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 33
7.2 FUTURES MARKET

Futures markets were designed to solve the problems that exist in forward markets. A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. But unlike forward contracts, the futures contracts are standardized and exchange traded. To facilitate liquidity in the futures contracts, the exchange species certain standard features of the contract. It is a standardized contract with standard underlying instrument, a standard quantity and quality of the underlying instrument that can be delivered, (or which can be used for reference purposes in settlement) and a standard timing of such settlement. A futures contract may be offset prior to maturity by entering into an equal and opposite transaction. More than 99% of futures transactions are offset this way. The standardized items in a futures contract are: Quantity of the underlying Quality of the underlying The date and the month of delivery The units of price quotation and minimum price change Location of settlement Spot price: The price at which an asset trades in the spot market. Futures price: The price at which the futures contract trades in the futures market. 7.2.1 MARGIN REQUIREMENTS
Initial Margin The amount that must be deposited in the margin account at the time a futures contract is first entered into is known as initial margin.
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DYNAMICS OF INDIAN COMMODITY MARKET Initial margin based on Value at Risk Model (VaR) to estimate worst loss that can happen for a time horizon 99% confidence level SPAN is the system used for margin calculation. Volatility is one of the inputs to the SPAN calculations EWMA/ J.P.Morgan Risk Metrics methodology for calculation of volatility will be adopted. Similar procedure is followed in most international exchanges like CBOT, CME, NYMEX, NYBOT, TOCOM, LME, LIFFE. Marking- to- market Margin In the futures market, at the end of each trading day, the margin account is adjusted to reflect the investor's gain or loss depending upon the futures closing price. This is called marking-to-market. All open positions will be marked-to-market at the daily settlement price at the end of the day Client has to bring mark-to-market (MTM) margin to be through funds transfer the next day. Maintenance margin This is somewhat lower than the initial margin. This is set to ensure that the balance in the margin account never becomes negative. If the balance in the margin account falls below the maintenance margin, the investor receives a margin call and is expected to top up the margin account to the initial margin level before trading commences on the next day.
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7.3 OPTIONS
Options are fundamentally different from forward and futures contracts. An option gives the holder of the option the right to do something. The holder does not have to exercise this right. In contrast, in a forward or futures contract, the two parties have committed themselves to doing something. Whereas it costs nothing (except margin requirements) to enter into a futures contract, the purchase of an option requires an up-front payment. There are two basic types of options, call options and put options. Call option: A call option gives the holder the right but not the obligation to buy an asset by a certain date for a certain price. Put option: A put option gives the holder the right but not the obligation to sell an asset by a certain date for a certain price.
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8. PARTICIPANTS OF COMMODITY MARKET

Participants who trade in the derivatives market can be classified under the following three broad categories: Hedgers Speculators Arbitragers
8.1 HEDGERS
A Hedger can be Farmers, manufacturers, importers and exporter. A hedger buys or sells in the futures market to secure the future price of a commodity intended to be sold at a later date in the cash market. This helps protect against price risks. The holders of the long position in futures contracts (buyers of the commodity), are trying to secure as low a price as possible. The short holders of the contract ( sellers of the commodity) will want to secure as high a price as possible. The commodity contract, however, provides a definite price certainty for both parties, which reduces the risks associated with price volatility. By means of futures contracts, Hedging can also be used as a means to lock in an acceptable price margin between the cost of the raw material and the retail cost of the final product sold. Someone going long in a securities future contract now can hedge against rising equity prices in three months. If at the time of the contract's expiration the equity price has risen, the investor's contract can be closed out at the higher price. The opposite could happen as well: a hedger could go short in a contract today to hedge against declining stock prices in the future.
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8.2 SPECULATORS
Other commodity market participants, however, do not aim to minimize risk but rather to benefit from the inherently risky nature of the commodity market. These are the speculators, and they aim to profit from the very price change that hedgers are protecting themselves against. A hedger would want to minimize their risk no matter what they're investing in, while speculators want to increase their risk and therefore maximize their profits. In the commodity market, a speculator buying a contract low in order to sell high in the future would most likely be buying that contract from a hedger selling a contract low in anticipation of declining prices in the future. Unlike the hedger, the speculator does not actually seek to own the commodity in question. Rather, he or she will enter the market seeking profits by off setting rising and declining prices through the buying and selling of contracts. LONG HEDGER Secure a price now to protect against future rising prices Secure a price now in anticipation of rising prices SHORT Secure a price now to protect against future declining prices Secure a price now in anticipation of declining prices
SPECULATOR
8.3
ARBITRAGERS
A central idea in modern economics is the law of one price. This states that in a competitive market, if two assets are equivalent from the point of view of risk and return, they should sell at the same price. If the price of the same asset is different in two markets, there will be operators who will buy in the market where the asset sells cheap and sell in the market where it is costly. This activity termed as arbitrage, involves the simultaneous purchase and sale of the same or essentially similar security in two different markets for advantageously different prices. The buying cheap and
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DYNAMICS OF INDIAN COMMODITY MARKET selling expensive continues till prices in the two markets reach equilibrium. Hence, arbitrage helps to equalize prices and restore market efficiency. Since the cash and futures price tend to move in the same direction as they both react to the same supply/demand factors, the difference between the underlying price and futures price is called as basis. Basis is more stable and predictable than the movement of the prices of the underlying or the Futures price. Thus, arbitrageur would predict the basis and accordingly take positions in the cash and future markets. EXHIBIT 8.1 PARTICIPANTS OF COMMODITY MARKET
HEDGERS
Producers farmers Consumers refineries, food processing companies
SPECULATORS
Brokerage houses Retail investors People involved in commodity spot trading
ARBITRAGEURS
Brokerage houses
People trading in commodity spot markets Warehousing companies
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9. HOW THE COMMODITY MARKET WORKS

9.1 WORKING PROCEDURE
The futures market is a centralized market place for buyers and sellers from around the world who meet and enter into commodity futures contracts. Pricing mostly is based on an open cry system, or bids and offers that can be matched electronically. The commodity contract will state the price that will be paid and the date of delivery. Almost all futures contracts end without the actual physical delivery of the commodity. There are two kinds of trades in commodities. The first is the spot trade, in which one pays cash and carries away the goods. The second is futures trade. The underpinning for futures is the warehouse receipt. A person deposits certain amount of say, good X in a ware house and gets a warehouse receipt which allows him to ask for physical delivery of the good from the warehouse but some one trading in commodity futures need not necessarily posses such a receipt to strike a deal. A person can buy or sale a commodity future on an exchange based on his expectation of where the price will go. Futures have something called an expiry date, by when the buyer or seller either closes (square off) his account or give/take delivery of the commodity. The broker maintains an account of all dealing parties in which the daily profit or loss due to changes in the futures price is recorded. Squiring off is done by taking an opposite contract so that the net outstanding is nil. For commodity futures to work, the seller should be able to deposit the commodity at warehouse nearest to him and collect the warehouse receipt. The buyer should be able to take physical delivery at a location of his choice on presenting the warehouse receipt. But at present in India very few warehouses provide delivery for specific commodities.
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DYNAMICS OF INDIAN COMMODITY MARKET FIG 1: Following diagram gives a fair idea about working of the Commodity market
A futures contract is an agreement between two parties: a short position, the party who agrees to deliver a commodity, and a long position, the party who agrees to receive a commodity. In every commodity contract, everything is specified: the quantity and quality of the commodity, the specific price per unit, and the date and method of delivery. The price of a futures contract is represented by the agreed - upon price of the underlying commodity or financial instrument that will be delivered in the future.
9.2 DELIVERY PROCESS

