4.1 introduction of mcx - shodhganga : a reservoir of...
TRANSCRIPT
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This chapter disclosed the working system and financial performance of Multy
Commodity Exchange of India ltd.
4.1 INTRODUCTION OF MCX
Multi Commodity Exchange of India Limited (MCX) is a “new order “exchange
with permanent recognition from the Government of India for setting up a
nationwide online (electronic) multi-commodity marketplace, offering
“unparalleled efficiencies”, “unlimited growth and “infinite opportunities” to
market participants. MCX, a nationwide multi-commodity exchange, is an
independent and demutualised exchange since inception. Promoted by Financial
Technologies (India) Limited, MCX has introduced a state-of-the-art, online
digital exchange for commodities trading in the country. In line with its strong
belief of setting up a truly independent and a neutral platform, MCX is committed
in its pursuit of broad basing its ownership and inclusive. Subsequent to this, the
exchange would be accountable not only to FMC but also SEBI.
In its endeavor towards establishing India as a major hub for global trading in
commodities, MCX has taken up the initiative by entering into tie-ups with major
international exchanges and commodity trading centers, in a significant
development that would have widespread ramifications across entire commodity
trading circles. MCX, in the first week of November, 2004 signed a Memorandum
of Understanding (MOU), with the Tokyo Commodity Exchange (TOCOM),
which is one of the largest commodity futures exchange in the world, very active
in metals and energy futures contracts. The tie-up would help the two exchanges in
information sharing, market development and monitoring, surveillance methods
market operations trading practices and regulation in the commodities futures
markets, This is the first authentic step in bringing global recognition to the Indian
commodity markets and raises the authentic step in bringing global recognition to
the Indian commodity markets and raises the standard of commodity trading to
globally acceptable levels. It would opportunities for Indian producers and
consumers to get the best prices for their products and consumables.
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MCX has also forged another partnership with a major international conglomerate,
the Dubai metals and commodity Center (DMCC), in November 2004, to set up
the Dubai Gold and commodity Exchange (DGCX), Which has become
operational from 21st Novembers 2005.The exchange, situated in the free trade
zone of Dubai, Offers a transparent trading environment for dollar denominated
Gold futures contract. DGCX is also on the anvil of launching currency futures
contract. Dubai has firmly established itself as the gateway of international gold
market to India. The Setting up of this exchange would fill a very critical gap for
the international trading commodity since business from the Gulf is currently
routed to New York, London and Tokyo.
The another initiative taken by MCX to reduce the adverse impact of volatility
freight rates. It has entered into a strategic alliance with the Baltic Exchange,
London, to introduce freight futures contracts in India for the first time. The move
will have a significant impact on the Indian shipping industry as well has
commodity traders, exporters and importers since the increasing cost of freight is
increasingly impacting the transportation of cargo. This will facilitate the
establishment of very vibrant freight derivatives market in south-East Asia for
freight risk management of trade done outside the region.
In October 2005, MCX and London Metal Exchange (LME) announced the
signing of a licensing agreement that will allow the MCX to lunch futures
contracts in non-ferrous metal using LME prices as the basis of settlement. MCX
has also signed a Memorandum of understanding (MOU) to explore areas of
cooperation and business opportunities with the goal of assisting and benefiting
the underlying producers, end-users and investors in their commodity traded
products by maximizing the application of international best practices for price
risk management and exchange operation that could mutually benefit the
exchanges.
Following are the main share holders of the MCX:
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1. State Bank of India
2. National Bank for Agriculture and Rural Development (NABARD)
3. HDFC Bank
4. Bank of India
5. State Bank of Indore
6. State Bank of Hyderabad
7. SBI Life Insurance Co. Ltd.
8. Financial Technologies (India) Ltd.
9. National Stock Exchange of India Ltd. (NSE)
10. Fidelity International
11. State Bank of Saurashtra
12. Canara Bank
MCX is well poised to emerge as the “Exchange of Choice” for the Commodity
trading community in the country. MCX has formulated strategic alliances with
leading commodity trade associations in India, namely;
Bombay Bullion Association (BBA)
Bombay Metal Exchange (BME)
Solvent Extractors Association of India (SEA)
Pulses Importers Association (PIA)
MCX has a strongly established growth path with its aim to offer:
Liquidity - Introduce new Commodities/Members/Measures.
Expansion - Enroll Intuitional & Other classes of Members.
Leadership - To be a Commodities Exchange of choice.
Information - Disseminate trade & Commodities information.
Technology -Continue technological leadership for cost effective expansion.
Trade Friendliness- work with trade & Industry for growth.
Globalization- Market India’s Commodities sector globally.
Knowledge - Create & Share-pool of Commodities knowledge.
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Training-Industry and Professional on Commodities Market, Operation, Risk
Management.
Converge – Markets, Participant & Commodities.
As of January 2007, MCX has already appointed more than 1600 members with
over 10000 + Traders Work Stations (TWS).
4.2 BUSINESS OPERATIONS, RULES AND APPLICABILITY
MCX is doing trading in derivatives contract in various commodities which are
permitted by the central Govt. under the forward contract Regulation Act.1952,
subject to approval of the forward markets commission.
Business Rules of Multi commodities Exchange of India limited is subject to the
provisions of the forward contract (Regulation) Act, 1952 and Rules framed there
under, Articles of Association, Rules and Bye-Laws of Multi commodities
Exchange of India ltd (MCX), as applicable to the members of the Exchange, their
Representatives and their clients.
These Rules are enforceable on the member of the exchange, clearing bank,
Clients, Constituents and all other Participant operating on or through the
exchange in respect of their rights and obligation relating to trading on MCX.
They are subject to jurisdiction of the court of Mumbai irrespective of the place of
business of the members of the members exchange or their customers and client in
India or elsewhere.
4.3 ELIGIBILITY FOR TRADING
The member of the Exchange, who have been admitted as such by the board, are
eligible to participate in trading persons, who are not members of the Exchange,
can participate in trading only as approved users or clients through a registered
member of the Exchange.
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4.4 MEMBERSHIP AT MCX
Currently, there are three categories of membership available at MCX, depending
upon the Trading & Clearing Rights. These Membership types are explained in
detail us under.
1. TRADING-CUM-CLEARING MEMBER: A TCM is entitled to trade on his
own account as well as on account of his client and clear and settle trades
himself. A sole proprietor, partnership form, a joint Hindu Undivided family
(HUF), a corporate entity, a cooperative society, a public sector organization,
statutory, organization or any other Government or non government entity can
become a TCM.
A person desirous of being registered, as a Trading-cum-Clearing-Member is
required to submit an application as per the format prescribed under the
business rules, along with all enclosures, fee and other document specified
therein. He is required to go through an interview by the membership
admission committee and the committee is entitled to accept or reject his
application. The committee is also empowered to farm rules or criteria relating
to admission to membership, after decision relating to selection or rejection of
a member. On selection the member is required to execute and submit an
Undertaking called as “Trading-Cum-Clearing-Member” Undertaking as data
as per format prescribed under the business rules. On selection and after
complying with all the requirement above and also after payment of admission
fee, security deposit. VSAT charges, etc., the member becomes entitled to
trade on his own account as well as on account of his clients.
2. INSTITUTIONAL-TRADING-CUM-CLEARING-MEMBER: Only an
institution/corporate can be admitted by the Exchange as a member, conferring
upon them the right to trade and clear through the Clearing House of the
Exchange as an institutional Trading-Cum-Clearing-Member (ITCM).
Moreover, the member may be allowed to make deals for himself as well as on
behalf on his client and clear and settle Such deal. Further the ITCM can also
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appoint sub-brokers. Authorized person and trading members who would be
registered as trading members on MCX at the request of the ITCM. The ITCM
will clear and settle trades on behalf of the sub-brokers authorized person and
such trading member who reregister on MCX at their request, subject to the
terms and condition specified by MCX.
3. PROFESSIONAL CLEARING MEMBER: A PCM is entitled to clear and
settle trades executed by other members of the exchange. A corporate entity
and an institution only can apply for PCM. The member would be allowed to
clear and settle trades of such members of the Exchange who choose to clear
and settle their trades through such PCM.
4. ADMISSION FEE AND ANNUAL SUBSCRIPTION: The admission fee
paid by a member is non refundable. A member is required to pay annual
subscription latest by April 30 every year in advanced as required in the
business rules of the exchange.
4.5 DEPOSIT
1. Initial Security Deposit: A minimum of 50% of the Initial Security Deposit
needs to be submitted in the form of cash. The balance can be in the form of
fixed deposit or bank guarantee with approved banks.
2. Additional Deposit and Forms: In order to increase the exposure limits for
trading, the members may remit additional security deposit of which at least
25% should be in the form of cash and the balance can be in the form of bank
guarantee and/or fixed deposit with approve bank. The security deposit paid by
the member is interest free refundable deposit. It is treated as his initial
deposition which he gets an initial exposure limit in value terms. Security
deposit whether initial deposit, additional deposit and margin paid by the
member constitute a part of the settlement guarantee funding case of transfer of
membership, the initial security deposit is refundable subject to settlement of
all pending dues, claims and charges subject to lock in period of 3 years. There
is no such lock in period in respect of additional deposit. The additional deposit
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or margin can be paid either in the form of demand or money transfer through
the clearing bank or in the form of bank guarantee or fixed deposit, subject to
condition specified below. In case a member intends to get his additional
security deposit released to him during its tenure or on its maturity, he shall
inform the exchange at least one week in advance. The exchange subject to
clearance of exchange dues shall consider any request for withdrawal of the
additional security deposit.
