CHAPTER-II

INDUSTRY PROFILE

&

COMPANY PROFILE

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For the Indian investors, the year belonged to stock markets, which have been shining
bright when it comes to generating wealth, while the glitter of gold and silver faded
for the second straight year in 2018.

Measured by BSE Sensex, stock market has generated a positive return of about 9 per
cent for investors in 2018, while gold prices fell by about three per cent and its poorer
cousin silver plummeted close to 24 per cent.

After outperforming stock market for more than a decade, gold has been on back foot
for two consecutive years now vis-a-vis equities, shows an analysis of their price
movements.

"Gold's under-performance was mainly due to prices falling in dollar terms amid
anticipated tapering over last several months combined with FII investment in Indian
stocks.

"This movement has been equally true for global markets as 2018 saw gold losing its
shine and markets coming back with a bang," said Jayant Manglik, President Retail
Distribution, Religare Securities.

"As always, gold and stock prices follow opposite trends and this year was no
different except that both changed direction," he said.

Improvement in the world economy has brought the risk appetite back amongst retail
investors and this has drenched the liquidity from safe havens such as gold leading to
its under-performance, an expert said.

In 2012, the Sensex had gained over 25 per cent, which was nearly double the gain of
about 12.95 per cent in gold. The appreciation in silver was at about 12.84 per last
year.

According to Hiren Dhakan, Associate Fund Manager, Bonanza Portfolio, "Markets

have particularly shown great strength post July-August 2017 when RBI took some
strong measures to control the steeply depreciating rupee."

"When the US Fed gave indications that it might taper its stimulus programme given
the economy shows improvement, a knee-jerk correction was seen in most risky
assets, including stocks in Indian markets. However, assurance by the Fed about
planned and staggered tapering in stimulus once again proved to be a catalyst for the
markets."

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"External factors affecting Indian stocks seem to be negative for the first half of 2018
due to continued strength of the US dollar and benign in the second half. By that time,
elections too would have taken place. A combination of domestic and international
factors point to a bumper closing of Indian markets in 2018 with double-digit
percentage growth," he said.

Stock market segment mid-cap and small-cap indices have fallen by about 10 per cent
and 18 per cent, respectively, in 2017.

Evolution

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200
years ago. The earliest records of security dealings in India are meager and obscure.
The East India Company was the dominant institution in those days and business in its
loan securities used to be transacted towards the close of the eighteenth century.

By 1830's business on corporate stocks and shares in Bank and Cotton presses took
place in Bombay. Though the trading list was broader in 1839, there were only half a
dozen brokers recognized by banks and merchants during 1840 and 1850.

The 1850's witnessed a rapid development of commercial enterprise and brokerage

business attracted many men into the field and by 1860 the number of brokers
increased into 60.

In 1860-61 the American Civil War broke out and cotton supply from United States of
Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers
increased to about 200 to 250. However, at the end of the American Civil War, in
1865, a disastrous slump began (for example, Bank of Bombay Share which had
touched Rs 2850 could only be sold at Rs. 87).

Other leading cities in stock market operations

Ahmadabad gained importance next to Bombay with respect to cotton textile industry.
After 1880, many mills originated from Ahmadabad and rapidly forged ahead. As
new mills were floated, the need for a Stock Exchange at Ahmadabad was realized
and in 1894 the brokers formed "The Ahmadabad Share and Stock Brokers'
Association".

3
What the cotton textile industry was to Bombay and Ahmadabad, the jute industry
was to Calcutta. Also tea and coal industries were the other major industrial groups in
Calcutta. After the Share Mania in 1861-65, in the 1870's there was a sharp boom in
jute shares, which was followed by a boom in tea shares in the 1880's and 1890's; and
a coal boom between 1904 and 1908. On June 1908, some leading brokers formed
"The Calcutta Stock Exchange Association".

In the beginning of the twentieth century, the industrial revolution was on the way in
India with the Swadeshi Movement; and with the inauguration of the Tata Iron and
Steel Company Limited in 1907, an important stage in industrial advancement under
Indian enterprise was reached.

Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies
generally enjoyed phenomenal prosperity, due to the First World War.

Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with
the Punjab Stock Exchange Limited, which was incorporated in 1936.

Indian Stock Exchanges - An Umbrella Growth

The Second World War broke out in 1939. It gave a sharp boom which was followed
by a slump. But, in 1943, the situation changed radically, when India was fully
mobilized as a supply base.

On account of the restrictive controls on cotton, bullion, seeds and other

COMPARATIVE FUTURE , those dealing in them found in the stock market as the
only outlet for their activities. They were anxious to join the trade and their number
was swelled by numerous others. Many new associations were constituted for the
purpose and Stock Exchanges in all parts of the country were floated.

The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited
(1940) and Hyderabad Stock Exchange Limited (1944) were incorporated.

In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited
and the Delhi Stocks and Shares Exchange Limited - were floated and later in June
1947, amalgamated into the Delhi Stock Exchnage Association Limited.

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Post-independence Scenario

Most of the exchanges suffered almost a total eclipse during depression. Lahore
Exchange was closed during partition of the country and later migrated to Delhi and
merged with Delhi Stock Exchange.

Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963.

Most of the other exchanges languished till 1957 when they applied to the Central
Government for recognition under the Securities Contracts (Regulation) Act, 1956.
Only Bombay, Calcutta, Madras, Ahmadabad, Delhi, Hyderabad and Indore, the well
established exchanges, were recognized under the Act. Some of the members of the
other Associations were required to be admitted by the recognized stock exchanges on
a concessional basis, but acting on the principle of unitary control, all these pseudo
stock exchanges were refused recognition by the Government of India and they
thereupon ceased to function.

Trading Pattern of the Indian Stock Market

Trading in Indian stock exchanges are limited to listed securities of public limited
companies. They are broadly divided into two categories, namely, specified securities
(forward list) and non-specified securities (cash list). Equity shares of dividend
paying, growth-oriented companies with a paid-up capital of atleast Rs.50 million and
a market capitalization of atleast Rs.100 million and having more than 20,000
shareholders are, normally, put in the specified group and the balance in non-specified
group.

Two types of transactions can be carried out on the Indian stock exchanges: (a) spot
delivery transactions "for delivery and payment within the time or on the date
stipulated when entering into the contract which shall not be more than 17 days
following the date of the contract" : and (b) forward transactions "delivery and
payment can be extended by further period of 17 days each so that the overall period
does not exceed 90 days from the date of the contract". The latter is permitted only in
the case of specified shares. The brokers who carry over the outstandings pay carry

5
over charges (cantango or backwardation) which are usually determined by the rates
of interest prevailing.

Over The Counter Exchange of India (OTCEI)

The traditional trading mechanism prevailed in the Indian stock markets gave way to
many functional inefficiencies, such as, absence of liquidity, lack of transparency,
unduly long settlement periods and benami transactions, which affected the small
investors to a great extent. To provide improved services to investors, the country's
first ringless, scripless, electronic stock exchange - OTCEI - was created in 1992 by
country's premier financial institutions - Unit Trust of India, Industrial Credit and
Investment Corporation of India, Industrial Development Bank of India, SBI Capital
Markets, Industrial Finance Corporation of India, General Insurance Corporation and
its subsidiaries and CanBank Financial Services.

Trading at OTCEI is done over the centres spread across the country. Securities traded
on the OTCEI are classified into:

 Listed Securities - The shares and debentures of the companies listed on the
OTC can be bought or sold at any OTC counter all over the country and they
should not be listed anywhere else

 Permitted Securities - Certain shares and debentures listed on other exchanges

and units of mutual funds are allowed to be traded

 Initiated debentures - Any equity holding atleast one lakh debentures of a

particular scrip can offer them for trading on the OTC..

In the case of permitted securities, the system is similar to a traditional stock

exchange. The difference is that the delivery and payment procedure will be
completed within 17 days.

Compared to the traditional Exchanges, OTC Exchange network has the following
advantages:

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  OTCEI has widely dispersed trading mechanism across the country which
provides greater liquidity and lesser risk of intermediary charges.

 Greater transparency and accuracy of prices is obtained due to the screen-

based scripless trading.

 Since the exact price of the transaction is shown on the computer screen, the
investor gets to know the exact price at which s/he is trading.

 Faster settlement and transfer process compared to other exchanges.

 In the case of an OTC issue (new issue), the allotment procedure is completed
in a month and trading commences after a month of the issue closure, whereas
it takes a longer period for the same with respect to other exchanges.

Thus, with the superior trading mechanism coupled with information transparency
investors are gradually becoming aware of the manifold advantages of the OTCEI.

National Stock Exchange (NSE)

With the liberalization of the Indian economy, it was found inevitable to lift the
Indian stock market trading system on par with the international standards. On the
basis of the recommendations of high powered Pherwani Committee, the National
Stock Exchange was incorporated in 1992 by Industrial Development Bank of India,
Industrial Credit and Investment Corporation of India, Industrial Finance Corporation
of India, all Insurance Corporations, selected commercial banks and others.

Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and

(b) Capital market.

Wholesale debt market operations are similar to money market operations -

institutions and corporate bodies enter into high value transactions in financial
instruments such as government securities, treasury bills, public sector unit bonds,
commercial paper, certificate of deposit, etc.

7
There are two kinds of players in NSE:

(a) trading members and

(b) participants.

Recognized members of NSE are called trading members who trade on behalf of
themselves and their clients. Participants include trading members and large players
like banks who take direct settlement responsibility.

NSE has several advantages over the traditional trading exchanges. They are as
follows:

 NSE brings an integrated stock market trading network across the nation.

 Investors can trade at the same price from anywhere in the country since inter-
market operations are streamlined coupled with the countrywide access to the
securities.

 Delays in communication, late payments and the malpractice’s prevailing in

the traditional trading mechanism can be done away with greater operational
efficiency and informational transparency in the stock market operations, with
the support of total computerized network.

Unless stock markets provide professionalized service, small investors and foreign
investors will not be interested in capital market operations. And capital market being
one of the major source of long-term finance for industrial projects, India cannot
afford to damage the capital market path. In this regard NSE gains vital importance in
the Indian capital market system.

Preamble

Often, in the economic literature we find the terms ‘development’ and ‘growth’ are
used interchangeably. However, there is a difference. Economic growth refers to the
sustained increase in per capita or total income, while the term economic development
implies sustained structural change, including all the complex effects of economic
growth. In other words, growth is associated with free enterprise, where as

8
development requires some sort of control and regulation of the forces affecting
development. Thus, economic development is a process and growth is a phenomenon.

Economic planning is very critical for a nation, especially a developing country like
India to take the country in the path of economic development to attain economic
growth.

Why Economic Planning for India?

One of the major objective of planning in India is to increase the rate of economic
development, implying that increasing the rate of capital formation by raising the
levels of income, saving and investment. However, increasing the rate of capital
formation in India is beset with a number of difficulties. People are poverty ridden.
Their capacity to save is extremely low due to low levels of income and high
propensity to consume. Therefor, the rate of investment is low which leads to capital
deficiency and low productivity. Low productivity means low income and the vicious
circle continues. Thus, to break this vicious economic circle, planning is inevitable for
India..

In India, capital is scarce; and unemployment and disguised unemployment is

prevalent. Thus, where capital was being scarce and labour being abundant, providing
useful employment opportunities to an increasing labour force is a difficult exercise.
Only a centralized planning model can solve this macro problem of India.

Planning History of India

The development of planning in India began prior to the first Five Year Plan of
independent India, long before independence even. The idea of central directions of
resources to overcome persistent poverty gradually, because one of the main policies
advocated by nationalists early in the century. The Congress Party worked out a
program for economic advancement during the 1920’s, and 1930’s and by the 1938
they formed a National Planning Committee under the chairmanship of future Prime
Minister Nehru. The Committee had little time to do anything but prepare programs
and reports before the Second World War which put an end to it Provisional
government had been elected in 1938, and the Congress Party leaders held positions

9
of responsibility. After the war, the Interim government of the pre-independence years
appointed an Advisory Planning Board. The Board produced a number of somewhat
disconnected Plans itself

Objectives of Indian Planning

The Planning Commission was set up the following Directive principles :

 To make an assessment of the material, capital and human resources of the

country, including technical personnel, and investigate the possibilities of
augmenting such of these resources as are found to be deficient in relation to
the nation’s requirement.

 To formulate a plan for the most effective and balanced use of the country’s
resources.

 Having determined the priorities, to define the stages in which the plan should
be carried out, and propose the allocation of resources for the completion of
each stage.

