mcx and ncdex report
DESCRIPTIONMCX and NCDEX Report
EXECUTIVE SUMMARYMCX, NCDEX andNMCEIL are the three major commodity exchanges. These exchanges provide online commodity trading in India. THE NMCEIL is the oldest online commodity exchange. From my research I found that MCX is dealing in 51commodity categories where as NCDEX is dealing in57 commodities categories. NCDEX is a nation-level, technology driven online commodity exchange with an independent Board of Directors and professional management - both not having any vested interest in commodity markets. It iscommitted to provide a world-class commodity exchange platform for market participants to trade in a wide spectrum of commodity derivatives driven by best global practices, professionalism andtransparency82% of the turnover came from food and fibre crops in NCDEX. MCX is trading mainly in Zinc and Gold.
ACKNOWLEDGMENTI would like to thank my project guide Prof. Sanjay Diddee for guiding me through my major research project. Hisencouragement, time and effort are greatly appreciated.I would like to thank Prof. Varun Arya, Prof. M. M. Mehta and Prof. Amit Bhati for supporting me during this project and providing me an opportunity to learn outside the class room. It was a truly wonderful learning experience. I would like to dedicate this project to my parents. Without their help and constant support this project would not have been possible.
Title of the project andobjectiveTopic: -A critical study ofPotential Market forOnline Trading in IndiaObjective: - To do the comparative study ofNCDEX and MCX
RESEARCH DESIGNINTRODUCTIONA Research Design is the framework or plan for a study which is used as a guide in collecting and analyzing the data collected. Itis the blue print that is followed in completing the study. The basic objective of research cannot beattainedwithoutaproperresearchdesign.Itspecifiesthemethodsandprocedures for acquiring the information needed to conduct the research effectively. It is the overall operational pattern of the project that stipulates what information needs to be collected, from which sources and by what methods.RESEARCH METHODOLOGY Qualitative as well asquantitative Primary source: - These include the survey orquestionnaire method as well as the personal interview methods ofdata collection.Secondarysources:-Theseincludebooks,theinternet,thecompany website, competitors websites etc, newspaper articles etc.
Brief description about commodity trading in IndiaThe concept of Commodity Trading is not new inIndia. Commodity Trading was very much existent in earlier times in India. In fact itwas one the most vibrant forms of markets till the early 70s.However due to numerousrestrictions the Commodity Trading market could not develop further. Recently most of these restrictions have been removed, and therefore this allows for the development and growth of the commodity market in India. The usefulness of Commodity Trading in futures is that itresults in transparent and fair price discovery onaccount of large-scale participations ofentities associated with different value chains. It also reflects views and expectations of a wider section of people who may be related to aparticularcommodity. Commodity Trading in futures alsoprovides an effective platform forprice riskmanagement to all the segments ofplayers who participate in the Commodity Trading ranging from producers, traders and processors toexporters/importers and end-users of a commodity. Commodity Trading also provides hedging, tradingand arbitrage opportunities to market players. The Forward Markets Commission (FMC) is the regulatory body for Commodity Trading in futures/forward trade in India. The ForwardMarkets Commission is responsible for regulating and promoting futures trade in commodities. The FMC has its headquarters in Mumbai and the regional office is located in Kolkata. There are some 21 commodity exchanges in India. But most ofthese commodity exchanges are regional, offline and commodity specific. The government has recently allowed four national level multi-commodity exchanges to trade inallpermitted commodities.Commodity ExchangesA brief description of commodity exchanges are those which trade inparticularcommodities, neglecting the trade of securities, stock indexfutures and options etc. In the middle of 19thcentury in the United States, businessmen began organizing market forums to makethe buying andselling of commodities easier. These central marketplaces provided a place forbuyers and sellers to meet,set qualityand quantity standards, and establish rules ofbusiness. Agricultural commodities were mostly traded but as longas there are buyers and sellers, any commodity can be traded. In 1872, a groupof Manhattan dairy merchants got together to bring chaotic condition in New York market to a system in terms of