3. Bank Guarantee: The Exchange scopes bank guarantee issue by approved
banks security as per format prescribed in the business rules, the bank
guarantee instrument should be for a minimum period of one year and a
maximum period of three years. The bank guarantee must be issue by the bank
on behalf of the member himself. A third party bank guarantee instrument
issued on behalf of some person other than the member himself will not be
acceptable. A member will be required to renew the bank guarantee submitted
by him prior to its expiry in case of renewal of bank guarantee with a specific
claim period the member shall furnish the renewal document strictly in the
prescribed format at least 7 working days before the date of expiry of the bank
guarantee. The member may also opt to give fresh bank guarantee in favor of
Multi Commodity Exchange of India Ltd. instead of renewing the expired bank
guarantee. A bank guarantee deposited by a member which has expired shall
be excluded for the purpose of computing the benefit provided to such member
toward exposure.
4. Fixed Deposit Receipts: Member may be submitting fixed deposit receipt
(FDR) issue by the approved bank for the purpose of additional deposit. All
such fixed deposit shall be under lien of the exchange and bank, they must
confirm that such lien has been recorded and that the exchange has first charge
on such fixed deposit receipts by issuing a letter along with the fixed deposit
receipt as per the format prescribe in the business rules. The member shall
submit the fixed deposit certificate along with a letter issue by the member
himself as per the format prescribed in the business rules.
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5. Additional Deposit: Approved securities and warehouse Receipts:
Additional deposit can also be made in the form of security and warehouse
which is deposited as collateral. The following are the broad guidelines, which
to be adhered to for keeping securities and warehouse receipts as collateral:
a) The exchange through circulars periodically the specific securities which
can be submitted as collateral.
b) The exchange also provides information periodically the specific
commodities for which the warehouse receipts can be deposit as collateral.
c) The total additional deposit by way of approved securities and warehouse
receipt should not exceed the cash and cash and cash equivalents.
d) The maximum allowable deposit by way of approved securities is Rs. 25
corers.
e) The maximum allowable deposit by way of approved warehouse receipt is
Rs. 50 corers.
f) Warehouse receipt of each Commodity (ICIN) can be used for collateral
purpose. The maximum allowable upper limit for different commodities is
decided by the exchange.
g) The utilization of both securities and warehouse receipt for collateral is
only after considering the application “haircut”. (Haircut is a percentage is
subtracted from the market value of the assets that are being used as
collateral. The size of the haircut reflects perceived risk associated with the
assets.)
4.6 WORKING OF MCX
It covers the various aspects regarding operations of MCX.
4.6.1 Commodity Futures Trading
1. Trading Day and Hours: The Exchange operates on all days except Sundays
and Exchange specified holidays. The Exchange notifies a list of holidays for
each calendar year in advance. Trading of agriculture commodities are done
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between 10:00 a.m. to 5:00 p.m. and other than agriculture commodity are
done between 10:00 a.m. to 11:30 p.m. from Monday to Friday. On Saturday
all commodities are traded between 10:00 a.m. to 2:00 p.m. Holidays are
notified in advance. The Exchange may extend, advance or reduce trading
hours by notifying the Members as and when it deems fit and necessary.
2. Electronic Marketplace: Very Small Aperture Terminal (VSAT) system is a
sophisticated satellite-based communication network, offered by MCX for the
efficient automated trading for its member. Trading can be done also with the
help of internet.
3. Using a satellite network to link users to the exchange, System &
Networking: The costs are relatively low & the equipment is relatively simple.
These systems can also work in difficult environments. For smaller users,
access to the exchange can be channeled through a broker in a nearby town or
village, such as a rural branch. This dispersal of points of trading terminals
helps people from all over the country to access their exchange for hedging
their price risk. These technology-driven solutions facilitate the establishment
of business models specifically designed to bring previously marginalized
commodity producers into the market. MCX has the backing of Financial
Technologies, which provides leading edge technology solutions for financial
services providers. This enables MCX to offer state-of-the-art system and
networking infrastructure for ensuring a smooth trading environment. This
would not be possible without the help of the well-equipped systems and
networking personnel at its disposal.
4.6.2 Trading Parameters
1. Base Price: The exchange decides the “Base Price” of contract available for
trading on the system , which is a notional price based on the spot market price
of that commodity on the previous day (as the case may be for the particular
commodity) and a notional carrying cost. However, this is done only on the
first day of commencement of trading in a contract. For all subsequent days,
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the base price is taken as the official closing price is taken as the contract
during the previous trading day. In case, after the launch of the contract and
fixing of the base price, if no trade takes place on that day, the exchange can
change the base price for the next trading session if the spot price is volatile
and fluctuates during the previous trading day when no trade takes place in the
commodity futures contract.
2. Closing Price: The system calculates the closing price of every contract traded
on the system at the end of trading period. The logic for the calculation of a
closing price is as follows:
a) Closing price is equal to weighted average price of all trades done during
the day.
b) If the number of trades during the last 30 minutes is less than 10, then it is
based on the weighted average price of the last 10 trades executed during
the day.
c) If the number of trades done during the day is less than 10, then it is taken
as the weighted average of all trades executed during the day.
d) If no trades have been executed in a contract on a day, then the official
closing price of the last (previous) trading session is taken as the official
closing price for that day. Provided that in such cases the Exchange will
have the right to modify the closing price. For risk management purpose,
the Exchange, if it so desires, can consider more trades for calculating the
closing price than the mandatory minimum of 10 trades.
3. Dissemination of Open, High, Low and Last Traded Prices: The Exchange
continuously disseminates open, high, low and last traded prices through its
trading system on real time bases, during a trading session.
4. Life of a Future Contract and Expiry Date: The life of a contract means the
period when the contract will be available for future trading i.e. the period
between the start of trading and the day it expires. This period is also known
as the “trading cycle” of the contract. The expiry date of each commodity
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futures contract is mentioned in the contract specification of the particular
futures contract. If the particular expiry date happens to be a holiday, contract
will expiry on the particular delivery month. If the preceding day is suddenly
declared a holiday, then the contract shall expire on the succeeding working
day.
5. Due Date Rate: Due date rate is the rate at which the contract is settled on the
expiry date. It is usually the average of the last 1 or 3 or 5 days prices in the
spot market (of the market place which is the basis of that contract), or as
prescribed by the exchange in the contract specification. The exchange shall
have the power to alter or modify such due date rate on the basis of upcountry
prices, if it is expedient to do so.
6. Trader Work Station: Registered members / brokers of MCX can be trade
online using the automated screen based trading system called the Traders
Work Station (TWS). The exchange through the TWS interface provides
automated trading facility for all contract permitted by FMC on Nationwide
basis. The MCX trading system supports an order-driven trading system,
which is transparent, objective and fair for automatic order matching with
tremendous flexibility. The trading system provides complete market
information online on a real-time basis.
4.6.3 Types of Orders
The best buy order is matched with best sell order on price-time priority basis, in
the MCX-TWS. Quality and price for any type of order is entered into the system
as per the trading unit and base value unit of the commodity respectively.
Exchange members can submit the following types of order based on price related
conditions and time related condition.
A) Price related condition orders
1. Limit Order: Specifies the price at which the trade should be executed. Limit
orders are placed to either enter into a new trade or to exit from an existing
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trade. For a buy order, the limit is placed below the existing market price and
for a sell order, the placed above the existing market price.
2. Market Order: It will be executed at whatever is the prevailing price on or
after submission of such an order. If there are no trades at that point of time,
the system takes the last trade’s price as the market order and the order remains
in the system unexecuted. For example, if you want your broken to buy two
SEP Silver futures contract at the prevailing market price, a market order can
be placed for the same. The order will be executed at the prevailing best sell
price.
3. Stop Loss Order: They are usually placed to minimize losses. Stop loss order
are usually placed to close out existing position. Stop loss buy order are placed
above the current market price, and stop loss sell order are placed below the
current market price. A trigger price is also specified to allow the system to
activate the stop loss order once the last traded price breaches the trigger price.
Stop loss order are kept by the system in suspended or abeyance mode and are
activated only on the member. The advantage of a stop order is that, any
sudden adverse movement in the market can limit losses to a great extent.
Stop-loss orders do not cost anything to the client. The regular member/brokers
commission is charged only once the stop-loss price has been reached and the
order is executed. Hence, it functions like an insurance policy. Secondly, but
most importantly, a stop-loss allows decision making to be free from any
emotional influences. People tend to believe that the market may bounce back
from an adverse movement. This causes the trader to procrastinate and delay
the action to cut losses. This ensures discipline in trading.
B) Time related condition orders
1. Day Orders (or End of Session Order) are available for execution during the
current trading session. They remain in the system until executed or cancelled.
All day orders will get cancelled at the end of the trading session during which
such orders were submitted.
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2. Good Till Date (GTD) is available for execution till the end of the date
indicated in the order.
3. Good Till Cancelled (GTC) is an order to buy or sell a commodity futures
contract at a specific limit price that last unit the order is completed or
cancelled. A GTC order will not be executed until the limit price is reached,
regardless of how many days or weeks it might take. Investors often use GTC
orders to set a limits price that is far away from the current market price. Some
brokerage first may limit the time a GTC order can remain in effect and may
charged more for executing this type of order. GTC is available for execution
till maturity of the contract, whichever is earlier.
4. Immediate or Cancel (IOC) is an order requiring all or part of the order to be
executed immediately after it has been placed. Any portion not executed
immediately is automatically cancelled. This is used for large orders where
filling quickly can be difficult. Such orders will not remain in the order book.
