www.mcxindia.

com Multi Commodity Exchange of India Ltd,

COMMODITY FUTURES
Presentation By:
Multi Commodity Exchange of India Ltd. (MCX)
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Commodity Ecosystem

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Commodity Market Structure
Producers
(Farmers/
Co-operatives/
Institutional)
Commodities
Ecosystem
MCX
Consumers
(Retail/
Institutional)
Quality
Certification
Agencies
Clearing Bank
Warehouses
Transporters/
Support
Agencies
Traders
(Speculators)
Arbitrageurs/
Client)
Hedger
(Exporters/
Millers/
Industry)
Global Commodities
Market
Spot Market
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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
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Indias 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
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Business Potential
Commodities
Size of Physical
Market
(Rs. Crore)
Conservative
Multiplier
(Rs. Crore)
( In 3 years)
Global Multiplier

(Rs. Crore)
(In 3 5 Years)
Gold & Silver Rs. 43000 cr 20 Times
Rs. 8,30,000 cr
50 Times
Rs. 21,50,000 cr
Edible Oils Rs. 30000 cr 10 Times
Rs. 3,00,000 cr
20 Times
Rs. 6,00,000 cr
Metals Rs.11000 cr 10 Times
Rs. 1,10,000 cr
20 Times
Rs. 2,20,000 cr
Total Rs. 84,000 cr Rs. 12,40,000cr Rs. 29,70,000cr
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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
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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
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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

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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
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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

Benefits of Futures Trading
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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
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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
futures market

Less financing requirements; reduced
interest cost. Reduces cost of
production. Increase in profits

Buy in futures markets

Save on storage and storage
management costs. Increase in
profitability

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MCX vis a vis Other Bullion Exchanges
(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
Transparency
High Low Low
Channel Financial Integrity High Low Low
Lead Transaction Time Low High High
Physical Delivery Yes No No
With Respect to Present Practices of Domestic Bullion Players
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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

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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
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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
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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
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Thank You