9.2.1 9.2.2 PROCEDURES FOR DELIVERY: Open a Beneficiary Demat account INFORMATION REQUIRED FOR DELIVERY: Commodity code Quantity Location/branch preference for physical receipt/delivery of commodities BATCH: 2009-2011 Page 41
9.2.3 9.2.4 9.2.5
DYNAMICS OF INDIAN COMMODITY MARKET Demat Indicator Delivery process requires DELIVERY PROCESS REQUIRES: Delivery information submitted on Expiry date. This is done through the delivery request window on the Trading Terminal. Matching delivery information is obtained. VALIDATION OF DELIVERY INFORMATION: On Clients Net Open Position On Delivery lot for commodity Excess quantity rejected and cash settled Matched delivery information MATCHING PARAMETERS: Commodity Quantity Location Branch Matching limited to the total warehouse capacity Settlement through Depository. Settlement Schedule in Settlement Calendar
Today Commodity trading system is fully computerized. Traders need not visit a commodity market to speculate. With online commodity trading they could sit in the confines of their home or office and call the shots. The commodity trading system consists of certain prescribed steps or stages as follows:
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I. TRADING
- Execution
- Matching - Reporting - Surveillance - Price limits - Position limits
- Registration
- Clearing - Clearing limits - Notation - Margining - Price limits - Position limits
III. SETTLEMENT
II. CLEARING
-Order receiving
- Matching
-Marking to market
- Receipts and payments - Reporting - Delivery upon expiration or maturity
- Clearing house
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9.3 CLEARING AND SETTLEMENT

Most futures contracts do not lead to the actual physical delivery of the underlying asset. The settlement is done by closing out open positions, physical delivery or cash settlement. All these settlement functions are taken care of by an entity called clearing house or clearing corporation. National Securities Clearing Corporation Limited (NSCCL) undertakes clearing of trades executed on the NCDEX. The settlement guarantee fund is maintained and managed by NCDEX. 9.3.1 CLEARING
Clearing of trades that take place on an exchange happens through the exchange clearing house. A clearing house is a system by which exchanges guarantee the faithful compliance of all trade commitments undertaken on the trading floor or electronically over the electronic trading systems. The main task of the clearing house is to keep track of all the transactions that take place during a day so that the net position of each of its members can be calculated. It guarantees the performance of the parties to each transaction. Typically it is responsible for the following: Effecting timely settlement. Trade registration and follow up. Control of the evolution of open interest. Financial clearing of the payment flow. Physical settlement (by delivery) or financial settlement (by price difference) of contracts. Administration of financial guarantees demanded by the participants. The clearing house has a number of members, who are mostly financial institutions responsible for the clearing and settlement of commodities traded on the exchange. The margin accounts for the clearing house members are adjusted for gains and losses at the end of each day (in the same way as the individual traders keep margin accounts with the broker). STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 44
DYNAMICS OF INDIAN COMMODITY MARKET 9.3.1A Clearing Mechanism
Only clearing members including professional clearing members (PCMs) are entitled to clear and settle contracts through the clearing house. The clearing mechanism essentially involves working out open positions and obligations of clearing members. This position is considered for exposure and daily margin purposes. The open positions of PCMs are arrived at by aggregating the open positions of all the TCMs clearing through him, in contracts in which they have traded. A TCM's open position is arrived at by the summation of his clients' open positions, in the contracts in which they have traded. Client positions are netted at the level of individual client and grossed across all clients, at the member level without any set-offs between clients. Proprietary positions are netted at member level without any set-offs between client and proprietary positions. 9.3.2 SETTLEMENT
Futures contracts have two types of settlements, the MTM settlement which happens on a continuous basis at the end of each day, and the final settlement which happens on the last trading day of the futures contract. Daily settlement price: Daily settlement price is the consensus closing price as arrived after closing session of the relevant futures contract for the trading day. However, in the absence of trading for a contract during closing session, daily settlement price is computed as per the methods prescribed by the exchange from time to time. Final settlement price: Final settlement price is the closing price of the underlying commodity on the last trading day of the futures contract. All open positions in a futures contract cease to exist after its expiration day.
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DYNAMICS OF INDIAN COMMODITY MARKET EXHIBIT 9.1: TYPES OF SETTLEMENT - DIAGRAM
9.3.2A
Settlement mechanism
Settlement of commodity futures contracts is a little different from settlement of financial futures which are mostly cash settled. The possibility of physical settlement makes the process a little more complicated. a) Daily mark to market settlement Daily mark to market settlement is done till the date of the contract expiry. This is done to take care of daily price fluctuations for all trades. All the open positions of the members are marked to market at the end of the day and the profit/ loss is determined as below: On the day of entering into the contract, it is the difference between the entry value and daily settlement price for that day. On any intervening days, when the member holds an open position, it is the difference between the daily settlement price for that day and the previous day's settlement price. On the expiry date if the member has an open position, it is the difference between the final settlement price and the previous day's settlement price.
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DYNAMICS OF INDIAN COMMODITY MARKET b) Final settlement On the date of expiry, the final settlement price is the spot price on the expiry day. The spot prices are collected from members across the country through polling. The polled bid/ ask prices are bootstrapped and the mid of the two bootstrapped prices is taken as the final settlement price. The responsibility of settlement is on a trading cum clearing member for all trades done on his own account and his client's trades. A professional clearing member is responsible for settling all the participants trades which he has confirmed to the exchange. EXHIBIT 9.2: SETTLEMENT PAY-IN AND PAY-OUT MECHANISM
PAY-IN
PAY-OUT
COMMODITIES Seller ensures Demat of commodities prior to Pay-in Instruction to DP by seller to move commodities to Clearing Member Pool Account Pay-in of commodities on Settlement Date thru Clearing member pool account
COMMODITIES Credit given into the Buyer member CM Pool A/c Instruction by Member to transfer from CM pool to buyer clients Demat account Subsequent Remat of commodities and physical movement handled by buyer
FUNDS Pay-in of funds Thru the Clearing bank of the Member on the Pay-in day.
FUNDS Funds pay-out is done into designated bank account of Member with the Clearing bank the the
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10.
REGULATORY FRAMEWORK INDIAN COMMODITY MARKET
10.1
NEED FOR REGULATION
The need for regulation arises on account of the fact that the benefits of futures markets accrue in competitive conditions. Proper regulation is needed to create competitive conditions. In the absence of regulation, unscrupulous participants could use these leveraged contracts for manipulating prices. This could have undesirable influence on the spot prices, thereby affecting interests of society at large. Regulation is also needed to ensure that the market has appropriate risk management system. In the absence of such a system, a major default could create a chain reaction. The resultant financial crisis in a futures market could create systematic risk. Regulation is also needed to ensure fairness and transparency in trading, clearing, settlement and management of the exchange so as to protect and promote the interest of various stakeholders, particularly non-member users of the market. After independence, the Constitution of India brought the subject of "Stock Exchanges and futures markets" in the Union list. As a result, the responsibility for regulation of commodity futures markets devolved on Govt. of India. A Bill on forward contracts was referred to an expert committee headed by Prof. A.D.Shroff and Select Committees of two successive Parliaments and finally in December 1952 Forward Contracts (Regulation) Act, 1952, was enacted. The Act provided for 3-tier regulatory system; (a) An association recognized by the Government of India on the recommendation of Forward Markets Commission, (b) The Forward Markets Commission (it was set up in September 1953) and (c) The Central Government. Forward Contracts (Regulation) Rules were notified by the Central Government in July, 1954. STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 48
DYNAMICS OF INDIAN COMMODITY MARKET The Act divides the commodities into 3 categories with reference to extent of regulation, viz.: (a) The commodities in which futures trading can be organized under the auspices of recognized association. (b) The Commodities in which futures trading is prohibited. (c) Those commodities which have neither been regulated for being traded under the recognized association nor prohibited are referred as Free Commodities and the association organized in such free commodities is required to obtain the Certificate of Registration from the Forward Markets Commission.
10.2
FORWARD MARKETS COMMISSION
Forward Markets Commission (FMC) headquartered at Mumbai, is a regulatory authority which is overseen by the Ministry of Consumer Affairs, Food and Public Distribution, Govt. of India. It is a statutory body set up in 1953 under the Forward Contracts (Regulation) Act, 1952. Forward Markets Commission provides regulatory oversight in order to ensure financial integrity (i.e. to prevent systematic risk of default by one major operator or group of operators), market integrity (i.e. to ensure that futures prices are truly aligned with the prospective demand and supply conditions) and to protect and promote interest of customers/ non-members. It prescribes the following regulatory measures: 1. Limit on net open position as on the close of the trading hours. Some times limit is also imposed on intra-day net open position. The limit is imposed operator-wise, and in some cases, also member-wise. 2. Circuit-filters or limit on price fluctuations to allow cooling of market in the event of abrupt upswing or downswing in prices.
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DYNAMICS OF INDIAN COMMODITY MARKET 3. Special margin deposit to be collected on outstanding purchases or sales when price moves up or down sharply above or below the previous day closing price. By making further purchases/sales relatively costly, the price rise or fall is sobered down. This measure is imposed only on the request of the exchange. 4. Circuit breakers or minimum/maximum prices: These are prescribed to prevent futures prices from falling below as rising above not warranted by prospective supply and demand factors. This measure is also imposed on the request of the exchanges. 5. Skipping trading in certain derivatives of the contract, closing the market for a specified period and even closing out the contract: These extreme measures are taken only in emergency situations. Besides these regulatory measures, the F.C(R) Act provides that a client's position cannot be appropriated by the member of the exchange, except when a written consent is taken within three days time. The FMC is persuading increasing number of exchanges to switch over to electronic trading, clearing and settlement, which is more customerfriendly. The FMC has also prescribed simultaneous reporting system for the exchanges following open out-cry system. These steps facilitate audit trail and make it difficult for the members to indulge in malpractices like trading ahead of clients, etc. The FMC has also mandated all the exchanges following open outcry system to display at a prominent place in exchange premises, the name, address, telephone number of the officer of the commission who can be contacted for any grievance. The website of the commission also has a provision for the customers to make complaint and send comments and suggestions to the FMC. Officers of the FMC have been instructed to meet the members and clients on a random basis, whenever they visit exchanges, to ascertain the situation on the ground, instead of merely attending meetings of the board of directors and holding discussions with the office-bearers.
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11. CURRENT SCENARIO OF INDIAN COMMODITY MARKET

