National Multi-Commodity Exchange of India Limited

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National Multi-Commodity Exchange of India Limited
A Company Promoted by
GAIC
CWC
NAFED
NIAM
GSAMB
NOL
PNB
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Inception

• Recognized as first demutualised Online
  Multi-Commodity Exchange in October 2002 and with
  National status in January 2003, National
  Multi-Commodity Exchange of India Ltd. (NMCE) is
  one of the more important events in the commodity
  markets in India.

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Promoters

• NMCE is promoted by commodity relevant
  institutions like-
• Central Warehousing Corporation (CWC)
• National Agriculture Co-operative Marketing
  Federation of India Limited (NAFED)
• Punjab National Bank (PNB)
• Gujarat Agro Industries Corporation Ltd (GAIC)
• Gujarat State Agriculture Marketing Board (GSAMB)
• Neptune Overseas Ltd.(NOL)

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Strength of NMCE

• NMCE is scientifically conceived and
  scientifically organized.
• Since all important diverse institutional
  functionaries are on the governing body of NCME
  as shareholders, which provide balancing of
  interest of stakeholders.
• No one can exploit the functioning of NMCE.
• All promoters are zero debt entities and thus
  have no vested interest.

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Objectives

• To de-risk Indian agriculture from irrational and
  erratic price fluctuations.
• To bring rewards to all stake-holders from
  producers to consumers, to traders as well as
  exchequer.
• To instill professionalism in the trade to face
  competition in free market regime.
• To respond to global challenges and opportunities
  in commodity trade.

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NMCE a brief overview

• Indias first electronic, demutualised,
  multi-commodity exchange commences operation on
  26th November, 2002.
• NMCE facilitates electronic derivative trading
  through robust and tested trading platform,
  Derivative Trading Settlement System (DTSS),
  created by CMC.
• NMCE promises to provide a highly transparent way
  of operations in commodities trading as provided
  by the best Commodity Exchanges existing around
  the world
• The standards set by NMCE in terms of technology,
  market practices, contract designs and products
  have become benchmarks for the industry.

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Salient features

• De-mutualised Corporate structure
• V-SAT based connectivity
• Real time trade and price information
  dissemination
• Efficient Clearing and Settlement system
• Warehouse Receipt System for deliveries in graded
  and standardized commodities
• Impartial and transparent professional management
• Institutional investors support.

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Trading Clearing Mechanism

• Trader submit order through TWS.
• Order matching takes place at server (lying at
  NMCE) and trade executes.
• Trading period starts from 16th of the starting
  month to 12th of the delivery month.
• No fresh position building is allowed, except
  square off, in between 12th to 15th of the
  delivery month.
• Exchanges clearing house keeps track of all
  transaction takes place during a day to calculate
  net position of members.
• At the end of the day trading, the computer
  (DTSS) of the exchange marks the traded price to
  the closing price of the day of respective series
  and the difference called as MTM (profit/loss) is
  worked out for each buyer / seller and credited
  /debited into their respective accounts.

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Settlement

• Every trade settled by two ways
• By execution of actual delivery from the seller
  Buyer
• If seller refuses to give delivery, it is cash
  settled with a suitable penalty of default.

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Delivery Mechanism

• From 12th to 15th day of the delivery month,
  seller have to tender delivery of assets /
  commodities to the Exchange.
• Each buyer and seller has to pay 15 of the
  contract value to the exchange in case of making
  / taking actual delivery of commodity, on 12th
  day of each maturity month. This is however
  exempted to such sellers who tender the original
  Warehouse Receipts to the exchange on or before
  the delivery period.

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Warehouse Receipt Financing with Forward Sale
Contract

• to access more bank finance,
• at a better interest rate,
• for longer terms,
• Thus giving Farmers/Traders more opportunity
  to invest and more flexibility in their trade.

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Commodities Actively Traded

• Natural Rubber (RSS 4)
• Black Pepper (MG 1)
• Coffee Robusta
• Cardamom
• Raw Jute

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RSS 4 Futures at NMCE A Case Study

• After opening up economy since 1990s domestic
  market becomes more linked with international
  market. Resultantly, rubber market in India has
  witnessed both the periods of boon and bane in
  the last decade.
• The period from 1994 to 1998 was the most
  turbulent in domestic price trend of natural
  rubber in India (Fig1).
• Futures trading in Rubber flagged off on 15th
  March03 for the very first time in India by
  NMCE.
• Since then NMCE RSS 4 prices maintains 88 to 90
  correlation with SHFE, SICOM TOCOM exchanges
  RSS 3 prices.

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RSS 4 Futures at NMCE A Case Study

• After a detailed cost study by the Costing Branch
  of Finance Ministry in 1998, Government of India
  announced Rs 35 a Kg, to a large extent, as the
  benchmark price but growers were deprived of
  remunerative prices (Fig2).
• Ever since futures trading in Rubber was launched
  by NMCE, the price has never gone below this
  level, and also absurd volatility in its prices
  has also become rare (Fig2).

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Fig1
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Fig2
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Opportunities for Foreign Investors and Exchanges

• Since it is safest Exchange. Foreign
  Institutional Investors (FIIs) can depend better
  for their investment.
• Exchanges can look into the collaboration
  proposals to or for NMCE where same commodities
  are traded for arbitrage opportunities to its
  members and clients and those who may want to
  list any of the commodity listed on NMCE for
  arbitrage opportunities.

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Thank You