C) Modification and Cancellation of Orders
A member is permitted to modify or cancel his orders. The order can be modified
by effecting changes in the order input parameters. Time priority for an order
modification will not change due to decrease in its quantity or decrease in
discloses quantity. In other circumstances, the time priority of the client of the
member, if the wrong client code has been entered by the member, the client code
of the trade executed can be changed. This is permissible only up to 15 mins after
the end of the day’s trading session.
4.6.4 Risk Management by Price Limit-Circuit Filter and Types of Margin
Requirement
The Exchange notifies a daily circuit filter limit for commodities in terms of
percentage of variation allowed in a day with respect to the base price for that day.
Circuit filter provides the maximum range within which a contract can be traded in
a session. Such circuit filter can be different for different commodities. The orders,
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which are in violation of such circuit filters, are rejected by the system. The initial
security deposit paid by a member is considered as his initial margin for the
purpose of allowable exposure limits. Initially, every member is allowed to take
exposure up to the level permissible on the basis of such an initial deposit.
However, if a member wishes to create more exposure, he has to deposit
additional margins. If there is surplus deposit lying with the Exchange towards
margins, it is not refunded to the member unless a written request is received from
the member for refund. However, the member receives additional exposure limit
on account of such additional / surplus deposit.
4.6.5 Delivery Default Risk Management
Following are the various aspects of such risk management.
A) Penalty for non-performance: In order to enforce strict discipline in respect
of performance of a contract, the Exchange follows the procedures mentioned
below:
1. All the members having outstanding positions in the expiring contract will be
required to submit in writing to the Exchange in the specified format about
their intention for tendering or lifting delivery along with details of quality,
quantity, delivery center, etc. only on designated tender days.
2. Any member who does not submit such intention will not be allowed to tender
delivery in that contract. However, even if a buyer submits his intention to lift
delivery, it may be possible that he does not receive delivery either fully or
partially or that he would receive delivery but at different delivery center
compared to the center desired by him.
3. If a member does not submit his intention to give or lift delivery, he will have
only two options:
To square off his positions anytime before the contract expiry; or
To settle his positions as per the due date rate in case he fails to square off
his positions before the contract maturity. However, in case the position is
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settled as per due date rate, the member may have to pay penalty at the rate
of such percentage(as mentioned in circulars of the contract) of the due date
for unsettled quantity
4. If a member submits his intention to give his delivery, but subsequently fails to
do so, his positions will be closed out at the due date rate and he shall also be
required to pay a penalty of such %(as mentioned in the circulars of the
contract) of the due date rate for the unsettled quantity. Out of such penalty
collected by the Exchange, 90% of the amount will go to the buyer to
compensate him for making the funds available and not receiving delivery.
5. If a member submits his intention to give delivery and there are no buyers
interested to lift delivery, then the positions of both the buyers sellers will be
closed out as per the due date rate (DDR) and in addition to such DDR, the
buyers may be required to pay a penalty of such %(as mentioned in the
circulars of the contract) of the due date rate, which will be in turn be paid to
the seller.
6. If the buyer has submitted his intention to lift the delivery, but subsequently
when delivery is allocated to him he fails to make payments for the same, then
the buyer will be declared a defaulter and the positions will be closed out as
per the official closing price of that day, while the delivery will vest with the
seller. In such cases, the Exchange imposes such percentage (as mentioned in
the circulars of contract) of the DDR a penalty to the buyer.
B) Settlement Guarantee Fund: The Exchange guarantees the settlement of the
net settlement liability of clearing members for all trades done on the Exchange
in accordance with the byelaws of the Exchange. The settlement guarantee
fund of the Exchange is confined only to the extent of the settlement liability in
terms of daily pay-in and payout as well as the final settlement as per the due
date rate. The settlement guarantee fund is made up of the initial deposits and
additional deposits of the members to the exchange.
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4.6.6 Surveillance: In order to ensure market integrity and club price rigging,
price manipulation, cornering the market, circular trading and defaults in
the market, the Exchange uses various on-line and off-line surveillance
tools, such as:
1. Mark to Market Loss Monitoring: During the trading session, the system
keeps track of losses, both national and booked, incurred by every member up
to the last executed trade. This is calculated by the system on real time basis by
way of computing the difference between the actual trade price of a member
and the last trade price of the market. Such calculation happens for every
member after execution of each and every trade. The maximum loss limit,
which the system allows a member to sustain on a real-time basis, is 75% of
the total deposit. Every time such loss amounts goes beyond the levels of 60%,
75% or 90% of the prior mentioned loss limit, the member gets a warning
signal. Thereafter, when the loss crosses the 75% of the total deposit limit, the
member is suspended by the system. In such calculations, there is no allowance
given in respect of profits made by such members in a different contract. This
is monitored by the system to curb any default in the process of day trading.
2. Maximum allowable open position: In order to avoid building up of huge
open positions in any commodity, the Exchange has specified the maximum
allowable open position limit across all members of the Exchange. There is a
restriction at the client level to the effect that any client cannot hold more than
the specified quantity of the commodity as an open position as per contract
specifications notwithstanding any deposit or margin paid by such client. There
is a further restriction at the member level to the effect any member cannot
hold more than the specified limit of such market wide open position limit,
notwithstanding any deposit or margins paid by such a member. This is
monitored after every 30 minutes on daily basis. Any member, who either in
his own account or in the account of his client violates any such limit in respect
of any contract, will be subjected to the following:
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To reduce the position in the immediate session so as to bring the total open
positions in the contract below the threshold limit fixed by the Exchange.
If he fails to do the above, the Exchange reduces his open positions.
Besides, the member will also be required to pay a penalty.
3. Circuit filter: The Exchange notifies a daily circuit filter limit for
commodities in term of percentage of volatility allowed in a day with respect
to the base price of the day. Circuit filter provides the maximum range within
which a contract can be traded in a session. Such circuit filters can be different
for different commodities. The orders, which are in violation of such circuit
filters, will be rejected by the system. However, before opening the circuit
filter, the Exchange will impose such margin terms, as it may desire.
4.7 TRANSACTION FEE AND QUALITY CERTIFICATION
Transaction Fee (Per Rs.1 lakh of turnover value) is required to be paid by the
member based on their average daily turnover in all future contracts in all the
commodities traded at the exchange as tabulated below:
Average Daily Turnover Transaction Fee Rates
(Rs. Per Lakh of Turnover)
Upto Rs. 50 Crores Rs. 4
On incremental turnover above Rs. 50 Crores to
Rs. 150 Crores
Rs. 3
On incremental turnover above Rs. 150 Crores
to Rs. 250 Crores
Rs. 2
On incremental turnover above Rs. 250 Crores
to Rs. 350 Crores
Rs. 1
On incremental turnover above Rs.350 Crores to
Rs.500 Crores
Rs. 0.50
On incremental turnover above Rs.500 Crores Rs. 0.25
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Average Daily Turnover in all future contracts, in all commodities will be
calculated at the end of every month by way of dividing the total turnover of the
member of the exchange (including Saturdays) by the total number of trading days
(including Saturdays).
The transaction fee will be debited on a monthly basis to the settlement account of
the members in the first week of the succeeding month. The above mentioned
slabs of transaction charges are valid till further notice and the Exchange reserves
the right to modify/alter/revise/withdraw the same, either in full or in part at any
time after giving notice to members. The above said transaction fee is effective
from April 2, 2007.
For the purpose of quality certification of commodities to be delivered, there are
many surveyors for different commodities, some of whom are:
a. SGS India Private Limited
b. B. Geo Chem Laboratories Private Limited
c. Dr. Amin Suprintendents & Surveyors Private Limited
d. Caleb Brett India Private Limited
e. Atlas Surveyors
f. Rubber Boards
g. Spices Boards
NBHC with its deep domain knowledge of commodity management has also
commenced providing an extensive range of technical services and solutions in the
field of quality testing, grading, certification and pest management services under
the brand names ProComm and CommGuard.
NBHC ProComm and CommGuard: Quality testing, Certification, and Pest
Management Services for Commodities offered by NBHC.
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PROCOMM and COMMGUARD
NBHC ProComm offers an extensive range of technical services and solutions in
the field of quality testing, grading, certification and pest management.
Service Package
1. Grading and Certification
a) Agro. Commodity Testing
b) Animal feed Testing
c) Other related tests
2. Product development
3. Warehouse Inspection &Audit
4. Assaying Services for Collateral Management
5. Sanitation Inspections & Consultations
Some of the tests conducted by NHBC include physical, chemical and biological
tests for identifying the following parameters:
1. Moisture
2. Extraneous matters
3. Microbial testing
4. Pesticide residue testing
5. Other tests to assess and grade the quality of commodities
NHBC CommGuard Pest Management Services provides services for all pest
related problems.
Service Package
1. Pest Prevention and Pest Management Services
2. Stored Product Protection and Fumigation
3. Disinfection Services
Benefits of ProComm and CommGuard are as follows:
The services are offered at competitive rates
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Excellence response time
Environment-friendly solutions
Employing Integrated Pest Management (IPM) Techniques
Extensive list of pest covered to minimize risk of storage
Special schemes for corporate and other group of customers
4.8 CLEARING, SETTLEMENT AND DELIVERY PROCEDURE
The Exchange has specified the processes, procedures and operations that every
clearing member shall be required to follow for participation in the clearing and
settlement activities and operating their bank accounts with the clearing Banks
appointed by the Exchange.
