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www.mcxindia.comMulti Commodity Exchange of India Ltd,

COMMODITY FUTURES

Presentation By:

Multi Commodity Exchange of India Ltd. (MCX)

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Commodity Ecosystem

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Commodity Market Structure

Producers(Farmers/

Co-operatives/Institutional)

CommoditiesEcosystem

MCX

Consumers(Retail/

Institutional)

QualityCertification

Agencies

Clearing Bank

Warehouses

Transporters/Support

Agencies

Traders(Speculators)Arbitrageurs/

Client)

Hedger(Exporters/

Millers/Industry)

Global ommoditiesMarket

Spot Market

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Commodity Markets - Overview

Indian commodity marketset for paradigm shift

Four licenses recently issued by Govt. of India to set-up National Online Multi

Commodity Exchangesto ensure a transparent price discovery and risk management

mechanism

List of commodities for futures tradeincreased from 11 in 1990 to over 100 in 2003

Reforms with regard to sale, storage and movement of commodities initiated

Shift from administered pricing to free market pricingWTO regime

Overseas hedging has been allowed in metals

Petro-products marketing companies have been allowed to hedge prices

Institutionalization of agriculture

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Indias Place in World Market

COMMODITY INDIA WORLD SHARE RANK

RICE (PADDY) 240 2049 11.71 THIRD

WHEAT 74 599 12.35 SECOND

PULSES 13 55 23.64 FIRSTGROUNDNUT 6 35 17.14 SECOND

RAPESEED 6 40 15.00 THIRD

SUGARCANE 315 1278 24.65 SECOND

TEA 0.75 2.99 25.08 FIRSTCOFFEE(GREEN) 0.28 7.28 3.85 EIGTH

JUTE AND JUTE FIBERS 1.74 4.02 43.30 SECOND

COTTON (LINT) 2.06 18.84 10.09 THIRD

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Business Potential

Commodities

Size of Physical

Market

(Rs. Crore)

Conservative

Multiplier

(Rs. Crore)

( In 3 years)

Global Multiplier

(Rs. Crore)

(In 35 Years)

Gold & Silver Rs. 43000 cr 20 TimesRs. 8,30,000 cr

50 TimesRs. 21,50,000 cr

Edible Oils Rs. 30000 cr 10 Times

Rs. 3,00,000 cr

20 Times

Rs. 6,00,000 cr

Metals Rs.11000 cr 10 Times

Rs. 1,10,000 cr

20 Times

Rs. 2,20,000 cr

Total Rs. 84,000 cr Rs. 12,40,000cr Rs. 29,70,000cr

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About MCX

National Level Online Multi Commodity Futures Exchange

Key Promoters

Financial Technologies (India) Ltd, State Bank of India,

Union Bank

Corporation Bank, Bank of India, Canara Bank,

State Bank of Indore Bank of Baroda

Operations from 300 cities with over 775 members & 3000TWS

First Indian Exchange to enter into an agreement with an International

Exchange (TOCOM)

Facilitating Cost effective and economic technology.

Real-time price & information dissemination through website and info vendors

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MCX Business Associates

Statutory Auditor - M/s. Deloitte, Haskins & Sells

Internal Auditor- M/s V.Shankar Aiyer & Company

Network services - HCL Comnet Ltd.(VSAT)S

VSNL (Internet)

Tata Tele (Leased line)

Reliance gateway ( Wireless )

Clearing Banks - BOI, HDFC, IndusInd, UBI & UTI

Quality Certification SGS, Geochem , Dr. Amin Lab.,

Agencies Rubber Board Warehouses CWC, Gujarat, Kerala, Tamilnadu and UP

Bullion Logistics Group 4 and Brinks Arya

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Salient Futures of MCX

On-line monitoring at members and contract level -exposure, price, open interest, quantity, client, etc.