 To indicate the factors which are tending to retard economic development, and
determine the conditions which, in view of the current social and political
situation, should be established for the successful execution of the Plan.

 To determine the nature of the machinery this will be necessary for securing
the successful implementation of each stage of Plan in all its aspects.

 To appraise from time to time the progress achieved in the execution of each
stage of the Plan and recommend the adjustments of policy and measures that
such appraisals may show to be necessary.

The long-term general objectives of Indian Planning are as follows:

 Increasing National Income

 Reducing inequalities in the distribution of income and wealth

 Elimination of poverty

10
 Incorporated in 1993, Net worth Stock Broking Limited (NSBL) has been a
listed company at Bombay Stock Exchange (BSE), Mumbai since 1995.
A Member, at the National Stock Exchange of India (NSE) and Bombay Stock
Exchange, Mumbai (BSE) on the Capital Market and Derivatives (Futures & Options)
segment, NSBL has been traditionally servicing Institutional clients and in the recent
past has forayed into retail broking, establishing branches across the country.
Presence is being marked in the Middle East, Europe and the United States too, as
part of our attempts to cater to global markets. We are a Depository participant at
Central Depository Services India (CDSL) with plans to become one at National
Securities Depository (NSDL) by the end of this quarter. We have our customers
participating in the booming COMPARATIVE FUTURE markets with our
membership at the Multi Commodity Exchange of India (MCX) and National
Commodity & Derivatives Exchange (NCDEX), through Networth Stock.Com Ltd.
With its strong support and business units of research, distribution & advisory, NSBL
aims to become a one-stop solution to the broking and investment needs of its clients,
globally.
Strong team of professional’s experienced and qualified pool of human
resources drawn from top financial service & broking houses form the backbone of
our sizeable infrastructure. Highly technology oriented, the company’s scalability of
operations and the highest level of service standards has ensured rapid growth in the
number of locations & the clients serviced in a very short span of time.
‘Networthians’, as each one of our 400 plus and ever growing team members are
addressed, is a dedicated team motivated to continuously progress by imbibing the
best of global practices, Indian sing
such practices, and to constantly evolve a comprehensive suite of products &
services trying to meet every financial / investment need of the clients.
NSE CM and Derivatives Segment SEBI Regn. 1NB230638639 & 1NF230638639
BSE CM and Derivatives Segment SEBI Regn. 1NB010638634 &
PMS SEBI Regn. 1NP000001371 CDSL DP SEBI Regn. IN-DP-CDSL

11
251-2004
COMPARATIVE FUTURE Trading: MCX -10585 and NCDEX - 00011 (through
Networth Stock.Com Ltd.)
Phone Nos.: 040-55560708, 55562256, and 30994985
Mumbai (MF Division)
49, Au Chambers, 4th Floor, Tamarind Lane, Fort
Mumbai - 400 001
Maharashtra.
Phone Nos.: 022- 22650253

Mumbai (Registered Office)

5, Church gate House, 2nd Floor, 32/ 34 Veer Narirnan Road, Fort
Mumbai - 400 001
Maharashtra.
Phone No. 022-22850428
The Networth connectivity with 107 branches and growing

107 branches

Products and services portfolio

 Retail and institutional broking

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  Research for institutional and retail clients
 Distribution of financial products
 PMS
 Corporate finance
 Net trading
 Depository services
 COMPARATIVE FUTURE Broking

Equity Derivatives
Life
Insuranc Commodity
e

One window Currency Derivatives

PMS Services
All products

Depository Services
Loans, Bonds
General
Insurance IPO

Infrastructure
• A corporate office and 3 divisional offices in CBD of Mumbai which houses
state-of-the-art dealing room, research wing & management and back offices.
• All of 107 branches and franchisees are fully wired and connected to hub at
Corporate office at Mumbai. Add on branches also will be wired and
connected to central hub

13
 • Web enabled connectivity and software in place for net trading.
• 60 operative ID’s for dealing room
• In house technology back up team to ensure un-interrupted connectivity.
•
1993: Networth Started with 300 Sq.ft. of office space & 10 employees
2006: Spread over 42 cities (around 70,000 Sq.ft of office space) with over 107
branches & employee strength over 400
Market & research
Focusing on your needs
Every investor has different needs, different preferences, and different viewpoints.
Whether investor prefer to make own investment decisions or desire more in-depth
assistance, company committed to providing the advice and research to help you
succeed.
Networth providing following services to their customers,
Daily Morning Notes
Market Musing
Company Reports
Theme Based Reports
Weekly Notes
IPOs
Sector Reports
Stock Stance
Pre-guarter/Updates
Bullion Tracker
F&O Tracker

QUALITY POLICY
To achieve and retain leadership, Networth shall aim for complete customer
satisfaction, by combining its human and technological resources, to provide superior
quality financial services. In the process, Networth will strive to exceed Customer’s
expectations.
As per the quality policy, Networth will:

14
  Build in house processes that will ensure transparent and harmonious
relationships with its clients and investors to provide high quality of services.
 Establish a partner relationship with in its investor service agents and vendors
that will help in keeping up its commitments to the customers.
 Provide high quality of work life for all its employees and equip them with
adequate knowledge & skill so as to respond to customer’s needs.
 Continue to uphold the values of honesty & integrity and strive to establish
unparalleled standards in business ethics.
 Use state-of-the art information technology in developing new and innovative
financial products and services to meet the changing needs of investors and
clients.
Strive to be a reliable source of value-added financial products and services and
constantly guide the individuals and institutions in making a judicious choice of it.
Strive to keep all stake-holders (share holders, clients, investors, employees, suppliers
and regulatory authorities) proud and satisfied.

Key Personnel:
• Mr. S P Jain – CMD Networth Stock Broking Ltd.
A qualified Chartered Accountant with over 17 years of experience in the
capital markets.
• Mr. Deepak Mehta – Head PMS
Over 12 years of experience in the capital markets and has the prior work
experience of serving on the Equity desk of Reliance.
• Mr.Viral Doshi – Equity Strategist
A qualified Chartered Accountant with experience of over a decade in
technical analysis with respect to equity markets.
• Mr. Vinesh Jain – Asst. Fund Manager
A qualified MBA graduate specializing in finance and over two years of
experience in the capital markets.
• Research and the Back office.

we have sought to provide premium financial services and information, so that the
power of investment is vested with the client. We equip those who invest with us to
make intelligent investment decisions, providing them with the flexibility to either tap

15
into our extensive knowledge and expertise, or make their own decisions. We made
our debut into the financial world by servicing Institutional clients, and proved its
high scalability of operations by growing exponentially over a short period of time.
Now, powered by a top-notch research team and a network of experts, we provide an
array of financial products & services spanning entire India.Our strong support,
technology-driven operations and business units of research, distribution, advisory,
wide array of products & services coalesce to provide you with a one-stop solution to
cater to all your investment needs. Our single minded objective is to help you grow
your Networth.

OUR GROUP COMPANIES

Networth Stock Broking Ltd. [NSBL]

NSBL is a member of the National Stock Exchange of India Ltd (NSE) and the
Bombay Stock Exchange Ltd (BSE) in the Capital Market and Derivatives (Futures &
Options) segment. NSBL has also acquired membership of the currency derivatives
segment with NSE, BSE & MCX-SX. It is Depository participants with Central
Depository Services India (CDSL) and National Securities Depository (India) Limited
(NSDL). With a client base of over 1L loyal customers, NSBL is spread across the
country though its over 230+ branches. NSBL is listed on the BSE since 1994.

Networth Wealth Solutions Ltd. [NWSL]

NWSL is into the business of delivery of Financial Planning & Advice. It’s vision is
to ‘Advice & Execute money related solutions to/for our customers in the most
Convenient & Consolidated manner, while making sure that their experience with us
is always pleasant & memorable resulting in positive advocacy’. The product &
Services include Financial Planning, Life Insurance, On-line Trading Account,
Mutual Funds, Debentures/Bonds, General Insurance, Loans and Depository Services.

NetworthStock.ComLtd.[NSCL]
NSCL is the COMPARATIVE FUTURE arm of NSBL. It is a member at the Multi
Commodity Exchange of India (MCX) and National Commodity & Derivatives
Exchange (NCDEX) and is backed by solid research & analytics in COMPARATIVE
FUTURE .

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NetworthSoftTechLtd.[NSL]
NSL is an ISO 9001:2000 Certified Company. It is into Application Development &
maintenance. Building & Implementation of packaged software across various
functions within the Financial Services Industry is at its core. It also provides data
center services which include hosting of websites, applications & related services. It
combines a unique delivery model infused by a distinct culture of customer
satisfaction.

Ravisha Financial Services Pvt. Ltd. [RFSL]

RFSL is a RBI registered NBFC engaged in financing, primarily it provides loan
against securities

Principles & Values

At Net worth Stock Broking Ltd. success is built on teamwork, partnership and the
diversity of the people.

At the heart of our values lie diversity and inclusion. They are a fundamental part of
our culture, and constitute a long-term priority in our aim to become the world's best
international bank.

Values

 Responsive
 Trustworthy
 Creative
 Courageous

Approach

 Participation:- Focusing on attractive, growing markets where we can leverage

our relationships and expertise

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 Competitive positioning:- Combining global capability, deep local knowledge
and creativity to outperform our competitors
 Management Discipline:- Continuously improving the way we work,
balancing the pursuit of growth with firm control of costs and risks
Commitment to stakeholders

 Customers:- Passionate about our customers' success, delighting them with the
quality of our service
 Our People:- Helping our people to grow, enabling individuals to make a
difference and teams to win
 Communities:- Trusted and caring, dedicated to making a difference
 Investors:- A distinctive investment delivering outstanding performance and
superior returns
 Regulators: - Exemplary governance and ethics wherever

18
 CHAPTER-III
LITERATURE REVIEW

19
INTRODUCTION

Until 1990, the Gold Control Act forbade the private holding of gold bars in India.
There was physical investment in smuggled ten tola bars, but it was limited and often
amounted to keeping a few bars ready to be made into jewellery for a family wedding.
Gold investment essentially was in 22 carat jewellery.
Reserve Bank of India

Since 1990, investment in small bars, both imported ten tolas and locally-made small
bars, which have proliferated from local refineries, has increased substantially. GFMS
estimate that investment has exceeded 100 tonnes (3.2 million oz) in some years,
although it is hard to segregate true investment from stocks held by the 18,000 or
more gold dealers spread across India. Certainly gold has been used to conceal
wealth, especially during the mid-1990s, when the local rupee price increased
steadily.

It was also augmented in 1998 when over 40 tonnes (1.3 million oz) of gold from
bonds originally issued by the Reserve Bank of India were restituted to the public.

In the cities, however, gold is having to compete with the stock market, investment in
internet industries, and a wide range of consumer goods. In the rural areas 22 carat
jewellery remains the basic investment.

The Gold Deposit Scheme

The government announced a new initiative in its 1999/2000 budget to tap the hoard
of private gold in India by permitting commercial banks to take gold deposits of bars,
coins or jewellery against payment of interest. Interest levels can be set by each bank,
and deposits must be for three to seven years. Interest and any capital gains on the
gold will be exempt from tax. The banks can lend the gold to local fabricators or sell
it in the Indian market or to local banks. However, the depositor has to declare the
origin of the gold, so that metal bought illegally to hide wealth cannot be deposited.
The State Bank of India was the first to accept deposits. To date, the amount of gold

20
collected under this scheme (less than 10 tonnes or 0.32 million oz) has fallen well
short of the 100 tonnes (3.2 million oz) that was mentioned when it was launched.

The introduction of a modern gold market in India:

1990 Abolition of the long-standing Gold Control Act, which had forbidden the
holding of 'primary' or bar gold except by authorised dealers and goldsmiths and
sought to limit jewellery holdings of families.

Imports were then permitted in three stages.

1992 Non-Resident Indians (NRIs) on a visit to India were each allowed to bring in
up to 5 kilos (180.7 oz) on payment of a small duty of six per cent. This allocation
was raised to 10 kilos in 1997.

1994 Gold dealers could bid for a Special Import Licence (SIL) which was issued for
a variety of luxury imports.

1997 Open General Licence (OGL) was introduced, paving the way for substantial
direct imports by local banks from the international market, thus partly eliminating
the regional supplies from Dubai, Singapore and Hong Kong.