11.1 CURRENT SCENARIO
The growth paradigm of Indias commodity markets is best reflected by the figures from the regulators official website, which indicated that the total value of trade on the commodity futures market in the financial year 2008/09 was INR52.49 lakh crore (over US$1 trillion) as against INR 40.66 lakh crore in the preceding year, registering a growth of 29.09%, even under challenging economic conditions globally. The main drivers of this impressive were growth in commodity futures the national
commodity exchanges. MCX, NCDEX and NMCE along with two regional exchanges NBOT Indore and ACE, Ahmedabad contributed to 99.61% of the total value of commodities traded during 2008/09. So far, this years volumes have seen a significant jump over the last year in agro-commodities, as well as international commodities like gold, silver, crude oil and copper. Of course, more than 100 commodities are today available for trading in the commodity futures market and more than 50 of them are actively traded. These include bullion, metals, agricultural commodities and energy products. Most importantly, an archaic market has suddenly turned into an organised, service-oriented set-up with shooting volumes. The unqualified success of the futures market has ensured the next step, i.e., the launch of electronic spot markets for agro-products. Being in a time-zone that falls in the gap left by the major commodity exchanges in the US, Europe and Japan has also worked in Indias favour because commodity business by its very nature is a 24/7 business. Innovation coupled with modern and successful financial market environment has ensured the beginning of a success story in commodities which will eventually see India becoming a price-setter in major commodities on the strength of its large production and consumption. STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 51
DYNAMICS OF INDIAN COMMODITY MARKET It is pertinent to note that India and China are being projected as the major drivers for the initiation of yet another commodity super-cycle. Tracking price trends and analyzing the statistics have always been key areas of economic research; but in each cycle whether defined by Jim Rogers, Kondratieff or Dewey & Dakin the trigger is always different, and in this case it may well be increase in regional consumption, some of which we have already seen. One outcome of the recent boom-bust cycle has been that mergers and acquisitions have gained speed and the biggest beneficiaries will likely be large companies from historically conservative countries, like India. This phase is likely to propel India into the international big league quicker and on a firmer footing. In fact, India did well to weather the global financial crisis over the last year and a half, with GDP growing at 6% at the worst of times, compared to almost every other country which showed negative growth in one or more quarters during this period. Growth did fall from 9% to 6% but was way above the World Banks forecast of 4%, demonstrating economic resilience, a sure sign of things to come.
Turnover at Indian commodity bourses rose 49.80 percent to 73.51 trillion rupees in the first eleven-and-a-half months of fiscal 2009/10, regulator Forward Markets Commission (FMC) said on its website (as on 25th March 2010). Turnover rose 44.12 percent to 3.79 trillion rupees in the fortnight ending March. 15, data showed on Thursday. Active trade was seen in gold, silver, copper and crude oil in the energy and metals pack during the March 10 first fortnight. Guar seed, chana, soybean, turmeric and jeera saw maximum trade among agricultural commodities. Turnover at India's 23 commodity bourses, including four operating at the national level, grew from 1.29 trillion rupees in 2003/04 to 52.49 trillion rupees in 2008/09. The regulator said it has approved Fid Fund (Mauritius) Ltd, an affiliate of Fidelity International's sale of 1.62 percent stake in Multi Commodity Exchange of India (MCX) to Intel Capital (Mauritius) Ltd. FMC had last month allowed Fid Fund (Mauritius) Ltd's sale of 2.03 percent stake in MCX to Passport India Investments (Mauritius) Ltd.
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11.2 PERFORMANCE ANALYSIS OF INDIAN COMMODITY MARKET

Futures contracts are available for major agricultural commodities, metals and energy. Commodity group-wise value of trading since 2004-05 is given in Fig. 11.1.
FIG 11.1 COMMODITY GROUP-WISE VALUE OF TRADE

TRADE VALUE ISN Rs. LAKH CRORE 30 25 20 15 10 5 0 Bullion and other metals Agriculture Energy Others 2004-05 2005-06 2006-07 2007-08
SOURCE: ECFT The year 2003 is a watershed in the history of commodity futures market. The last group of 54 prohibited commodities was opened up for forward trading, along with establishment and recognition of three new national exchanges with on-line trading and professional management. Not only was prohibition on forward trading completely withdrawn, including in sensitive commodities such as wheat, rice, sugar and pulses which earlier committees had reservations about, the new exchanges brought capital, technology and innovation to the market. These markets notched up phenomenal growth in terms of number of products on offer, participants, spatial distribution and volume of trade. Starting with trade in 7 commodities till 1999, futures trading is now available in 95 commodities. There are more then 3000 members registered with the exchanges. More than 20,000 terminals spread over more than 800 towns/cities of the country provide access to trading platforms. The volume of trade has increased STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 53
DYNAMICS OF INDIAN COMMODITY MARKET exponentially since 2003- 04 to reach Rs. 36.77 lakh crore in 2006-07. Almost all of this (97.2%) of this is now accounted for by the three national exchanges. The other 21 Exchanges have a miniscule share in the total volume. The growth in commodity futures trade has spawned an upsurge of interest in a number of associated fields, viz. research, education and training activities in commodity markets, commodity reporting for print and visual media, collateral management, commodity finance, ware-housing, assaying and certification, software development, electronic spot exchanges etc. Markets and fields almost non-existent four years ago now attract significant mind-share nationally and internationally. Although agricultural commodities led the initial spurt, and constituted the largest proportion of the total value of trade till 2005-06 (55.32%), this place was taken over by bullion and metals in 2006-07. The growth in 2006-07 was almost wholly (88.7%) accounted for by bullion and metals, with agricultural commodities contributing a small fraction (10.7%). This was partly due to the stringent regulations, like margins and open interest limits, imposed on agriculture commodities and the dampening of sentiments due to suspension of trade in few commodities. Futures market growth in 2006-07 appears to have bypassed agriculture commodities. Moreover, there has been a very significant decline in volume of futures trade in agriculture commodities during the year 2007-08, by 28.5%. The overwhelming bulk of this decline is accounted for by Chana, Maize, Mentha Oil, Guar seed, Potato, Guar Gum, Chillies and Cardamom. Trade in these eight commodities, which accounted for 57.9% of total futures trade in agricultural commodities in 2006-07, declined by over 66.4% during 2007-08 compared to previous year. The decline in these eight commodities exceeded the decline of futures trading volumes in all agricultural commodities taken together. Four commodities (wheat, rice, urad and tur) were de-listed for futures trading towards the end of financial year 2006-07. This de-listing has been held responsible in many circles for the recent general downturn in futures trading in agricultural commodities. But these four de-listed commodities together accounted for only 6.65% of the total value of futures trading in all agricultural commodities in 2006-07. Thus, although this STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 54
DYNAMICS OF INDIAN COMMODITY MARKET may have affected market sentiments adversely, the delisting did not have any major direct contribution to the decline in trading observed during 2007-08. In fact, except chana and urad, the share of sensitive commodities in total value of futures trade in agricultural commodities has so far been quite insignificant. The combined share of other food grains (i.e. wheat, rice, maize and tur) peaked at 5.0% in 2005-06 and of sugar at only 2.2%. This is in line with what various Committees mentioned earlier had foreseen regarding prospects of futures trading in commodities with significant government intervention. If, nonetheless, de-listing has adversely affected market sentiment regarding futures trading more generally, this must be because of the go-stop nature of government policy on the matter.
FIG 11 .2 TREND OF INDIAN COMMODITY MARKET