1. Functions of the Clearing Bank: The Exchange has appointed 12 Clearing
Banks viz. SBI, HDFC Bank, Induslnd Bank, UTI Bank, Kotak Mahindra
Bank, Citibank, Union Bank of India, Corporation Bank, DCB, Yes Bank and
ICICI Bank for transfer of funds between clearing members and the Exchange.
2. Members to have accounts with the Clearing Bank: Every member of the
Exchange shall have designated Clearing Bank, which has electronic funds
transfer facility. Members shall operate the settlement account only for the
purpose of settlement of deals entered through the Exchange for the payment
of margin money and for any other purpose as may be specified by the
exchange. Every member of the Exchange is required to open the following
accounts with any of the clearing banks stated above:
Settlement Account or Clearing account in which the member will not have
cheque book facility for issuing cheques to any outsiders. He can only issue
cheques from this account for transfer of money from this account to his
Client Account. Apart from any such transfer, only the Exchange will have
the power to withdraw money from this account by way of direct debit
instructions. In respect of all pay in, margins, charges and other dues
payable to the Exchange, the Exchange will send direct debit instructions to
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the bank advising them to debit the settlement account of the respective
member by such payable account.
Client Account- in which the member can deposit all cheques, cash, etc.
received from clients and from members can issue cheques to their clients
towards their receivables. The member has cheque book facility for this
account and he will also be entitled to issue transfer instructions to the bank
for transferring money from this account to Settlement account to meet his
pay in or margin obligations.
Clearing Banks act as per the instructions of the Exchange
The Exchange shall instruct the Clearing Banks as to the debits and credits to be
carried out for settlement of funds between members. For this purpose, members
of the Exchange will be required to submit a letter to the bank, as per format given
in the rules for authorizing to the Exchange to issue such debit and credit
instructions. The Clearing Bank shall act as to the debits and credits to a member’s
account shall be deemed to be irrevocable, confirmed and binding. In order to
enable the Exchange to issue such instructions for debiting their account and also
to authorize the Exchange in respect of freezing the account or to hold further
debits, every member will be required to submit a written undertaking addressed
to the bank to such effect. This undertaking will also authorize the bank to sweep
the client account of the respective member for any shortfall in the settlement
account. Besides, the Exchange will also the power to freeze various accounts of
the member maintained with the clearing bank, in case of any default or shortfall
in pay in or margin account.
If there is any funds default arising out of the instructions received from the
Exchange, the Clearing Bank shall inform the Exchange immediately.
3. Clearing Account (s) of Exchange in the Clearing Bank and Operational
procedure: The Exchange maintains its settlement account with the clearing
bank and all money received from the members towards pay in or margin, shall
be used appropriately for settlement.
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The operational procedure related to the settlement account, pay in and pay out
activities and the exact time schedule in order to maintain financial discipline
shall be adhered to by members of the Exchange. The operational procedure,
for the time being, will be as follows:
After the end of the trading session every day, a files/reports will be
downloaded by members through FTP (File Transfer Protocol), which will
contain details of all transactions executed by the member on that day,
positions carried forward from the previous day, closing position of the day
including net obligation of the member.
The net obligation report will further provide the amount of margin deposit,
margin utilized available deposit/margin required, pay in/pay out amount
transaction fee payable/receivable, etc. The net obligation report is
available and can be downloaded terminal wise. It is also consolidated at
the member’s level in terms of net obligation payable/receivable.
On the basis of this file, the Exchange will generate an automated statement
for debit and credit of settlement accounts of the respective members by the
amount payable/receivable by them. This file will be sent electronically to
the bank the next day in the morning at 9.00 a.m.
The process of the files being processed by the bank as follows:
The pay-in files are processed
Then the pay-out files are processed
The margin deficit files are then processed
Throughout the day, shortage files (information containing details of deficit
payment) are processed
The member must have sufficient clear balance in his settlement account so
as to affect such debits. In case the amount of margin is payable, the
member is not allowed to trade until he deposits the required margin along
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with additional deposits the required margin amount, the bank will run the
margin file at 10 am and report to the Exchange electronically the
successful debits. However, to pay an additional amount towards additional
deposit/margin. On the basis of this written request, the Exchange will
forward individual debit instructions to the bank for debiting the respective
settlement account and crediting the Exchange settlement account. As soon
as the Exchange gets such confirmation, the limits are accordingly
increased.
Thereafter, at 10.30 am, the bank will run the debit files in respect of pay-
in. The member must have sufficient balance in his account to meet his pay
in obligation. By 10.45 am, the Exchange will receive confirmation about
the successful and failed instructions. Member deposits shall be available to
the member for trading.
In this process, trading permission is allowed to only those members who
settle their margin as well as pay in obligation before 11 am. In case a
member fails to meet the pay in obligation by 11 am on T+1, the Exchange
may commence the process of squaring off his positions after 11 am,
depending on the magnitude of the problem.
4.9 CLEARING HOUSE
Regulation and functions of the clearing house:
1. The Exchange Clearing House monitors and performs all activities related to
delivery, funds settlement, margining, managing the settlement guarantee
fund etc.
2. The Clearing House will collect margins from the members, effect pay in and
pay out and delivery and settlement process. For carrying out such activities,
it may appoint various agencies as its agents and may delegate such activities
and responsibilities to such agencies, as it may desire.
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3. The Clearing House will allocate deliveries, which it has received from the
selling member to the buyer and the same shall be binding on the buyer.
4. Lien on member’s deposits and deliveries: When a member is declared a
defaulter, all deposits, margins, delivery documents and other assets of the
defaulting member lying with the Exchange shall be under lien and first
charge of the Exchange, irrespective of the fact whether such assets or
deposits belong to the member or his clients. No client or any other person
can claim any charge or right on any such deposit, margin or delivery
documents under any circumstances.
5. Clearing Assistants for the clearing house: In respect of delivery of precious
metals (gold and silver), a Clearing Member may nominate Clearing
Assignments (not more than two for each delivery center), who shall be
competent to sign on behalf of such a member all clearing forms, vouchers,
claim notes, receipts and other documents and transacted in all matters
connected with the operations of the Clearing House. A clearing member
who has to give or take delivery of precious metals or any other
tender/delivery documents shall either be present personally in the Clearing
House or be represented by his Clearing Assignment at the appropriate time.
6. Clearing Code and Clearing Forms: A member shall be allotted a Clearing
Code, which must appear on all forms used by the member connected with
the operations of the Clearing House. The member or his Clearing
Assignment shall sign all Clearing forms.
7. Specimen Signature: A member shall file with the Clearing House specimens
of his own signature and of the signatures of his Clearing Assistants.
8. Delivery and payment through Custodians and Clearing Members: The
Clearing House maintains a register of Custodians, Banks, Trust Companies
and other firms approved by the Executive Committee which may act for
members and their constituents in giving and taking delivery of precious
metals.
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9. Notices and Directions: All Clearing Members shall comply with the
instructions, resolutions, orders, notices, directions and decisions of the
Executive Committee in all matters connected with the operations of the
Clearing House.
10. Liability of the Clearing House: The Clearing House shall not be deemed to
guarantee the title, ownership, genuineness, regularity or validity of any
delivery passing through the Clearing House and the only obligation of the
Clearing House in this matter shall be to facilitate the delivery and payment
in respect of delivery.
11. Liability of the Exchange: No liability shall attach either to the Exchange, its
officials, or to the Executive Committee or any member of the Executive
Committee by reason of anything done or omitted to be done by the Clearing
House in the course of its operations, nor shall the Exchange, its officials, or
the Executive Committee or any member of the Executive Committee be
liable to answer in any way for the title, ownership, genuineness, quality,
quantity or validity of any delivery or any other documents passing through
the Clearing House, nor shall any liability be attached to the Exchange, its
officials, the Executive Committee or any member of the Executive
Committee in any way in respect of such delivery and any other documents.
12. False or Misleading statements: The Exchange may fine, suspend or expel a
clearing member who makes any false or misleading statement in the
Clearing Forms required to be submitted in conformity with these
Regulations or any resolutions, orders, notices, directions and decisions of
the Clearing House.
13. Class of contracts covered: The Clearing House is responsible in the manner
stated above only in respect of contracts executed on the trading system of
the Exchange and Byelaws of the Exchange. It shall not deal with, monitor or
guarantee settlement of negotiated deals, off the floor transactions; bilateral
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contracts, loan transactions or other transactions not covered under the Bye
laws of the Exchange.
14. In the event of disruption in the office or administrative services of the
Exchange or the designated Clearing Bank due to technical reasons including
computer system break-down or absence, non-attendance and/or strike by the
employees or due to any unforeseen circumstances or due to natural or other
calamities such as earthquake, out-break of war, general strike or any such
circumstances of a force majeure nature, the daily clearing shall be
suspended for such days and periods till normalcy and resumption of daily
clearing settlement as also about the restoration or return of normalcy and
resumption of daily clearing and settlement work. If the circumstances so
demand, the Managing Director or any other relevant authority of the
Exchange may order closure of the market in terms of relevant Bye-laws and
call an emergency meeting of the Board of Exchange to deal with the
abnormal situation.
4.10 DELIVERY PROCEDURE
1. Delivery Period: Each futures contract for specified delivery month shall be
deemed to have entered the delivery period from such date of its expiry
month, as specification. The futures contract can result in delivery of the
underlying commodity within this period on designated tender days fixed by
the Exchange will have the right to fix, after, extend or postpone such
delivery period, if it is expedient to do so.