The OGL system has also largely eclipsed imports by NRIs and SILs. Additionally,
significant temporary imports are permitted under an Export Replenishment scheme
for jewellery manufacturers working for export in designated special zones.

In 2001 unofficial imports fell because of a reduction in import duties, pushing down
the local premium and making smuggling less profitable. Ten tola bars are still the
preferred form of gold in India, accounting for 95% of imports.

Precious Metal bulls will tell you to buy the dips. This means, wait for the price to
temporarily deflate, and then purchase your position. It is a way to maximize dollars

21
for gold and silver purchased while maintaining a steady buying program in that
metal. The same concept could be used for any fund or stock, as well.

This morning I woke to find gold and silver had tumbled. This doesn't surprise me
anymore because gold and silver have become hotter markets, and there will be more
speculation in them. As I wrote in Mr. Market Speaks: Flight to Safety, the market is
slowing moving away from long term debt, looking for safety of principal and
inflation protection. Gold and silver markets have benefited from this movement.

Gold has steadily been moving relatively sideways the last two days, as seen in the
following Kitco chart. But also notice the sharp drop off on Jan 20th at approximately
8am.

Silver looked exactly the same. The sharp downward move happened about the same

time.

So I took a look at a 5 minute gold chart and found a 18 minute sharp drop, which I
circled in red.

I have written before about how sharp, quick movements in liquid markets don't
signal normal price action. Even on bad news, liquid markets take time to react and
respond because they are traded by people. And people take time to make decisions
on the overall balance of the news in a given market in a given time frame.

So I decided to take a look at what the news was in the precious metals market.
CNBC didn't have much.

On gold, Bloomberg Businessweek had a piece on everyone getting out of gold.

Definitely bearish. The Street agreed with that assessment, commenting that interest
rate hikes in Brazil and buying of US Dollars weakened gold demand domestically.
But the article also notes that China continues to buy gold in Brazil. The Wall Street
Journal reports gold weakness on improving economic conditions.

Bloomberg had a piece about silver profit taking potentially lowering silver 20%.
Definitely bearish and timely. I also found an article from FMX Connect on silver,
discussing reasons for silver contango yesterday.
22
The two main reasons FMX outlines for this movement in silver would either be an
interest rate move (none) or metals delivery issues. If metals delivery issues, then this
is bullish for silver (and potentially gold) as a complementary inflation-protection
investment.

Ben Davies has commented before on a coming short squeeze in the gold and silver
markets. So has Ted Butler. And Robert Lenzner. Is it finally time, or is it profit
taking in the silver market that has been hovering around $30 for a while?

On the whole, it sounds like there is bearish sentiment and bullish sentiment on gold
and silver, which sounds like a perfectly normal market condition. That is why the
sharp price movements over very small time frames, as noted in the charts above, is
disturbing. Even if a large share of the market decided to take profits and sell, it is not
likely to have happened within a 18 minute window at 8am in the morning. This
smells of market manipulation to me.

On balance, I remain bullish on gold and silver. I don't buy paper versions of these
investments as I think those markets are fractional reserved upon meager physical
metal backing. I recommend investing in the physical metals. And the current price
action sounds like a perfect opportunity to purchase gold and silver on the cheap.

I will continue to follow gold and silver news and vette it out in a reasonable manner.
If the markets turn bearish upon a real economic recovery, then I may change my
position. And I will write about it when I do. But for now, I am not buying the gold
and silver markets top story. I think we are firmly going the other direction, regardless
of what this morning's price activity is saying.

FINANCIAL DERIVATIVES

The term derivatives refer to a large number of financial instruments whose

value is derived from the underlying assets. Derivative instruments like the options
and futures facilitate the trading in financial contracts. The most important underlying
instruments in the market are in the form of Equity, treasury bills, and foreign
exchange. The trading in the financial derivatives has attracted the prominent players
of the equity markets.

23
 The primary purpose of a derivative contract is to transfer risk from one party
to another i.e. risk is transferred from a party that wants to get rid of it to another party
i.e. willing to take it. The major players seen in the derivatives segment are the
SPECULATORS whose sole objective is to buy and sell for a profit alone. The
HEDGERS are the other breeds of players, who aim merely to have a hedge positions.
They are risk free investors whose intention is to have a safety mechanism and wish
to protect their portfolio. Nevertheless, they are pursued as a cheap and efficient way
of moving risk within the economic system. But the world of derivatives is riddled
with jargons making it more awesome.

The trading in equity through the derivatives in India was introduced in the
year 2000 by the Securities and Exchange Board of India [SEBI] and this was
described as the “India’s derivative explosion”. Although this took a definite form in
2000 but the idea was initiated in the year 1995. it was then in the year 2000 that
SEBI permitted the trading the in the options on the platforms of India’s premier
exchange platforms i.e., the National Stock Exchange Of India limited [NSE] and The
Bombay Stock Exchange [BSE] in the individual securities. But the futures contracts
took 17 long months to get launched on November 09’ 2001.

The trading in options and futures in the individual stocks were permitted to
trade on the stable stocks only. The small and highly volatile stocks were an
exemption from the trade in derivatives. Futures and options are important tools that
help the investors to derive profit. The futures facilitate the investor to enter into a
contract to deliver the underlying security at a future date whereas, the options allow
it to his discretion as to whether he wants to buy (call) or sell (put) the contract.

The current trading behavior in the derivatives segment reveals that single
stock futures continues to account for a sizeable proportion. A recent report indicates
that the trading in the individual stock futures in the Indian exchanges has reached
global volumes. One possible reason for such a behavior of the trader could be that
futures closely resemble the erstwhile ‘BADLA’ system.

24
COMPARATIVE FUTURE

Commodity market is an important constituent of the financial markets of any

country. It is the market where a wide range of products, viz., precious metals, base
metals, crude oil, energy and soft COMPARATIVE FUTURE like palm oil, coffee
etc. are traded. It is important to develop a vibrant, active and liquid commodity
market. This would help investors hedge their commodity risk, take speculative
positions in COMPARATIVE FUTURE and exploit arbitrage opportunities in the
market.

The need for a futures market in the COMPARATIVE FUTURE , especially,

in the primary COMPARATIVE FUTURE was emphasized because such a market
not only provides ample opportunities for effective management of price risk, but
also, assists inefficient discovery of prices which can serve as a reference for the trade
in the physical COMPARATIVE FUTURE in both the external as well as in the
internal market.

India, a commodity based economy where two-third of the one billion

population depends on agricultural COMPARATIVE FUTURE , surprisingly has an
under developed commodity market. Unlike the physical market, futures markets
trades in commodity are largely used as risk management (hedging) mechanism on
either physical commodity itself or open positions in commodity stock.

There was an effort to revive these markets but all went in vain due to
improper infrastructure and facilities. However, after India joined the WORLD
TRADE ORGANIZATION the need to protect the agricultural community against the
price fluctuations cropped up. The National agricultural policy 2000 was formulated
and proposed to expand the coverage of the futures market to minimize the volatility
in the COMPARATIVE FUTURE prices and hedging the risk arising out of the
fluctuations in the prices. As a result of this there is a standardized form of
commodity futures trading in the country, today and a lot number of people are active
in the COMPARATIVE FUTURE exchanges, taking it to a great high.

25
 The active players in these exchanges are Traders, Speculators and the
Hedgers. It is said that now-a days the prices of the COMPARATIVE FUTURE in
the Physical Market (Mandis) is derived in accordance to the spot prices in the
commodity exchanges.

Clearly, in the nascent stage, the derivatives market in India is heading in the
right direction. In the terms of the number of contracts in a single commodity/stock it
is probably the largest market globally. It is no longer a market that can be ignored by
any of the serious participants. The Indian economy, now, is at the verge of greater
expansion the any other economies in the globe today. This has attracted a large
number of institutional investors, both – the Indian as well as foreign, to invest in to
the Indian stocks and COMPARATIVE FUTURE , thereby bringing in a lot of forex
reserves. As predicted by the popular investment Gurus’ and the great Economists
world wide, “India will be a major player in the global economy by the end of this
decad”. We can conclude that, with the institutional participation set to increase and a
broader product rollout inevitable, the market can only widen and deepen further.

TRADING INSTRUMENTS

Derivatives in the recent times have become very popular because of their
wide application. Before getting into the hard talks about the COMPARATIVE
FUTURE trade, let us know about the trading instruments in the derivatives, as they
are similarly applicable to the COMPARATIVE FUTURE derivatives.

There are 4 types of Derivatives instrument:

 Forward contract

 Future contract

 Options contract

 Swap

26
 Futures and Options are actively used in many exchanges whereas; Forwards
and Swaps are mostly trade Over the Counter (OTC).

FORWARDS CONTRACT

A spot or cash market is the most commonly used for trading. A majority of
our day-to-day transactions are in the cash market. In addition to the cash purchase,
another way trading is by entering into a Forward contract. A Forward contract is an
agreement to buy or sell an asset on a specified date of a specified price. These
contracts are usually entered between a financial institution and its corporate clients or
two financial institutions themselves. In the context to the Commodity trading, prior
to the standardization, the trade was carried out as a forwards contract between the
Associations, Producers and Traders. Where the Association used to act as counter for
the trade.
A forward contract has been in existence in the organized COMPARATIVE
FUTURE exchanges for quite sometimes. The first forward contract probably started
in Japan in the early 18th century, while the establishment of the CHICAGO BOARD
OF TRADE (CBOT) in 1848 led to the start of a formal COMPARATIVE FUTURE
exchange in the USA.
Forward contracts are very useful in HEDGING and SPECULATION. The
essential idea of entering into the forward contract is to Hedge the price thereto avoid
the price risk. By entering into a forward contract one is assured of the price at which
the goods/assets are bought and sold. The classic Hedging example would be that of
an exporter who expects to receive payment in foreign currency after three months.
As he is exposed to greater amount of risk in the fluctuations in the exchange rates, he
can, with the use of forwards, lock-in the rate today and reduce the uncertainty.
Similarly, if a speculator has the information of an upswing in the prices of the asset,
he can go long on the forward market instead of the cash market and book the profit
when the target price is achieved.
The forward contract is settled at the maturity date. The holder of the short
position delivers the assets to the holder of the long position on the maturity against a
cash payment that equals to the delivery price by the buyer. The price agreed in the

27
forwards contract is the DILIVERY PRICE. Since the delivery price is chosen at the
time of entering into the contract, the value of the contract becomes zero to both the
parties and costs nothing to either the holder of the long position or to the holder of
the short position.

The salient features of a forwards contract are:

 It is a bilateral contract and hence is exposed to counter-party risk.

 Every contract is unique and is custom designed in the terms of: expiration
date and the asset type and quality.

 The contract price is not available in the public domain.

On the expiration, the contract is to be settled by the delivery of the asset.

Of the party wishes to reverse the contract, he has to go to the same counter-party,
which may result o attract some charges.

FUTURES CONTRACT

“Financial futures represent the most significant financial innovations of the

last twenty years.” - As quoted by MERTON MILLER, a noble lauret’ 1999.

The father of financial derivatives is Leo Me lamed. The first exchange that
traded in the financial derivatives was INTERNATIONAL MONETARY MARKET,
wing of the Chicago Mercantile Exchange, Chicago, in the year 1972.

The futures market was designed to solve the problems, existing in the
forwards market. A financial future is an agreement between two parties to buy or sell
a standard quantity of a specified good/asset on a future date at an agreed price.
Accordingly, future contracts are promises: the person who initially sells the contract
promises to deliver a specified underlying asset to a designated delivery point during

28
a certain month, called delivery month. The underlying asset could, well be, a
commodity, stock market index, individual stock, currency, interest rates etc.. The
party to the contract who determines to pay a price for the goods is assumed to take a
long position, while the other who agrees to sell is assumed to be taking a short
position.
The futures contracts are standardized in the terms of:

 Quantity of the underlying assets.

 Quality of the underlying assets.

 Date and month of the delivery.

 Units of the price quotations and minimum price change, and

 Location of the settlement.

 It is due to the standardization that the futures contract has an edge with the
forward contract, in the terms of: Liquidity, safety and the security to honoring
the contract which is otherwise not secured in an OTC trading forwards
contract.

In short, futures contract is an exchange-traded version of the usual forward

contract. There are however, significant differences between the two and the same can
be appreciated from the above discussion.

Benefits to Industry from Futures trading:

 Hedging the price risk associated with futures contractual commitments.

 Spaced out purchases possible rather than large cash purchases and its storage.

 Efficient price discovery prevents seasonal price volatility.

