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Background

Background. Evolution of markets. Long history of commodity trading Ban in the 1960s Growth of regional commodity exchanges Removal of ban in 2002 Emergence of National level exchanges Multi-commodity, online trading, demutualised. Long but chequered history. - 4 national Exchanges

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Background

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Presentation Transcript

  1. Background

  2. Evolution of markets • Long history of commodity trading • Ban in the 1960s • Growth of regional commodity exchanges • Removal of ban in 2002 • Emergence of National level exchanges • Multi-commodity, online trading, demutualised Long but chequered history - 4 national Exchanges -21 regional

  3. Commodities in Indian context • Defined by FCRA (1952) as “Every kind of movable property other than actionable claims, money and securities.” • What are not commodities? • Indices and weather • What are the instruments that are traded? • Only futures permitted • Options not allowed Limited architecture Much narrower than stock markets

  4. Customer Segments in derivative markets Limited participants Limited Individual participation Trading through members of the Exchanges

  5. Regulatory Structure in India Ministry of Finance Ministry of Company Affairs Ministry of Consumer Affairs Pension Funds Regulatory Development Authority (PFRDA) 3 National Housing Bank 1 Insurance Regulatory Development Authority (IRDA) 2 Company Law Board 4 FMC 10 Housing Finance Companies Insurance Pension Funds Corporates State Government Commodity Exchanges NABARD 5 SIDBI 6 RBI 7 SEBI 8 State-wise Registrar of Co-operatives 9 Co-operative Banks & Regional Rural Banks State Financial Institutions Banking / NBFCs/DFIs Capital Markets APMCS In India, regulator is based on underlying and in USA it is based on instrument

  6. Evolution in futures trading since 2003

  7. Emergence of two sets of products in trading basket Commodities Traded in Indian Commodity markets Agri commodities Produced & exported Produced & consumed Replica contracts of commodities traded on international exchange Metals Bullion Crude oil

  8. Business Volumes skewed towards non-agri commodities Prejudice about futures trading in agri commodities fuelling inflation in essential commodities has led to suspension on trading, leading to declining volumes in agri commodities

  9. Emerging perceptions Futures trading is speculation Common Misconceptions On Futures Trading How can volumes be greater than production? Deliveries are low so, it can be only speculative Commexes responsible for inflation Increasing margins Lowers prices

  10. Building linkages in markets

  11. Creating value Awareness Establishing Spot Exchange (NSPOT) NCDEX Initiatives Education Spot Price Polling Standardization of quality Warehousing & Logistics

  12. Efficiency in Commodity markets

  13. Futures trading – a vital messenger • Futures trading gives vital signals of a possible demand-supply mismatch in a commodity • The price signals may be used to take vital decisions – fixing the minimum support price and export-import decisions • An illustration • Sugar production in the country during the year 2008-09 was 14.55 million tones against 26.35 million tones in the previous year - the deficit was indicated by futures price which showed a rising trend

  14. Sugar futures depicting a rising trend

  15. Models for farmers What to sow? Life cycle Of farmers Pre-harvest Post harvest Are they present today? Phased approach to farmer participation Awareness Price information Actual hedging/trading NCDEX involved with awareness programmes and price dissemination

  16. Why are they not present today? Access to Commexes Bringing the farmers to the bourses as hedgers Awareness/Ignorance Aggregator? Production quantity Bank SHG Infrastructure NGO Coop Nuances Smaller contracts MTM Margin Delivery Awareness Quality Online Credit Basis Demat What do we need to get them on-board? Exchanges are creating this… Warehousing Assaying Warehouse receipt finance Related products: Insurance, inputs etc

  17. Issues to be resolved

  18. Issues to be resolved Instruments like Options, Indices, weather derivatives Initiatives to be taken up by policy makers Participation from mutual funds, banks and international capital Strengthening of regulation

  19. Thank You

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