A Report On

Seminar on Contemporary Issues

MULTI COMMODITY EXCHANGE

Submitted in partial fulfillment for the Award of degree of Master of Business Administration

Submitted By: Chitra choudhary MBA 2nd sem studies

Submitted To: HOD Deptt. Of management

2011-2013

GOVERNMENT ENGINEERING COLLEGE JHALAWAR

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Evaluation
It is to certify that Ms. Chitra Choudhary of MBA 2nd sem. has prepared Seminar on Contemporary Issues, titled Multi commodity exchange I have evaluated the project report and his Project work is satisfactory.

Date:

Signature of External examiner

Preface

ACKNOWLEDGEMENT
Acknowledgement is an art, one can write glib stanzas without meaning a word, and on the other hand one can make a simple expression of gratitude

I express my sincere thanks to my project guide, Ms. Minakshi nagar, Faculty of, Department of Management Studies, for guiding me right from the inception till the successful completion of the project. I sincerely acknowledge her for extending her valuable guidance, support for all stages of this project. This project bears the imprints of many a person, who has tooled all the pains and efforts to help me out, in some or the other way. This project would be incomplete without me expressing gratitude towards all my respondents who help me with the required information and data, which is the base of my study. I would avail the opportunity to thank all those, specially the almighty, parents, and friends, who provided me with their valuable suggestions and help which has a major contribution to my project. Needless to say I am alone responsible for such blemishes as the report may have. I would also like to thank the supporting staff prof. Department of Management Studies, for their help and cooperation throughout our project.

Date

CHITRA CHOUDHARY

Contents
Particular 1. Introduction Introduction to MCX History of MCX MCX Commodities Index in detail About MCX Salient Futures of MCX Vision and mission of MCX Commodity market structure Products of MCX Indias place in world market Business potential Trading @ MCX MCX stock exchange MCX business associates Type of membership [new members] Board of directors Awards and recognition Participants in commodity market Key differentiator of MCX Settlement of trade Latest MCX market in news Conclusion Bibliography Page No. 7 8 9 11 12 12 13 15 16 17 18 19 21 22 23 24 25 26 27 28 30 34 35

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

COMMODITY FUTURES

COMMODITY FUTURES

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

1. INTRODUCTION

1.1 Introduction to Multi Commodity Exchange (MCX):

MCX: refers to Multi Commodity Exchange which facilitates trading in a variety of
commodities in the country. This is an independent commodity exchange operating in India with its base in Mumbai. The MCX was established in the year 2003 with NABARD, NSE, Financial Technologies India Ltd, Corporation Bank, Bank of India, Bank of Baroda, HDFC Bank Ltd, SBI Life Insurance Corporation Ltd, Fid Fund (Mauritius) Ltd etc. as key share holders. MCX reaches out to 500 Indian 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 agricultural commodities, Bullion, Ferrous and Non Ferrous metals, Pulses, Oil and Oil Seeds, Energy, Plantations, Spices and soft commodities. The average daily turnover of MCX is about 1.55 billion US Dollars. Multi Commodity Exchange (MCX) captures almost 72% of the market share and thus it occupies No1 position in India in the commodity market. MCX occupies no 1 position in the world in respect of silver, No 2 position in Natural gas and No 3 position in crude oil and gold.

Category wise Multi Stock Exchange (MCX) Commodities Index:

Category Metals Bullion Fiber Energy Spices Pulses Plantation Petro chemicals Oil and Oil Seeds Cereals Others

Commodities Aluminum, Copper, Lead, Nickel, Sponge iron, Steel Long and Steel flat, Tin, Zinc Gold, silver Long, medium and short staple cotton, Cotton yarn etc Crude oil, Furnace oil, Natural gas etc Cardamom, Jeera, Pepper, Red Chilly Chana , Masoor and yellow peas Areca nut, Cashew kernel, Coffee, Rubber HDPE, Polypropylene, PVC Castor, Coconut, Cotton Seed, Palmoline, ground nut, Mustard, Soya, Sunflower, Sesame and Rice Bran Maize Mentha oil, Potato, Sugar

1.2 HISTORY OF MCX

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Multi Commodity Exchange (MCX) is an independent commodity exchange based in India. It was established in 2003 and is based in Mumbai. The turnover of the exchange for the fiscal year 2009 was US$ 1.24 trillion, and in terms of contracts traded, it was in 2009 the world's sixth largest commodity exchange. ([1]) MCX offers futures trading in bullion, ferrous and nonferrous metals, energy, and a number of agricultural commodities (mentha oil, cardamom, potatoes, palm oil and others).