500,000.00 450,000.00
TRADE VALUE IN Rs. CRORE
400,000.00 350,000.00 300,000.00
250,000.00
200,000.00 2008-09 150,000.00 100,000.00 50,000.00 0.00 2009-10
16/12-30/12
16/10-30/10
16/11-30/11
16/5-30/5
16/4-30/4
16/6-30/6
16/7-30/7
16/8-30/8
16/9-30/9
16/1-31/1
16/2-28/2
1/9-15/9
1/4-15/4
1/5-15/5
1/6-15/6
1/7-15/7
1/8-15/8
1/1-15/1
1/2-15/2
1/10-15/10
1/11-15/11
TIME PERIOD- DATEWISE
SOURCE: www.fmc.gov.in
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1/3-15/3
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DYNAMICS OF INDIAN COMMODITY MARKET The above mentioned graph gives overall information of commodity market during year 2008 09 and 2009-10 Here for instance year 2008-09 and 2009-10 from April to mid of May the market was moving almost parallel with fall of 2% during commence of July and 8% peak in Commence of September in 2009. Again in December 2009 there is a peak in overall commodity market the peak of 30% in the commodity market. This is mainly because of in this tenure gold was at its top in the commodity market. And the prices of gold touched pinnacle of 10 years of market.
SOURCE: www.mcx.com
FIG 11.3 TRADING FROM APRIL 2007 - MARCH 2010 IN UNIT (AS PER MCX)
0% 2% 11% 6% Fibres and Manufactures
4% 1%
10%
Spices Edible Oil seeds and Oil Pulses Energy Products Vegetables Metals Other
66%
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11.3
UNRESOLVED ISSUES
Even though the commodity derivatives market has made good progress in the last few years, the real issues facing the future of the market have not been resolved. Agreed, the number of commodities allowed for derivative trading have increased, the volume and the value of business has zoomed, but the objectives of setting up commodity derivative exchanges may not be achieved and the growth rates witnessed may not be sustainable unless these real issues are sorted out as soon as possible. Some of the main unresolved issues are discussed below. i. Commodity Options: Trading in commodity options contracts has been banned since 1952. The market for commodity derivatives cannot be called complete without the presence of this important derivative. Both futures and options are necessary for the healthy growth of the market. While futures contracts help a participant (say a farmer) to hedge against downside price movements, it does not allow him to reap the benefits of an increase in prices. No doubt there is an immediate need to bring about the necessary legal and regulatory changes to introduce commodity options trading in the country. The matter is said to be under the active consideration of the Government and the options trading may be introduced in the near future. ii. The Warehousing and Standardization: For commodity derivatives market to work efficiently, it is necessary to have a sophisticated, cost-effective, reliable and convenient warehousing system in the country. The Habibullah (2003) task force admitted, A sophisticated warehousing industry has yet to come about. Further, independent labs or quality testing centers should be set up in each region to certify the quality, grade and quantity of commodities so that they are appropriately standardized and there are no shocks waiting for the ultimate buyer who takes the physical delivery. Warehouses also need to be conveniently located.
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DYNAMICS OF INDIAN COMMODITY MARKET Central Warehousing Corporation of India (CWC: www.fieo.com) is operating 500 Warehouses across the country with a storage capacity of 10.4 million tonnes. This is obviously not adequate for a vast country. To resolve the problem, a Gramin Bhandaran Yojana (Rural Warehousing Plan) has been introduced to construct new and expand the existing rural godowns. Large scale privatization of state warehouses is also being examined. iii. Cash versus Physical Settlement: It is probably due to the inefficiencies in the present warehousing system that only about 1% to 5% of the total commodity derivatives trade in the country is settled in physical delivery. Therefore the warehousing problem obviously has to be handled on a war footing, as a good delivery system is the backbone of any commodity trade. A International Research Journal of Finance and Economics - Issue 2 (2006) 161 particularly difficult problem in cash settlement of commodity derivative contracts is that at present, under the Forward Contracts (Regulation) Act 1952, cash settlement of outstanding contracts at maturity is not allowed. In other words, all outstanding contracts at maturity should be settled in physical delivery. To avoid this, participants square off their positions before maturity. So, in practice, most contracts are settled in cash but before maturity. There is a need to modify the law to bring it closer to the widespread practice and save the participants from unnecessary hassles. iv. The Regulator: As the market activity pick-up and the volumes rise, the market will definitely need a strong and independent regular, similar to the Securities and Exchange Board of India (SEBI) that regulates the securities markets. Unlike SEBI which is an independent body, the Forwards Markets Commission (FMC) is under the Department of Consumer Affairs (Ministry of Consumer Affairs, Food and Public Distribution) and depends on it for funds. It is imperative that the Government should grant more powers to the FMC to ensure an orderly development of the commodity markets. The SEBI and FMC also need to work closely with each other due to the inter-relationship between the two markets. STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 58
v.
DYNAMICS OF INDIAN COMMODITY MARKET Lack of Economy of Scale: There are too many (3 national level and 21 regional) commodity exchanges. Though over 80 commodities are allowed for derivatives trading, in practice derivatives are popular for only a few commodities. Again, most of the trade takes place only on a few exchanges. All this splits volumes and makes some exchanges unviable. This problem can possibly be addressed by consolidating some exchanges. Also, the question of convergence of securities and commodities derivatives markets has been debated for a long time now. The Government of India has announced its intention to integrate the two markets. It is felt that convergence of these derivative markets would bring in economies of scale and scope without having to duplicate the efforts, thereby giving a boost to the growth of commodity derivatives market. It would also help in resolving some of the issues concerning regulation of the derivative markets. However, this would necessitate complete coordination among various regulating authorities such as Reserve Bank of India, Forward Markets commission, the Securities and Exchange Board of India, and the Department of Company affairs etc.
vi.
Tax and Legal bottlenecks: There are at present restrictions on the movement of certain goods from one state to another. These need to be removed so that a truly national market could develop for commodities and derivatives. Also, regulatory changes are required to bring about uniformity in octroi and sales taxes etc. VAT has been introduced in the country in 2005, but has not yet been uniformly implemented by all states.
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11.4
FUTURE PROSPECTS
With the gradual withdrawal of the Govt. from various sectors in the post liberalization era, the need has been left that various operators in the commodities market be provided with a mechanism to hedge and transfer their risk. Indias obligation under WTO to open agriculture sector to world trade require future trade in a wide variety of primary commodities and their product to enable divers market functionaries to cope with the price volatility prevailing n the world markets. Following are some of applications, which can utilize the power of the commodity market and create a win-win situation for all the involved parties:Regulatory approval/permission to FIIS to trading in the commodity market. Active Involvement of mutual fund industry of India. Permission to Banks for acting as Aggregators and traders. Active involvement of small Regional stock exchanges. Newer Avenues for trading in Foreign Derivatives Exchanges. Convergence of variance market. Amendment of the commodities Act and Implementers of VAT. Introduction of option contract.
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12. FUTURE TRADING IN AGRICULTURAL COMMODITY
FIG 12.1 TRADE IN AGRI-COMMODITY IN INDIAN COMMODITY MARKET

