Slide 1:AWARENESS ON COMMODITY FUTURES TRADING Multi Commodity Exchange of India Ltd


Commodity Markets :Commodity Markets THE EVOLUTION


What is a commodity? :What is a commodity? Commodity is a product having commercial value and which can be produced, bought, sold and consumed. Commodities are basically the products of primary sector of the economy.


What are Markets? :What are Markets? A market is where buyers and sellers: Meet to exchange goods and services Usually in exchange for money The market may be in one specific place or Not exist physically at all


TYPES OF COMMODITY MARKETS :TYPES OF COMMODITY MARKETS CASH/SPOT FORWARD


Slide 8:Forward Contracts A legally enforceable agreement to buy/sell goods or an underlying asset on a specific date in future at a price agreed on the date of contract. Under FC(R)A, 1952 all the contracts for delivery of goods, which are settled by payment of money difference or where delivery and payment is made after a period of 11 days, are forward contracts.


Forward Contract – General characteristics :Forward Contract – General characteristics Custom designed and bilateral Contracts Counter party risk Settlement by delivery on expiry Low liquidity and reversing trade is difficult


Slide 10:Futures contract A Forward contract entered through the exchange is called a futures contract. Key Features:- Exchange traded, eliminates bilateral nature Eliminates counter party default risks Standardized contracts.Buyers & sellers accept terms of contract specified by the Exchange Leveraged contracts.While buying /selling the contract only margin amount is paid. Settled daily


FUTURES PRICE :FUTURES PRICE FP is determined in the same way as cash market prices on the basis of demand and supply (after all they are the same assets) There is interrelationship between cash price and futures price


Cost of Carry relationship :Cost of Carry relationship Futures price are generally more than the cash price. Longer the maturity, larger will be the difference. The difference between futures price and cash price is due to cost of carry. Futures price converges with the spot price on expiry since settlement price is derived from spot rates.


Slide 13:The uses of commodity futures Price discovery- Current and future levels Price risk management Transfers risk Controlled speculation


Slide 14:Participants


Participants in Futures Markets :Participants in Futures Markets Hedgers Consumers of commodities Traders Producers of commodities Speculators / Investors Brokerage houses Retail investors Commodity spot trader Institutional investors Arbitragers Brokerage houses Commodity spot trader Individual


Slide 16:Commodities Futures Markets in India “Futures trading in commodities has gone through the roof, with 24 exchanges registering a whopping 373% growth in business in the year 2005-2006” Indian Express, 13 April 2006 After reaching a 24 trillion rupees turnover in 2005/2006, the commodity exchanges went on to trade 14 trillion rupees in the 4 ½ months from 1 April to 14 August.


Global Futures & Options Volume (in Million Contracts Traded) :Global Futures & Options Volume (in Million Contracts Traded) Global F & O Volume 2005*: 9,899,780,283 Contracts Traded


Percentage Share of US & Non-US in the Global Commodities F&O Volume :Percentage Share of US & Non-US in the Global Commodities F&O Volume


Slide 19:Goldman Sachs: “Allocating only 10% of a securities portfolio to commodities, investors can vastly improve their performance.” Study by Ibbotson Associates, August 2006: “Even in a portfolio that wants very little risk, a bit of commodities will allow that portfolio to have even less volatility. Even the low-risk investor would want anywhere from 5% to 8% commodity exposure.” International studies have clearly shown that commodities should be part of any investment portfolio


BENEFITS OF NATIONAL LEVEL COMMODITY EXCHANGES :BENEFITS OF NATIONAL LEVEL COMMODITY EXCHANGES Single market for the entire country. Seller gets the best price in India (Highest) Buyer gets the best price in India (Lowest) All have equal opportunity to trade. High liquidity in commodities pricing


Slide 21:Market Watch


Entering and Exiting A Futures Position :Entering and Exiting A Futures Position How to Enter How to Exit Buy (long) Sell Sell (short) Buy


Slide 23:Loss in other market Gain in one market Concept of Hedging


INITIAL MARGIN :INITIAL MARGIN BEFORE A FUTURES A CONTRACT IS ENTERED INTO, BOTH THE BUYER AND THE SELLER ARE REQUIRED TO POST INITIAL MARGIN WHICH IS AROUND 3.5% -15% OF CONTRACT VALUE. INITIAL MARGIN PROVIDES THE CLEARING HOUSE WITH SOME PROTECTION BUT NOT COMPLETE PROTECTION THEREFORE THE INVESTORS ACCOUNT MUST BE MARKED TO MARKET EVERYDAY


