COMMODITY FUTURES
Presentation By:
Multi Commodity Exchange of India Ltd. (MCX)
Multi Commodity Exchange of India Ltd, www.mcxindia.com
Commodity Ecosystem
Multi Commodity Exchange of India Ltd, www.mcxindia.com
Commodity Market Structure
Quality
Certification Spot Market
Agencies
Hedger
Warehouses (Exporters/
Millers/
Industry)
Producers
Commodities (Farmers/
Clearing Bank Ecosystem Co-operatives/
MCX Institutional)
Traders
Transporters/ (Speculators)
Support Arbitrageurs/
Agencies Client)
Consumers
(Retail/
Global Commodities Institutional)
Market
Multi Commodity Exchange of India Ltd, www.mcxindia.com
Commodity Markets - Overview
Indian commodity market – set for paradigm shift
• Four licenses recently issued by Govt. of India to set-up National Online Multi
Commodity Exchanges – to ensure a transparent price discovery and risk management
mechanism
• List of commodities for futures trade – increased from 11 in 1990 to over 100 in 2003
• Reforms with regard to sale, storage and movement of commodities initiated
• Shift from administered pricing to free market pricing – WTO regime
• Overseas hedging has been allowed in metals
• Petro-products marketing companies have been allowed to hedge prices
• Institutionalization of agriculture
Multi Commodity Exchange of India Ltd, www.mcxindia.com
India’s Place in World Market
COMMODITY INDIA WORLD SHARE RANK
RICE (PADDY) 240 2049 11.71 THIRD
WHEAT 74 599 12.35 SECOND
PULSES 13 55 23.64 FIRST
GROUNDNUT 6 35 17.14 SECOND
RAPESEED 6 40 15.00 THIRD
SUGARCANE 315 1278 24.65 SECOND
TEA 0.75 2.99 25.08 FIRST
COFFEE(GREEN) 0.28 7.28 3.85 EIGTH
JUTE AND JUTE FIBERS 1.74 4.02 43.30 SECOND
COTTON (LINT) 2.06 18.84 10.09 THIRD
Multi Commodity Exchange of India Ltd, www.mcxindia.com
Business Potential
Conservative Global Multiplier
Size of Physical Multiplier
Commodities Market
(Rs. Crore) (Rs. Crore)
(Rs. Crore)
( In 3 years) (In 3 – 5 Years)
Gold & Silver Rs. 43000 cr 20 Times 50 Times
Rs. 8,30,000 cr Rs. 21,50,000 cr
Edible Oils Rs. 30000 cr 10 Times 20 Times
Rs. 3,00,000 cr Rs. 6,00,000 cr
Metals Rs.11000 cr 10 Times 20 Times
Rs. 1,10,000 cr Rs. 2,20,000 cr
Total Rs. 84,000 cr Rs. 12,40,000cr Rs. 29,70,000cr
Multi Commodity Exchange of India Ltd, www.mcxindia.com
About MCX
National Level Online Multi Commodity Futures Exchange
Key Promoters –
Financial Technologies (India) Ltd, State Bank of India, Union Bank
Corporation Bank, Bank of India, Canara Bank,
State Bank of Indore Bank of Baroda
Operations from 300 cities with over 775 members & 3000 TWS
First Indian Exchange to enter into an agreement with an International
Exchange (TOCOM)
Facilitating Cost effective and economic technology.
Real-time price & information dissemination through website and info vendors
Multi Commodity Exchange of India Ltd, www.mcxindia.com
MCX Business Associates
• Statutory Auditor - M/s. Deloitte, Haskins & Sells
• Internal Auditor- M/s V.Shankar Aiyer & Company
• Network services - HCL Comnet Ltd.(VSAT)S
VSNL (Internet)
Tata Tele (Leased line)
Reliance gateway ( Wireless )
• Clearing Banks - BOI, HDFC, IndusInd, UBI & UTI
• Quality Certification SGS, Geochem , Dr. Amin Lab., Agencies
Rubber Board
• Warehouses – CWC, Gujarat, Kerala, Tamilnadu and UP
• Bullion Logistics – Group 4 and Brinks Arya
Multi Commodity Exchange of India Ltd, www.mcxindia.com
Salient Futures of MCX
• On-line monitoring at members and contract level -
exposure, price, open interest, quantity, client, etc.