Multi Commodity Exchange

Type

Private

Industry

Business Services

Founded

2003

Headquarters

Exchange Square, Suren Road, Chakala, Andheri (East), Mumbai, India

MCX has also set up in joint venture Key people Lamon Rutten, MD and CEO the MCX Stock Exchange. Earlier spinoffs from the company include the Products Futures exchange National Spot Exchange, an electronic spot exchange for bullion and Revenue Rs 104.39 crore (20052006) agricultural commodities, and National Bulk Handling Corporation (NBHC) Website www.mcxindia.com India's largest collateral management company which provides bulk storage and handling of agricultural products. It is regulated by the Forward Markets Commission.

MCX is India's No. 1 commodity exchange with 83% market share in 2009

The exchange's main competitor is National Commodity & Derivatives Exchange Ltd ([2]) Globally, MCX ranks no. 1 in silver, no. 2 in natural gas, no. 3 in crude oil and gold in futures trading ([3])

The highest traded item is gold. MCX has several strategic alliances with leading exchanges across the globe 10

As of early 2010, the normal daily turnover of MCX was about US$ 6 to 8 billion

MCX now reaches out to about 800 cities and towns in India with the help of about 126,000 trading terminals

MCX COMDEX is India's first and only composite commodity futures price index

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1.3 Multi Stock Exchange (MCX) Commodities Index in detail:

ALMOND ALUMINIUM ARECAJHAJI ARECARASHI ATF BRCRUDEOIL BSMATIRICE CARDAMOM CASHEWKERN CASTOROIL CER CFI CHANA CHANADEL COCONUTCAK COCONUTOIL COFROB COPPER CORIANDER COTTONLONG COTTONMED COTTONSEED CPO CRDO CRUDEOIL DRB ELECTMTH ELECTWK FURNACEOIL GASOLINE GNUTOILEXP GOLD GOLDGUINEA GOLDHNI GOLDM GRSD GUARGUM GUARSEED HDPEHM HEATINGOIL IGOLDAHM IGOLDDEL IGOLDKOL IGOLDMAHM IGOLDMDEL IGOLDMKOL IGOLDMMUM IGOLDMUM JEERA JUTE KAPAS KAPASKHALI LEAD LONGCOTTON MAIZE MASUR MENTHAOIL MESCRUDOIL MGGURCHAKU MUSTARDJPR MUSTARDOIL MUSTRDSEED NATURALGAS NICKEL PEPPER PLATINUM POTATO POTATOTRWR PPTQ PVC RBDPMOLEIN REDCHILLI REFSNFLOIL REFSOYOIL RICE RJKCASSEED RSOLAPRJUN RSOLAPRMAY RUBBER SESAMESEED SILVER SILVERHNI SILVERM SOYABEAN SOYMEAL SOYSEED SPONGEIRON SRBATIRICE STEELFLAT STEELGZB STEELIGTMG STEELLGBVN STEELLONG SUGARM SUGARMDEL SUGARSKLP SUPARIRASI TCOAL TIN TURDESI TURMERIC URAD WHEAT YELLOWPEAS ZINC

MCX works in joint venture with National Spot Exchange, a purely agricultural Commodity Exchange for the standardization in agricultural markets. It also works in conjunction with National Bulk Handling Corporation which helps farmers in bulk handling of agricultural commodities. MCX has also set up a management course i.e Diploma in Commodities Market in cooperation with Welingkar Institute of Management to train young managers deal efficiently in the commodities market.

1.4 ABOUT MCX

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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

1.5 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: T+1 working day Exchange approved depositories Seller to submit proof of delivery with proper quality certification to MCX

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1.6 VISSION AND MISSION OF MCX

Vision:
We envision a unified Indian commodity market that is driven by market forces and continually provides a level playfield for all stakeholders ranging from the primary producer to the end-consumer; corrects historical aberrations in the system; leverages technology to achieve exceptional efficiencies and ultimately lead to a common world market. We also envision a brand image for MCX that identifies it as the Exchange of Choice not only by direct participants in the commodity ecosystem but also by the general public.