MAINTENANCE MARGIN :MAINTENANCE MARGIN ACCORDING TO MM REQUIREMENT,THE INVESTOR MUST KEEP HIS EQUITY EQUAL OR GREATER THAN A CERTAIN % (65%)OF THE IM DEPOSITED MARGIN CALL:WHEN EVER THE BALANCE FALLS BELOW THE MM LEVEL,THE BROKER MAKES A MARGIN CALL TO THE CLIENT REQUESTING HIM TO DEPOSIT ADDITIONAL AMOUNT KNOWN AS VARIATION MARGIN. IF THE INVESTOR DOES NOT RESPOND,THE BROKER CLOSES THE OPEN POSITION OF THE CLIENT


SPECIAL MARGIN :SPECIAL MARGIN IN CASE OF HIGHER VOLATALITY IN THE CASE OF ANY COMMODITY, ADDITIONAL VOLATALITY MARGIN IS IMPOSED ON ALL OPEN POSITIONS MEMBERS MUST IMMEDIATELY PAY THIS TO THE EXCHANGE


Introduction to Multi Commodity Exchange of India Ltd. :Introduction to Multi Commodity Exchange of India Ltd.


Slide 28:Evolution of Commodity futures in India 2003-04 - 3 National Level Exchanges being set-up Trading in over 90 commodities permitted


Multi Commodity Exchange of India Ltd. :Multi Commodity Exchange of India Ltd. Independent and demutualized exchange. National-level multi commodity exchange.  Permanent recognition from the Government. Facilitates online trading, clearing & settlement. Led by a management team with deep domain knowledge of the commodity derivatives market. An ISO 9001:2000 certified.


Slide 30:Permanent Recognition by Government


Slide 31:Forward Market Commission Securities exchange boa Securities exchange board of India rd of India Commodity futures Equity markets Multi Commodity Exchange Member Member Customer Customer Securities & Exchange Board of India National Stock Exchange Member Customer Comparative Structure


Legal Framework :Legal Framework Forward Markets Commission FC(R) Act 1952 FCRR 1954 Ministry of Consumer Affairs, Food and Public Distribution Multi Commodity Exchange of India Limited Regulations Bye-Laws and Business rules


Cross-border Strategic Alliances :Cross-border Strategic Alliances


Average Monthly Turnover (in US$ Billion) :Average Monthly Turnover (in US$ Billion) $2.40 $10.59 $39.53 $66.92 * April-July ‘06


POTENTIAL OF COMMODITY MARKETS IN INDIA :POTENTIAL OF COMMODITY MARKETS IN INDIA INDIA IS THE LEADING PRODUCER OF 17 AG COMMODITIES AND WORLD`S LARGEST CONSUMER OF GOLD AND EDIBILE OILS INDIA HAS 30 MAJOR MARKETS AND NEARLY 6000 MANDIES OVER 27000 RURAL BAZARS IN THE COUNTRY INDIA HAS NEARLY 5 MILLION TRADERS IN COMMODITIES COMMODITIES RELATED INDUSTRIES ACCOUNT FOR NEARLY 58% GDP STATE AND C.G. HAVE INVESTED LARGE AMOUNT ON AGRILUTURE THERE ARE 3 NATIONAL LEVEL COMMODITY EXCHANGES WITH APP. 100 COMMODITIES FOR FUTURE TRADING THE VALUE OF COMMODITIES TRADED IS AROUND Rs.300,000 CRORES.THE POTENTIAL FUTURES MARKET IS ABOUT 30,00,000 CRORES ANNUALY. MANY BANKS HAVE DECIDED TO INVEST FOR COMMODITY TRADING GOVT HAS INITIATED SEVERAL MEASURES TO BOOST COMMODITY TRADING IN RECENT YEARS


Slide 36:THE COMPANY……


MCX Key Shareholders :MCX Key Shareholders NABARD & Associates


MCX Achievements :MCX Achievements World’s Second Largest Silver Exchange World’s Third Largest Bullion Exchange Live Trading Since November 10, 2003 Average Daily Turnover – Rs. 9000 Cr (Single Sided) Highest Single Day Turnover - Rs. 17987 Cr (Single Sided) Gold Highest Turnover: Rs.9094 Cr Silver Highest Turnover: Rs.7455 Cr


MCX initiatives :DGCX – Dubai Gold and Commodities Exchange. A joint initiative of MCX with Financial Technologies Ltd and Dubai Gold and Commodities Centre (DGCC), Govt. of Dubai. NSEAP – National Spot Exchange for Agriculture Produce. A joint initiative of MCX and NAFED NBHC – National Bulk Handling Corporation. A joint initiative of MCX and Paras Ram Brothers, Australia. MCX initiatives


Strategic Alliances :International Strategic Alliances London Metal Exchange (LME) New York Mercantile Exchange (NYMEX) Tokyo Commodity Exchange (TOCOM) The Baltic Exchange, London Chicago Climate Exchange Domestic Strategic Alliances Bombay Bullion Association (BBA) Solvent Extractors’ Association of India (SEA) Bombay Metal Exchange (BME) Pulses Importers Association (PIA) United Planters Association of Southern India (UPASI) Education and Training Indian Statistical Institute Welingkars Institute of Management and Technology G B Pant University of Agriculture Strategic Alliances


