Commodities exchange

A commodities exchange is an exchange where

various commodities and derivatives products are traded.
Most commodity markets across the world trade in agricultural
products and other raw
materials (like wheat, barley, sugar, maize, cotton, cocoa, coffee, mil
k products, pork bellies, oil, metals, etc.) and contracts based on
them. These contracts can include spot
prices, forwards, futures and options on futures. Other sophisticated
products may include interest rates, environmental
instruments, swaps, or ocean freight contracts.
A brief description of commodity exchanges are those which trade in
particular commodities, neglecting the trade of securities, stock
index futures and options etc. 
Modern commodity markets began with the trading of agricultural
products, such as corn, cattle, wheat and pigs in the 19th
century. Modern commodity markets trade many types of
investment vehicles, and are often utilized by various investors from
commodity producers to investment speculators.
For example, a corn producer could purchase corn futures on a
commodity exchange to lock in a price for a sale of a specified
amount of corn at a future date, while at the same time a speculator
could buy and sell corn futures with the hope of profiting from future
changes in corn prices.
Commodities exchanges usually trade futures contracts on
commodities, such as trading contracts to receive something, say
corn, in a certain month. A farmer raising corn can sell a future
contract on his corn, which will not be harvested for several months,
and guarantee the price he will be paid when he delivers; a breakfast
cereal producer buys the contract now and guarantees the price will
not go up when it is delivered. This protects the farmer from price
drops and the buyer from price rises.
Speculators and investors also buy and sell the futures contracts to
make a profit and provide liquidity to the system.
Emergence of Commodities Market in India:
The Indian experience in commodity futures market dates back to
thousands of years. References to such markets in India appear in
Kautialya’s ‘Arthasastra’. The words, “Teji”, “Mandi”, “Gali”, and
“Phatak” have been commonly heard in Indian markets for centuries.
The first organized futures market was however established in 1875
under the aegis of the Bombay Cotton Trade Association to trade in
cotton contracts. Derivatives trading were then spread to oilseeds,
jute and food grains. The derivatives trading in India however did not
have uninterrupted legal approval. By the Second World War, i.e.,
between the 1920’s &1940’s, futures trading in organized form had
commenced in a number of commodities such as – cotton,
groundnut, groundnut oil, raw jute, jute goods, castor seed, wheat,
rice, sugar, precious metals like gold and silver. During the Second
World War futures trading was prohibited under Defence of India
Rules.
After independence, the subject of futures trading was placed in the
Union list, and Forward Contracts (Regulation) Act, 1952 was
enacted. Futures trading in commodities particularly, cotton, oilseeds
and bullion, was at its peak during this period. However following the
scarcity in various commodities, futures trading in most commodities
was prohibited in mid-sixties. There was a time when trading was
permitted only two minor commodities, viz., pepper and turmeric.
Deregulation and liberalization following the forex crisis in early
1990s, also triggered policy changes leading to re-introduction of
futures trading in commodities in India. The growing realization of
imminent globalization under the WTO regime and non-sustainability
of the Government support to commodity sector led the
Government to explore the alternative of market-based mechanism,
viz., futures markets, to protect the commodity sector from price-
volatility. In April, 1999 the Government took a landmark decision to
remove all the commodities from the restrictive list. Food-grains,
pulses and bullion were not exceptions.
The long spell of prohibition had stunted growth and modernization
of the surviving traditional commodity exchanges. Therefore, along
with liberalization of commodity futures, the Government initiated
steps to cajole and incentives the existing Exchanges to modernize
their systems and structures. Faced with the grudging reluctance to
modernize and slow pace of introduction of fair and transparent
structures by the existing Exchanges, Government allowed setting up
of new modern, demutualised Nation-wide Multi-commodity
Exchanges with investment support by public and private
institutions. National Multi Commodity Exchange of India Ltd.
(NMCE) was the first such exchange to be granted permanent
recognition by the Government.
Commodities Market in India
The major commodity markets are in the United Kingdom and in the
USA. In India there are 25 recognised future exchanges, of which
there are three national level multi-commodity exchanges. After a
gap of almost three decades, Government of India has allowed
forward transactions in commodities through Online Commodity
Exchanges, a modification of traditional business known as Adhat
and Vayda Vyapar to facilitate better risk coverage and delivery of
commodities. The three exchanges are:

 National Commodity & Derivatives Exchange Limited (NCDEX)

 Multi Commodity Exchange of India Limited (MCX)
 National Multi-Commodity Exchange of India Limited
(NMCEIL)

All the exchanges have been set up under overall control of Forward
Market Commission (FMC) of Government of India. 

National Commodity & Derivatives Exchange Limited (NCDEX) 

National Commodity & Derivatives Exchange Limited (NCDEX)

located in Mumbai is a public limited company incorporated on April
23, 2003 under the Companies Act, 1956 and had commenced its
operations on December 15, 2003.This is the only commodity
exchange in the country promoted by national level institutions. It is
promoted by ICICI Bank Limited, Life Insurance Corporation of India
(LIC), National Bank for Agriculture and Rural Development
(NABARD) and National Stock Exchange of India Limited (NSE). It is a
professionally managed online multi commodity exchange. NCDEX is
regulated by Forward Market Commission and is subjected to various
laws of the land like the Companies Act, Stamp Act, Contracts Act,
Forward Commission (Regulation) Act and various other legislations. 
Multi Commodity Exchange of India Limited (MCX)

Headquartered in Mumbai Multi Commodity Exchange of India

Limited (MCX), is an independent and de-mutualised exchange with a
permanent recognition from Government of India. Key shareholders
of MCX are Financial Technologies (India) Ltd., State Bank of India,
Union Bank of India, Corporation Bank, Bank of India and Canara
Bank. MCX facilitates online trading, clearing and settlement
operations for commodity futures markets across the country. 

MCX started offering trade in November 2003 and has built strategic
alliances with Bombay Bullion Association, Bombay Metal Exchange,
Solvent Extractors’ Association of India, Pulses Importers Association
and Shetkari Sanghatana.
MCX offers futures trading in Agricultural Commodities, Bullion,
Ferrous & Non-ferrous metals, Pulses, Oils & Oilseeds, Energy,
Plantations, Spices and other soft commodities.
MCX has also setup in joint venture the National Spot Exchange a
purely agricultural commodity exchange and National Bulk Handling
Corporation which provides bulk storage and handling of agricultural
products.
It is now regulated by forward market commission.

 MCX is India's No. 1 commodity exchange with 84% Market

share in 2008($0.84 trillion) 
 Globally, MCX ranks no. 1 in silver, no. 2 in natural gas, no. 3 in
crude oil and gold in futures trading ([2])
 The highest traded item is gold with an average monthly
turnover of Rs 1.42 Trillion ($29 Billion).
 MCX has 10 strategic alliances with leading commodity
exchange across the globe
 The average daily turnover of MCX is about US$ 2.4 billion 
  MCX now reaches out to about 500 cities in India with the help
of about 10,000 trading terminals
As of 18 May, 2007

Key shareholders
Financial Technologies (I) Ltd., State Bank of India and its
associates, National Bank for Agriculture and Rural Development
(NABARD), National Stock Exchange of India Ltd. (NSE), Fid Fund
(Mauritius) Ltd. - an affiliate of Fidelity International, Corporation
Bank, Union Bank of India, Canara Bank, Bank of India, Bank of
Baroda , HDFC Bank and SBI Life Insurance Co. Ltd., ICICI
ventures, IL&FS, Merrill Lynch

National Multi-Commodity Exchange of India Limited (NMCEIL) 