On-line margin adjustment - Business in relation todeposit

System driven control and actions Electronic fund transfer

Daily clearingmarked to market

Pay-in and pay-out: T+1 working day

Exchange approved depositories Seller to submit proof of delivery with proper quality

certification to MCX

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Participants in Commodity Futures

Farmers/ Producers

Merchandisers/ Traders

Importers

Exporters

Consumers/ Industry

Commodity Financers

Agriculture Credit providing agencies

Corporate having price risk exposure in commodities

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Price discovery for commodity players

A farmer can plan his crop by looking at prices prevailing in the futures

market

Hedging against price risk

A farmers can sell in futures to ensure remunerative prices A processor/ manufacturing firm can buy in futures to hedge against volatile

raw material costs

An exporter can commit to a price to his foreign clients

A stockist can hedge his carrying risk to ensure smooth prices of the seasonal

commodities round the year

Easy availability of finance

Based on hedged positions commodity market players (farmers,processors, manufacturers, exporters) may get easy financing from thebanks

Benefits of Futures Trading

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How Commodity Futures Help

Risk Management

GrowersShort hedge on upcoming produceTradersShort Hedge on stored quantity

Manufacturers

Long Hedge on input cost, Short hedge on finishedproducts

Any price risk that is not managed is a cost; any cost is a direct denton profitability

Price Discovery

Futures prices can be used as indicative prices for negotiating the export

prices and also upcountry sales

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Profitability Areas in Futures Market

Action Impact

Cover raw material price risk Certainty in input cost. Certainty in

cost of production

Cover the export commitment Certainty about profits. Certainty inincome

Cover input requirements through

futures market

Less financing requirements; reduced

interest cost. Reduces cost of

production. Increase in profits

Buy in futures markets Save on storage and storage

management costs. Increase in

profitability

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MCX vis a vis Other Bullion Exchanges

(Approx. figs.) MCX NYMEX TOCOM

Contract Size (grams) 1000 3110 1000

Benchmark Market Mumbai New York Tokyo

Operational Cost Low High High

Transaction cost 0.01 % 0.08 0.1 % 0.4 %

Channel Trade

Transparency

High Low Low

Channel Financial Integrity High Low Low

Lead Transaction Time Low High High

Physical Delivery Yes No No

With Respect to Present Practices of Domestic Bullion Players

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Nation-wide Multi Exchanges vis

a vis Regional Exchanges

Better Reach in all parts of the country

Wider base for speculators from other markets including securities market

Broad basing of the underlying commodity

Industry diffused in several parts of the country may also

directly participate

Few commodities can be projected viable for an international futures

Contract, with participation from global player

Novation of all open positions in the market by the exchange

Best management practices, end of day mark to market, online margining and

surveillance, daily pay-in & pay-out are some of the features to woo the players

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Key Differentiators of MCX

Team

Best Industry Professionals Technology, Exchange Management and Advisory

Board with 8 Decades of Exchange Management Expertise

Best Support Agencies Warehouses, Quality, Banks & Others

Best Intermediaries across the country & in multiple commodities

Technology

State of the art Information Technology

Real time price and trade information dissemination

Robust risk management system and controls

Techniques (Practices)

Best International practices of Exchange governance

Competitive membership fee structure and operational cost.

To provide information - international & spot markets and commodity research

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Whats in it for Industry

Free Marketsprice commodities best & consistently

Globalisation & standardisation- global price convergence

Futures Market - Most efficient Market Place

Price discovery on futures Exchange with consistentAgriculture policy will give right direction to market for

pricing commodities

MSP does not servemuch purpose in free market regime

Problems of different sectorsin Agriculture need a differentpolicywith a common direction

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Future of Commodity Market

India - Largest Consumer - Producer - Exporter -Importer

Large size intermediaries penetrate commodities market

Banks to Finance commoditiesFutures a secured route

RBI permits Banksto hedge their bullion risk throughFutures ExchangeOther commodities to follow

Using Exchange Networkfor various products & Services

BPO & Trade Interest will attract International players

Hub for value added services & food processing

New classof commodity Traders & Value Investors

India to become Hub of Global Tradingin Commodities

It is a US $ 600 billionOpportunity

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Thank You

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