• On-line margin adjustment - Business in relation to
deposit
• System driven control and actions
• Electronic fund transfer
• Daily clearing – marked to market
– Pay-in and pay-out: T+1 working day
– Exchange approved depositories
– Seller to submit proof of delivery with proper quality
certification to MCX
Multi Commodity Exchange of India Ltd, www.mcxindia.com
Participants in Commodity Futures
Farmers/ Producers
Merchandisers/ Traders
Importers
Exporters
Consumers/ Industry
Commodity Financers
Agriculture Credit providing agencies
Corporate having price risk exposure in commodities
Multi Commodity Exchange of India Ltd, www.mcxindia.com
Benefits of Futures Trading
• Price discovery for commodity players
– A farmer can plan his crop by looking at prices prevailing in the futures
market
• Hedging against price risk
– A farmers can sell in futures to ensure remunerative prices
– A processor/ manufacturing firm can buy in futures to hedge against volatile
raw material costs
– An exporter can commit to a price to his foreign clients
– A stockist can hedge his carrying risk to ensure smooth prices of the seasonal
commodities round the year
• Easy availability of finance
Based on hedged positions commodity market players (farmers,
processors, manufacturers, exporters) may get easy financing from the
banks
Multi Commodity Exchange of India Ltd, www.mcxindia.com
How Commodity Futures Help
• Risk Management
Growers – Short hedge on upcoming produce
Traders – Short Hedge on stored quantity
Manufacturers – Long Hedge on input cost, Short hedge on finished
products
Any price risk that is not managed is a cost; any cost is a direct dent
on profitability
• Price Discovery
Futures prices can be used as indicative prices for negotiating the export
prices and also upcountry sales
Multi Commodity Exchange of India Ltd, www.mcxindia.com
Profitability Areas in Futures Market
Action Impact
Cover raw material price risk Certainty in input cost. Certainty in
cost of production
Cover the export commitment Certainty about profits. Certainty in
income
Cover input requirements through Less financing requirements; reduced
futures market interest cost. Reduces cost of
production. Increase in profits
Buy in futures markets Save on storage and storage
management costs. Increase in
profitability
Multi Commodity Exchange of India Ltd, www.mcxindia.com
MCX vis a vis Other Bullion Exchanges
With Respect to Present Practices of Domestic Bullion Players
(Approx. figs.) MCX NYMEX TOCOM
Contract Size (grams) 1000 3110 1000
Benchmark Market Mumbai New York Tokyo
Operational Cost Low High High
Transaction cost 0.01 % 0.08 – 0.1 % 0.4 %
Channel Trade High Low Low
Transparency
Channel Financial Integrity High Low Low
Lead Transaction Time Low High High
Physical Delivery Yes No No
Multi Commodity Exchange of India Ltd, www.mcxindia.com
Nation-wide Multi Exchanges vis a
vis Regional Exchanges
• Better Reach in all parts of the country
• Wider base for speculators from other markets including securities market
• Broad basing of the underlying commodity
• Industry diffused in several parts of the country may also
directly participate
• Few commodities can be projected viable for an international futures
Contract, with participation from global player
• Novation of all open positions in the market by the exchange
• Best management practices, end of day mark to market, online margining and
surveillance, daily pay-in & pay-out are some of the features to woo the players
Multi Commodity Exchange of India Ltd, www.mcxindia.com
Key Differentiators of MCX
• Team
– Best Industry Professionals – Technology, Exchange Management and Advisory Board with 8
Decades of Exchange Management Expertise
– Best Support Agencies – Warehouses, Quality, Banks & Others
– Best Intermediaries across the country & in multiple commodities
• Technology
– State of the art Information Technology
– Real time price and trade information dissemination
– Robust risk management system and controls
• Techniques (Practices)
– Best International practices of Exchange governance
– Competitive membership fee structure and operational cost.
– To provide information - international & spot markets and commodity research
Multi Commodity Exchange of India Ltd, www.mcxindia.com
What’s in it for Industry
• Free Markets price commodities best & consistently
• Globalisation & standardisation - global price convergence
• Futures Market - Most efficient Market Place
• Price discovery on futures Exchange with consistent
Agriculture policy will give right direction to market for
pricing commodities
• MSP does not serve much purpose in free market regime
• Problems of different sectors in Agriculture need a different
policy with a common direction
Multi Commodity Exchange of India Ltd, www.mcxindia.com
Future of Commodity Market
• India - Largest Consumer - Producer - Exporter -
Importer
• Large size intermediaries penetrate commodities market
• Banks to Finance commodities – Futures a secured route
• RBI permits Banks to hedge their bullion risk through
Futures Exchange – Other commodities to follow
• Using Exchange Network for various products & Services
• BPO & Trade Interest will attract International players
• Hub for value added services & food processing
• New class of commodity Traders & Value Investors
India to become Hub of Global Trading in Commodities
It is a US $ 600 billion Opportunity
Multi Commodity Exchange of India Ltd, www.mcxindia.com
Thank You
Multi Commodity Exchange of India Ltd, www.mcxindia.com