Hedging :Hedging Trading the futures contract for the purpose of reducing or controlling the price risk is called hedging. Hedging helps in locking in a certain price and therefore eliminating any price risks. Hedging involves taking a position in the futures contract that is opposite in the cash market


Underlying Commodities for which Futures are Traded in MCX :Underlying Commodities for which Futures are Traded in MCX Bullion Gold – 1 kg, 100 gm, 3 kg Silver – 30 / 5 / 50 kg Oils and Oilseeds Soy Seed, Oil & Meal Castor Seed (Disa) & Oil Mustard Seed (Jaipur) Mustard Oil Sesame Seed Crude Palm Oil Groundnut Oil RBD Palmolein Cotton Seed & Oilcake Refined Sunflower Oil Coconut Oil Others Cashew Kernel Guarseed/Gum Potato Mentha Oil Rubber Arecanut Metals Copper Tin Nickel Steel – Long Steel – Flat Sponge Iron Lead Pulses Chana Masur (Masra) Tur Urad Yellow Peas Fibre Cotton–Medium Staple Cotton – Long Staple Kapas Cotton-Short Staple Cereals Wheat Rice Basmati Rice Sarbati Rice Maize Spices Black Pepper Cumin Seed (Jeera) Red Chilli Turmeric Cardamom Energy Crude Oil Brent Crude Oil Furnace Oil Natural Gas Jaggery Gur Sugar S-30 Sugar M-30 Plastics Polypropylene and HDPE PVC


CONTRACT SPECIFICATIONS :CONTRACT SPECIFICATIONS


The MCX Training Department :The MCX Training Department To create awareness amongst the user. To train and create skilled manpower for the commodity market. To disseminate knowledge amongst the members and the user group by providing state-of-the-art training services. To take research initiatives in the commodity derivative market. To provide consultancy services to the corporate.


Educational Tie-ups :Educational Tie-ups Indian Institute of Management (IIM), Indore. Indian Institute of Finance (IIF), Delhi. Welingkar’s Institute of Management Development and Research, Mumbai. Vaikunth Mehta National Institute of Co-operative Management (VAMNICOM), Pune. National Centre for Co-op Training (NCCT), New Delhi. The Energy & Resource Institute (Teri), New Delhi.


Educational Tie-ups Conti.. :Educational Tie-ups Conti.. Symbiosis Center for International Business (SCIB), Pune. Indore Professional Studies-Academy, Indore. International College of Financial Planning (ICFP), New Delhi. University of Petroleum & Energy Studies (UPES), Delhi. National Institute of Agricultural Marketing Jaipur.


MCX Certification Programmes :MCX Certification Programmes MCX Certified Commodity Professional (MCCP). Commodity Industry Management Programme (CIMP). Diploma in Commodities Market (DICM). Certificate Course in Commodities Futures Market (CCFM) Faculty Development Programme (FDP). Member Development Training Programme (MDTP). Executive Management Development Programme (MDP). Post Graduate Diploma in Commodity Market (PGDCM).


Why certification Programme ? :Why certification Programme ? Better understanding of the commodity Market. Career opportunities. Start your own trading desk. One of the fastest growing Industries. Add Value in terms of knowledge enhanace. Development of new skills. Updation in terms of skill, attitudes and the mindsets required for coping with the changing needs of the industry.


Key Consultancy areas…… :Key Consultancy areas…… The Department provides state of- the- art Consultancy services to set up an efficient commodity Desk. For Corporates Raw material price risk management. Portfolio management. Enhance commodity knowledge through training. For Bank & Mutual Fund Companies Portfolio management. Management of credit portfolio risk. Enhance commodity knowledge through training.


Slide 52:Reference


Important Websites :Important Websites www.dowjonesnews.com www.kitcometals.com www.basemetals.com www.bulliondesk.com www.futuresource.com www.lme.ac.uk www.nymex.com commodityreports@yahoo.com ; pwd - nopassword


QUESTIONS :QUESTIONS


Slide 55:This presentation has been prepared to provide awareness & information purpose only. While every effort has been made to assure the accuracy of the information contained herein, any affirmation of fact in this reference material shall not create an express or implied warranty that any example or description is correct. This material has been made available on the condition that errors or omissions shall not be made the basis for any claims, demands or cause of action. The information provided, has been taken from sources believed to be reliable, but is not guaranteed by the MCX as to accuracy or completeness , and is intended for the purposes of education and information only. The Rules and Regulations of the Exchange should be consulted as the authoritative source on all contract specifications and regulations. Disclaimer


Thank youshiva.mathapati@mcxindia.commobile : 09900128410 :Thank youshiva.mathapati@mcxindia.commobile : 09900128410