NCDEX 6th largest commodity exchange in the world

1
(No Transcript)
2
NCDEX 6th largest commodity exchange in the
world
Source UNCTAD, SFOA The worlds commodity
exchanges September 2006
3
NCDEX- 3rd largest agro-commodity exchange in the
world
Source UNCTAD, SFOA The worlds commodity
exchanges September 2006
4
Market growth of 265 over FY05 volumes 56
growth over FY06
Unlike developed markets, participation in Indian
market is more retail individual and not
institutional
5
Present volumes a fraction of the potential
USD Bn
Farmers Agents Wholesalers Processors Retailers
Bullion
Metals etc

Agriculture
Energy
Total
Source NCDEX
6
Present legal regulatory environment
7
Market Structure- Futures and Spot
Ministry of consumer Affairs
State Government
Spot markets
Forward Markets Commission
Futures Market
Unlike Forex and Stock markets Spot markets in
commodities are not within the purview of the
Exchanges/Regulators
8
Regulatory Structure in India
Ministry of Finance
Ministry of Consumer Affairs
Insurance Regulatory Development Authority (IRDA)
National Housing Bank
Company Law Board
Pension Funds Regulatory Development
Authority (PFRDA)
FMC
Commodity Exchanges
Insurance
Pension Funds
Corporates
Housing Finance Companies
RBI
SEBI
NABARD
SIDBI
Banking / NBFCs
Capital Markets
Co-operative Banks Regional Rural Banks
State Financial Institutions
9
Structure of Indian Commodity Futures Exchanges
FMC
Commodity Exchanges
National exchanges
Regional exchanges
20 Other Regional Exchanges
NMCE
MCX
NBOT
NCDEX
10
Going forward
11
New Products

• Market would move towards trading more exotic
  products
• Index based products
• Commodity Indices
• Rainfall other weather indices
• Spread Trading
• Electricity
• Real Estate
• Emission Credits

..Idea will be to forge closer links with global
commodities
12
Instruments to be introduced

• Options
• Provide up-side benefits to the market
  participants
• Offer a market driven MSP to the farmers
• Indices
• Built-in diversification
• Exchange for Physicals (EFPs)
• Easy of trade for hedgers who would like to take
  or make deliveries

..new instruments to attract new market
participants
13
Attracting new participants

• Farmers
• Offering them pre post harvest risk mitigation
  platform
• Ease of trade through aggregators
• Banks
• Role of aggregators
• Proprietary trade
• Mutual Funds
• Attracting retail trade to the commodity
  exchanges
• FIIs
• FDIs

14
Risk Mitigation Pre-harvest
Small Farmers
Small Farmers
Large Farmers
Aggregators
Future price ensured
Liquidity enhanced
Banks Insurance NCDEX NCMSL
Weather derivatives /Crop Insurance
Bank lending
15
Risk Mitigation Post-harvest
Small Farmers
Large Farmers
Sell forward
Banks NCDEX NCMSL
Storage facility
Assaying grading
Commodity backed bank finance (WR)
16
Survey carried out by A C Nielsen
Wide Area Sample, Sample Size - 255
Narrow Area Sample, Sample Size - 473

• Over 78 of farmers from NAS 12 of WAS
  agreed that they have benefited out of the price
  discovery taking place through commodity
  exchanges
• As NAS respondents are well aware of market
  dynamics ( including futures market, they are
  able benefit through better price realization)
• Increase in awareness level in interior areas
  about commodity futures will help the farmers

17
Typical farmers awareness programmes
A large number of participants Alwar, Rajasthan
on 27 February 2007
Speakers include the regulators FMC key
officials of NCDEX important officials of the
government machinery
18
Increased bank participation on the exchange
platform
farmer
Bank branch
farmer
Banks takes consolidated position on behalf of
its customers
Exchange
farmer
Bank branch
farmer
farmer
Bank to also take proprietary positions
19
Facilitating lending against commodities

• Banks lending against commodities in FY06 was
  USD 1,334 million
• NCMSL facilitated finance against commodities to
  the tune of about  USD 80 million as on 31st
  March, 2006 
• ICICI  Bank USD 50 million
• HDFC Bank  USD 22 million
• Other banks USD 8 million 
• Average Interest rate charged 9.5 - 10.5
• Number of defaults so far NIL 