Mission:
MCX shall accomplish the above vision by relentlessly endeavouring to enhance awareness and understanding of exchange-enabled trade in commodity derivatives. The Exchange will continue to minimise the adverse effects of price volatilities; providing commodity ecosystem participants with neutral, secure and transparent trade mechanisms; formulating quality parameters and trade regulations in conjunction with the regulatory authority. Moreover, it will continue to enforce a zero-tolerance policy toward unethical trade practices-attempted or real-by any participant/s; and invest in the allround development of the commodity ecosystem.

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COMMODITY ECO SYSTEM

2. COMMODITY MARKET STRUCTURE

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3. PRODUCTS OF MCX
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Bullions Gold Gold Guinea Gold HNI Gold M Platinum Silver Silver HNI Silver M Silver Micro Plantations Rubber

Metals Aluminium Aluminium Mini Copper Iron Ore Lead Lead Mini Mild Steel Ingot,Billet s Nickel Tin Zinc Zinc Mini

Energy

Oil & Oil Others Seeds ATF Almond Crude Brent Gaur Seed Palm Crude Oil Melted Menthol Flakes Oil Crude Oil Mentha Oil Kapasia Electricity Potato (Agra) Khalli Monthly & Potato (Tarkeshwar) Refined Weekly Soya Sugar M Gasoline Oil Spices Heating Oil Soya Cardamom Imported Bean Coriander Thermal Cereals Turmeric Coal Natural Barley Gas Wheat Weather MaizeCarbon Feed / (CER) Industria Carbon(CFI l Grade ) Fiber Kapas Pulses Chana

4. INDIAS PLACE IN WORLD MARKET

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C O M M O D IT Y I N D I A W O R L DS H A R E R A N K R IC E ( P A D D Y ) 2 4 0 2 0 4 9 1 1 . 7 1 T H IR D W HEAT 74 599 1 2 .3 5 S E C O N D P U LS E S 13 55 2 3 . 6 4 F IR S T GROUNDNUT 6 35 1 7 .1 4 S E C O N D RAPESEED 6 40 1 5 . 0 0 T H IR D SUGARCANE 3 1 5 1 2 7 8 2 4 .6 5 S E C O N D TE A 0 . 7 5 2 . 9 9 2 5 . 0 8 F IR S T C O F F E E ( G R E E N )0 . 2 8 7 . 2 8 3 . 8 5 E IG T H J U T E A N D J U T E F1 IB7 E R S . 0 2 4 3 . 3 0 S E C O N D . 4 4 C O T T O N ( L IN T ) 2 . 0 6 1 8 . 8 4 1 0 . 0 9 T H IR D

5. BUSINESS POTENTIAL

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Commodities

Size of Physical Market (Rs. Crore)

Conservative Multiplier (Rs. Crore) ( In 3 years)

Global Multiplier (Rs. Crore) (In 3 5 Years)

Gold & Silver

Rs. 43000 cr

20 Times Rs. 8,30,000 cr

50 Times Rs. 21,50,000 cr

Edible Oils

Rs. 30000 cr

10 Times Rs. 3,00,000 cr

20 Times Rs. 6,00,000 cr

Metals

Rs.11000 cr

10 Times Rs. 1,10,000 cr

20 Times Rs. 2,20,000 cr

Total

Rs. 84,000 cr

Rs. 12,40,000cr

Rs. 29,70,000cr

6. Trading @ MCX
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Trading System

The best five buy and sell orders for every contract available for trading are visible to the market and orders are matched based on price time priority logic. Orders can be placed w conditions and/ or price conditions Time related Conditions DAY order- A Day order is valid for the day on which it is entered. If the order is not matched during the day, the order gets cancelled automatically at the end of the trading day. GTC - A Good Till Cancelled (GTC) order is an order that remains in the system until the expiry of the respective contract in which it is entered or until when the same is cancelled by the member. GTD - A Good Till Date (GTD) order is valid till the date specified by the member. After the specified date the unexecuted orders get automatically cancelled by the system. IOC - An Immediate or Cancel (IOC) order allows a member to execute the orders as soon as the same is placed in the market, failing which the order will get cancelled immediately Price Conditions Limit Order The order wherein the price is to be specified while placing the same. Market Order The order at the best available price at the time of placing the same.