2. Designated Tender Days: The tendering of deliveries shall be permitted
only on specific tender days during the delivery period. The Exchange
notifies such tender days in advance.
3. Delivery Logic: Delivery logic refers to the type of choice available to the
buyers and seller having open position during tender/delivery period, for
delivery of the commodity. The different delivery options are “seller’s
option”, “both option”, and “compulsory delivery”.
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4. Seller Option: In the “seller’s option”, the seller having an open position of
a contract during the tender/delivery period will have the option to give
delivery. In this case it obligatory for the buyer who has been marked, to
accept delivery or pay penalty.
In a “seller’s option”, the short position holders who communicate their
intention for giving delivery are matched with the corresponding intentions
of the long position holders for taking delivery. Any short position holder
having an “open position” on the tender/delivery date shall have the position
to tender for delivery of his short position and the long position holder will
be obligated to accept delivery. If there are no sufficient long position holders
who have given their intention, then the delivery will be marked on a basis to
open long position holders (buys of the contract) and it is obligatory for them
to take delivery. In case the long position holders fails to lift the delivery,
penalty will be imposed for failure and the open position of the seller and the
buyer will be closed out at the due date rate.
5. Compulsory Delivery: In case of “compulsory delivery” both buyers and
sellers with open position upon the expiry of the contract, are obligated to
take/give delivery of the commodity.
6. Both Options: In case of “both option” the delivery will be executed only
when both buyers sellers agree to take/give delivery. If they do not give
intention for delivery, such open position are cash settled at the due date rate.
7. Delivery Orders and Delivery Lot: All deliveries tendered by Members on
designated tender days shall be in the form of “Delivery Orders” issued in
favor of the buyers, as per instructions of the MCX. The Delivery Orders
shall be filled up in the prescribed form and shall clearly state the contract
particulars including quantity, quality and the delivery center, along with full
postal address of the place where goods are stored. The delivery orders must
be received by MCX by 3 pm (or the time specified in the contract
specification) on the specified delivery days; otherwise it is treated as valid
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only for the subsequent delivery day.
Each delivery order issued shall be in multiples of minimum deliverable lots
and shall be designated for only one delivery center and one location in such
center. The tendered of delivery order shall also clearly disclose the identity
of the member/registered non-member, if any, who shall be performing the
delivery. The seller shall not issue delivery order at a place by any person or
Government Authority or local authority at the time of issuing such delivery
order. The seller shall, at his cost, give permit to the buyer, it will be treated
as no delivery and he shall be liable to pay such penalty as may be applicable
for failure to tender delivery.
Delivery order once submitted cannot be withdrawn or cancelled or changed,
unless so agreed by MCX in writing.
The contracts traded at MCX are deliverable in such lots as may be specified
for respective commodities. Members with short open positions opting to
tender deliveries shall be permitted to issue delivery orders only in such lots.
Any member with an open position of such number of contracts that is not
convertible into multiple of deliverable lots shall be required to square-up
such outstanding “odd lots” before expiry of the contract so as to make the
total deliverable quantity a deliverable lot. In case any member fails to
square-up the outstanding odd lots before the contract expires resulting in
odd lot positions at the end of the contract expiry day, delivery up to the
nearest completed delivery lot will take place in the usual manner, while the
residual odd lot will be settled as specified in the contract specification.
Above shall be permitted at the delivery centers approved by the exchange
for that commodity.
8. Permissible Limits for the Delivered Commodity: The delivery shall be
deemed to have been provisionally completed for each delivery order
whenever the seller has delivered the quantity for the delivery order within
the tolerance limits as may be specified from time to time. The delivery is
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considered as fully complete only after the buyer lifts delivery and confirms
receipt from the buyer within such time, as may be notified by the Exchange
for a specific commodity, delivery is considered as complete without any
further recourse available to the buyer.
9. Delivery Grades and Delivery Centers: Members tendering delivery will
have the option of delivering such grades of commodities as permitted by
MCX. The buyer will not have any option to select a particular grade and the
delivery offered by the seller and allocated by the exchange shall be binding
on him. The member tendering delivery will clearly specify the grade to be
delivered in the delivery order. On the delivery grade is specified, it cannot
be changed for the same delivery order. Such delivery grade shall be in
conformity with surveyor’s certificate accompanied by the tender document.
Delivery centers shall be such centers as may be notified by the exchange for
respective commodities. Members are obliged to tender delivery orders only
at such centers as may be required by the exchange.
10. Freight Adjustment Factor / Discount / Premium on Up County
Delivery: The exchange notifies the discount/premium for delivery of
specified commodities at various delivery centers.
11. Evidence of Stocks in Possession: At the time of issuing the delivery order,
the member must satisfy. MCX that he holds stocks of the quantity and
quality specified in the delivery order at the declared delivery center.
Each delivery order shall be accompanied by a certificate, from an approved
surveyor as to the physical verification and certification of stocks in
possession of tendered at the designated delivery center and quality
specification in conformity with the specifications of the grade being
tendered. Such certification shall be dated and issued on the basis of
inspection carried out not more than fifteen days preceding the date of the
delivery order.
In case of delivery of vegetable oil against his position in a vegetable oil
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contract, if the seller tenders delivery from his own or private storage tank,
that particular tank shall be sealed at both the Intel and outlet valves by the
approved surveyor, certifying quality and weight. However if the seller opts
to give delivery from an approved tank terminal, then the warehouse receipts
duly issued and certified by the approved tank terminal and surveyors
respectively shall accompany along with delivery order certifying quality and
weighty.
The procedures followed for drawing samples and carrying out analytical
tests are as per the booklet issued by bureau of Indian standards. The cost of
survey and issuance of certification by an approved surveyor shall be borne
by the member submitting the delivery order.
12. Pricing of Delivery Orders: The basis price for delivery order shall be the
settlement price of the concerned contract on the day (which shall be a
designated tender day) on which the delivery is tendered. The basis price
arrived at as above will have to be adjusted by applying Freight adjustment
factor / discount / premium on up country delivery and the discount /
premium in respect of quality.
13. Taxes, Duties, Cess and Other Levies: All taxes, duties, cess, or other
levies shall be on account of the member taking delivery as a buyer. All
sellers tendering goods shall have the necessary sales tax registration and
obtain other licenses, if any, required by them. In case the selling member
does not have a sales tax registration number then he can appoint an
Agent/Nominee who has the required sales tax registration and deliver the
goods through him. The member giving delivery and the member taking
delivery will exchange appropriate tax forms as provided in law and as
customary, and neither of the parties will unreasonably refuse to do so. In
case any of the members or their clients fail to provide necessary forms in
respect of sales tax resulting into pecuniary loss to either of the party, the
Exchange will impose a charge on the party in default and after collection
thereof, will pass on the same to the member, who or whose client has
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suffered such loss. In addition to the above, the Exchange can impose
additional penalty on the party in default.
14. Allocation of Delivery Orders: MCX shall allocate all delivery orders
received on tender days / expiry day from Members holding short open
positions to members holding long open positions, when the tender document
is received. The allocation of delivery orders shall be done in a fair and
equitable manner by MCX. The decision of MCX shall be final and binding.
15. Publication of Delivery Orders Issued and Allocated: MCX shall display
on its system, within reasonable time, full details of delivery orders received
on each designated tender day and the allocation made against the same.
16. Acceptance of Allocated Delivery Orders: The allocation of delivery orders
to members with net buy or long positions shall be final and binding on all
members to whom it has been allocated and under no circumstances a
member shall have any right to refuse if challenge the delivery allocation in
his favor.
17. Payment by Member with Net “Buy” Position: The payment shall be made
through creating adequate credit balance in the designated clearing account
of the member maintained with the designated clearing bank.
18. Endorsement of Delivery Orders: The delivery orders allocated to the
member with net long positions shall be endorsable by him to his clients who
may be either a member of client. Such allocation can also be made by the
buying member in favor of a third party, but such allocation can be made
only once and subject to the full disclosure of details of the third party to be
given to MCX. However in case of dispute or default involving the endorsee,
the responsibility for contractual performance remains vested with the
original assignee of the delivery order (the buying number).
19. Procedure: The member or his client or final endorsee in possession of a
delivery order shall be obliged to take delivery within such period, as may be
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specified by the exchange for a specific commodity. He is also entitled to lift
delivery on various days during such defined period, provided that on each
day he has to lift at least 1/10th
of his total allocated delivery. In the event that
the member of his client in possession of delivery order is unable to lift the
material within the prescribed days after the receipt of the delivery order, the
seller shall claim and receive compensation at such rate, as may be decided
by the exchange for that specific commodity in respect of warehouse
changes, insurance charges, insurance charges, etc. in the same manner if the
seller fails to give delivery on the scheduled date or if the seller’s
preventatives are not available to effect delivery, the buyer shall claim and
receive compensation at such rate, as may be specified by the exchange for
that specific commodity. The buyer has to intimate to the seller the schedule
for taking delivery of the tendered goods in advance, with a copy to the
exchange. The seller has to confirm and intimate in writing to the buyer with
a copy to MCX in advance about his confirmation to deliver as scheduled or
change in the delivery schedule.
Weighment at the time of delivery: The goods tendered shall be weighed at the
buyer’s option, at the seller’s weighbridge or at an mutually agreed independent
weighbridge, and the weights determined in this manner shall be treated as final
and fully binding on both parties. The buyer’s representative shall present himself
at the seller’s storage tank/warehouse installation at the time of delivery failing
which are the seller reserves the right to proceed with sampling and weighment of
the oil tendered for delivery even in absence of the buyer’s representative.