VALUE OF TRADE IN Rs. CRORE
80,000.00 70,000.00 60,000.00
50,000.00
40,000.00 30,000.00 20,000.00 10,000.00 0.00
2008-09
2009-10
1/5-15/5
1/8-15/8
1/4-15/4
1/6-15/6
1/7-15/7
1/9-15/9
1/1-15/1
1/2-15/2
1/10-15/10
1/11-15/11
16/11-30/11
16/10-30/10
1/12-15/12
16/12-30/12
TIME PERIOD - DATEWISE
SOURCE: www.fmc.com This graph is specific for agri commodity market. It shows market trend for the years 2008-09 and 2009-10. Here If trends of April 2009 -10 is observed then there is a in the mid of April there is a peak and commodity market reach to 50,000crore.Here market went up because of summer harvest. Again at commence of August it is peaked up and cross the line of 60,000 crore. It goes down due to draught condition. Again in the months of November December 2009 it went to peak as better winter crops are harvested it reach to peak and crossed the line of 700 crore which was the highest of 2 years. In 2008-09 between due to inflation in the world economy the market go to the bottom of 12000crore.And it has started gradually growing up till January and again it falls down and goes up in March.
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16/4-30/4
16/5-30/5
16/6-30/6
16/7-30/7
16/8-30/8
16/9-30/9
16/1-31/1
1/3-15/3
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FIG 12.2 VOLATILITY IN MONTHLY SPOT PRICE INDICES : ESTIMATES OF STANDARD DEVIATIONS
JAN 2000-DEC 2002 JAN 2003-DEC 2006 JAN 2007-DEC 2009
88 75
71 57
60 42 59 39 17 21
21 14 13 4 5
27
32
3
WHEAT URAD POTATOES ONION SOYABEAN
RICE
SOURCE: Office of Economic Adviser, Ministry Of Commerce and Industry, Government Of India
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FIG 12.3 COMPARISON OF AGRI-COMMODITY CONSUMPTION BETWEEN INDIA AND US 2006-07

40 35 30 YALUE IN %
25
20 15 10 5 0 India Consumption US consumption
Source: WBMS, IEA, FAO, IISI, World Bank Here in a given graph overall consumption pattern of India and US is mentioned. Here it is compared with overall consumption in the world of a given edibles. For instance if we see wheat then India is consuming around 17% of and USA is consuming around 4% of wheat out of total consumed in the world.
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FIG 12.4 COMPARISON OF PROD/CONS RATIO BETWEEN INDIA AND USA (2006-07)
5 4.5
4
3.5 3 2.5 2 1.5 1 0.5 0 India USA
Source: WBMS, IEA, FAO, IISI, World Bank
This graph shows the country is able to export the edible or not. On Y axis the ration of production to consumption is given, where this ratio is more than 1 that country is able to import that particular commodity. When the ratio is less than 1 those commodity is exported by that country as consumption of that commodity is more in that country than the production. USA has production consumption ratio i.e. US is not into the production of coffee. It exports its entire coffee requirement from other countries.
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13.
13.1
TRADING IN AGRI-COMMODITY- GROUNDNUT