29
  Greater flexibility, certainty and transparency in procuring COMPARATIVE
FUTURE would aid bank lending.

 Facilitate informed lending.

 Hedged positions of producers and processors would reduce the risk of default
faced by banks.

 Lending for agricultural sector would go up with greater transparency in

pricing and storage.

 Commodity Exchanges to act as distribution network to retail agri-finance

from Banks to rural households.

 Provide trading limit finance to Traders in COMPARATIVE FUTURE

Exchanges.

OPTIONS CONTRACT

Options have existed over a long period but were traded over the counter
(OTC) only. These contracts are fundamentally different from that of futures and
forwards. In the recent years options have become fundamental to the working of
global capital markets. They are traded on a wide variety of underlying assets on both,
the exchanges and OTC. Options like the futures are also available on many
traditional products such as equities, stock indices, COMPARATIVE FUTURE and
foreign exchange interest rates etc., options are used as a derivate instrument only in
financial capital market in India and not in commodity derivatives. It is in the process
in introduction.

Options, like futures, also speculative in nature. Options is a legal contract

which, facilitate the holder of the contract, the right but not the obligations to buy or
sell the underlying asset at the fixed rate on a future date. It should be highlighted
that, unlike that the futures and forward contract the options gives the buyer of the
contract, the right to enter into a contract and he doesn’t have to necessarily exercise
the right to give, take the delivery. When a contract is made the buyer has to pay
some money as a ‘Premium’ to the seller to acquire such a right.

30
Options are basically of two types.

 Call options

 Put options

Call options: A call options gives the buyer the right to buy the underlying
asset at a strike price specified in the option. The profit/loss depends on the expiration
date of the contract if the spot price exceeds the strike price the holder of the contract
books a profit and vice-versa. Higher the spot price more is the profit.

Put options: A put option give the buyer the right to sell the underlying asset
at the strike price specified in the option. The profit/loss that the buyer makes on the
option depends on the spot price of the underlying asset. If the spot price is below the
strike price he makes profit and vice-versa. If the spot price is higher than the strike
price he will wait up to the expiry or else book the profit early.

SWAPS:

Swaps were developed as a long-term price risk management instrument

available on the over-the-counter market. Swaps are private agreements between two
parties to exchange cash flows in the future according to a pre-arranged formula.
These agreements are used to manage risk in the financial markets and exploit the
available opportunity for arbitrage in the capital market.

A swap, generically, is an exchange. In the financial parlance it refers to an

exchange of a series of cash flows against another series of cash flows. Swaps are also
used in the asset/liability management to obtain cost-effective financing and to
generate higher risk-adjusted returns. With swaps, producers can effectively fix, i.e.
lock in, the prices they receive over the medium to long-term, and consumers can fix

31
the prices they have to pay. No delivery of the asset is involved; the mechanism of
swaps is purely financial.

The swaps market originated in the late 1970’s, when simultaneous loans were
arrange between British and the US entities to bypass regulatory barriers on the
movement of foreign currency .the land mark transaction

Between the World Bank and the IBM in august 1981, paved the way for the
development of a market that has grown from a nominal volume in the early 1980’s to
an outstanding turnover of US $ 46.380tn in 1999.

The swaps market offers several advantages like:

 These agreements are undertaken privately while transactions using exchange

traded derivatives are public.
 Since the swaps products are not standardized, counter parties can customize
cash-flow streams to suit their requirements

 The swaps can be regarded as portfolios of forward contracts. 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.
PARTICIPANTS IN THE DERIVATIVE MARKET

There are three major participants in the derivatives market. They are:

 Hedgers
 Speculators

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  Arbitragers

HEDGERS

He is the person who enters the derivatives market to lock-in their prices to
avoid exposure to adverse movements in the price of an asset. While such locking
may not be extremely profitable the extent of loss is known and can be minimized.
They are in the position where they face risk associated with the price of an asset.
They use derivatives to reduce or eliminate risk.

For example, a farmer may use futures or options to establish the price for his
crop long before he harvests it. Various factors affect the supply and demand for that
crop, causing prices to rise and fall over the growing season. The farmer can watch
the prices discovered in trading at the CBOT and, when they reflect the price he
wants, will sell futures contracts to assure him of a fixed price for his crop.

A perfect hedge is almost impossible. While hedging Basis risk could arise.
Basis = Spot price of asset to be hedged – Futures price of the contract used. Basis
risk arises as a result of the following uncertainties:

The exact date when the asset will be bought or sold may not be known.
The hedge may require that the Futures contract be closed before expiration.
PRICE
FUTURES PRICE

BASIS

SPOT PRICE

EXPIRY DATE TIME

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SPECULATORS:

A speculator is a one who accepts the risk that hedgers wish to transfer. A
speculator takes positions on expectations of futures price movements and in order to
make a profit. In general a speculator buy futures contracts when he expect futures
prices to rise and sell futures contract when he expects futures prices to fall, but has
no desire to actually own the physical commodity.

Speculators wish to bet on the future movement in the price of an asset. They
use derivatives to get extra leverage. They take positions in the market and assume
risk to profit from fluctuations in the prices. Infact, the speculators consume the
information, make forecast about the prices and put their money in these forecast. By
taking positions, they are betting that the price would go up or they are betting it
would go down. Depending on their perception, they may long or short positions on
the futures or /and options, or may hold spread positions.

ARBITRAGEURS

“Simultaneous purchase of securities in one market where the prices thereof are low
and sale thereof in another market, where the price thereof is comparatively higher.
These are done when the same securities are been quoted at different prices in the two
markets, with a view to make a profit and carried on with the conceived intention to
derive advantage from difference in prices of securities prevailing in the two
markets”. -As defined by The Institute of Chartered Accountants of India.

Arbitrageurs thrive on the market imperfections. They profit by trading on

given COMPARATIVE FUTURE , or items, that are in the business to take
advantage of a discrepancy between prices in two different markets. If, for example,
they see the future prices of an asset getting out of line with the cash price, they will
take offsetting positions in the two markets to lock in a profit.

Thus, the arbitrage involves making risk-less profit by simultaneously entering

into transactions in two or more markets. With the introduction of derivate trading the

34
scope of arbitrageurs’ activities extends to arbitrage over time i.e., he can buy
securities in an index today and sell the futures, maturing in the month or two.
TRADING OF COMPARATIVE FUTURE IN INDIA

Trading of all the derivatives in India is carried over:

 Exchanges

 Over the counter

EXCHANGE TRADING

An asset (commodity/stock), when is traded over an organized exchange is it

is termed, to be traded on the Exchange. This type of trading is the general trading
which we see on the major exchanges world over. The settlement in the exchange
trading is highly standardized.

OVER THE COUNTER TRADING

An asset (commodity/stock) is traded over the counter usually because the

company is small and unable to meet listing requirements of the exchanges and
facilitates the trading in those areas where the exchanges are not located. Also known
as unlisted the assets are traded by brokers/dealers who negotiate directly with one
another over computer networks and by phone.

Instruments such as bonds do not trade on a formal exchange and are thus
considered over-the- counter securities. Investment banks making markets for specific
issues trade most debt instruments. If someone wants to buy or sell a bond, they
call the bank that makes the market in that asset.

35
Exchange Vs OTC Trading

The OTC derivatives markets have witnessed rather sharp growth over the last
few years, which have accompanied the modernization of commercial and investment
banking and globalization of financial activities. The recent developments in
information technology have contributed to a great extent to these developments.
While both exchange-traded and OTC derivative contracts offer many benefits, the
former have rigid structures compared to the latter. It has been widely discussed that
the highly leveraged institutions and their OTC derivative positions were the main
cause of turbulence in financial markets in 1998. These episodes of turbulence
revealed the risks posed to market stability originating in features of OTC derivative
instruments and markets.
The OTC derivatives markets have the following features compared to exchange-
traded derivatives:

 The management of counter-party (credit) risk is decentralized and located

within individual institutions.

 There are no formal centralized limits on individual positions, leverage, or

margining.

 There are no formal rules for risk and burden-sharing,

 There are no formal rules or mechanisms for ensuring market stability and
integrity, and for safeguarding the collective interests of market participants,

 The OTC contracts are generally, not regulated by a regulatory authority and
the exchange’s self-regulatory organization, although they are affected
indirectly by national legal systems, banking supervision and market
surveillance.

36
COMPARATIVE FUTURE MARKET…..

Global Perspective

Oil accounts for 40 per cent of the world's total energy demand.
The world consumes about 76 million bbl/day of oil.
United States (20 million bbl/d), followed by China (5.6 million bbl/d) and Japan (5.4
million bbl/d) are the top oil consuming countries.
Balance recoverable reserve was estimated at about 172.7 billion tons (in 2002), of
which OPEC was 112 billion tons

37
The major COMPARATIVE FUTURE trading exchanges globally are:

 Chicago Board Of Trade (COBOT). U.S.A.

 New York Mercantile Exchange (NYMEX). U.S.A.

 London Metal Exchange (LME). United Kingdom.

 Tokyo Commodity Exchange (TOCOM). Japan

 International Petroleum Exchange (IPE).

 London Metal Exchange (LME). United Kingdom

 Sydney Futures Exchange (SFE). Australia

 Brazilian Futures Exchange (BBF). Brazil

 Winnipeg Commodity Exchange (WCE). Canada

 Marche a Terme International de France (MATIF). France

 Hong Kong Futures Exchange (HKFE). Hong Kong

 New Zealand Futures & Options Exchange (NZFOE). New Zealand

 Russian Commodity and Raw Materials Exchange. Russia

 Singapore International Monetary Exchange (SIMEX). Singapore

 South African Futures Exchange (SAFEX). South Africa

 Dalian Commodity Exchange. China

 Shanghai Metal Exchange (SME). China

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Chicago Board Of Trade (CBOT)

The Chicago Board of Trade (CBOT), established in 1848, is a leading futures and
options on futures exchange. More than 3,600 CBOT members trade 50 different
futures and options products at the exchange through open auction and/or
electronically. Volume at the exchange in 2003 was a record breaking 454 million
contracts.

In its early history, the CBOT traded only agricultural COMPARATIVE

FUTURE such as corn, wheat, oats and soybeans. Futures contracts at the exchange
evolved over the years to include non-storable agricultural COMPARATIVE
FUTURE and non-agricultural products like gold and silver. The CBOT's first
financial futures contract, launched in October 1975, was based on Government
National Mortgage Association mortgage-backed certificates. Since that introduction,
futures trading has been initiated in many financial instruments, including U.S.
Treasury bonds and notes, stock indexes, and swaps, to name but a few. Another
market innovation, options on futures, was introduced in 1982.

For more than 180 years, the primary method of trading at the CBOT was
open auction, which involved traders meeting face-to-face in trading pits to buy and
sell futures contracts. But to better meet the needs of a growing global economy, the
CBOT successfully launched its first electronic trading system in 1994. During the
last decade, as the use of electronic trading has become more prevalent, the exchange
has upgraded its electronic trading system several times. Most recently, on January 1,
2004, the CBOT debuted its new electronic platform powered by the cutting-edge
trading technology. As of 1st January 2004, the Chicago Mercantile Exchange is
providing clearing and related services for all CBOT products

39
New York Mercantile Exchange (NYMEX)

The NYMEX in its current form was created in 1994 by the merger of the
former New York Mercantile Exchange and the Commodity Exchange of New York
(COMEX). Together the represent one of the world's largest markets in
COMPARATIVE FUTURE trading.

It deals in futures (and options) in oil products, such as crude oil, heating oil,
leaded regular gasoline, natural gas, propane and in rare metals, such as platinum and
palladium. It also deals in gold and silver, aluminum and PLATINUM, sharing with
the London Metal Exchange a dominant role in the world metal trading.

London Metals Exchange

The London Metal Exchange is the world's premier non-ferrous metals market
with highly liquid contracts and a worldwide reputation. It is innovative while
maintaining its traditional strengths and remains close to its core users by ensuring its
contracts continue to meet the high expectations of industry. As a result, it is highly
successful with a turnover in excess of US$3,000 billion per annum. It also
contributes to the UK’s invisible earnings to the sum of more than £250 million in
overseas earnings each year.
The origins of the London Metal Exchange can be traced as far back as the
opening of the Royal Exchange in 1871. This is where metal traders first began to
meet on a regular basis. However, it was in 1877 that the London Metal Market and
Exchange Company were formed as a direct result of Britain's industrial revolution of
the 19th century. This led to a massive increase in the UK’s consumption of metal,
which required the import of enormous tonnages from abroad. Merchant venture’s
were investing large sums of money in this activity and were exposed to great risk,
not only because the voyages were hazardous but also because the cargoes could lose
value if there was a fall in price during the time it took for the metal to reach Britain.