storage, pricing, and transfer of agricultural products. In 1933, during theGreat Depression, the Commodity Exchange, Inc., was established in New York through the merger of four small exchanges theNational Metal Exchange, the Rubber Exchange of New York, the National Raw Silk Exchange, and the New York Hide Exchange. The major commodity markets are in the United Kingdom and in the USA. In India there are 25 recognized future exchanges, of which there are three national level multi-commodity exchanges.After a gap ofalmost three decades, Government of India hasallowed forward transactions in commodities through Online Commodity Exchanges, a modification of traditional business knownas Adhat and Vayda Vyapar to facilitate better risk coverage and delivery ofcommodities. The three exchanges are:Company profileNationalCommodity&DerivativesExchangeLimited(NCDEX)isaprofessionally managed on-line multi commodity exchange. Theshareholders are:-Promoter shareholders:Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE).Other shareholders:CanaraBank,CRISIL Limited(formerly theCreditRatingInformation ServicesofIndia Limited),GoldmanSachs,IntercontinentalExchange (ICE), Indian Farmers Fertiliser Cooperative Limited (IFFCO) and PunjabNationalBank(PNB).NCDEXistheonlycommodity exchangeinthe countrypromotedbynationallevelinstitutions.Thisuniqueparentageenablesittoofferabouquet of benefits, which are currently in short supply in the commoditymarkets.TheinstitutionalpromotersandshareholdersofNCDEXareprominentplayersintheirrespectivefieldsandbringwiththem
institutional building experience, trust, nationwide reach, technology and riskmanagementskills.NCDEX is a public limited company incorporated on April 23, 2003 underthe Companies Act, 1956. It obtained its Certificate for Commencement ofBusiness on May 9, 2003. It commenced its operations on December 15,2003.NCDEX is a nation-level, technology driven online commodity exchange with an independent Board of Directors and professional management -both not having any vested interest in commodity markets. It is committedtoprovideaworld-classcommodityexchangeplatformformarketparticipants to trade in awide spectrum of commodity derivatives driven bybestglobalpractices,professionalismandtransparency.NCDEXisregulatedbyForwardMarketsCommission.NCDEXis subjectedtovariouslawsofthelandliketheForwardContracts (Regulation) Act, Companies Act, Stamp Act, Contract Act and various otherlegislations.NCDEX is located in Mumbai and offers facilities to its members about550 centres throughout India. The reach will gradually be expanded to morecentres.NCDEXcurrentlyfacilitatestradingof57commodities-Agriculture-Barley, Cashew, Castor Seed, Chana, Chilli, Coffee - Arabica, Coffee -Robusta,CrudePalmOil,CottonSeedOilcake,ExpellerMustardOil,Groundnut (in shell), Groundnut Expeller Oil, Guar gum, Guar Seeds, Gur,Jeera, Jute sacking bags, Indian Parboiled Rice, Indian Pusa Basmati Rice,Indian Traditional Basmati Rice, Indian Raw Rice, Indian 28.5 mm Cotton,Indian 31 mm Cotton, Masoor Grain Bold, Medium Staple Cotton, MenthaOil, Mulberry Green Cocoons, Mulberry Raw Silk, Mustard Seed, Pepper,Potato,RawJute,Rapeseed-MustardSeedOilcake,RBDPalmolein,Refined Soy Oil, Rubber, Sesame Seeds, Soyabean, Sugar, Yellow SoybeanMeal, Tur, Turmeric, Urad, V-797 Kapas, Wheat, Yellow Peas, Yellow RedMaize.MetalsAluminiumIngot,ElectrolyticCopperCathode,Gold,MildSteelIngots,NickelCathode,Silver,SpongeIron,ZincIngot.EnergyBrent Crude Oil, Furnace Oil.
Indian economy is riding high enjoying 8% growth rate; and theindustrial and agricultural sectors are doing well. We are also enjoying favourableforeign exchange balances. Even so, the producer or the farmer does not get hisdue for a host of reasons. One among them is the middlemen and mediators tryingto hoodwink the producer about thereasonable price and the producers inability towait for the right price forlack of infrastructural facilities.Though there is a spot market for many commodities to secure immediate price, italways results in the producer settling for a loss. Similarly even if a farmer waitsfor a futures contract to get a reasonable price, his ignorance of the market putshim in a disadvantageous position. MCX and NCDEX were formed in answer tothese problems faced by the producers and farmers.Introduction to MCX:MCX:refers toMulti Commodity Exchangewhich facilitates trading in a varietyofcommoditiesinthecountry.Thisisanindependentcommodityexchangeoperating in India with its base in Mumbai. The MCX was established in the year2003 with NABARD, NSE, Financial Technologies India Ltd, Corporation Bank,Bank of India, Bank of Baroda, HDFC Bank Ltd, SBI Life Insurance CorporationLtd, Fid Fund (Mauritius) Ltd etc. as key share holders. MCX reaches out to 500Indian cities with about 10000 trading terminals. MCX is the only market in India.