INTRODUCTION
Groundnut is an important crop both for oil and food. It is grown in over 100 countries in the world and plays an important role in the economy of several countries. About two thirds of the crop produced in the world is crushed to extract oil and one-third is used to make other edible products. India accounts for 40 per cent of the world area and 30 per cent of world output of groundnut. On the other hand groundnut and groundnut oil is the most illiquid commodity in the commodity exchanges in India. Therefore the focus of the study is to understand the trade volume of groundnut as a commodity in commodity exchanges all over the world and gain knowledge about various factors governing supply, demand and price of these commodities in Indian market.
13.2
OVERVIEW
Groundnut is considered to be the one of the most important oilseed crops in the world. It is grown in over 100 countries of the world and plays a crucial role in the world economy. The seeds are a good source of edible oil and proteins present in the groundnut oil cake. The percentage of oil and protein are extracted from the seed are approximately 55% and 28% respectively. The oil cake meal left after the extraction of the oil is used as an animal fodder and fertilizer. The peanut oil is primarily needed as a cooking agent but it also has some industrial uses like in paint, varnish, lubricating oil, soap, furniture polish etc. the peanut seeds are also consumed directly in roasted form, as butter, in brittle and candies etc. Groundnut production has reached the mark of around 34 million tons. China followed by India is the largest producer of this oilseed crop in the world. The groundnut oil production hovers around 8 million tons annually. These two countries are also responsible for the highest consumption of groundnut. The list depicting the major groundnut consuming countries is given below: China India STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 65
DYNAMICS OF INDIAN COMMODITY MARKET Nigeria United States European Union Except European Union, all the countries lie in the list of major groundnut producing countries as well. European Union countries are the largest consumer of groundnuts where the crop is not produced. The major demand i.e. around 75% comes from the food sector and the rest from other sectors. As European Union is the largest consumer of the oilseed where it is not produced, it has to rely on imports and that makes the countries in the union the largest importers of groundnut. The trade done in the world in the context of groundnuts is estimated to about 1 lakh tons per year. The leading groundnut exporting countries are: Argentina Senegal Vietnam Nigeria India Gambia United States The countries mentioned above contribute to about 90% of the world exports. Argentina makes the largest groundnut exporter to the world. The major countries that satisfy their domestic consumption demand by importing groundnuts are: Belgium United States France Germany Ireland Italy Netherlands STEVENS BUSINESS SCHOOL United Kingdom Sweden Indonesia Canada BATCH: 2009-2011 Page 66 South Africa China
DYNAMICS OF INDIAN COMMODITY MARKET Malaysia Singapore Philippines Japan
13.3
GROUNDNUT PRODUCING COUNTRIES
Groundnut is one of the vastly produced oilseed crop in the world as it is cultivated in more than 100 countries in the world and that is why it is referred to as a universal crop. The areas in the tropical belt of the earth enjoy the major share in this groundnut crop production as this type of weather conditions suit well to it. It is estimated that around 65% of the crop produced in the world is crushed to extract groundnut oil and the rest is used in making other edible products. The world production of groundnut seeds hovers around 34 million tons per year in the current scenario. The groundnut oil is produced to an extent of around 8 million tons. The major producers of groundnut in 2005 along with their production figures are China (14408500 tons) Chad (450000 tons) India (5900000 tons) Nigeria(2937000 tons) Congo (368110 tons) United States of America (2112700 tons) Indonesia (1469000 tons) Sudan (1200000 tons) Senegal (820569 tons) Myanmar (715000 tons) Argentina (593000 tons) Vietnam (453000 tons) Guinea (300000 tons) Brazil (291966 tons) Burkina Faso (245307 tons) Cameroon (225000 tons) Egypt (190000 tons) Mali (163900 tons) Malawi (161162 tons) Ghana (389649 tons)
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DYNAMICS OF INDIAN COMMODITY MARKET In context of the production of groundnut oil, China again tops the chart with a production of around 2.5 million tons India following with the production of around 2 million tons. The other regions where groundnut oil is produced includes sub-Saharan African countries and central and southern America. The maximum area that is used for the production of this oilseed is bagged by India with around 8 million hectares that accounts up to 30% share in the total area of around 26.5 million hectares. The country that gets maximum yield from the groundnut crop is USA which has a yield of approximately 3540 Kg/ hectare. The world production has been in the up- trend since last decade and still, it is rising steadily.
13.4
PRODUCTION OF GROUNDNUT IN INDIA
India has been producing groundnut since it has been introduced in Asia in the 16th century. The weather in the Indian subcontinent suited well to the crop and India transformed into an important contributor to the world production. The country ranks 2nd in the world groundnut production scenario with an annual groundnut seed production of 5.9 million tons and annual groundnut oil production of 1.5 million tons in 2007. Also, India has the maximum area covered under groundnut cultivation. The major states in India that are indulged in the production of this crop along with their production figures are: Gujarat (2.5 million tons) Tamil Nadu (1 million tons) Andhra Pradesh (1 million tons) Karnataka (0.5 million tons) Maharashtra (0.5 million tons) Madhya Pradesh Orissa Rajasthan
The Indian production and area covered is largely concentrated in the above-mentioned states. Today, groundnut has a share of approximately 25% in the total Indian oilseed production. But this share is constantly reducing since India got independent, as it was
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DYNAMICS OF INDIAN COMMODITY MARKET around 70% in 1950s. A quick summary of area under cultivation, production and yield of groundnut crop is provided in the tables below:
Year Wise Area under Cultivation of Groundnut in India
Year Wise Production of Groundnut in India
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DYNAMICS OF INDIAN COMMODITY MARKET The inferences from the above data sets are that: a. The average production per year had been to the tune of 5.95 million tones. b. Nevertheless, the variation in average production has been high with a co-efficient of variation of almost 27%.
13.5
INDIAN GROUNDNUT MARKET
India has been a land where oilseeds have much importance than any other crop. Groundnut constitutes one of the major oil seed in India. As already mentioned, it accounts to about 25% share in the total oilseeds production in India. The country produces around 6 million tons of groundnuts annually; Gujarat being the leader in the production of the crop producing over 40% of the crop produced India. The groundnut oil production in India hovers around 1.5 million tons per year. The production of groundnut seed in the country has shown fluctuations quite often largely due to the monsoon behavior. India places 2nd in the world groundnut consumption list. The country actually consumes all most all of its groundnut yield produced that is around 30% of the worlds total consumption. The main demand of groundnut and derivatives generate from the western and southern parts of the country. This consumption pattern of the country contracts the Indian groundnut export size and does not allow it to gain dominance over the world market even though a high production level. Earlier it was an important exporter of groundnut and its by-products in 1970s. But with time it lost all its importance due to its high prices and increasing competitiveness. The Indian exports of groundnut oil to the world showed a fluctuating trend in the last decade. In 2003-04 India exported around 1 lakh tons of groundnut oil due to a crop failure in Argentina and Senegal. The imports in the country are second to none as the production level is quite sufficient for the domestic demand level in the country.
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13.5.1
DYNAMICS OF INDIAN COMMODITY MARKET MARKET INFLUENCING FACTORS
Weather conditions in major groundnut producing regions. Monsoon status in the country. Price fluctuations of the other competitive edible oils. International price movements. High consumption in festive seasons and celebrations. 13.5.2 MAJOR TRADING CENTERS OF GROUNDNUT
The major trading centers of groundnut and derivatives in India are: Rajkot (Gujarat) Ahmedabad (Gujarat) Gondal (Gujarat) Junagarh (Gujarat) Mumbai (Maharashtra) Indore (Madhya Pradesh) Delhi Adoni (Andhra Pradesh)
Also, groundnut is traded in Indian commodity exchanges namely, NCDEX, MCX, NMCE
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14.
SOME INTERESTING FACTS
Commodities in which future contracts are successful are commodities those are not protected through government policies; (Example: Gold/ Silver/ Cotton/ Jute) and trade constituents of these commodities are not complaining too. This should act as an eye-opener to the policy makers to leave pricing and price risk management to the market forces rather than to administered mechanisms alone. Any economy grows when the constituents willingly accept the risk for better returns; if risks are not compensated with adequate or more returns, economic activity will come into a standstill. Worldwide, Derivatives volumes of non-US exchanges in the last decade, has been increasing as compared to the US Exchanges. Commodities are less volatile compared to equity market, but more volatile as compared to G-Sec's. The basic idea of Commodity markets is to encourage farmers to choose cropping pattern based on future and not past prices. Industry in India runs the raw material price risk, going forward they can hedge this risk. Commodities Exchanges are working with banks to provide liquidity to retail investors against holdings such as bullion, cotton or any edible oil, much like loan against shares.
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15. CONCLUSION
This decade is termed as Decade of Commodities. Prices of all commodities are heading northwards due to rapid increase in demand for commodities. Developing countries like China are voraciously consuming the commodities. Thats why globally commodity market is bigger than the stock market. India is one of the top producers of large number of commodities and also has a long history of trading in commodities and related derivatives. The Commodities Derivatives market has seen ups and downs, but seems to have finally arrived now. The market has made enormous progress in terms of Technology, transparency and trading activity. Interestingly, this has happened only after the Government protection was removed from a number of Commodities, and market force was allowed to play their role. This should act as a major lesson for policy makers in developing countries, that pricing and price risk management should be left to the market forces rather than trying to achieve these through administered price mechanisms. The management of price risk is going to assume even greater importance in future with the promotion of free trade and removal of trade barriers in the world. As majority of Indian investors are not aware of organized commodity market; their perception about is of risky to very risky investment. Many of them have wrong impression about commodity market in their minds. It makes them specious towards commodity market. 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 rather than spot market. And producers, traders as well as consumers will be benefited from it. But for this to happen one has to take initiative to standardize and popularize the Commodity Market.
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16.
ANNEXURE1:
COMMONLY USED TERMS IN
COMMODITY MARKET
Accruals:- Commodities on hand ready for shipment, storage and manufacture Arbitragers: - Arbitragers are interested in making purchase and sale in different markets at the same time to profit from price discrepancy between the two markets. At the Market: - An order to buy or sell at the best price possible at the time an order reaches the trading pit. Basis: - Basis is the difference between the cash price of an asset and futures price of the underlying asset. Basis can be negative or positive depending on the prices prevailing in the cash and futures. Basis grade: - Specific grade or grades named in the exchanges future contract. The other grades deliverable are subject to price of underlying futures Baskets: - Basket options are options on portfolios of underlying assets. The underlying asset is usually a weighted average of a basket of assets. Equity index options are a form of basket options. Bear: - A person who expects prices to go lower. Bid: - A bid subject to immediate acceptance made on the floor of exchange to buy a definite number of futures contracts at a specific price. Breaking: - A quick decline in price. Bulging: - A quick increase in price. Bull: - A person who expects prices to go higher.
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DYNAMICS OF INDIAN COMMODITY MARKET Buy on Close: - To buy at the end of trading session at the price within the closing range. Buy on opening: - To buy at the beginning of trading session at a price within the opening range. Call: - An option that gives the buyer the right to a long position in the underlying futures at a specific price, the call writer (seller) may be assigned a short position in the underlying futures if the buyer exercises the call. Cash commodity: - The actual physical product on which a futures contract is based. This product can include agricultural commodities, financial instruments and the cash equivalent of index futures. Close: - The period at the end of trading session officially designated by exchange during which all transactions are considered made at the close. Closing price: - The price (or price range) recorded during the period designated by the exchange as the official close. Commission house: - A concern that buys and sells actual commodities or futures contract for the accounts of customers. Consumption Commodity: - Consumption commodities are held mainly for consumption purpose. E.g. Oil, steel Cover: - The cancellation of the short position in any futures contract buys the purchase of an equal quantity of the same futures contract. Cross hedge: - When a cash commodity is hedged by using futures contract of other commodity. Day orders: - Orders at a limited price which are understood to be good for the day unless expressly designated as an open order or good till canceled order. Delivery: - The tender and receipt of actual commodity, or in case of agriculture commodities, warehouse receipts covering such commodity, in settlement of futures contract. Some contracts settle in cash (cash delivery). In which case open positions are marked to market on last day of contract based on cash market close. Delivery month: - Specified month within which delivery may be made under the terms of futures contract. STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 75
