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National Multi-Commodity Exchange of India Limited A Company Promoted by CWC NAFED PNB NIAM GAIC GSAMB NOL 1 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. 2 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) 3 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. 4 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. 5 NMCE – a brief overview India’s 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. 6 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. 7 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. Exchange’s 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. 8 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. 9 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. 10 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. 11 Commodities Actively Traded Natural Rubber (RSS 4) Black Pepper (MG 1) Coffee Robusta Cardamom Raw Jute 12 RSS 4 Futures at NMCE – A Case Study After opening up economy since 1990’s 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 (Fig:1). Futures trading in Rubber flagged off on 15th March’03 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. 13 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 (Fig:2). 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 (Fig:2). 14 Fig:1 15 Fig:2 16 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. 17 Thank You 18