20
Facilitation required

• RBI Working Group Recommendations
• Banks to be allowed to have proprietary positions
  in agricultural commodity derivatives
• Evolution of a system for warehouse receipts
  which would be freely transferable
• Banks to be granted general permission to become
  PCMs of commodity exchanges

21
Foreign Access

• Foreign access permitted in securities market-
  equities bonds under regulation
• Currently can access commodity markets by setting
  up a domestic entity for broking investment
• Require prior approval from FIPB
• Precedents Permission granted for Proprietary
  trade only
• No precedents for Client trade

22
RBI/SEBI notification dated 22.12.2006

• Permits Foreign
  Investment in infrastructure companies in
  Indian Stock Exchange to the tune of 49, of
  which
• 26 - FDI (Foreign Direct Investment)
• With specific prior approval of FIPB
• 23 - FII (Foreign Institutional Investment)
• FII will be allowed purchases in secondary market
• FII shall not seek will not get representation
  on the Board
• No foreign investor, including persons acting in
  concert, will hold more than 5 of the equity
  capital
• 
  

Similar notification expected for commodity
markets
23
Regulatory Action in Jan-Feb 2007
24
Sudden delisting of important cereals pulses -
Jan-Feb 2007

• Delisting of Urad Tur contracts Jan 07
• Suspension of Rice Wheat contracts Feb 07

Urad Crop arrivals from Andhra Burma expected
in Feb-March Tur Arrivals in March 30-40
expected production shortage
25
NCDEX wheat price movements
Temporary ban on wheat imposed
Temporary ban expected to be lifted soon
26
Innovations by NCDEX
27
Spot price polling
Exchange Website
Mandi
Traders
Trading Terminals
Statistical Cleansing of raw data
Mill owners
Near real-time nationwide prices
Polled Prices
Refiner
Info-vendor terminals
Commission Agents
Manufacturers
Media electronic print
Polling done independently by CMIE Crisil MW
28
Dematerialized holding of commodity balances
WH
WH
CLIENT
DP
NSDL
RT AGENT
WH
WH

• - Open Demat a/c
• With DP
• Gets goods to the WH, fills in Demat Request form
  for Demat credit

Empanelled DPs in which members/clients open
Demat account
-Holds commodity balances in electronic form
Facilitates transactions in commodities
Link between the warehouse and the Depository.
Standardized Screens
Accepts goods for storage/ delivery Assaying
done and information given to NSDL via RT
29
Collateral management

• Set up National Collateral Management Services
  Ltd. (NCMSL)
• Warehousing, assaying
• Collateral Management
• Commodity backed financing
• Food procurement for FCI
• 2005-06 Paddy procurement project
• 1.2 lakh MTs paddy from MP, Orissa
• 2006-07 Paddy project
• 80,000 farmers involved
• 600,000 MTs of paddy

30
Price Dissemination
31
Automatic weather stations

• Cabled Vantage Pro 2 Plus

Collecting disseminating data over multiple
weather parameters
32
About NCDEX
33
Our Shareholders
34
Ncdex market share in total volumes of key
agri-commodities (April 2006 -Jan 2007)
35
Exchange Profile
36
Thank You
37
Market Share Agri. Commodities
38
Large number of Physical Deliveries taking place
on NCDEX Platform

• Globally less than 2 volumes result in
  deliveries
• Physical deliveries are incidental
• Exchanges not delivery platform
• However, NCDEX has seen an average delivery of
  40-50,000 MT per month

Exchanges are a platform for better prices
discovery
39
Strategic Partners
Tokyo Grain Exchange (TGE) Dalian Commodity
Exchange (DCE) Intercontinental Exchange (ICE)
Global
Bharat Petroleum Gas Authority of India Ltd
(GAIL) Bombay Bullion Association (BBA)
Business
Grading Standards
Central Institute for Research on Cotton
Technology (CIRCOT) Indian Agriculture Research
Institute (IARI)
Food Corporation of India (FCI) CRIDA Punjab
State Cooperative Supply Marketing Federation
Warehouse others
40
Number of contracts traded - Economic Survey
In millions