DYNAMICS OF INDIAN COMMODITY MARKET Delivery notice: - A notice for a clearing members intention to deliver a stated quantity of commodity in settlement of a short futures position. Derivatives: - These are financial contracts, which derive their value from an underlying asset. (Underlying assets can be equity, commodity, foreign exchange, interest rates, real estate or any other asset.) Four types of derivatives are trades forward, futures, options and swaps. Derivatives can be traded either in an exchange or over the counter. Differentials: - The premium paid for grades batter than the basis grade and the discounts allowed for the grades. These differentials are fixed by the contract terms on most exchanges. Exchange: - Central market place for buyers and sellers. Standardized contracts ensure that the prices mean the same to everyone in the market. The prices in an exchange are determined in the form of a continuous auction by members who are acting on behalf of their clients, companies or themselves. Forward contract: - It is an agreement between two parties to buy or sell an asset at a future date for price agreed upon while signing agreement. Forward contract is not traded on an exchange. This is oldest form of derivative contract. It is traded in OTC Market. Not on an exchange. Size of forward contract is customized as per the terms of agreement between buyer and seller. The contract price of forward contract is not transparent, as it is not publicly disclosed. Here valuation of open position is not calculated on a daily basis and there is no requirement of MTM. Liquidity is the measure of frequency of trades that occur in a particular commodity forward contract is less liquid due to its customized nature. In forward contracts, counterparty risk is high due to customized & bilateral nature of the transaction.
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DYNAMICS OF INDIAN COMMODITY MARKET Forward contract is not regulated by any exchange. Forward contract is generally settled by physical delivery. In this case delivery is carried out at delivery center specified in the customized bilateral agreement. Futures Contract:- It is an agreement between two parties to buy or sell a specified and standardized quantity and quality of an asset at certain time in the future at price agreed upon at the time of entering in to contract on the futures exchange. It is entered on centralized trading platform of exchange. It is standardized in terms of quantity as specified by exchange. Contract price of futures contract is transparent as it is available on centralized trading screen of the exchange. Here valuation of Mark-to-Mark position is calculated as per the official closing price on daily basis and MTM margin requirement exists. Futures contract is more liquid as it is traded on the exchange. In futures contracts the clearing-house becomes the counter party to each transaction, which is called novation. Therefore, counter party risk is almost eliminated. A regulatory authority and the exchange regulate futures contract. Futures contract is generally cash settled but option of physical settlement is available. Delivery tendered in case of futures contract should be of standard quantity and quality as specified by the exchange. Futures commission merchant: - A broker who is permitted to accept the orders to buy and sale futures contracts for the consumers. Futures Funds: - Usually limited partnerships for investors who prefer to participate in the futures market by buying shares in a fund managed by professional traders or commodity trading advisors. Futures Market:-It facilitates buying and selling of standardized contractual agreements (for future delivery) of underlying asset as the specific commodity and not the physical commodity itself.
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DYNAMICS OF INDIAN COMMODITY MARKET The formulation of futures contract is very specific regarding the quality of the commodity, the quantity to be delivered and date for delivery. However it does not involve immediate transfer of ownership of commodity, unless resulting in delivery. Thus, in futures markets, commodities can be bought or sold irrespective of whether one has possession of the underlying commodity or not. The futures market trade in futures contracts primarily for the purpose of risk management that is hedging on commodity stocks or forward buyers and sellers. Most of these contracts are squared off before maturity and rarely end in deliveries. Hedging: - Means taking a position in futures market that is opposite to position in the physical market with the objective of reducing or limiting risk associated with price. In the money: - In call options when strike price is below the price of underlying futures. In put options, when the strike price is above the underlying futures. Inthe-money options are the most expensive options because the premium includes intrinsic value. Index Futures: - Futures contracts based on indexes such as the S & P 500 or Value Line Index. These are the cash settlement contracts. Investment Commodities: - An investment commodity is generally held for investment purpose. e.g. Gold, Silver Limit: - The maximum daily price change above or below the price close in a specific futures market. Trading limits may be changed during periods of unusually high market activity. Limit order: - An order given to a broker by a customer who has some restrictions upon its execution, such as price or time. Liquidation: - A transaction made in reducing or closing out a long or short position, but more often used by the trade to mean a reduction or closing out of long position. STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 78
DYNAMICS OF INDIAN COMMODITY MARKET Local: - Independent trader who trades his/her own money on the floor of the exchanges. Some local act as a brokers as well, but are subject to certain rules that protect customer orders. Long: - (1) The buying side of an open futures contract or futures option; (2) a trader whose net position in the futures or options market shows an excess of open purchases over open sales. Margin: - Cash or equivalent posted as guarantee of fulfillment of a futures contract (not a down payment). Margin call: - Demand for additional funds or equivalent because of adverse price movement or some other contingency. Market to Market: - The practice of crediting or debating a traders account based on daily closing prices of the futures contracts he is long or short. Market order: - An order for immediate execution at the best available price. Nearby: - The futures contract closest to expiration. Net position: - The difference between the open contracts long and the open contracts short held in any commodity by any individual or group. Offer: - An offer indicating willingness to sell at a given price (opposite of bid). On opening: - A term used to specify execution of an order during the opening. Open contracts: - Contracts which have been brought or sold without the transaction having been completed by subsequent sale, repurchase or actual delivery or receipt of commodity. Open interest: - The number of open contracts. It refers to unliquidated purchases or sales and never to their combined total.
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DYNAMICS OF INDIAN COMMODITY MARKET Option: - It gives right but not the obligation to the option owner, to buy an underlying asset at specific price at specific time in the future. Out-of-the money: - Option calls with the strike prices above the price of the underlying futures, and puts with strike prices below the price of the underlying futures. Over the counter: - It is alternative trading platform, linked to network of dealers who do not physically meet but instead communicates through a network of phones & computers. Pit: - An octagonal platform on the trading floor of an exchange, consisting of steps upon which traders and brokers stand while trading (if circular called ring). Point: - The minimum unit in which changes in futures prices may be expressed (minimum price fluctuation may be in multiples of points). Position: - An interest in the market in the form of open commodities. Premium: - The amount by which a given futures contracts price or commoditys quality exceeds that of another contract or commodity (opposite of discount). In options, the price of a call or put, which the buyer initially pays to the option writer (seller). Price limit: - The maximum fluctuation in price of futures contract permitted during one trading session, as fixed by the rules of a contract market. Purchase and sales statement: - A statement sent by FMC to a customer when his futures option has been reduced or closed out (also called P and S) Put: - In options the buyer of a put has the right to continue a short position in an underlying futures contract at the strike price until the option expires; the seller (writer) of the put obligates himself to take a long position in the futures at the strike price if the buyer exercises his put. STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 80
DYNAMICS OF INDIAN COMMODITY MARKET Range: - The difference between high and low price of the futures contract during a given period. Ratio hedging: - Hedging a cash position with futures on a less or more than one-for-one basis. Reaction: - The downward tendency of a commodity after an advance. Round turn: - The execution of the same customer of a purchase transaction and a sales transaction which offset each other. Round turn commission: - The cost to the customer for executing a futures contract which is charged only when the position is liquidated. Scalping: - For floor traders, the practice of trading in and out of contracts through out the trading day in a hopes for making a series of small profits. Settlement price: - The official daily closing price of futures contract, set by the exchange for the purpose of setting margins accounts. Short: - (1) The selling of an option futures contract. (2) A trader whose net position in the futures market shows an excess of open sales over open purchases. Speculator: - Speculator is an additional buyer of the commodities whenever it seems that market prices are lower than they should be. Spot Markets:-Here commodities are physically brought or sold on a negotiated basis. Spot price: - The price at which the spot or cash commodity is selling on the cash or spot market. Spread: - Spread is the difference in prices of two futures contracts. Striking price: - In options, the price at which a futures position will be established if the buyer exercises (also called strike or exercise price). STEVENS BUSINESS SCHOOL BATCH: 2009-2011 Page 81
DYNAMICS OF INDIAN COMMODITY MARKET Swap: - It is an agreement between two parties to exchange different streams of cash flows in future according to predetermined terms. The two commonly used swaps are : Interest rate swaps: These entail swapping only the interest related cash flows between the parties in the same currency. Currency swaps: These entail swapping both principal and interest between the parties, with the cash flows in one direction being in a different currency than those in the opposite direction. Swaptions: Swaptions are options to buy or sell a swap that will become operative at the expiry of the options. Thus a swaption is an option on a forward swap. Technical analysis (charting): - In price forecasting, the use of charts and other devices to analyze price-change patters and changes in volume and open interest to predict future market trends (opposite of fundamental analysis). Time value: - In options the value of premium is based on the amount of time left before the contract expires and the volatility of the underlying futures contract. Time value represents the portion of the premium in excess of intrinsic value. Time value diminishes as the expiration of the options draws near and/or if the underlying futures become less volatile. Volume of trading (or sales): - A simple addition of successive futures transactions (a transaction consists of a purchase and matching sale). Writer: - A sealer of an option who collects the premium payment from the buyer.
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Comparison of India And USA commodity on the Bases of their Consumption, Production and Prod/Cons Ratio.
USA volume rank 7,145 2,685 1,643 168 58 1,524 59,982 102,710 2 2 2 3 2 2 6 3 2.869428 2.626028 1.180734 0.927644 2.469136 2.616029 4.353417 3.743116 20.08038 14.15841 19.20739 10.38961 11.93416 9.380771 4.219206 8.335619 35,582 18,964 8,554 1,617 486 16,246 1,421,642 1,232,182 1.014 0.078 0.059 0 0 1.402 2.055 0.426 0.502 0.316 0 0 0.81 0.96 1035.294 38.844 5.959 0 0 595.85 127184 0 0 1.06 0.421 204.465 38.272 680.52 403.318 3043.77 1347.87 519.188 0 0 1234.44 57582.72 0 0 India Consumption US consumption world total volume of world % of Word % India Prod/cons ratio US Prod/cons ratio India Production US Production
India volume rank
Metals
aluminum copper lead nickel tin zinc iron ore steel production
1021 498 101 15 12 425 61,890 46,122
8 11 15 17 7 8 5 7
Energy
3 7 642 958 2 1 7.138114 3.233831 21.31474 29.78856 3,012 3,216 0.951 0.368
ANNEXURE 2
coal oil
215 104
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Agriculture
1.253 1.086 1.103 1.003 0.693 NA 1.217 1.294 4.958 1.002 1.106 31,850 4,624 251,231 48,238 8,243 169 24,388 154 1,333 1,402 1,246 4 12 1 1 1 37 2 7 1 5 2 13.45248 25.52848 2.337007 4.122202 6.402912 15.01889 16.13784 19.09182 0.815763 15.60393 8.159432 5.323692 1.155682 36.37723 24.70146 27.77853 0.613831 12.68761 3.863522 16.72942 7.215275 13.00083 598,269 400,110 690,627 195,284 29,674 27,532 192,219 3,986 7,968 19,431 9,584 1.866 1.652 1.317 1.543 1.108 1.397 0.992 0 0.005 3.143 1.16 100843.9 110926.2 17802.42 8074.15 1316.7 37751.34 984.734 322.27 3038.064 864.892 59432.1 7638.848 330871.2 74431.23 9133.244 236.093 24192.9 0 6.665 4406.486 1445.36
wheat rice maize soybeans soy oil palm oil sugar tea coffee cotton rubber
80,482 102,142 16,140 8,050 1,900 4,135 31,020 761 65 3,032 782
2 2 6 5 4 2 1 1 27 2 4
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17.
http://www.fmc.gov.in/
REFERENCE
http://www.eurojournals.com/finance.htm http://www.scribd.com/doc/15961806/Commodity-Market-Report http://www.coolavenues.com/know/fin/tushar_3.php3 http://finance.indiamart.com/markets/commodity/nmceil.html http://business.mapsofindia.com/india-market/commodity.html http://www.tradingpicks.com/beginners_guide.htm http://www.indiancommodity.com/lic.htm http://ncdex.com/Aboutus/profile.aspx http://www.indiancommodity.com/trader.htm http://finance.indiamart.com/markets/commodity/traders_derivatives_market.htm l http://business.mapsofindia.com/india-market/commodity.html http://isid.org.in/pdf/WP1003.PDF http://www.ftkmc.com/markets-commodities.html http://www.banknetindia.com/banking/80628.htm http://www.religarecommodities.com/class_roomIntro.asp http://www.oxfordfutures.com/futures-education/futures-fundamentals/how-themarket-works.htm http://www.smcindiaonline.com/commo_trading_faq.asp http://www.docstoc.com/docs/32951953/Commodity-Futures-Market-in-India http://www.fmc.gov.in/htmldocs/Abhijit%20Sen%20Report.pdf
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DYNAMICS OF INDIAN COMMODITY MARKET