Margins
MCX follows a comprehensive and stringent margining system for all future contracts traded on the Exchange platform. Actual margining and position monitoring is done on an on-line basis. For the purpose of computing and levying the margins, MCX uses SPAN (Standard Portfolio Analysis of Risk) system which follows a risk-based and portfolio-based approach. The Initial Margin requirement is based on a worst-case loss scenario of portfolio at client level to cover VaR (value at Risk) over a one day horizon, subject to a minimum Base Margin defined by FMC for the respective commodity. The SPAN Risk Parameter File (RPF) is generated by the Exchange periodically at pre-defined timings and RPF files so generated are provided to the members using the FTP service and on the Exchange website. In addition to SPAN margins, MCX levies Additional margins and/ or Special margins whenever deemed necessary considering the volatility and price movement in the commodities. Such margins are also levied as per the directions 20

of FMC Tender Period margins and Delivery Period Margins are levied on contracts nearing expiry to ensure non default in commodity delivery

Trading Related Documents Application for New User ID creation Application for Change of User Name User Id cancellation Application for User ID/ Member ID mapping Increase/ Decrease in Maximum Order Size of trade Increase/ Decrease in Turnover limit Enablement of Pro facility Reset of Member Admin/ User Id password Application for Cancellation of orders Application for Square-off of trades

PDF Form

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7. MCX STOCK EXCHANGE

MCX Stock Exchange Ltd (MCX-SX), Indias new stock exchange, appositely reflects how the worlds most evolved and hi-tech new-generation exchanges should look like in future. With cutting-edge technology, world-class services and cost optimisation, MCX-SX has altered the face of the Indian financial markets. Within a year of its launch, MCX-SX has proved its mettle as the thought leader and innovator of the industry by introducing innovative services and pioneering market development initiatives. Recognised by the market regulator Securities and Exchange Board of India, MCXSX currently has more than 600 members and trading terminals in 486 cities and towns across India. Through deployment of state-of-the-art technology and global best practices for regulatory compliance and investor protection, MCX-SX enables importers, exporters, investors, corporations and banks to hedge their currency risks with greater transparency and safety. Furthermore, it guarantees settlement of all transactions, through its clearing corporation (MCX-SX Clearing Corporation Ltd), which enhances safety by eliminating the counterparty risk. MCX-SX believes in Systematic development of markets through Information, Innovation, Education and Research. Its constant endeavour, therefore, has been to ensure that its nationwide electronic trading platform is used by market participants more extensively and effectively. MCX-SX is the first stock exchange in India to launch pioneering market development initiatives and join hands with Indias reputed industry & trade bodies and educational institutions to conduct awareness and financial literacy programmes for financial literacy and financial inclusion. MCX-SXs currency derivatives segment offers an India-wide electronic platform for trading in currency

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8. MCX BUSINESS ASSOCIATES

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

Clearing Banks Quality Certification Agencies Warehouses Bullion Logistics

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11. Awards & Recognition

2011 2010 Our Company received the Financial Inclusion Award 2011 from the SKOCH Foundation Our Company received the Best Commodity Exchange of the Year award from the Bombay Bullion Association Our Company received the FICCI Socio Economic Development Foundation (SEDF) Corporate Social Responsibility Award 2009-10 Our Company received the NASSCOM Foundation Social Innovation Honours 2010 Our Company received the Sankalp Award for Agriculture and Rural Innovation Our Company received the Best Bullion Exchange of the Year award from the Bombay Bullion Association Our Company was recognized as Indias First Green Exchange by Priyadarshini Academy Our Company was awarded the Golden Peacock Ecoinnovation award 2008 by the Institute of

2010

2010 2009 2008 2008 2008

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12. PARTICIPANTS IN COMMODITY FINANACE

