COMMODITY FUTURES

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COMMODITY FUTURES

• Presentation By
• Multi Commodity Exchange of India Ltd. (MCX)

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Commodity Ecosystem
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Commodity Market Structure
Quality Certification Agencies
Spot Market
Warehouses
Hedger (Exporters/ Millers/ Industry)
Producers (Farmers/ Co-operatives/ Institutional)
Clearing Bank
Commodities Ecosystem MCX
Traders (Speculators) Arbitrageurs/ Client)
Transporters/ Support Agencies
Consumers (Retail/ Institutional)
Global Commodities Market
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Commodity Markets - Overview

• Indian commodity market set for paradigm shift
• Four licenses recently issued by Govt. of India
  to set-up National Online Multi Commodity
  Exchanges to ensure a transparent price
  discovery and risk management mechanism
• List of commodities for futures trade increased
  from 11 in 1990 to over 100 in 2003
• Reforms with regard to sale, storage and movement
  of commodities initiated
• Shift from administered pricing to free market
  pricing WTO regime
• Overseas hedging has been allowed in metals
• Petro-products marketing companies have been
  allowed to hedge prices
• Institutionalization of agriculture

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Indias Place in World Market
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Business
Potential
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About MCX

• National Level Online Multi Commodity Futures
  Exchange
• Key Promoters
• Financial Technologies (India) Ltd, State Bank
  of India, Union Bank
• Corporation Bank, Bank of India, Canara Bank,
  
• State Bank of Indore Bank of Baroda
• Operations from 300 cities with over 775 members
  3000 TWS
• First Indian Exchange to enter into an agreement
  with an International Exchange (TOCOM)
• Facilitating Cost effective and economic
  technology.
• Real-time price information dissemination
  through website and info vendors

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MCX Business Associates

• Statutory Auditor - M/s. Deloitte,
  Haskins Sells
• Internal Auditor- M/s V.Shankar
  Aiyer Company
• Network services - HCL Comnet
  Ltd.(VSAT)S
• VSNL (Internet)
• Tata Tele (Leased line)
• Reliance gateway ( Wireless
  )
• Clearing Banks - BOI, HDFC,
  IndusInd, UBI UTI
• Quality Certification SGS, Geochem , Dr. Amin
  Lab., Agencies Rubber Board
• Warehouses CWC, Gujarat,
  Kerala, Tamilnadu and UP
• Bullion Logistics Group 4 and Brinks
  Arya

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Salient Futures of MCX

• On-line monitoring at members and contract level
  - exposure, price, open interest, quantity,
  client, etc.
• On-line margin adjustment - Business in relation
  to deposit
• System driven control and actions
• Electronic fund transfer
• Daily clearing marked to market
• Pay-in and pay-out T1 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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Benefits of Futures Trading

• Price discovery for commodity players
• A farmer can plan his crop by looking at prices
  prevailing in the futures market
• Hedging against price risk
• A farmers can sell in futures to ensure
  remunerative prices
• A processor/ manufacturing firm can buy in
  futures to hedge against volatile raw material
  costs
• An exporter can commit to a price to his foreign
  clients
• A stockist can hedge his carrying risk to ensure
  smooth prices of the seasonal commodities round
  the year
• Easy availability of finance
• Based on hedged positions commodity market
  players (farmers, processors, manufacturers,
  exporters) may get easy financing from the banks

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How Commodity Futures Help

• Risk Management
• Growers Short hedge on upcoming produce
• Traders Short Hedge on stored quantity
• Manufacturers Long Hedge on input cost, Short
  hedge on finished products
• Any price risk that is not managed is a cost any
  cost is a direct dent on profitability
• Price Discovery
• Futures prices can be used as indicative prices
  for negotiating the export prices and also
  upcountry sales

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Profitability Areas in Futures Market

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MCX vis a vis Other Bullion Exchanges
With Respect to Present Practices of Domestic
Bullion Players
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Nation-wide Multi Exchanges vis a vis
Regional Exchanges

• Better Reach in all parts of the country
• Wider base for speculators from other markets
  including securities market
• Broad basing of the underlying commodity
• Industry diffused in several parts of the country
  may also
• directly participate
• Few commodities can be projected viable for an
  international futures
• Contract, with participation from global player
• Novation of all open positions in the market by
  the exchange
• Best management practices, end of day mark to
  market, online margining and
• surveillance, daily pay-in pay-out are some of
  the features to woo the players

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Key Differentiators of MCX

• Team
• Best Industry Professionals Technology,
  Exchange Management and Advisory Board with 8
  Decades of Exchange Management Expertise
• Best Support Agencies Warehouses, Quality,
  Banks Others
• Best Intermediaries across the country in
  multiple commodities
• Technology
• State of the art Information Technology
• Real time price and trade information
  dissemination
• Robust risk management system and controls
• Techniques (Practices)
• Best International practices of Exchange
  governance
• Competitive membership fee structure and
  operational cost.
• To provide information - international spot
  markets and commodity research

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Whats in it for Industry

• Free Markets price commodities best
  consistently
• Globalisation standardisation - global price
  convergence
• Futures Market - Most efficient Market Place
• Price discovery on futures Exchange with
  consistent Agriculture policy will give right
  direction to market for pricing commodities
• MSP does not serve much purpose in free market
  regime
• Problems of different sectors in Agriculture need
  a different policy with a common direction

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Future of Commodity Market

• India - Largest Consumer - Producer - Exporter -
  Importer
• Large size intermediaries penetrate commodities
  market
• Banks to Finance commodities Futures a secured
  route
• RBI permits Banks to hedge their bullion risk
  through Futures Exchange Other commodities to
  follow
• Using Exchange Network for various products
  Services
• BPO Trade Interest will attract International
  players
• Hub for value added services food processing
• New class of commodity Traders Value Investors

India to become Hub of Global Trading in
Commodities It is a US 600 billion Opportunity
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Thank You