STUDENTS COLLOQUIUM REPORT

SUBMITTED TO: Dr. HIMANI JOSHI (Academic Coordinator) SUBMITTED BY:

DATE OF SUBMISSION 8th APRIL 2010

DYNAMICS OF INDIAN COMMODITY MARKET

STEVENS BUSINESS SCHOOL

DYNAMICS OF INDIAN COMMODITY MARKET

STEVENS BUSINESS SCHOOL

STEVENS BUSINESS SCHOOL

DYNAMICS OF INDIAN COMMODITY MARKET

HISTORY OF EVOLUTION OF COMMODITY MARKET COMMODITY MARKETS OF WORLD HISTORY

INDIA AND THE COMMODITY MARKET

NATIONAL LEVEL COMMODITY EXCHANGES IN INDIA NMCE MCX ICEX NCDEX

PRESENT COMMODITY MARKET

COMMODITIES TRADED IN INDIA SPICES

STEVENS BUSINESS SCHOOL

DYNAMICS OF INDIAN COMMODITY MARKET 5.8 6. OTHERS 25

6.3 Comparative analysis of Commodity and Equity 33

PARTICIPANTS OF COMMODITY MARKET HEDGERS SPECULATORS ARBITRAGERS

HOW THE COMMODITY MARKET WORKS WORKING PROCEDURE DELIVERY PROCESS

CLEARING AND SETTLEMENT

STEVENS BUSINESS SCHOOL

11.3 11.4 12. 13.

DYNAMICS OF INDIAN COMMODITY MARKET UNRESOLVED ISSUES FUTURE PROSPECTS 61 65

GROUNDNUT PRODUCING COUNTRIES INDIAN GROUNDNUT MARKET

PRODUCTION OF GROUNDNUT IN INDIA 72 73 74

14. 15. 16.

COMPARISION OF INDIA AND USA

STEVENS BUSINESS SCHOOL

DYNAMICS OF INDIAN COMMODITY MARKET

STEVENS BUSINESS SCHOOL

1.4 COMMODITY EXCHANGE

STEVENS BUSINESS SCHOOL

DYNAMICS OF INDIAN COMMODITY MARKET

HISTORY OF EVOLUTION OF COMMODITY MARKET

2.1 BRIEF HISTORY

STEVENS BUSINESS SCHOOL

DYNAMICS OF INDIAN COMMODITY MARKET

2.2 COMMODITY MARKETS OF WORLD

STEVENS BUSINESS SCHOOL

DYNAMICS OF INDIAN COMMODITY MARKET

INDIA AND THE COMMODITY MARKET

3.1 HISTORY OF COMMODITY MARKET IN INDIA

3.2 PRESENT COMMODITY MARKET IN INDIA

STEVENS BUSINESS SCHOOL

INDIAN COMMODITY MARKET STRUCTURE

STEVENS BUSINESS SCHOOL

DYNAMICS OF INDIAN COMMODITY MARKET

4. NATIONAL LEVEL COMMODITY EXCHANGES IN INDIA

4.2 NCDEX (National Commodity & Derivates Exchange Ltd.)

STEVENS BUSINESS SCHOOL

DYNAMICS OF INDIAN COMMODITY MARKET

4.3 MCX (Multi Commodity Exchange of India Ltd.)

4.4 ICEX (Indian Commodity Exchange Ltd.)

UNIQUE FEATURES OF NATIONAL LEVEL COMMODITY EXCHANGES

DYNAMICS OF INDIAN COMMODITY MARKET

MAJOR REGIONAL COMMODITY EXCHANGES IN INDIA

STEVENS BUSINESS SCHOOL

DYNAMICS OF INDIAN COMMODITY MARKET

COMMODITIES TRADED IN INDIA

COMMODITIES IN WHICH FUTURES TRADING IS BEING CONDUCTED IN INDIA

STEVENS BUSINESS SCHOOL

DYNAMICS OF INDIAN COMMODITY MARKET