40
INDIAN PERSPECTIVE

There are three major exchanges for the commodity trading in India. They are:

 The National COMPARATIVE FUTURE and Derivatives Exchange Ltd.

(NCDEX)

 Multi COMPARATIVE FUTURE Exchange of India Ltd. (MCX)

 National Multi-Commodity Exchange Ltd. (NMCE)

National Commodity & Derivatives Exchange Limited (NCDEX)

The National COMPARATIVE FUTURE and Derivatives Exchange Ltd is a

professionally managed online multi commodity exchange promoted by ICICI Bank
Limited (ICICI Bank), Life Insurance Corporation of India (LIC), National Bank for
Agriculture and Rural Development (NABARD) and National Stock Exchange of
India Limited (NSE). Punjab National Bank (PNB), CRISIL Limited (formerly the
Credit Rating Information Services of India Limited), Indian Farmers Fertilizer
Cooperative Limited (IFFCO) and Canara Bank by subscribing to the equity shares
have joined the initial promoters as shareholders of the Exchange. NCDEX is the only
commodity exchange in the country promoted by national level institutions. This
unique parentage enables it to offer a bouquet of benefits, which are currently in short
supply in the commodity markets. The institutional promoters of NCDEX are
prominent players in their respective fields and bring with them institutional building
experience, trust, nationwide reach, technology and risk management skills.

NCDEX is a public limited company incorporated on April 23, 2003 under the
Companies Act, 1956. It obtained its Certificate for Commencement of Business on
May 9, 2003. It has commenced its operations on December 18,2003

41
 NCDEX is a nation-level, technology driven de-mutuali zed on-line
commodity exchange with an independent Board of Directors and professionals not
having any vested interest in commodity markets. It is committed to provide a world-
class commodity exchange platform for market participants to trade in a wide
spectrum of COMPARATIVE FUTURE driven by best global practices,
professionalism and transparency.

Forward Market Commission regulates NCDEX in respect of futures trading

in COMPARATIVE FUTURE . Besides, NCDEX is subjected to various laws of the
land like the Companies Act, Stamp Act, Contracts Act, Forward Commission
(Regulation) Act and various other legislations, which impinge on its working.

NCDEX is located in Mumbai and offers facilities to its members in more

than 390 centers throughout India. The reach will gradually be expanded to more
centers. NCDEX currently facilitates trading of thirty six COMPARATIVE FUTURE
- Cashew, Castor Seed, Chana, Chilli, Coffee, Cotton, Cotton Seed Oilcake, Crude
Palm Oil, Expeller Mustard Oil, Gold, Guar gum, Guar Seeds, Gur, Jeera, Jute
sacking bags, Mild Steel Ingot, Mulberry Green Cocoons, Pepper, Rapeseed -
Mustard Seed, Raw Jute, RBD Palmolein, Refined Soy Oil, Rice, Rubber, Sesame
Seeds, Silk, Silver, Soy Bean, Sugar, Tur, Turmeric, Urad (Black Matpe), Wheat,
Yellow Peas, Yellow Red Maize & Yellow Soybean Meal. At subsequent phases
trading in more COMPARATIVE FUTURE would be facilitated.

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Multi COMPARATIVE FUTURE Exchange of India Ltd (MCX)

MCX an independent and de-mutulised multi commodity

exchange has permanent recognition from Government of
India for facilitating online trading, clearing and settlement
operations for commodity futures markets across the country. Key shareholders of
MCX are Financial Technologies (India) Ltd., State Bank of India, NABARD, NSE,
HDFC Bank, State Bank of Indore, State Bank of Hyderabad, State Bank of
Saurashtra, SBI Life Insurance Co. Ltd., Union Bank of India, Bank Of India, Bank
Of Baroda, Canara Bank, Corporation Bank.

Head quartered in Mumbai, an expert management team with deep domain

knowledge of the commodity futures markets leads MCX. Through the integration of
dedicated resources, robust technology and scalable infrastructure, since inception
MCX has recorded many first to its credit.

Inaugurated in November 2003 by Mr. Mukesh Ambani, Chairman &

Managing Director, Reliance Industries Ltd, MCX offers futures trading in the
following commodity categories:
Agri COMPARATIVE FUTURE ,
Bullion, Metals- Ferrous & Non-ferrous,
Pulses,
Oils & Oilseeds,
Energy, Plantations,
Spices

MCX has built strategic alliances with some of the largest players in
COMPARATIVE FUTURE eco-system, namely, Bombay Bullion Association,
Bombay Metal Exchange, Solvent Extractors' Association of India, Pulses Importers
Association, Shetkari Sanghatana, United Planters Association of India and India
Pepper and Spice Trade Association.

43
 Today MCX is offering spectacular growth opportunities and advantages to a
large cross section of the participants including Producers / Processors, Traders,
Corporate, Regional Trading Centers, Importers, Exporters, Cooperatives, Industry
Associations, amongst others MCX being nation-wide commodity exchange, offering
multiple COMPARATIVE FUTURE for trading with wide reach and penetration and
robust infrastructure, is well placed to tap this vast potential.

Vision and Mission of the Multi COMPARATIVE FUTURE exchange

of India.

The vision of MCX is to revolutionize the Indian commodity markets by

empowering the market participants through innovative product offerings and
business rules so that the benefits of futures markets can be fully realized. Offering
'unparalleled efficiencies', 'unlimited growth' and 'infinite opportunities' to all the
market participants.

At MCX we believe that performance excellence and affordability would be

the key drivers in promoting and popularizing COMPARATIVE FUTURE Futures
trading in the country. Exchanges in the new economy will be driven by strong
service availability backed by superior technology and MCX is well poised to emerge
as the "Exchange of Choice" for the commodity futures trading community.

44
 COMPARATIVE FUTURE
SYMBOLS
Gold, Gold HNI, Gold M, I-Gold, Silver,
Silver HNI, Silver M

Castor Oil, Castor Seeds,

Castor Seeds (Disa), Cottonseed,
Crude Palm Oil, Groundnut Oil,
Kapasia Khalli (Cottonseed Oilcake),
Mustard Seed
(Hapur),
Mustard Seed (Jaipur),
Mustard /Rapeseed Oil,
Mustard Seed (Sirsa), RBD Palmolein,
Refined Soy
Oil, Sesame Seed, Soyameal Soya Seed
Cardamom, Jeera, Pepper, Red Chilli,
Turmeric
Aluminium, PLATINUM, Nickel, Sponge
Iron, SteelFlat,
Steel Long (Bhavnagar),
Steel Long (Gobindgarh), Tin
Cotton Long Staple ,
Cotton Medium Staple,
Cotton Short Staple, Kapas
Chana, Masur, Tur, Urad, Yellow Peas,

Basmati Rice, Maize, Rice, Sarbati Rice,

Wheat
Brent Crude Oil, Crude Oil, Furnace Oil

Cashew Kernel, Rubber

45
 High Density Polyethylene (HDPE),
Polypropylene
(PP),
Guar Seed, Guargum, Gur, Mentha Oil,
Sugar M-30, Sugar S-30,

46
 UNIT OF YIELD/TIC
UNIT OF YIELD/Re. TRADING
COMMODITY PRICE or TIC
TRADING MOVEMENT SESSION
QUOTATION VALUE
PRECIOUS METALS
GOLD-M 10gm 100gm 10.00 1.00 10.00 10:00AM-11:30PM
GOLD 10gm 1000gm 100.00 1.00 100.00 10:00AM-11:30PM
SILVER-M 1KG 5KG 5.00 1.00 5.00 10:00AM-11:30PM
SILVER 1KG 30KG 30.00 1.00 30.00 10:00AM-11:30PM
AGRICULTURAL PRODUCTS
10:00AM-5:00PM
SOYA 1QT 10QT 10.00 0.05 0.50
&
10:00AM-5:00PM
SOYA OIL 10KG 1000KG 100.00 0.05 5.00
&
PALMOLEIN 10:00AM-5:00PM
10KG 1000KG 100.00 0.05 5.00
OIL CRUDE &
PALMOLEIN 10:00AM-5:00PM
10KG 1000KG 100.00 0.05 5.00
OIL RBD &
10:00AM-5:00PM
CASTOR 100KG 1MT 10.00 0.25 2.50
&
10:00AM-5:00PM
CASTOR OIL 10KG 1MT 100.00 0.10 10.00
&
GROUND NUT 10:00AM-5:00PM
10KG 1MT 100.00 0.10 10.00
OIL &
10:00AM-5:00PM
GAUR SEED 100KG 5MT 50.00 1.00 50.00
&
BLACK 10:00AM-5:00PM
100KG 1MT 10.00 1.00 10.00
PEPPER &
10:00AM-5:00PM
KAPAS 20KG 4MT 200.00 0.10 20.00
&
INDUSTRIAL METALS
10:00AM-5:00PM
STEEL LONG 1MT 25MT 25.00 0.50 12.50
&
10:00AM-5:00PM
STEEL FLAT 1MT 25MT 25.00 0.50 12.50
&
PLATINUM 1KG 1MT 1000.00 0.05 50.00 10:00AM-11:30PM
10:00AM-5:00PM
NICKEL 1KG 250KG 250.00 0.50 125.00
&
TIN 1KG 500KG 500.00 0.25 125.00 10:00AM-5:00PM
Multi-Commodity Exchange, MCX

47
The National Multi Commodity Exchange of India ltd.

The first state-of-the-art de-mutualized multi-commodity Exchange,

NMCE commenced futures trading in 24 COMPARATIVE FUTURE
on 26th November, 2002 on a national scale and the basket of COMPARATIVE
FUTURE has grown substantially since then to include cash crops, food grains,
plantations, spices, oil seeds, metals & bullion among others. NMCE was the first
Exchange to take up the issue of differential treatment of speculative loss. It was also
the first Exchange to enroll participation of high net-worth corporate securities
brokers in COMPARATIVE FUTURE market. NMCE has also made immense
contribution in raising awareness about and catalyzing implementation of policy
reforms in the commodity sector.. It was the Exchange, which showed a way to
introduce warehouse receipt system within existing legal and regulatory framework. It
was the first Exchange to complete the contractual groundwork for dematerialization
of the warehouse receipts. Innovation is the way of life at NMCE.

National Multi Commodity Exchange of India Ltd. (NMCE), promoted by

commodity-relevant public institutions, viz., 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 Limited (NOL). The Punjab National Bank (PNB) took equity
of the Exchange to establish that linkage. Even today, NMCE is the only Exchange in
India to have such investment and technical support from the commodity relevant
institutions. These institutions are represented on the Board of Directors of the
Exchange and also on various committees set up by the Exchange. The experienced
and qualified professionals with impeccable integrity and expertise manage the day-
to-day operations of the Exchange. None of them have any trading interest.

48
Vision
National Multi-Commodity Exchange of India Limited is committed to
provide world class services of on-line screen based Futures Trading of permitted
COMPARATIVE FUTURE and efficient Clearing and guaranteed settlement, while
complying with Statutory / Regulatory requirements. We shall strive to ensure
continual improvement of customer services and remain quality leader amongst all
commodity exchanges.

Mission

Continuous improvement in Customer Satisfaction.

Improving efficiency of marketing through on-line trading in Dematerialization form.
Minimizing of settlement risks.
Improving efficiency of operations by providing best infrastructure.
Rationalizing the transaction fees to optimum level.
Implementing best quality standards and testing in tune with trade practices.
Improving facilities for structured finance.
Improving quality of services rendered by suppliers.
Promoting awareness about on-line features trading services of NMCE across the
length and breadth of the country.

Turn over of the Indian commodity futures’ market

Turnover on Commodity Futures Markets

(Rs. In Crores)

Exchange 2010-11 2011-12

NCDEX 1790 54011

NBOT 53017 51038

MCX 2456 30695

NMCE 23842 7943

ALL EXCHANGES 129364 170720

49
NCDEX TRADING SYSTEM

A trading system is a system of rules and guidelines of the whole trading

process.
The system includes:
First in the system, the TICKER for each commodity is shown on the trading
terminal. Generally it is standardized for all the exchanges in a country, but
nevertheless, it may differ between the exchanges in same country.

