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Current Scenario in Indian Commodity Market

Need of Commodity Derivatives for India

India is among top 5 producers of most of the Commodities, in addition to being a major consumer ofbullion and energy products.

Agriculture contributes about 22% GDP of Indian economy. It employees around 57% of the labor forceon total of 163 million hectors of land Agriculture sector is an important factor in achieving a GDPgrowth of 8-10%. All this indicates that India can be promoted as a major centre for trading of

commodity derivatives.

Trends in volume contribution on the three National Exchanges:-Pattern on Multi Commodity Exchange (MCX)

MCX is currently largest commodity exchange in the country in terms of trade volumes, further it has

even become the third largest in bullion and second largest in silver future trading in the world.

Coming to trade pattern, though there are about 100 commodities traded on MCX, only 3 or 4commodities contribute for more than 80 percent of total trade volume. As per recent data the largely

traded commodities are Gold, Silver, Energy and base Metals.

Incidentally the futures trends of these commodities are mainly driven by international futures pricesrather than the changes in domestic demand-supply and hence, the price signals largely reflect

international scenario.

Among Agricultural commodities major volume contributors include Gur, Urad, Mentha Oil etc. Whosemarket sizes are considerably small making then vulnerable to manipulations.

Pattern on National Commodity & Derivatives Exchange (NCDEX)

NCDEX is the second largest commodity exchange in the country after MCX. However the major volumecontributors on NCDEX are agricultural commodities.

But, most of them have common inherent problem of small market size, which is making themvulnerable to market manipulations and over speculation. About 60 percent trade on NCDEX comes from

guar seed, chana and Urad (narrow commodities as specified by FMC).

Pattern on National Multi Commodity Exchange (NMCE)NMCE is third national level futures exchange that has been largely trading in Agricultural Commodities.

Trade on NMCE had considerable proportion of commodities with big market size as jute rubber etc. But,

in subsequent period, the pattern has changed and slowly moved towards commodities with smallmarket size or narrow commodities.

Analysis of volume contributions on three major national commodity exchanges reveled the following

pattern, Major volume contributors: -

Majority of trade has been concentrated in few commodities that are

Non Agricultural Commodities (bullion, metals and energy)

Agricultural commodities with small market size (or narrow commodities) like guar, Urad, Mentha etc.Advertisement

MCX

All about Multi Commodity Exchange: Headquartered in Mumbai, Multi Commodity Exchange of India Ltd (MCX)

is a state-of-the-art electronic commodity futures exchange. The demutualised Exchange set up by Financial

Technologies (India) Ltd (FTIL) has permanent recognition from the Government of India to facilitate online

trading, and clearing and settlement operations for commodity futures across the country.

Having started operations in November 2003, today, MCX holds a market share of over 80% of the Indiancommodity futures market, and has more than 2000 registered members operating through over 100,000 trader

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work stations, across India. The Exchange has also emerged as the sixth largest and amongst the fastest

growing commodity futures exchange in the world, in terms of the number of contracts traded in 2009.

MCX offers more than 40 commodities across various segments such as bullion, ferrous and non-ferrous metals,

and a number of agri-commodities on its platform. The Exchange is the world's largest exchange in Silver, the

second largest in Gold, Copper and Natural Gas and the third largest in Crude Oil futures, with respect to the

number of futures contracts traded.

MCX has been certified to three ISO standards including ISO 9001:2000 Quality Management System standard,

ISO 14001:2004 Environmental Management System standard and ISO 27001:2005 Information Security

Management System 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 strives to be at the forefront of developments in the commodities futures industry and has forged

strategic alliances with various leading International Exchanges, including London Metal Exchange (LME), New

York Mercantile Exchange, Shanghai Futures Exchange (SHFE), LIFFE Administration and Management , Baltic

Exchange Limited (BEL), Taiwan Futures Exchange ( TAIFEX), among others. For MCX, staying connected to

the grassroots is imperative. Its domestic alliances aid in improving ethical standards and providing services and

facilities for overall improvement of the commodity futures market.