Description
This is a presentation highlighting different types of commodity exchanges in India. It also examines purpose of commodity exchanges.
Scope & Relevance of new Commodity exchanges in India
By PresenterMedia.com
Flow of the Presentation
Phase 1
Introduction Commodity Exchanges - Brief
Phase 2
Phase 3
Purpose of Commodity Exchanges
Arguments for new commodity exchanges in India
Phase 4
Introduction
Commodity
•A
basic good used in commerce that is interchangeable with other commodities of the same type.
•Commodities
are most often used as inputs in the production of other goods
or services.
•The
quality of a given commodity may differ slightly, but it is essentially uniform across producers.
•When
they are traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade.
Commodity Exchanges
Definition
•A
Commodity exchange can be defined as an exchange for buying and selling commodities for future delivery.
•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.
Commodity Exchanges
Currently Operating
•Established
•
• • •New • •
National Commodity & Derivatives Exchange Limited (NCDEX)
Multi Commodity Exchange of India Limited (MCX) National Multi-Commodity Exchange of India Limited (NMCEIL) Indian Commodity Exchange Limited (ICEX) Ace Derivatives and Commodity Exchange Limited (ACE)
Commodity Exchanges
Facts
•Cumulative
turnover of all exchanges crossed the Rs 100-trillion mark in 2010
•NCDEX saw
business increase by 69 per cent to touch US$ 183.43 billion, in the last year.
•Since
its launch in November 21, 2009, ICEX generated business worth US$ 22.29 billion.
•ICEX
clocked business of Rs 3,78,006 crore, which was higher than the turnover of the oldest national bourse, NMCE. Its turnover rose by just 6 per cent to Rs 1,80,727 crore from Rs 1,70,419 crore in the review period.
•Turnover
of the National Board of Trade has increased to over US$ 5.5 billion in the current fiscal.
Commodity Exchanges
Purpose
•Hedging
•Speculating
•Arbitrage
•Shifting
of Risk
•Information
Arguments for new commodity exchanges in India
•Growth
of Indian Commodity Market - New products
•Increase
•Reduce
competition
efficiency Concerns
Transaction cost
•Improve •Liquidity •Spot
Price Conundrum
•Regulations
Growth of Indian Commodity Market New products
•With
the introduction of new commodity derivates and intangible derivates like freight, weather etc., the volumes on exchanges are going to increase.
•Options
and index futures are introduced which would enable the market to reach a higher level of sophistication and impart greater efficiency in both the price discovery and risk management processes.
Increase competition
•Introduction
of new Commodity Exchanges would certainly increase
competition
•The •The
healthy competition is economy only adds to the market efficiency. other advantages could be:
•
If an exchange faces stiff market competition, the deviation between rules and practice can disappear. Trading markets are no different from any other service market: the more competition the better, the less government intervention the better.
•
Reduce Transaction cost
•Exchanges
are crucial components of financial infrastructure, which reduces transaction cost and waste in transit, benefiting both consumers and farmers.
•A
robust and modern exchange focused on multiple commodities can bring about a transformation to the inclusive benefit of all stakeholders across the nation.
Improve efficiency
•With
more innovation and better technology, the commodities exchange would become efficient.
•The
commodity market in India is under penetrated and there is certainly a large market.
•Innovation
will be the driver for the success for any exchange.
Liquidity Concerns
•Who
are the players that drive any derivatives markets? Typically they are hedgers, arbitrageurs and speculators.
•Wider
participation by arbitrageurs and speculators is ruled out as there are too many impediments and it is not attractive enough.
•In
the case of hedgers, smaller and retail level participation is not possible because of the closed door nature of existing exchanges.
•There
is need to open up the markets and provide a distribution chain which will encourage and allow a wider body of participants.
•FIIs
& Mutual funds’ entry into the commodity futures space still needs to be cleared by FMC’s capital market counterpart Securities and Exchange Board of India (Sebi).
Spot Price Conundrum
•The
basic precondition for establishing a viable commodity derivatives market is the existence of large, competitive and transparent spot market.
•Unfortunately,
the existing cash markets for most commodities fail to satisfy this precondition.
•This
also becomes extremely important in the context of physical settlement of commodities.
•Spot
markets are scattered throughout the country and exist close to production centers. They are quite unorganized.
Regulations
•Allowing
more exchanges without broader participation and innovation would only result in splitting existing trade volumes among roughly the same set of players, with the pie expanding only slightly.
•This
will not only impact the stability of the exchanges, but more importantly, affect the creation of infrastructure such as warehouses, quality control laboratories and the like.
Conclusion
•The
number of exchanges will eventually be decided by the market. If the market feels there is scope for fewer exchanges, then consolidation is a possibility.
•We
will have to see how the markets shape up, especially after other products are introduced and institutional and corporate players enter.
•But
we can see the experience of the global exchanges where the process of consolidation has already set in.
•China
had a large number of commodity exchanges, which eventually consolidated into three exchanges, each having its own product specialization. So that possibility in the medium to long term cannot be ruled out.