Farmers/ Producers M erchandisers/ Traders Importers Exporters Consumers/ Industry Commodity Financers Agriculture Credit providing agencies Corporate having price risk exposure in commodities

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13. 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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14. Settlement of trade

Trade settlement refers to the day money is exchanged by the buyer and seller in a transaction. Trade settlement does not confer risk; that is assumed at the time of the trade. Trade settlement allows time for paperwork between the exchange, the brokers and the investor to be completed so title is properly registered. Trade transfers are handled by 'back office operations' offices that employ pretrade and post trade operators to quickly process transactions. The Exchange has an in house clearing house which monitors and performs all activities relating to delivery, fund settlement, margining and managing the settlement guarantee funds. It operates a well-defined settlement cycle to ensure no deviations or deferments from this cycle. MCX has empanelled 16 Clearing Banks to provide banking services to trading members. The clearing house collects margin from the members, effect of pay-in and pay-out and monitor delivery and settlement process. The members are requested to forward all their clearing & settlement related correspondence on the following address: Contact Details Multi Commodity Exchange of India Limited Clearing & Settlement Department Exchange Square, Suren Road, Andheri (East), Mumbai 400093, Maharashtra, India

Settlement Guarantee

The Exchange shall assume the counter party risk of the clearing members for all the trades done on the Exchange. Clearing & Settlement is a self-insurance mechanism whereby Exchange guarantees the settlement to the counter party even in the event of failure of a trading member to meet the settlement obligation.

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The Exchanges trading platform ensures absolute security of traders data. MCX has been certified to three ISO standards including ISO 9001:2000 quality management standard, ISO 27001:2005 information security management standard and ISO 14001:2004 environment management standard. The Exchanges platform enables anonymous trades, leading to efficient price discovery. Moreover, for globally-traded commodities, MCXs platform enables domestic participants to trade in Indian currency. The exchange has appointed a 5-member panel comprising of bankers, MMTC, bullion importers and traders who will work out.. the daily reference spot price and announce the same at 4 pm in the evening. This reference price is ideally for Mumbai, but occasionally it would be such that prices of other important centres will also be indicated. The settlement price procedure is somewhat like this: The days settlement price is the days closing price and is worked out on the basis of the weighted average price of all trades done in the last 30 minutes of the trading session. The pay-in and payout will be decided on this price. However, if the number of trades is less than five, during the last 30 minutes, then the system calculates the weighted average of last five trades conducted during the day. If no trades are transacted, say in any illiquid contracts, then the previous days closing price will be the days settlement price.... .

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15. LATEST MCX MARKET IN NEWS

SOME EXAMPLE

ONE YEAR GOLD PRICE FLOW CHART 2011 TO 2012

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ONE YEAR SLIVER PRICE FLOW CHART 2011 TO 2012

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ONE YEAR CRUDE OIL PRICE FLOW CHART 2011 TO 2012

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ONE YEAR NATURAL GAS PRICE FLOW CHART 2011 TO 2012

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16. CONCLUSION
After almost two years that commodity trading is finding favor with Indian investors and is been seen as a separate asset class with good growth opportunities .For diversification of portfolio beyond shares, fixed deposits and mutual funds, commodity trading offers a good option for long term investors and arbitrageurs and speculators. And , now, with daily global volumes in commodity trading touching three times that of equities ,trading in commodities cannot be ignored by Indian investors. Online commodity exchanges need to revamp certain laws governing futures in commodities to make the markets more attractive. The national multi-commodity exchanges have unitedly proposed to the government that in view of the growth of the commodities market, foreign institutional investors should be given the go-ahead to invest in commodity futures in India .their entry will deepen and broad base the commodity futures market. As a matter of fact, derivative instruments, such as futures , can help India become a global trading hub for select commodities. Commodity trading in India is poised for a big take-off in India on the back of factors like global economic recovery and increasing demand from china for commodities. Considering the huge volatility witnessed in the equity markets recently with the sensex touching 21000 level commodities could add the required zing to investors portfolio. Therefore, it wont be long before the market sees the emergence of a completely redefined set of retail investors.

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17. Bibliography

o o o o o o

www.indiamba.com Reference material of MCX www.mcxindia. co www.investopedia.com www.commodityindia.com www.indiaexpress.com

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