Firstly, the Format for Tickers is like this:

CCCGGGLLL

CCC – three letters for the commodity.

GGG – three letters for the grade.
Wherever there is no particular grade, either STD (standard) or GR1 (grade 1) has
been used.
LLL – three letters for the delivery location.
Eg. SYOREFIND -- SYO: Soy Oil, REF: Refined, IND: Indore

Now let’s have a look at the format of the tickers for all the
COMPARATIVE FUTURE that are traded in NCDEX:

GLD100MUM : “Gold”+“100% pure”+“Mumbai”

SLV100DEL : “Silver”+“100% pure”+“Delhi”
SYBGR1IND : “Soy Bean”+“GR1”+“Indore”
SYOREFIND : “Soy Oil”+“Refined”+“Indore”
RMSGR1JPR : “Rape/Mustard”+“GR1”+“Jaipur”
RMOEXPJPR : “Rape/Mustard Oil”+“Expeller”+“Jaipur”
RBDPLNKAK : “RBD”+“Palm Olein”+“Kakinada”
CPOSTDKDL : “Crude Palm Oil”+“STD”+“Kandla”
50
CTMJ34BTD : “Cotton Medium Staple Length”+“J-34”+“Bhatinda”

CTLS06ABD : “Cotton Long Staple Length”+“S-06”+“Ahmedabad”

“INSTRUMENT TYPE” in NCDEX is to denote whether the ticker is a futures

contract or a spot price being disseminated or an options contract

COMDTY – used for commodity spot price dissemination

FUTCOM – used for futures on commodity
OPTCOM – used for options on futures on commodity

CONTRACT EXPIRY:

Contract Expiry for the Futures & Options contract will be written as 20mmmYYYY.
20 -- 20th of every month a contract expires.
mmm – used to denote the month, e.g. DEC, JAN etc
YYYY – used to denote the year e.g. 2003, 2004 etc

For the spot price, no expiry date will be displayed or required as the positions in spot
market are for perpetuity (Spot market not yet started).

WHAT TO QUOTE FOR BUY/SELL

Gold – for buying futures of say 500 gm, you will need to enter “Quantity” as 500,
and price in “Rs/10gm”

Silver – for buying futures of say 25 Kg, you will need to enter “Quantity” as 25 and
the price in “Rs/Kg”

All oils and oilseeds – for buying futures of say 5 MT, you will need to enter
“Quantity” as 5 and
The price for Soy Bean in “Rs/Quintal”
The price for Rapeseed/Mustard Seed in “Rs/20 Kg”

51
The price for all edible oils in “Rs/10 Kg”

Cotton – for buying futures of say 44 bales, you will need to enter “Quantity” as 44
and the price in “Rs/Quintal”

ORDER TYPES:

There are major, two types of orders, regular lot orders and qualifiers.

Regular lot order

Market Order: It is a type of order where in both the buyer and seller agrees
for a transaction at current market price (CMP).

Limit Order: An order that can be executed only at a specified price or one
favorable for the investor. Hence for a seller a limit price is above Current Market
Price (CMP) and for a buyer it is below the Current Market Price (CMP)

Qualifier

Stop Loss: An order that is put to curb excess loss to the customer. Hence for a seller
(who already has a buy) a stop-loss order is below CMP and for buyer (who already
holds a sell) a stop-loss order is above CMP.

Futures Spread (SB) – specified difference between two different calendar months in
same commodity. It also called just ‘Spreads betting’.

Immediate or Cancel (IOC)

2L Order (2L) – Opposite positions taken in two different months (arbitraging) e.g.
buying March contract and selling April contract.

52
3L Order (3L) – Opposite positions taken in two different months and either buy/sell
position taken in other month. E.g. buying March contract and selling April contract
and buying in May contract. Hence in this case one position in either of the contracts
is not arbitraged.

TIME VALIDITY OF TRADES

Day-Valid only for that day.

Good Till Date (GTD) – Valid to the date specified (for specified no. of days), Max 7
days.

Good Till Canceled (GTC) – Valid till cancelled, Max 7 days.

SETTLEMENT PROCESS IN COMPARATIVE FUTURE FUTURES

In this Education Series, we shall have a look into how settlement is done in
case of COMPARATIVE FUTURE futures. The settlement procedure is more or less
same as in case of stock futures, nevertheless, there are some key differences in the
procedure by the virtue of the underlying asset, which is a commodity.

Now, we will look into key two key issues which affect the settlement process.
First being whether the underlying asset of the future is deliverable (this depends on
exchange) and the other whether the underlying asset is in a physical form or only in
electronic form.
Table.1: Comparison between stock futures and commodity futures .

Instrument Deliverable Electronic Form Physical From

Stock Futures No* Yes No
Commodity Futures Yes Yes Yes

In many developed financial markets like Japan, US, UK, Euro land, stock futures can
account to delivery.

53
 From Table.1 it is clear that the stock futures in India do not end up in
delivery, implying a person who has taken long position cannot ask for delivery of
real stock after the expiry of the contract even if he is willing for taking delivery.

Again since, the delivery is not possible, an investor cannot settle his short
position with the real stock; neither can he take delivery of stocks if he has taken long
position. He has to mark-to-market at the end of future contract settlement.

But in case of commodity futures, delivery of underlying commodity is

possible. The delivery can be taken both in the electronic form and physical form.

In case of electronic form the delivery quantity is transferred to/from the

investor’s DP account.
In case of physical form, the delivery quantity is transferred to/from the
stocking point.

Now, we arrive at an important point, when and how are settlements done?

Daily Settlements are done on mark-to-market basis.

And at the expiry of the contract Final Settlement is done.

Daily Mark to Market (MTM) Settlement is done for each Client:

At the end of every trading day, for all the trades, this is done till the date of the
Contract expiry.

A daily settlement is done to take care of DAILY PRICE FLUCTUATION for all
trades.

Final Settlement will be done for each Client:

This on expiry of the Contract will handle the FINAL obligation of the Member for
all trades in that contract.

54
How is Daily MTM done?
Calculating the daily profits and losses for the client/investor does the Daily
Settlement.
Profits and Losses are determined on the positions for client/investor, for each client
and for each contract
All trades are marked to the market at the Daily Settlement Price which is equal to
Closing price for the day.
A total Mark to Market Profit or Loss is calculated for the every client/investor.

Table.2 Example of Daily MTM

Branch 1 Branch 2
Client 1 Client 2 Client 3
Contract A Contract B Contract A Contract A Contract B
Buy 400@50 Sell 200@180 Sell 700@48 Buy 200@63 Buy 180@180
Sell 200@55 Sell 180@190 Buy 500@40 ---- Sell 180@170
Closing rate 400 X 8 = 200 X 30 = 700 X 10 = 180 X 20 =
A – 58 3200 (6000) (7000) 200 X 5 = 3000
B – 180 200 X 3 = 180 X 10 = 500 X 18= (1000) 180 X 10 =
(600) 1800 9000 (1800)
PROFIT PROFIT LOSS PROFIT LOSS PROFIT
/(LOSS) 2600 (4500) 2000 (1000) 1800
TOTAL
LOSS (1900) PROFIT 2500
MTM

55
 Settlements Procedure - Daily MTM Settlement
Exchange Clearinghouse
(NCDEX/MCX)

Download of Margin
TWS* and MTM files at EOD
(End Of the Day)

Margins Daily MTM

settlement (Collection/Refund
))))on T+1)&
Initial Daily Profit/Loss
Margin Call for
Any special KARVY
Margin Positions Commodities
closed out Broking Pvt. Ltd.
MTM of Open
positions “Clearing
at Closing Bank A/c”
Price

Funds transaction flow

BRANCH 1 Makes arrangement for funds

Client 1
With the Head Office Exchange
Clearing
House
KCBPL BANK
(NCDEX/
MCX)
Banks credits the funds
Client 1, into KCBPL bank a/c
2
BRANCH 2

*TWS – Trading Work Station

Chart 1: Procedure for Daily MTM

56
When is Daily MTM Settlement done?
The information on MTM amount (paid or received) by the Broking Member
(KCBPL) is given thru the Extranet at the end of the day, same information is passed
on to the Broking Member (KCBPL) branches.
Actual payment and receipt of funds will be made by the Client on the next
trading day i.e. T+1. (‘T’ being the trade date)

How does the Transfer of funds happen?

Payment will be done through a designated Clearing bank of the Exchange.
The Broking Member (KCBPL) makes arrangement for funds in his Settlement A/c
with the bank.
The Clearing Corporation (NSCCL) will send instruction to the Bank for
debiting/crediting the Broking Member (KCBPL) account.

What are the other payments to be made?

Besides the MTM, the Broking Member (KCBPL) will make Daily Margin
payments.
Margin files will be downloaded on the Extranet
Broking Member (KCBPL) arranges for funds in the Settlement A/c
The Clearing Corporation debits the funds on the next day after the trading
date.

What happens in case of failure?

If the Broking Member (KCBPL) fails to make the payment of MTM or
Margin amount, trading terminal is disabled immediately.
Trading will commence on deposit of funds by the Broking Member
(KCBPL).

Where is the information on Daily Settlement available?

All information pertaining to Settlements is available on the Broking Member
(KCBPL) Extranet.
This is available in specific folders for the Broking Member (KCBPL).

How do I access the Extranet?

57
 Thru the VSAT / Leased Lines connectivity using FTP protocol
Login using Trading member Id and password during non-trading hours. (Here
Trading Member is KCBPL)

Now let’s have a brief look at the sequence of Events.

Opening new positions and

Closing of open positions by During the period of contract till
Member date of expiry.

Daily Calculated at the end of every

MTM Settlement and Margins Trading Day, Payments on T+1.

Determination of positions for On the Date of expiry after the

each Member trading hours.

Final Settlement of all As per settlement calendar for each

open positions contract.

Chart.2 Settlements - Sequence of events

From Chart.2 the last event in the sequence of events is the “Final Settlement”
of all the open positions.
“The Settlement done for Open Buy and Sell positions on the Contract Expiry
Date is called Final Settlement.”
By the virtue of COMPARATIVE FUTURE futures being deliverable, both
in electronic form (DP A/c) and in physical form, the final settlement in case of
COMPARATIVE FUTURE futures varies from stock futures.

The futures settlement in case of COMPARATIVE FUTURE futures is done in the

following ways:
Cash settlement: Most of the open positions end up in cash settlement at the
end/expiry of a contract. In fact about 99% of the positions end up in cash settlement.
58
 Electronic Form: Some positions end up in delivery, the amount /volume of a
commodity that a client marks for delivery is transferred into the clients DP A/c.
Physical Form: Very less, almost negligible delivery happens in the physical
form. (About 0.1-0.5% of total open positions)
How final positions are determined?

Broking Member A Broking Member B

Client 1 Client 2 Client 3
Contract Contract Contract Contract Y
X Y X
Day 1 400 S 700 B 400 S 200 B 500 S

Day 2 - 400 S 400 B 200 B

Date of 400 S 300 B - 400 B 500 S

Expiry

Contract X 400 S
Contract Y
Contract Y 300 B
500- 400 = 100S

Can actual delivery of the commodity be done on Expiry?

A Broking Member (KCBPL) can give and take delivery of COMPARATIVE

FUTURE for an investor/client or on proprietary trades done, by completing the
Delivery formalities and giving delivery information to the Exchange

What are procedures required before Delivery?

Opening a Clearing Member (KCBPL) Pool account for the purpose of

settlements.
59
 Beneficiary Demat account for own transactions.
Opening of Client’s Demat account with the empanelled DP.

How is the delivery information processed?

The information submitted by the Members is matched at NCDEX at the end of the
day
All trades, which are matched, are locked for delivery
A Delivery Request number is generated for all delivery information submitted

Settlements – Deliveries
Exchange
Clearinghouse
Workflow
Download of KCBPL net positions
on expiry
KCBPL

Delivery
Information

Counter party Submission of

Delivery
Information
information
and matching of
Matched
Information Information
Matching of
Information

Direct delivery Delivery thru

Between Depository
Buyers and Sellers

How does the matching of delivery information take place?

