Commodity Futures

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

Quality Certification Agencies Warehouses
Spot Market
Hedger (Exporters/ Millers/ Industry) Producers (Farmers/ Co-operatives/ Institutional)
Clearing Bank
Commodities Ecosystem
MCX
Transporters/ Support Agencies
Traders (Speculators) Arbitrageurs/ Client) Consumers (Retail/ Institutional)
Global Commodities Market
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
Indias Place in World Market

COMMODITY RICE (PADDY) WHEAT PULSES GROUNDNUT RAPESEED SUGARCANE TEA COFFEE(GREEN) JUTE AND JUTE FIBERS COTTON (LINT) INDIA 240 74 13 6 6 315 0.75 0.28 1.74 2.06 WORLD 2049 599 55 35 40 1278 2.99 7.28 4.02 18.84 SHARE 11.71 12.35 23.64 17.14 15.00 24.65 25.08 3.85 43.30 10.09 RANK THIRD SECOND FIRST SECOND THIRD SECOND FIRST EIGTH SECOND THIRD
Business Potential
Commodities Size of Physical Market (Rs. Crore) Rs. 43000 cr Conservative Multiplier (Rs. Crore) ( In 3 years) 20 Times Rs. 8,30,000 cr 10 Times Rs. 3,00,000 cr 10 Times Rs. 1,10,000 cr Rs. 12,40,000cr Global Multiplier (Rs. Crore) (In 3 5 Years) 50 Times Rs. 21,50,000 cr 20 Times Rs. 6,00,000 cr 20 Times Rs. 2,20,000 cr Rs. 29,70,000cr
Gold & Silver
Edible Oils
Rs. 30000 cr
Metals
Rs.11000 cr
Total
Rs. 84,000 cr
About MCX
National Level Online Multi Commodity Futures Exchange Key Promoters Financial Technologies (India) Ltd, Union Bank Corporation Bank, Bank of India, Canara Bank, State Bank of India,
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
MCX Business Associates

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

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

Certainty about profits. Certainty in income Less financing requirements; reduced interest cost. Reduces cost of production. Increase in profits
Cover the export commitment
Cover input requirements through futures market
Buy in futures markets
Save on storage and storage management costs. Increase in profitability
MCX vis a vis Other Bullion Exchanges

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

Commodity Futures

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Commodity Futures

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Presentation By: Multi Commodity Exchange of India Ltd.

Commodity Market Structure

Transporters/ Support Agencies

Traders (Speculators) Arbitrageurs/ Client) Consumers (Retail/ Institutional)

Global Commodities Market

Commodity Markets - Overview

Indias Place in World Market

Gold & Silver

State Bank of Indore

MCX Business Associates

Internal Auditor Network services -

Clearing Banks Quality Certification

Agencies Warehouses Bullion Logistics

Salient Futures of MCX

Participants in Commodity Futures

Agriculture Credit providing agencies

Benefits of Futures Trading

Hedging against price risk

How Commodity Futures Help

Profitability Areas in Futures Market

Cover raw material price risk

Certainty in input cost. Certainty in cost of production

Cover the export commitment

Cover input requirements through futures market

Buy in futures markets

Save on storage and storage management costs. Increase in profitability

MCX vis a vis Other Bullion Exchanges

(Approx. figs.) Contract Size (grams) Benchmark Market Operational Cost

MCX 1000 Mumbai Low

NYMEX 3110 New York High

TOCOM 1000 Tokyo High

0.01 % High High Low Yes

0.08 0.1 % 0.4 % Low Low Low High No Low High No

Nation-wide Multi Exchanges vis a vis Regional Exchanges

Novation of all open positions in the market by the exchange

Key Differentiators of MCX

Whats in it for Industry

Future of Commodity Market

India to become Hub of Global Trading in Commodities It is a US $ 600 billion Opportunity

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