where multiple commodities are traded.MCX is engaged in future trading in a number of commodities like agriculturalcommodities, Bullion, Ferrous and Non Ferrous metals, Pulses, Oil and Oil Seeds,Energy, Plantations, Spices and soft commodities. The average daily turnover ofMCX is about 1.55 billion US Dollars. MCX captures almost 72% of the marketshare and thus it occupies No1 position in India in the commodity market. MCXoccupies no 1 position in the world in respect of silver, No 2 position in Naturalgas and No 3 position in crude oil and gold.The details of commodities dealt in the MCX is given hereunder categorywise:Metals like Aluminum, Copper, Lead, Nickel, Sponge iron, Steel Long andSteel flat, Tin, Zinc;Bullion- Gold, silverFibre -Long, medium and short staple cotton, Cotton yarn etcEnergy-Crude oil, Furnace oil, Natural gas etc;Spices- Cardamom, Jeera, Pepper, RedChilly;Pulses- Chana , Masoor andyellow peas;Plantation- Arecanut, Cashewkernel, Coffee, Rubber;Petro chemicals- HDPE, Polypropylene, PVC;Oil and Oil Seeds- Castor, Coconut, Cotton Seed, Palmoline, ground nut,Mustard, Soya, Sunflower, Sesame and RiceBran;Cereals-Maize;Others- Mentha oil, Potato, Sugar etc.MCX works in joint venture with National Spot Exchange, a purely agriculturalCommodity Exchange for the standardization in agricultural markets. It also worksin conjunction with National Bulk Handling Corporation which helps farmers inbulk handling of agricultural commodities. MCX has also set up a managementcoursei.e.DiplomainCommoditiesMarketincooperationwithWelingkarInstituteofManagementtotrainyoungmanagersdealefficientlyinthecommodities market.Headquartered in Mumbai Multi Commodity Exchange ofIndia Limited (MCX),is an independent and de-mutulised exchang with a permanent recognition fromGovernment of India.Key shareholders of MCXare Financial Technologies(India) Ltd., State Bank of India, UnionBank of India, Corporation Bank, Bank ofIndia and Canara Bank. MCX facilitates online trading, clearing andsettlementoperations for commodity futuresmarkets across the country
MCX started offering trade in November 2003and has builtstrategic allianceswith Bombay Bullion Association, Bombay Metal Exchange, SolventExtractorsAssociation of India,Pulses Importers Association andShetkari Sanghatana.National Multi-Commodity Exchange of India Limited(NMCEIL)National Multi Commodity Exchange of IndiaLimited (NMCEIL) is the first de-mutualized, Electronic Multi-Commodity Exchange in India.On 25thJuly, 2001,it was granted approval by the Government to organise trading in the edible oilcomplex. It has operationalised from November 26, 2002. It is beingsupported byCentral Warehousing CorporationLtd., GujaratState AgriculturalMarketingBoard and Neptune Overseas Limited. It got its recognition in October 2002.Commodity exchange in india plays an important role where the prices of anycommodity are not fixed, inan organised way. Earlier only thebuyer of produceand its seller in the market judged upon the prices. Others never had a say. Today,commodity exchanges are purely speculative in nature. Beforediscovering theprice, they reach to the producers, end-users, and even the retail investors, at agrassroots level. It brings a price transparency and risk management in the vitalmarket.MCX overtakes NCDEX inturnoverMCX has overtaken NCDEX tobecome India`s largest commodity exchange,reports Economic Times.The turnover on MCX has crossed a recordRs 100 lakh crore.NCDEX, still the countrys premier exchange for food andfibre crops, dropped tosecond place after the farm futures were gagged by the government with positionlimits and high margins.Energy, metals and bullion traders put Rs 9.99lakh crore in the MCX trading ringin six months while punters in cereals, spices, fibre and guar managed totrade incontracts worth just Rs 5.45 lakh crore onthe NCDEX.The daily volume at NCDEX has slipped to sub Rs 3,000crore levels in the lastfew days from the peak volume of Rs8,000 crore in March this year. From a monthly turnover of Rs 1.5lakh crore in May, the volume on NCDEX has shrunk to Rs94,125 crore byOctober. In contrast, the turnover on MCX isnow touching Rs 9,000 crore daily on theback of a boomin bullion, energy and metals. Between May-Oct. 2006, a huge 92.6% of MCX`s turnover came from high-value energy, metals andbullion. Farm produceprovided theremaining turnover. On NCDEX, 82% of the turnover came from foodand fibre crops. Bullion trading accounted for the rest. Interestingly, though boththe exchanges are clearly theleaders in different product segments in the Indian commodity market, the mix are constantly changing. Forinstance, in May, bullion