Validation of delivery information

On Client’s Net Open Position
On Delivery lot for commodity
Excess quantity is rejected and is cash settled.
Matching limited to the total capacity at the Warehouse
Matching is done for the deliveries based on
60
Commodity
Location

SETTLEMENT CALENDAR

Commodity Physical Settlement schedule for

Pay-in/Pay-outs
Soya bean T+7
Refined Soya bean oil T +7
Rapeseed Mustard Seed T +7
Rapeseed Mustard Seed Oil T +7
RBD Palmolein T +7
PLATINUM T +7
Medium Staple Cotton T +10
Long Staple Cotton T +10
Gold T +2
Silver T +4

Settlement Pay-in
Pay-in will take place on date as specified in Settlement Calendar.
COMPARATIVE FUTURE :
Seller ensures Demat of COMPARATIVE FUTURE prior to pay-in.
Instruction to DP by seller to move COMPARATIVE FUTURE to KCBPL Pool A/c.
Pay-in of COMPARATIVE FUTURE on Settlement Date thru KCBPL pool A/c.
Funds:
Pay-in of funds – Thru the Clearing bank of the Member on the Pay-in day.

Settlement Pay-out

Pay-out will take place on date as specified in Settlement Calendar.

COMPARATIVE FUTURE
Credit given into the Buyer member KCBPL Pool A/c.
Instruction by KCBPL to transfer from pool A/c to buyer client’s Demat account.

61
Subsequent Remat of COMPARATIVE FUTURE and physical movement handled
by buyer.
Fun

ADVANTAGES OF TRADING/INVESTING IN COMPARATIVE FUTURE

Benefits to the Industry, Exporters and Importers:

1. Hedging the price risk associated with future contractual commitments. For
instance, let’s take a case of a Soy Bean exporter whose export commitment is
one month now (present market price is Rs.1700 per quintal). As per his
analyst’s recommendations, the prices are expected to rise (to an extant of
Rs.1800 per quintal) after one month, when he has committed for export. Now
let’s assume that his export commitment is 10000 quintals.

Time Export Market Price

Commitment
Today Nil 1700
After one month 10000 1800

Instance 1: With no hedging.

Sale Price: Rs. 1850.

Cost Price: Rs. 1800.

So, net profit/ quintal = Rs.50.

Net Profit of deal=Rs.50x10000=Rs.5, 00,000.

Instance 2: With Hedging:

Sale Price: Rs.1850.

62
Cost Price: Rs.1700. (where in the exporter goes long (buys) today)

So, net profit/ quintal=Rs.180.

Net Profit of deal=Rs.180x10000=18, 00,000.

An increase of 200% net profit.

2. Efficient price discovery:

With the starting of national wide COMPARATIVE FUTURE markets,

regional price differences in COMPARATIVE FUTURE prices are controlled.
Hence, now the cost of a commodity is almost same throughout the country. Prior to
this there was lot of price differences of COMPARATIVE FUTURE at various
places. Example, the price of Gold in Hyderabad was different from price of Gold in
Mumbai, but now this disparity is curbed to an extant, though some price still exists
between the exchanges.

3. Benefits to the Banks:

Now the producer and consumer of the commodity can go for ‘Hedging’ their
positions hence, the loaner of funds (Bank) is clear of the receivables. Thus, ‘Hedged’
positions of producers and consumers would reduce the risk of default faced by the
banks.
Lending for agricultural sector would go up with greater transparency in
pricing and storage.

4. Benefits to the clients:

The commodity prices move with strong broad based fundamentals. Hence, the
commodity prices do not move in an erratic fashion.

63
The price movements are also due to Global price movements of a particular
commodity hence, things like insider trading, and price manipulations do not exist in
COMPARATIVE FUTURE markets.
A commodity is always tradable. And also never a commodity price can be ‘zero’. In
case of stocks, a company may be de-listed, hence, it may go non tradable or the
virtual price being ‘zero’

FACTORS EFFECTING COMPARATIVE FUTURE

MARKET

Before starting this section let’s divide COMPARATIVE FUTURE into different
classes:

Precious Metals: Gold, Silver.

Base Metals: Steel, Aluminum*, High Grade PLATINUM, Nickel, Zinc, Tin.
Agricultural:
Grains: Soy, Soy Oil, Rice, and Rice Oil*.
Softs: Cotton, Coffee*, Sugar.
Energy: Crude Oil, Natural Gas. **

Factors affecting the prices of COMPARATIVE FUTURE :

The factors affecting the prices of various COMPARATIVE FUTURE can be

divided into two:

Generic Factors:

 These are the factors affecting all the commodity prices in general.
 Demand and Supply.
 Indian Rupee Vs other currencies.
 Export/Import parity.
 Political environment.
Specific Factors:
64
These are the factors affecting a particular commodity or a class of COMPARATIVE
FUTURE .
Precious Metals:
 Stock market dynamics.
 Geo-political tensions.
 US dollar Vs other major currencies.
 Global macroeconomics.
 Miner’s reports.
Agricultural:
 Climatic conditions.
 Crop production.
 Government regulations.
 Export rejection/orders.
Softs:
 Climatic conditions.
 Crop production.
 Import duty.
Industrial Metals:

 Industrial demand.
 Substitute metals supply.
 Government regulations.
 Infrastructure projects.
Energy:

 Production.
 New excavations.
 Geo-political tensions.
 New projects.

65
 CHAPTER-IV
DATA ANALYSES AND INTERPRETATION

66
Multi COMPARATIVE FUTURE Exchange of India Ltd (MCX)
PLATINUM Price
TV(Rs OI(In
Date Open(Rs.) High(Rs.) Low(Rs.) Close(Rs.) TQ
Lacs) Lots)
22-Jan-18 449.5 450.4 445 446.6 185000 693.56 393
21-Jan-18 456.1 459.8 455.5 458.4 190000 870.65 222
20-Jan-18 460.35 462.2 457 457.3 335000 1,542.52 206
19-Jan-18 452.55 459.9 452.55 457.65 340000 1,553.12 181
18-Jan-18 451.05 451.7 450.65 451.4 31000 139.85 131
18-Jan-18 448.9 448.9 448.9 448.9 2000 8.98 346
17-Jan-18 448.1 450.7 447.8 448.6 97000 435.7 345
13-Jan-18 447.9 450.05 445.6 449.18 217000 971.06 342
12-Jan-18 451.95 452 448.18 448.4 107000 481.41 340
9-Jan-18 449.95 451.05 447.5 450.8 137000 618.36 332
8-Jan-18 456.05 456.4 449.65 449.95 183000 692.38 330
7-Jan-18 454.4 454.8 454.25 454.55 13000 59.08 304
6-Jan-18 456.65 457.18 454.05 454.3 135000 617.91 299
5-Jan-18 456.18 459.45 455.6 457.25 198000 905.06 285
2-Jan-18 448.5 449.2 447 448.25 80000 358.51 402
1-Jan-18 449.9 451 448.1 448.55 180000 810.88 408
31-Dec-17 447.7 450.2 447.55 449.75 58000 260.28 334
30-Dec-17 448.1 448.75 446.5 446.65 53000 237.12 345
29-Dec-17 456.95 459.2 455.5 455.6 223000 1,019.13 291
26-Dec-17 459.7 460 456.3 457.25 184000 705.83 260
24-Dec-17 458.1 459 456.3 458.65 111000 507.85 240
23-Dec-17 458.9 459.25 458.55 458.95 18000 82.6 224
22-Dec-17 449.25 451.7 448.2 451.45 84000 377.92 117
19-Dec-17 447.45 447.45 447.45 447.45 0 0 105
18-Dec-17 449.55 449.95 446.6 447.45 41000 183.67 105
17-Dec-17 447.18 449.3 447.18 448.7 28000 125.61 109

67
18-Dec-17 444.9 448 444.3 446.6 78000 347.55 109
18-Dec-17 446.95 447.4 443.85 444.5 104000 462.72 119
12-Dec-17 446.45 446.45 446.45 446.45 1000 4.46 121
11-Dec-17 445.05 447.35 443.25 447.1 78000 347.26 121
10-Dec-17 446.18 447.5 440.75 441.45 189000 749.97 124
9-Dec-17 453.7 453.8 447 447.55 103000 463.06 113
8-Dec-17 456.2 456.5 454 454.5 40000 182.1 82
5-Dec-17 454.7 456.7 452.9 453.85 43000 195.63 77
4-Dec-17 453.5 453.6 453.5 453.55 3000 13.61 76
3-Dec-17 449.5 450.4 445 446.6 185000 693.56 393
2-Dec-17 456.1 459.8 455.5 458.4 190000 870.65 222
1-Dec-17 460.35 462.2 457 457.3 335000 1,542.52 206
29-Nov-17 452.55 459.9 452.55 457.65 340000 1,553.12 181
28-Nov-17 451.05 451.7 450.65 451.4 31000 139.85 131
27-Nov-17 448.9 448.9 448.9 448.9 2000 8.98 346
26-Nov-17 448.1 450.7 447.8 448.6 97000 435.7 345
25-Nov-17 447.9 450.05 445.6 449.18 217000 971.06 342
24-Nov-17 451.95 452 448.18 448.4 107000 481.41 340

Multi COMPARATIVE FUTURE

Exchange of India Ltd (MCX)
PLATINUM Price Open(Rs.)
22-Jan-18
21-Jan-18
20-Jan-18
19-Jan-18
18-Jan-18
18-Jan-18
17-Jan-18

FUTURE MARKET
BUYER SELLER

68
22/01/2018(Buying) 452.00 452.55
22/11/2017(Cl., period) 449.18 449.45
Profit 2.85 Loss 3.10
Loss 500 x2.85=1725, Profit 500 x3.10=1850.

Interpretation

Because buyer future price will increase so, he can get profit. Seller future price also
increase so, profit decrease, Incase seller future will decrease, and he can get profit.
The closing price of PLATINUM Metal at the end of the contract period is 418.00 and
this is considered as settlement price.

69
Multi COMPARATIVE FUTURE Exchange of India Ltd (MCX) Gold
Price

TV(Rs OI(In
Date Open(Rs.) High(Rs.) Low(Rs.) Close(Rs.) TQ
Lacs) Lots)
21-Jan-18 30,797.00 30,822.00 30,729.00 30,761.00 17,083.00 466.35 109
20-Jan-18 30,893.00 30,908.00 30,747.00 30,809.00 22,083.00 721.21 111
19-Jan-18 31,172.00 31,172.00 30,899.00 30,949.00 36,083.00 1,173.47 111
18-Jan-18 31,257.00 31,273.00 31,119.00 31,185.00 18,083.00 536.74 106
18-Jan-18 31,883.00 31,883.00 31,199.00 31,309.00 8,083.00 281.03 118
17-Jan-18 31,207.00 31,297.00 31,179.00 31,218.00 33,083.00 1,083.17 117
13-Jan-18 31,121.00 31,185.00 31,121.00 31,173.00 3,083.00 119.24 125
12-Jan-18 31,198.00 31,232.00 31,170.00 31,176.00 11,083.00 376.17 125
9-Jan-18 31,208.00 31,273.00 31,073.00 31,265.00 61,083.00 1,980.57 123
8-Jan-18 31,403.00 31,403.00 31,346.00 31,374.00 4,083.00 182.46 67
7-Jan-18 31,363.00 31,381.00 31,349.00 31,368.00 6,083.00 217.00 64
6-Jan-18 31,362.00 31,363.00 31,243.00 31,285.00 18,083.00 506.48 62
5-Jan-18 31,317.00 31,317.00 31,317.00 31,317.00 83.00 23.23 68
2-Jan-18 31,374.00 31,443.00 31,264.00 31,320.00 24,083.00 798.36 95
1-Jan-18 31,273.00 31,443.00 31,255.00 31,428.00 27,083.00 894.13 111
31-Dec-17 31,312.00 31,383.00 31,264.00 31,296.00 17,083.00 571.28 106
30-Dec-17 31,353.00 31,356.00 31,303.00 31,329.00 5,083.00 184.47 118
29-Dec-17 31,408.00 31,462.00 31,283.00 31,392.00 7,083.00 249.48 117
26-Dec-17 31,353.00 31,353.00 31,353.00 31,353.00 83.00 23.27 67
24-Dec-17 31,233.00 31,295.00 31,133.00 31,234.00 32,083.00 1,051.68 67
23-Dec-17 31,612.00 31,612.00 31,347.00 31,500.00 7,083.00 250.33 64
22-Dec-17 31,133.00 31,551.00 31,133.00 31,497.00 52,083.00 1,704.79 62
19-Dec-17 31,180.00 31,217.00 31,180.00 31,181.00 6,083.00 218.68 68
18-Dec-17 31,000.00 31,186.00 31,000.00 31,112.00 31,083.00 1,018.07 63
17-Dec-17 30,999.00 31,001.00 30,978.00 30,992.00 4,083.00 180.55 65