Delivery shall be treated as complete if the seller supplies a quantity that is within
the minimum and the maximum prescribed quantity. When a certain quantity is
supplied and if it fails short of minimum permissible quantity then the shortage
will be calculated in relation to the mean of minimum and the maximum quantity.
Likewise when quantity supplied is more than maximum quantity then the balance
shall be treated as excess quantity. For calculating such shortage or excess
delivery, the total quantity delivered by a seller is to be considers collectively as
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well as the minimum truckload permissible in the each instance.
In case of a shortage, the buyer shall be entitled to claim the between the price
payable as per the delivery and the market price on the date of delivery from the
seller if the ready market price is higher, whereas in case of excess delivery the
buyer is required to pay for the excess quantity at the price which is lower of the
delivery order price or the ready market price on the date of delivery.
Sampling and Analysis at the time of delivery: In case the buyer does not agree
to the surveyor’s report as to quality of the commodity, he shall go for second
sampling. The system for drawing sample tendered for delivery will be as
prescribed in the bureau of India standards procedure. The sample shall be taken
from the seller’s warehouse/ strong tank directly. Four samples shall be drawn as
under:
One for the long position holder (buyer) taking delivery of commodity-first
sample.
One for quality certification agency.
One for final reference by the warehouse, if it becomes necessary-third
sample.
If the first sample collected by the buyer and analyzed by the surveyor appointed
by him, conforms to the specifications, then the good tendered for delivery shall
be accepted and no subsequent claims from the buyer regarding quantum of rebate
or any other indemnification shall be admissible nor sellers shall be obliged to
pass any sealed to the buyer if requested subsequently.
If the first sample as examined by the buyers surveyor fails to conform to the
quality standards specified, the buyer shall seller within 72 hours of the sealed
align with a copy of the analyst’s report. The seller shall immediately send the
second sealed sample to an approved laboratory, which is also agreed by the
buyer. The result of the same shall be binding on birth parties. In the event the
buyer and seller do not mutually reach agreement as to the laboratory to be used
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for analysis, then MCX shall direct the seller to send the third sealed sample to any
one of the approved laboratories / surveyor, as decided by the Exchange.
The analysts report of the approved and agreed independent laboratory shall be
forwarded by the seller to MCX and intimation to the buyer within 72 hours after
the submission of the second sealed sample for analysis. MCX shall direct the
party in whose favor the result has been decided to collect the cost of tests and
detention charges from the other party. In case the commodity stands rejected then
the seller shall be given 48 hours from the day of rejection to re – tender the
goods. If the re- tendered goods do not conform to the quality standards, then it
will tentative amount to failure on the part of the seller to give delivery, which
shall be closed out as per the due date rate treating the same as shortage.
In order to ensure that tests are exactly comparable and results are consistent, the
independent analyst shall determine the particular analytical test by applying the
methods specified in the relevant ISI. The analyst shall be required to append to
append a certificate to that effect to the analysis report issued by him.
Cost of Transportation and Insurance – The member taking deliver shall bear
transportation and insurance cost from the sellers godown / storage tank to his
destination, except provided otherwise. The member or his client issuing the
delivery order and giving delivery shall maintain adequate insurance cover for
commodity held in stock prior to delivery will be responsible for any losses prior
to delivery being completed.
Payment by MCX to the Tendered – MCX shall pay the invoiced amount to the
member tendering delivery on completion of delivery and receipt of confirmation
from the buyer to this effect. However, if the buyer fails to confirm or raise
objection within such time, as may be specified by the Exchange for the respective
commodity, the Exchange will pass on the proceeds to the seller.
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4.11 RULES GOVERNING DEALING WITH CLIENTS
1. Every member of the Exchange shall enter into an agreement with each of
their clients before accepting or placing or placing orders on the client’s
behalf. Such agreement shall include before accepting or placing orders on
placing orders on the client’s behalf. Such agreement shall Inc provision as
specified by the Exchange in the business rules. The Exchange may
categorize client into such types as may be necessary for the above purpose
and specify clauses to be included in agreement to be entered into by the
member of Exchange depending on the category of such client. The member
will be free to ass more clauses in the specified agreement; however no
additional clauses should in any way dilute the content or purpose of the
clause stated in the specified agreement by the Exchange. The responsibility
of the member shall not be reduced in any way due to the non-execution of
agreement with their client.
2. When establishing a relationship with a new client. Member of the Exchange
must take reasonable steps to assess the background, beneficial identity,
financial soundness of such person and his trading objective by registering
the client with them in the format prescribed as CLIENT REGISTRATION
FORM, as per the format under the business rules to the member of the
Exchange resolution to permit trading in commodities futures contracts.
3. Member of the Exchange shall make their client aware of particular of
Member’s registration number allocated by the Exchange, employee
primarily responsible for client affairs, the precise nature of business to be
conducted, risk associated with the business of trading incommodity
contracts listed in the Exchange including any limitation on liability and the
capacity in which the member of the Exchange acts and the client’s liability
thereon by issuing rules. Member of the Exchange shall furnish a copy of risk
disclosure document to all their client and receive and maintain their
acknowledgement on the second copy of the same document.
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4. The member of the Exchange shall provide extracts of the relevant provisions
governing the right and obligations of clients as clients of member of the
Exchange, relevant manuals, notifications, circular any additions or
amendment thereto of the Exchange or of any regulatory authority, to the
extent it governs the relationship between member of the Exchange and
clients, to the clients at no extra cost.
5. Member of the Exchange shall also bring to the notice of their clients, any
indictments, strictures or disciplinary action taken against him by the
Exchange or any other regulatory authority.
6. A member of Exchange shall make adequate disclosures of relevant material
information in the dealings with their clients.
7. No member of the Exchange or person associated with the member of the
Exchange shall guarantee a client against losses in any transaction effected
by the member of the Exchange for such clients.
8. The Exchange member shall not recommend to the constituents a sale or
purchase of contracts available on the Exchange, unless he has reasonable
ground to believe that such recommendation is suitable for the constituent on
the basis of fact, if any, disclosed by the constituent, whether in writing or
orally, regarding the objective; constituent’s holding of contracts and
underlying commodities, financial soundness and investment.
9. The Exchange member shall make adequate disclosures of relevant material
information in his dealing with his constituent including the current best price
of order and trade or order quantities on the trading system any relevant
announcement from the Exchange relating to margin, trading restrictions as
to price, quantity or whether the Exchange member is the counter party to
trades executed on the exchange with the constituent.
10. The exchange member shall not furnish any false or misleading information
or advice with a view to including the constituent to do business in a
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particular contract or contracts, which shall enable the Exchange member to
profit thereby.
11. The Exchange member shall explain the trading system and order matching
process to the constituent before accepting any orders from him.
12. Where the constituent requires an order to be placed or any of his orders to be
modified after the order has entered the system but has not been traded, the
Exchange Member shall ensure that he obtains order placement /
modification details in writing from the constituent. The Exchange member
shall accordingly provide the constituent with the relevant order confirmation
/ modification slip or copy there of forthwith.
13. Where the constituent requires any of his orders to be cancelled after the
order has been entered in the system but has not been executed, the Exchange
member shall obtain the order cancellation details in writing from the
constituent. The Exchange member shall accordingly provide the constituent
with the relevant order cancellation details, forthwith.
14. The Exchange member shall not accumulate or withhold a constituent’s order
/ unexecuted balances for contracts listed in the Exchange, if he has adequate
client margin with him. The Exchange member shall place all orders
forthwith.
15. The Exchange member shall act promptly in accordance with the instructions
provided by the constituent unless he has discretion as to the timing of
entering and/or execution of the order, in which case he must exercise
prudently his judgment as to the best moment for entering that order in the
system.
16. The Exchange Member shall provide the Constituent with a copy of the trade
confirmation slip as generated on the Trading System, forthwith on execution
of the trade and with a contract note for the trade executed in the specified
format, as per the business rules.
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17. Exchange member shall at all times keep the money of the constituent in the
member’s client account maintained with the clearing bank. He shall not use
this money for his own transactions or for transactions of such other client or
for any purpose other than margin and pay in relating to transactions entered
into by such client’s paying margins.
18. The member shall collect adequate margin from his client before entertaining
any order from him.
4.12 BROKERAGE
The Exchange may specify the maximum and minimum brokerage rates, which
shall be adhered to by members of the Exchange while dealing with their clients.
Such brokerage rates may be in terms of commodity specific absolute figure or in
terms of percentage on the value of a contract irrespective of the class of a
commodity. Such brokerage amount must be shown separately in the contract
notes to be issued by the members to their clients. The maximum brokerage rate
for the time being is 1% in case of non-delivery transactions and 2% (plus
expenses incurred for delivery, etc.) in case of transactions resulting into delivery.
4.13 INSPECTION AND DISCIPLINARY ACTION
MCX will conduct inspection of “Books of accounts” of the members periodically.
The scope of such Inspection will in normal circumstances be limited to the
operation of the member at MCX and his market deals. But in special
circumstances the exchange may decide for extending the scope of such
inspection. All member of the exchange shall be required to maintain books of
accounts, documents, counterfoil of contract notes and other detail for such period,
as may be directed by the exchange. They shall produce such records before the
inspection team as per direction issue by the inspection team and extends their full
co- operation in terms of providing information so as to carry out inspection
smoothly. In addition to the article, byelaws, rules, regulation, circular and
notification issue by MCX from time to time. The exchange may take suitable
action based on the inspection report, if it deems proper.