Thank You
doc_913419814.pptx
This is a presentation highlighting different types of commodity exchanges in India. It also examines purpose of commodity exchanges.
Scope & Relevance of new Commodity exchanges in India
By PresenterMedia.com
Flow of the Presentation
Phase 1
Introduction Commodity Exchanges - Brief
Phase 2
Phase 3
Purpose of Commodity Exchanges
Arguments for new commodity exchanges in India
Phase 4
Introduction
Commodity
•A
basic good used in commerce that is interchangeable with other commodities of the same type.
•Commodities
are most often used as inputs in the production of other goods
or services.
•The
quality of a given commodity may differ slightly, but it is essentially uniform across producers.
•When
they are traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade.
Commodity Exchanges
Definition
•A
Commodity exchange can be defined as an exchange for buying and selling commodities for future delivery.
•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.
Commodity Exchanges
Currently Operating
•Established
•
• • •New • •
National Commodity & Derivatives Exchange Limited (NCDEX)
Multi Commodity Exchange of India Limited (MCX) National Multi-Commodity Exchange of India Limited (NMCEIL) Indian Commodity Exchange Limited (ICEX) Ace Derivatives and Commodity Exchange Limited (ACE)
Commodity Exchanges
Facts
•Cumulative
turnover of all exchanges crossed the Rs 100-trillion mark in 2010
•NCDEX saw
business increase by 69 per cent to touch US$ 183.43 billion, in the last year.
•Since
its launch in November 21, 2009, ICEX generated business worth US$ 22.29 billion.
•ICEX
clocked business of Rs 3,78,006 crore, which was higher than the turnover of the oldest national bourse, NMCE. Its turnover rose by just 6 per cent to Rs 1,80,727 crore from Rs 1,70,419 crore in the review period.
•Turnover
of the National Board of Trade has increased to over US$ 5.5 billion in the current fiscal.
Commodity Exchanges
Purpose
•Hedging
•Speculating
•Arbitrage
•Shifting
of Risk
•Information
Arguments for new commodity exchanges in India
•Growth
of Indian Commodity Market - New products
•Increase
•Reduce
competition
efficiency Concerns
Transaction cost
•Improve •Liquidity •Spot
Price Conundrum
•Regulations
Growth of Indian Commodity Market New products
•With
the introduction of new commodity derivates and intangible derivates like freight, weather etc., the volumes on exchanges are going to increase.
•Options
and index futures are introduced which would enable the market to reach a higher level of sophistication and impart greater efficiency in both the price discovery and risk management processes.
Increase competition
•Introduction
of new Commodity Exchanges would certainly increase
competition
•The •The
healthy competition is economy only adds to the market efficiency. other advantages could be:
•
If an exchange faces stiff market competition, the deviation between rules and practice can disappear. Trading markets are no different from any other service market: the more competition the better, the less government intervention the better.
•
Reduce Transaction cost
•Exchanges
are crucial components of financial infrastructure, which reduces transaction cost and waste in transit, benefiting both consumers and farmers.
•A
robust and modern exchange focused on multiple commodities can bring about a transformation to the inclusive benefit of all stakeholders across the nation.
Improve efficiency
•With
more innovation and better technology, the commodities exchange would become efficient.
•The
commodity market in India is under penetrated and there is certainly a large market.
•Innovation
will be the driver for the success for any exchange.
Liquidity Concerns
•Who
are the players that drive any derivatives markets? Typically they are hedgers, arbitrageurs and speculators.
•Wider
participation by arbitrageurs and speculators is ruled out as there are too many impediments and it is not attractive enough.
•In
the case of hedgers, smaller and retail level participation is not possible because of the closed door nature of existing exchanges.
•There
is need to open up the markets and provide a distribution chain which will encourage and allow a wider body of participants.
•FIIs
& Mutual funds’ entry into the commodity futures space still needs to be cleared by FMC’s capital market counterpart Securities and Exchange Board of India (Sebi).
Spot Price Conundrum
•The
basic precondition for establishing a viable commodity derivatives market is the existence of large, competitive and transparent spot market.
•Unfortunately,
the existing cash markets for most commodities fail to satisfy this precondition.
•This
also becomes extremely important in the context of physical settlement of commodities.
•Spot
markets are scattered throughout the country and exist close to production centers. They are quite unorganized.
Regulations
•Allowing
more exchanges without broader participation and innovation would only result in splitting existing trade volumes among roughly the same set of players, with the pie expanding only slightly.
•This
will not only impact the stability of the exchanges, but more importantly, affect the creation of infrastructure such as warehouses, quality control laboratories and the like.
Conclusion
•The
number of exchanges will eventually be decided by the market. If the market feels there is scope for fewer exchanges, then consolidation is a possibility.
•We
will have to see how the markets shape up, especially after other products are introduced and institutional and corporate players enter.
•But
we can see the experience of the global exchanges where the process of consolidation has already set in.
•China
had a large number of commodity exchanges, which eventually consolidated into three exchanges, each having its own product specialization. So that possibility in the medium to long term cannot be ruled out.
Thank You
doc_913419814.pptx