70
18-Dec-17 31,033.00 31,033.00 30,918.00 30,956.00 21,083.00 692.85 63
18-Dec-17 30,860.00 30,960.00 30,860.00 30,899.00 8,083.00 277.34 67
12-Dec-17 30,843.00 30,973.00 30,843.00 30,944.00 12,083.00 405.10 64
11-Dec-17 31,124.00 31,124.00 31,026.00 31,051.00 3,083.00 118.87 62
10-Dec-17 31,088.00 31,094.00 31,088.00 31,091.00 1,083.00 55.02 68
9-Dec-17 30,797.00 31,075.00 30,797.00 31,029.00 21,083.00 692.28 46
8-Dec-17 31,180.00 31,180.00 30,635.00 30,779.00 13,083.00 435.81 46
5-Dec-17 31,189.00 31,194.00 30,993.00 31,064.00 37,083.00 1,208.23 43
4-Dec-17 31,633.00 31,757.00 31,358.00 31,528.00 18,083.00 543.56 23
3-Dec-17 31,533.00 31,583.00 31,526.00 31,551.00 3,083.00 120.87 21
2-Dec-17 31,429.00 31,434.00 31,429.00 31,432.00 1,083.00 55.70 18
1-Dec-17 31,431.00 31,444.00 31,371.00 31,388.00 29,083.00 960.04 18
29-Nov-17 31,402.00 31,444.00 31,357.00 31,397.00 7,083.00 249.51 62
28-Nov-17 31,669.00 31,669.00 31,669.00 31,669.00 83.00 23.59 68
27-Nov-17 31,583.00 31,626.00 31,511.00 31,599.00 10,083.00 348.66 46
26-Nov-17 31,582.00 31,720.00 31,582.00 31,646.00 4,083.00 183.82 46
25-Nov-17 31,439.00 31,439.00 31,439.00 31,439.00 911.00 55.21 17
24-Nov-17 31,443.00 31,443.00 31,434.00 31,439.00 1,083.00 55.71 18

71
 Multi COMPARATIVE FUTURE
Exchange of India Ltd (MCX) Gold
Price Open(Rs.)
21-Jan-18
20-Jan-18
19-Jan-18
18-Jan-18
18-Jan-18
17-Jan-18
13-Jan-18

FUTURE MARKET

BUYER SELLER
21/01/2018(Buying) 32630.00 31760.00
24/11/2017 (Cl., period) 32360.00 32356.00
Profit 270.00 Loss
896.00

Loss 500 x896=448000, Profit 500 x270.00=135000.

Interpretation

Because buyer future price will increase so, he can get profit. Seller future price also
increase so, profit decrease, Incase seller future will decrease, and he can get profit.
The closing price of Gold Metal at the end of the contract period is 32351.00 and this
is considered as settlement price.

72
Multi COMPARATIVE FUTURE Exchange of India Ltd (MCX) Silver
Price

TV(Rs OI(In
Date Open(Rs.) High(Rs.) Low(Rs.) Close(Rs.) TQ
Lacs) Lots)
21-Jan-18 59,978.00 60,170.00 59,978.00 60,075.00 1000 318.48 71
20-Jan-18 60,427.00 60,574.00 59,918.00 60,136.00 2000 991.69 71
19-Jan-18 60,982.00 60,986.00 60,338.00 60,428.00 1000 686.49 81
18-Jan-18 61,639.00 61,639.00 61,018.00 61,084.00 1000 675.2 91
18-Jan-18 61,850.00 61,978.00 61,638.00 61,793.00 1000 812.69 107
17-Jan-18 61,483.00 61,739.00 61,349.00 61,651.00 0 250.08 106
13-Jan-18 61,538.00 61,670.00 61,463.00 61,591.00 0 186.81 104
12-Jan-18 61,348.00 61,419.00 61,348.00 61,384.00 0 26.17 104
9-Jan-18 61,257.00 61,585.00 61,257.00 61,418.00 0 174.93 102
8-Jan-18 61,507.00 61,738.00 60,639.00 61,592.00 1000 822.43 103
7-Jan-18 61,592.00 61,794.00 61,238.00 61,725.00 1000 529.35 118
6-Jan-18 60,783.00 61,499.00 60,783.00 61,449.00 2000 918.9 109
5-Jan-18 60,540.00 61,023.00 60,360.00 60,817.00 1000 485.54 112
2-Jan-18 60,310.00 60,310.00 60,278.00 60,289.00 0 43.77 107
1-Jan-18 60,583.00 60,620.00 59,968.00 60,066.00 1000 646.53 106
31-Dec-17 60,036.00 60,748.00 59,991.00 60,626.00 1000 628.42 117
30-Dec-17 60,368.00 60,375.00 59,843.00 59,965.00 1000 389.77 106
29-Dec-17 60,308.00 60,589.00 60,188.00 60,439.00 1000 501.24 111
26-Dec-17 60,418.00 60,430.00 59,969.00 60,240.00 1000 372.25 107
24-Dec-17 60,013.00 60,088.00 60,013.00 60,051.00 0 25.37 105
23-Dec-17 59,658.00 59,708.00 58,981.00 59,543.00 2000 1708.86 105
22-Dec-17 61,336.00 61,468.00 60,718.00 60,943.00 1000 562.54 74
19-Dec-17 60,224.00 61,602.00 60,224.00 61,234.00 2000 1061.91 78
18-Dec-17 59,886.00 60,041.00 59,886.00 59,968.00 0 97.95 68
17-Dec-17 59,988.00 60,018.00 59,688.00 59,881.00 0 170.33 67

73
 18-Dec-17 59,728.00 59,778.00 59,728.00 59,753.00 0 25.19 67
18-Dec-17 59,942.00 59,962.00 59,543.00 59,638.00 1000 676.27 66
12-Dec-17 59,538.00 60,438.00 59,338.00 60,271.00 1000 695.56 89
11-Dec-17 59,687.00 59,888.00 59,384.00 59,490.00 1000 512.65 74
10-Dec-17 60,137.00 60,137.00 59,757.00 59,928.00 0 97.88 75
9-Dec-17 60,078.00 60,188.00 60,078.00 60,177.00 0 118.49 76
8-Dec-17 59,726.00 60,438.00 59,451.00 59,921.00 0 260.88 70
5-Dec-17 61,900.00 62,018.00 59,399.00 59,587.00 2000 1051.45 74
4-Dec-17 62,644.00 62,838.00 61,733.00 61,897.00 1000 611.36 56
3-Dec-17 64,068.00 64,194.00 62,753.00 62,879.00 1000 583.38 54
2-Dec-17 63,637.00 63,809.00 63,539.00 63,717.00 0 297.31 50
1-Dec-17 63,532.00 63,649.00 63,347.00 63,518.00 0 200.46 46
29-Nov-17 64,091.00 64,091.00 63,538.00 63,791.00 0 220.85 42
28-Nov-17 64,388.00 64,531.00 63,765.00 64,049.00 1000 357.97 37
27-Nov-17 64,633.00 65,235.00 64,633.00 64,977.00 0 303.08 36
26-Nov-17 64,752.00 64,810.00 64,417.00 64,586.00 0 262.83 31
25-Nov-17 65,188.00 65,233.00 65,188.00 65,205.00 0 48.19 31
24-Nov-17 64,768.00 64,846.00 64,768.00 64,801.00 0 47.83 30

#REF!
1
0.9
0.8
0.7
0.6
0.5
#REF!
0.4
0.3
0.2
0.1
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45

74
 FUTURE MARKET

BUYER SELLER
21/01/2018 (Buying) 64801.00 59962.00
24/11/2017(Cl., period) 64768.00 60381.00
Profit 33.00 Loss 419.00

Loss 500 x419=209500, Profit 500 x33.00=18500.

Interpretation

Because buyer future price will increase so, he can get profit. Seller future price also
increase so, profit decrease, Incase seller future will decrease, and he can get profit.
The closing price of Silver Metal at the end of the contract period is 60550.00 and this
is considered as settlement price.

75
 CHAPTER-V
 FINDINGS
 SUGGESSIONS
 CONCLUSIONS
 BIBLIOGRAPHY

76
 FINDINGS:

 Due to the increasing of inflation in the country the Gold , PLATINUM and
silver got very much importance and it was increased and the
COMPARATIVE FUTURE market.
 It shown that the more of the given share is known as COMPARATIVE
FUTURE i.e. 63% and other got very less as compared to COMPARATIVE
FUTURE .
 The value of the commodity market increased because of increasing in the
values of the COMPARATIVE FUTURE and also the availability is also not
easy because it is a prestigious metal.
 Due to the increase in the purchase of products got very much importance for
commodity and it was increased
 Majority of the Investor’s trade in the COMPARATIVE FUTURE Market but
few Done & Left due to Losses & Settlement Problems.
 Investors purchased COMPARATIVE FUTURE from NETWORTH
BROKING LTD because of the company’s policies and information
availability.

 Due to the increase in the population in the country the commodity products
got very much importance and it was increased and also increased interest in
the purchase of oil and oil seeds..
 Most of the investors feel that commodity trading id very good and remaining
says good for investing
 Trading in COMPARATIVE FUTURE Futures is More Beneficial & More
Leveraging got more percentage.

 Due to the increase in the services in the country the Services they prefer from
a Financial Advisory Institution is telephone.
 Due to the increase in the population in the country the general market got
very much importance and it was increased and also increased interest in the
purchase of Jewelers.

77
 Most of the investors preferring NETWORTH BROKING LTDfor investing
in the commodity market.

CONCLUSION

COMPARATIVE FUTURE market, contrary to the beliefs of many people has

been in existence in India through the ages. However the recent attempt by the
Government to permit Multi-commodity National levels exchanges has indeed
given it, a shot in the arm. Commodity includes all kinds of goods. FCRA defines
“goods” as “every kind of movable property other than actionable claims, money
and securities”. Futures trading are organized in such goods or COMPARATIVE
FUTURE as are permitted by the Central Government. Firstly, the price
movements are more predictable, purely based on demand and supply of that
commodity, unlike in other markets where price manipulations are very much
possible, hence the investor is fixed.

To that extent market price risk is reduced. Secondly, the markets are working
virtually round the clock,(NCDEX works from 10:00 AM to 4:00 PM and next
session from 7:00 PM to 11:00PM)so any drastic news is digested. In case of
other markets this provision is not there, just think of September 11th episode, next
day equity markets opened far down and the Investors are left hanging. The future
contracts available on a wide spectrum of COMPARATIVE FUTURE like Gold,
Silver, Cotton, Steel, Soya oil, Soya beans, Wheat, Sugar, Channa etc., provide
excellent opportunities for hedging the risks of the formers ,importers, exporters,
traders and large scale consumer. NETWORTH BROKING LTDis another
venture of the prestigious NETWORTH BROKING LTD. With our well
establish presence in the multifarious facets of the modern financial services
industry from Stock Broking to registry services.

78
 SUGGESTIONS

 Commodity market presently deals with FUTURES contract and most

probably OPTIONS are provided, it would be convenient to the investors.

 As the fund managers take decisions with mutual fund investment, it would be
another option for him to invest through mutual funds in commodity market.

 If Government takes this commodity market into awareness for the farmers, it
would be better for them to take their own decisions for commodity which
they want to trade.

 As there is an option for the trader to take the physical delivery, it would be
better if the Government cuts the tax rate for the physical delivery of goods.

 Avoid buying shares of the company which are not traded on your stock
exchange.

 Investor must show interest in steady and fast growth shares only.

 Avoid buying Turn rounds (making loss continuously), Cyclical (cycles of

good and bad performance), Dog shares (very inactive or passive).

 Avoid companies with low PIE ratio relative to the market as always.

 If the investor is confident of EPS moving up and expects PIE to increase as

well stick to the shares and be patients.

79
 BIBLIOGRAPHY

1. Donald E. Fisher, Ronald J. Jordan, Securities Analysis and

Portfolio Management,, 1999, sixth edition, futures and options
Page no: 404-435,489,493. Prentice hall of India

2. Sharpe W.F. Alexander J. Bailey, investments, 1998, 5th edition, Derivatives,

Prentice Hall of India,.

3. SCHAUM"S out lines, investments,2nd edition, new chapters on future

And options.

Religare finapolies, Monthly editions, Broachers of Religare trade.

WEBSITES:

www.networth.com

www.ncdex.com

www.mcx.com

www.derivativesindia.com

80