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4.13.1 Generally the inspection may cover the following aspects
a) Failure to follow the norms as prescribed by MCX for client accounts, know-
your-client accounts, know-your-client scheme, improper / non-execution of
the client and member agreement, etc.
b) Unauthorized use / misuse of the TWS, software and other facilities provided
by MCX.
c) Improper maintenance of books and records.
d) Violations in the issue of contract notes not having pre-printed serial nos.,
signatory not authorized, contract notes not in proper format, (e.g. contract
price and brokerage not appearing on the contract notes separately, proper rates
not given or any other information on the contract note tampered with in
comparison to the data available with MCX, Unauthorized change of client
codes against the trade nos., printing of order numbers on the contract note,
etc.)
e) Failure to abide by / respond to the circulars, communications, notices issued
by MCX.
f) Unfair trade practices.
g) Detection of circular trading, etc.
h) Detection of insider trading
i) Attempt to forge / indulged in forging of signatures / authorization of officials
(MCX or any other regulatory body).
j) Suppression of material facts and not taking prior approval of the Exchange
regarding change in shareholding pattern, nature of organization, activities,
change in Memorandum and Articles of Association, change in address,
change of telephone / fax numbers, or any such things which are likely to
affect his operations on MCX, including information about himself being
convicted, declared insolvent, etc.
k) Coercing / attempting / indulging in influencing another member.
l) Dealing with black listed client / persons.
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4.13.2 Disciplinary Actions (Fines and Penalties)
The following fines, penalties and other disciplinary actions will be initiated for
the violations enumerated below:
Sr. No. Violation Fines and Penalties
1. Failure to pay margins on T+1 (till
end of banking hours), in case
margin is demanded as per end of
day obligation generated on a day.
Margin amount x 0.50% (subject
to a minimum of Rs.500 and
maximum of Rs. 10,000)
2. Penalty for failure to complete
money pay in till end of day
(banking hour).
0.50% of the pay amount per day
till the id declares a defaulter or
the money is realized, subject to
a minimum of Rs. 500 per day
and maximum Rs. 10,000.
3. Violation of maximum allowable
open position limit or not reducing
the position in spite of warning by
the Exchange.
As per circular no.300/2006
dated 1st august 2006.
4. Failure to pay subscription and
other dues to the exchange.
If a member fails to pay dues,
other charge and fees to MCX
within the stipulated time, the
executive committee or the
managing director may suspend
him from doing business for
such period as it may deem fit.
5. Wrong declaration by the member. As may be decided b the
disciplinary action committee.
6. Non-submission of information/
document.
As may be decided by the
disciplinary action committee.
7. Violation of any clause of the
memorandum and article of
As may be decided by the
disciplinary action committee.
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associate, rules, bye-laws,
regulation, circular, notification or
orders issue under the authority of
MCX.
8. Violation of any clause of FCRA
or direction issued by FMC.
As per the norms prescribed by
FMC.
9. Price manipulation cornering price
rigging other market abuses.
The case will be reported by the
surveillance department and the
executive committee will have
the authority to decide fines,
penalties withdrawal of trading
and clearing right, etc, as it may
think fit.
10. Appointment of a user without
prior permission of MCX.
Fine: as may be decide by the
executive committee, subject to a
minimum of Rs. 5000.
11. Other violation relating to
deliveries settlements or other
matter pertaining to the exchange.
As may be decided by the board
of MCX.
4.14 ARBITRATION
(a) A member or constituent can file reference to arbitration in accordance with
the provision of the byelaws in the prescribed format along with a Fee as
decided by the Exchange.
(b) The total cost of arbitration cost of conducting proceeding sitting fee,
documentation cost of obtaining legal or expert opinion cost of litigation cost
of hiring professionals for proceeding pending final adjustment and for that
matter, the exchange will demand adequate deposits from the concerned
member/client periodically for meeting such cost on ad-hoc basis. On
declaration of award, the entire cost of the proceedings will be borne by the
parties in the manner as may be decide by the arbitrators and document in the
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award and the exchange shall ensure final adjustment of account between the
parties.
(c) Any dispute involving claim up to Rs. 1, 00,000 will be decided by the
exchange administration and claims involving more than Rs. 1, 00,000 shall
only be filed with the arbitration panel.
4.15 FINANCIAL PERFORMANCE
It is necessary to measure the financial health of an undertaking from the
investor’s point of view is concern because they are looking for the financially
sound organization for the investment purpose. This study attempts to analyze the
financial strength of the selected units and to measure the economic condition
during the period of study. This study gives insight in economical development of
MCX. This study gives insight to the investors as well as major players of
commodity market pertaining to the financial growth of MCX.
Ratio Analysis
In simple words the term accounting ratio means proportion between two related
items of financial statement. The financial statement alone cannot give true idea
about the correct financial position of the business. For getting true picture, the
financial statement has to be analyzed, compare and evaluated. Ratio analysis is
one of the techniques for such analysis and interpretation of financial statement.
To evaluate the financial condition and performance of a firm, the financial
analyst yields certain yardstick frequently used as a ratio, or index, relating two
prices of financial data to each other. Analysis and interpretation of various ratios
should give experienced, skilled analyst a better understanding of the financial
condition and performance of the company than they would obtain from analysis
of financial data alone. Therefore, ratio analysis is a powerful tool of financial
analysis.
In financial analysis a ratio is used as benchmark for evaluating the financial
position and performance of undertaking. Ratio helps to summarize large
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quantities of financial data and to make qualitative judgment about the company’s
financial performance.
The financial statements are prepared and presented annually are of little use for
guidance of prospective investors, creditors, and even management. If the
relationships between various related items in the financial statement are
established, they can provide useful clues to gauge accurately the financial health
and ability of business to make profit.
The easiest way to evaluate the performance of a unit is to compare its current
ratios with the past ratios. Such analysis is known as time series analysis or trend
analysis. It gives an indication of direction of change and reflects whether the
company’s financial performance has improved, deteriorated, or remain constant
over time.
Profitability Ratios
It is an indicator of the efficiency with which the operations of business are carried
on. Poor operational performance may indicate poor receipts and hence poor
profit. A lower profitability may arise due to the lack of control over expenditure.
Bankers, financial institutions, and other creditors look at the profitability ratios as
an indicator whether or not the company’s earns sub stability more than it pays
interest for the use of borrowed funds and whether the ultimate repayment of their
debt appears reasonably certain. Owners are interested to know the profitability as
it indicates the return which they can get on their investment.
Profit is the difference between revenue and expense over a period of time. Profit
is the ultimate output of a company. Therefore, the financial manager should
continuously evaluate the efficiency of company in terms of profit. The
profitability ratios are calculated to measure the operating efficiency of the
company.
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Table 4.1: Working result of financial condition
(In millions)
Particulars 2008 2009 2010 2011 2012
Operating Profit 1736.58 2124.48 2873.82 3688.92 5262.01
Total Income 2741.51 3658.44 4937.64 4472.87 6289.07
Expenditure 1373.54 1555.71 1707.77 2018.1 2187.06
PBT 1367.96 2102.73 3229.87 2454.77 3959.73
PAT 1052.71 1580.26 2206.22 1728.24 2861.88
Source: Annual Reports of MCX.
The above table reveals the working result of financial condition of MCX during
five years i.e. from 2008 to 2012. The profit is commonly measured by profit after
tax which is the result of the impact of all factors on the company’s earnings.
Taxes are not controllable by management. To separate the influence of taxes,
profit before tax may be computed. If the company’s profit has to be examined
from the point of view of all investors, the appropriate measure of profit is
operating profit. This measure of earning shows earning arising directly from the
commercial operation of business. From the above table, it is observed that the
operating income and expenditure are continuously increasing over a period of
time from 2008 and other components of financial condition are increasing from
2008 to 2010 but there were slight declines in 2011 and then it went up in 2012.
The following financial ratios have been calculated to measure the financial
condition of Multy Commodity Exchange:
1. Net Profit Ratio
2. Operating Profit Ratio
3. Return on Capital Employed
4. Return on Share Holders Fund
5. Current Ratio
6. Earnings Per Share
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Table 4.2: Financial performance indicators of MCX over the years
Financial performance
Indicators 2008 2009 2010 2011 2012
Net Profit Ratio In 38% 43% 45% 39% 46%
Operating Profit Ratio 63% 58% 58% 82% 84%
Return on Capital Employed 29% 30% 31% 19% 28%
Return on Share Holders Fund 29% 31% 32% 20% 28%
Current Ratio (CA/CL) 0.37 0.77 0.80 0.75 1.59
EPS 13.47 19.65 27.4 33.89 56.12
Source: Computed.
The above table of various ratios reveals the financial performance of MCX. The
various ratios can be divided in view point of investors and in view point of
management. EPS, return on share holders fund etc. are important ratios for
investors and other than those are important for management of MCX to measure
the overall efficiency of MCX. The interpretation regarding above financial
indicators are as under:
1. Net Profit Ratio: The net profit ratio determines the relationship between
earning after tax and total receipts. It is arrived by dividing profit after tax with
total income. It is indicative of management’s ability to operate the business
with sufficient success not only to recover from revenue of the period, the cost
of service, the expense of operating the business, the cost of borrowed fund but
also to leave a margin of reasonable compensation to the owners for providing
their capital at risk. Here, the net profit ratio reveals that net profit was
continuously increasing from 2008 to 2010 but it went down in 2011 due to
decrease in total income but it achieved growth in 2012 which was highest
during the period of study i.e. 46% so the overall performance of net
profitability was improved which can be understood by time series analysis of
net profit ratio of MCX.