National Multi Commodity Exchange of India Limited (NMCEIL) is the

first de-mutualized, Electronic Multi-Commodity Exchange in India.
On 25th July, 2001, it was granted approval by the Government to
organise trading in the edible oil complex. It has operationalised
from November 26, 2002. It is being supported by Central
Warehousing Corporation Ltd., Gujarat State Agricultural Marketing
Board and Neptune Overseas Limited. It got its recognition in
October 2002. 
Commodity exchange in India plays an important role where the
prices of any commodity are not fixed, in an organised way. Earlier
only the buyer of produce and its seller in the market judged upon
the prices. Others never had a say. Today, commodity exchanges are
purely speculative in nature. Before discovering the price, they reach
to the producers, end-users, and even the retail investors, at a
grassroots level. It brings a price transparency and risk management
in the vital market. 
A big difference between a typical auction, where a single auctioneer
announces the bids, and the Exchange is that people are not only
competing to buy but also to sell. By Exchange rules and by law, no
one can bid under a higher bid, and no one can offer to sell higher
than somone else’s lower offer. That keeps the market as efficient as
possible, and keeps the traders on their toes to make sure no one
gets the purchase or sale before they do.
It is the first De-Mutualised Electronic Multi-Commodity Exchange of
India granted the National status on a permanent basis by the
Government of India and operational since 26 November 2002.
In response to the Press Note issued by the Government of India
during May'1999, first state-of-the-art demutualised multi-
commodity Exchange, National Multi Commodity Exchange of India
Ltd. (NMCE) was 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).
NMCE is unique in many other respects. It is a zero-debt company;
following widely accepted prudent accounting and auditing practices.
It has robust delivery mechanism making it the most suitable for the
participants in the physical commodity markets. The exchange does
not compromise on its delivery provisions to attract speculative
volume. Public interest rather than commercial interest guide the
functioning of the Exchange. It has also established fair and
transparent rule-based procedures and demonstrated total
commitment towards eliminating any conflicts of interest. It is the
only Commodity Exchange in the world to have received ISO
9001:2000 certification from British Standard Institutions (BSI).
NMCE commenced futures trading in 24 commodities on 26
November, 2002 on a national scale and the basket of commodities
has grown substantially since then to include cash crops, food grains,
plantations, spices, oil seeds, metals & bullion among others.
Research Desk of NMCE is constantly in the process of identifying the
hedging needs of the commodity economy and the basket of
products is likely to grow even further. NMCE has also made
immense contribution in raising awareness about and catalyzing
implementation of policy reforms in the commodity sector. 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
commodity derivatives market. 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.
Key Promoters

 Reliance Money
 Central Warehousing Corporation (CWC)
 National Agricultural Co Operative Marketing Federation of
India Limited (NAFED)
 Gujarat Agro Industries Corporation Limited (GAIC)
 Gujarat State Agricultural Marketing Board (GSAMB)
 National Institute of Agricultural Marketing (NIAM)
 Punjab National Bank (PNB)
 Neptune Overseas Limited (NOL)
NMCEIL Commodity Study
Active Contracts

Cardamom
Castor Seed, Oil & Oilcake

Chana
Coffee
Copra,  Coconut Oil & Coconut Oil cake
Cumin seed
Gold Study
Groundnut seed, oil & oil cake
Guar Seed
Isabgul Seed
Lin Seed

Menthol Crystal
Pepper
Pulses
Mustard Seed, Oil & Oil cake
Raw Jute
Rubber
Sacking
Safflower seed
Salient features of Oil
 Sesame Seed
Silver Study
Soy Seed, Oil & Oil cake
Sugar
Sunflower seed
Turmeric
Wheat

Exchange Abbreviation Product Types

Energy, Precious
Multi Commodity
MCX Metals, Metals,
Exchange
Agricultural

National Multi-
Precious Metals,
Commodity Exchange NMCE
Metals, Agricultural
of India Ltd

National Commodity
and Derivatives NCDEX All
Exchange
 References
http://www.mcxindia.coma

http://www.thehindubusinessline.com

http://www.nmce.com

http://fmc.gov.in