provided 81% of MCX turnover. By October, this had dropped to 69%.Even so, the share of foodand fibre crops in NCDEX`s total turnover has increased as the base has shrunk. The share of trading in farm commodities in the total turnover has increased from79% in May to85% in October.MCX IndiaMCX is anindependent and de-mutulised multi commodity exchange. It wasinaugurated on November 10,2003 by Mr. Mukesh Ambani, Chairman andManaging Director, Reliance Industries Ltd.; andhas permanent recognition fromthe Government of Indiafor facilitating online trading, clearing andsettlementoperations for commodities futures market across the country. Today, MCXfeatures amongst the world's top three bullion exchanges and top four energyexchanges. MCX offers a wide spectrum ofopportunities to a large cross sectionof participants including producers/ processors, traders, corporate, regional tradingcentre, importers, exporters, co-operatives andindustry associations amongstothers. Headquartered in the financial capital of India, Mumbai, MCX is led by anexpert management team with deep domainknowledge of the commodities futuresmarket. Presently, the averagedaily turnover of MCXis around USD1.55 bn(Rs.7,000 crore - April 2006), with a record peak turnover of USD3.98 bn(Rs.17,987 crore) on April 20, 2006. In the first calendar quarter of2006, MCXholds more than 55% market share of thetotal trading volume of all the domesticcommodity exchanges. The exchange hasalso affected large deliveries in domesticcommodities, signifying the efficiency of pricediscovery. Beinga nation-widecommodity exchange having state-of-the-art infrastructure, offering multiple commodities for trading with wide reach and penetration, MCX is well placed totap the vast potential poisedby the commodities market.Online commodity tradingOnline commodity trading offers a way foran open, many-to-many system, whereevery user has equalaccess to price quotes andtrading functionality. It providesalevel playing field forall, without favoritism or control bya chosen few, whereany user can view all quotes posted by other users inreal time, act or trade onquotes posted by others, post their own prices and quantities for others to tradeThe Online commodity trading site usually lists alarge number of unique productscovering a variety ofcommodities, structures, andsettlement terms ranging fromOil, Natural Gas, Electric Power, Precious Metals, Emissions and Weather. Itprovides for various media rangingfrom Physical Delivery and Financial CashSettlement. There are further derivative options available ranging fromForwards,Swaps, Options, Spreads,Differentials, ComplexDerivatives.Liquidity, or tradeactivity, is perhaps thebest measure of success ofan onlinetrading commodity trading system. With most onlinecommodity trading systems,traders can be sure of finding aninteresting market development or tradingopportunity almost every time they logon.All quotes posted by users on any online commodity trading systems are live andfirm. They can be acted on with full assurance of acompleted transaction. Thegreatest advantage of an online system for trading is that just a click canbe used tohit a bidor lift anoffer.The Online trading system operates almost continuouslyaround the clock, 24 hours a day, seven days a week. This allows any user toextend the trading day, and easily pass the trading objectives toothers incompanies in different times zones. The online commodity trading system inIndiais only an emerging segment yet. This is because the Internet boom in Indian is onthe rise only now. The Internet charges are becoming minimal and theInternet issoon becoming a way of life in India.It is in this scenario that online trading isbecoming more the way of trading in India.
The growth inthe commodity derivative trading witnessed in 2005-06continuedduring 2006-07. Total volume of trade rose sharply from Rs. 1.29lakh crore in2003-04 to Rs. 27.39lakh crore in 2006-07 (till December2006) (Table 4.15). Inthe first nine months of 2006-07, thevolume of trade was already more than Rs.21.55 lakh crore achieved in the twelve months of2005-06. Turnover asaproportion of GDP increased from only 4.7 percent in 2003-04 to 18.3 percent in2004-05and further to 76.8 percent in 2005-06. The growth in the volume oftrading has been primarily propelled byMulti Commodity Exchange, Mumbai(MCX) and Nationa lCommodity Derivatives Exchange, Mumbai (NCDEX) withthese two exchanges also accounting for a large share of the number ofcontractstraded on the exchangesGrowth of Guarseed in NCDEXGrowth of Guarseed in NCDEXRs.11,167,117.00(in lakhs)Rs.12,066,908.00(in lakhs)Rs.28,228,674.00( in lakhs)200620072008