94
2. Operating Profit Ratio: It is the ratio between operating income and total
receipts. Operating profit is the net profit earned from the business for which
the concerned is started. The operating profit ratio also indicates the operating
efficiency or inefficiency of business. The standard operation profit ratio is
10%, so on operating profit ratio of 10% or more is an indication of the
operating efficiency of the business. And operating profit ratio of less than
10% is an indication of the operating inefficiency of the business. Here the
operating ratio indicated the increasing trend from 2009 over the years under
analysis, which revealed that the operating efficiency was continuously
increasing during the period of study. The highest operating efficiency of
Multy Commodity Exchange was 84% in 2012.
3. Return on Capital Employed: The fund employed in the net assets is known
as capital employed. Rate of return on capital employed is one of the mean
which provides a basis for testing of profitability related to the sources of long
term funds. There are number of sources through which organization can
acquire its total assets. Thus, the capital employed is the tool of measuring the
profitability of the examined unit. This ratio is yardstick for measuring the
profitability of company. It has been observed in this ratio of Multy
Commodity Exchange that, return was continuously increasing from 2008 to
2010 but it was declined in 2011 because of the reduction in earnings after tax.
However, it achieved growth in 2012, therefore we can conclude that the
overall performance regarding return on capital employed was improving
which indicates the good efficiency of Multy Commodity Exchange.
4. Return on Shareholders’ Fund: This ratio expresses the net profit in terms of
equity shareholders’ fund. This ratio is an important yardstick of performance
for equity shareholders since it indicates the return on the fund employed by
them. The factor which motivates shareholders to invest in a company is the
expectation of an adequate rate of return on their fund and periodically they
will want to assess the rate of return earned in order to continue with their
investment. Here, the share holder is getting good return and the return was
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increasing from 2008 to 2010 but it declined due to the reduction of net
earnings in 2011. However, it was increased in 2012 with the increase in net
earning so the overall performance regarding return on equity shareholders
fund was good in case of MCX.
5. Current Ratio: It is the ratio which indicates the relationship between current
assets and current liability. Current assets refers to all those assets which
change their form and substance and which are ultimately converted in to cash
during the normally operating cycle of business i.e. the normal course of
business, which is normally 12 months. Here in this study the overall
performance of current ratio was improving over a period of time under
analysis which indicates favorable liquid condition.
6. Earnings Per Share: This ratio expresses the relationship between net profit
and number of equity shares. Earnings per share indicates the per share
earnings available to equity shareholders. It is also one of the factors which
highly influence the investors for the investment. If earning per share is
increasing the investors will automatically motivated for the investment in
concern and vice-a-versa. Here in case of MCX the EPS was continuously
increasing which was observed from the annual reports of MCX during the
period under analysis which indicated the efficient performance of MCX.
Statistical Analysis and Interpretation of Financial Performance
Here, the researcher has taken three variables to analyze the financial growth of
MCX, i.e. Income, Expenditure and Profit. The researcher had converted the result
of selected financial components in to average result for the purpose of analysis
which is expressed in the following table.
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Table 4.3: Average result of financial components’ of MCX
(In millions)
Particulars Time Group
1 2 3 4 5
Income 2402.42 3199.98 4298.04 4705.26 5380.97
Expenditure 1077.79 1464.63 1631.74 1862.94 2102.58
PBT 1324.62 1735.35 2666.3 2842.32 3207.25
PAT 992.54 1316.49 1893.24 1967.23 2295.06
Source: Computed.
The figures of above table indicates the average result of various financial
components selected for the purpose of analysis, which was worked out by
computing average of two years viz. 2006-07 and 2007-08, 2007-08 and 2008-09,
2008-09 and 2009-10, 2009-10 and 2010-11, 2010-11 and 2011-12. ANOVA test
was applied to test the significant difference in the growth of various financial
variables selected for the study, which has been presented here below.
INCOME: It refers to the income of commodity exchange through trading and
clearing system of MCX. Here, the presentation covers the growth of income
during six years of MCX. The company’s income consists of transaction fees,
admission fees, and application processing fees, subscription fees, terminal
charges, deposit appropriation, interest income, dividends from investments, and
other miscellaneous incomes.
H0 - The average income of five groups does not differ significantly.
ANOVA Test for Income
SUMMARY
Groups Count Sum Average Variance
5 10050 2010 2.5
Income 5 19986.67 3997.334 1421389
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ANOVA
Source of
Variation SS Df MS F P-value F crit
Between Groups 9873741 1 9873741 13.89306 0.00581 5.317655
Within Groups 5685566 8 710695.7
Total 15559307 9
Graph 4.1: Income from 2007-08 to 2011-12 of MCX
The above ANOVA table represents that the calculated p-value is less than 0.05.
So null hypothesis (H0) is rejected. It indicates that there is a significant difference
in average income of five groups, meaning thereby the income is significantly
increasing under analysis. The highest income share for all years was of the 2012
and lowest income of 2008. The above graph reveals that the income is
continuously increasing over a period of years from 2008.
EXPENDITURE: It refers to the overall expenses for the operations and running
of the commodity exchange. The company’s expenditure consists of operating and
other expenses, interest and depreciation/amortization charges. Operating and
other expenses principally comprises employee cost, advertisement cost, business
0
1000
2000
3000
4000
5000
6000
2008 2009 2010 2011 2012
Income
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promotion expenses, sponsorship and seminar cost, travelling and conveyance,
software support charge, communication cost, professional and legal charges, and
the like.
H0 - The average expenditure of five groups does not differ significantly.
ANOVA Test for Expenditure
SUMMARY
Groups Count Sum Average Variance
5 10050 2010 2.5
Expenditure 5 8139.68 1627.936 152464.4
ANOVA
Source of
Variation SS Df MS F P-value F crit
Between Groups 364932.3 1 364932.3 4.787035 0.060115 5.317655
Within Groups 609867.7 8 76233.47
Total 974800 9
Graph 4.2: Expenditure from 2007-08 to 2011-12 of MCX
0
500
1000
1500
2000
2500
2008 2009 2010 2011 2012
Expenditure
99
The above ANOVA table represents the calculated p- value is more than 0.05. So
null hypothesis (H0) is not rejected. It indicates that there is no significant
difference in average expenditure of five groups. But the expenditure is
continuously increasing. The highest expenditure share for all years was of the
2012 and lowest income of the 2008. From the above chart it can be revealed that
the expenditure was continuously increasing which is the result of growth in
operations of MCX.
PROFIT: It can be divided into two categories such as profit before tax and profit
after tax. Both of it are analyzed separately here below.
PBT: It refers to the combination of gross income from trading of various
commodities and clearing system. It indicates the profit before tax of Multy
Commodity Exchange.
H0 - The average profit before tax of three groups does not differ significantly.
ANOVA Test for PBT
SUMMARY
Groups Count Sum Average Variance
5 10050 2010 2.5
PBT 5 11775.84 2355.168 626591.9
ANOVA
Source of
Variation SS Df MS F P-value F crit
Between Groups 297852.4 1 297852.4 0.950702 0.358098 5.317655
Within Groups 2506377 8 313297.2
Total 2804230 9
100
Graph 4.3: Profit before tax from 2007-08 to 2011-12 of MCX
The above ANOVA table represents the calculated p- value is more than 0.05. So
null hypothesis (H0) is not rejected. It indicates that there is no significant
difference in average of profit before tax of five groups. But the profit before tax
indicates continuously increasing trend. The highest profit share for all years was
of the 2012 and lowest income of the 2008, which was graphically presented as
above.
PAT: it indicates the profit after tax of Multy Commodity Exchange during last
five years. It is the net profit which indicates the profitability of MCX during 2008
to 2012.
H0 - The average profit after tax of three groups does not differ significantly.
ANOVA Test for PBT
SUMMARY
Groups Count Sum Average Variance
5 10050 2010 2.5
PAT 5 8464.56 1692.912 277544.6
0
500
1000
1500
2000
2500
3000
3500
2008 2009 2010 2011 2012
PBT
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ANOVA
Source of
Variation SS Df MS F P-value F crit
Between Groups 251362 1 251362 1.811311 0.215245 5.317655
Within Groups 1110188 8 138773.5
Total 1361550 9
Graph 4.4: Profit after tax from 2007-08 to 2011-12 of MCX
The above ANOVA table represents the calculated p- value is more than 0.05. So
null hypothesis (H0) is not rejected. It indicates that there is no significant
difference in average of profit after tax of five groups. But the profit after tax
indicates continuously increasing trend. The highest profit share for all years was
of the 2012 and lowest income of the 2008, which was graphically presented as
above.
From the above analysis and interpretation, it was observed that the income of last
five years was significantly increasing but the expenditure was not significantly
0
500
1000
1500
2000
2500
2008 2009 2010 2011 2012
PAT
102
increasing therefore the overall financial condition was improving because there
was growth in income, expenditure and profit of MCX which was the result of
growth in operation of MCX which indicated the improvement in efficiency of
Multy Commodity Exchange during the period under the study.
Conclusion
From the above analysis we can conclude that currently the Multy Commodity
Exchange in India, which started its operations in 2003, have done well in terms of
financial performance and thereby generating appreciable volumes in their
operations. The financial health of Multy Commodity Exchange of India limited is
growing because there is improvement in the financial strength during the period
of study.
Existence of a vibrant, active and liquid commodity market is normally considered
as a healthy sign of development of any economy and commodity market can be
operated through the commodity exchange. Therefore, we can also interpret that
the commodity market as well as the Indian economy is also growing.