The Making of the Indian Market :
NCDEX Experience
-R. Ramaseshan
MD & CEO, NCDEX Ltd
Background
2
Evolution of markets

Long but
Long history of commodity trading
Ban in the 1960s
 Growth of regional commodity
exchanges

chequered
history
Removal of ban in 2002
 Emergence of National level
exchanges

- 4 national
Exchanges
-21 regional
3

Multi-commodity, online trading,
demutualised
Commodities in Indian context
Defined by FCRA (1952) as “Every kind of movable
property other than actionable claims, money and
securities.”
 What are not commodities?
 Indices and weather
 What are the instruments that are traded?
 Only futures permitted
 Options not allowed

Limited
architecture
Much narrower
than
stock markets
4
Product
Segments
Cash
Futures
Options
Indices
Stock




Currency


X
X
Commodities


X
X
Customer Segments in derivative markets
Limited
participants
Limited
Individual
participation
Customer
Segment
Stocks
Commodities
Brokers


Retail


Corporate


FIIs

X
Banks

X
Mutual Funds

X
NRIs

X
Trading through members of the Exchanges
5
Regulatory Structure in India
Ministry of Finance
Ministry of Company Affairs
Ministry of Consumer
Affairs
National
Housing Bank
1
Insurance Regulatory Pension Funds Regulatory
Development Authority
Development Authority
(IRDA)
(PFRDA)
2
3
Housing Finance
Companies
Insurance
Pension
Funds
Company
Law Board
FMC
10
4
Corporates
State
Commodity
Government
Exchanges
NABARD
5
Co-operative Banks &
Regional Rural Banks
SIDBI
6
State Financial
Institutions
RBI
7
Banking /
NBFCs/DFIs
SEBI
8
Capital
Markets
State-wise Registrar
of Co-operatives
9
APMCS
In India, regulator is based on underlying and in USA it is based on instrument
6
Evolution in futures trading since 2003
7
Emergence of two sets of products in trading basket
Agri commodities
Commodities
Traded in Indian
Commodity
markets
Produced &
consumed
Replica contracts of commodities
traded on international exchange
Bullion
8
Produced &
exported
Crude oil
Metals
Business Volumes skewed towards non-agri commodities
Growth in business volumes
1,600
$ bn
1,200
64.8
60.0
54.4
50.0
1,000
800
40.0
35.3
%
1,400
70.0
30.0
600
22.2
400
11.4
200
16.1
0
20.0
10.0
0.0
FY2004-05 FY2005-06 FY2006-07 FY2007-08 FY2008-09 FY2009-10
Volumes
Agri share
Prejudice about futures trading in agri commodities fuelling inflation in essential commodities has led
to suspension on trading, leading to declining volumes in agri commodities
9
Emerging perceptions
Futures trading
is speculation
Common
Misconceptions
On
Futures
Trading
How can volumes
be greater
than production?
Deliveries are low
so, it can be only
speculative
Commexes responsible
for inflation
Increasing margins
Lowers prices
10
Building linkages in markets
11
Creating value
Awareness
NCDEX
Initiatives
Warehousing
& Logistics
12
Efficiency in Commodity markets
13
Futures trading – a vital messenger
Futures trading gives vital signals of a possible
demand-supply mismatch in a commodity
 The price signals may be used to take vital
decisions – fixing the minimum support price
and export-import decisions
 An illustration


14
Sugar production in the country during the year
2008-09 was 14.55 million tones against 26.35
million tones in the previous year - the deficit
was indicated by futures price which showed a
rising trend
1-Nov-08
4-Nov-08
7-Nov-08
10-Nov-08
13-Nov-08
16-Nov-08
19-Nov-08
22-Nov-08
25-Nov-08
28-Nov-08
1-Dec-08
4-Dec-08
7-Dec-08
10-Dec-08
13-Dec-08
16-Dec-08
19-Dec-08
22-Dec-08
25-Dec-08
28-Dec-08
31-Dec-08
3-Jan-09
6-Jan-09
9-Jan-09
12-Jan-09
15-Jan-09
18-Jan-09
21-Jan-09
24-Jan-09
27-Jan-09
30-Jan-09
Sugar futures depicting a rising trend
Rs/Qtl
15
Future price of March '09 contract in Dec '08 and Jan '09
2150
2100
2050
2000
1950
1900
1850
Models for farmers
What to sow?
Life cycle
Of
Pre-harvest
farmers
Post harvest
Are they present today?
Phased
approach to
farmer
participation
Awareness
Price information
Actual hedging/trading
NCDEX involved with awareness programmes and price dissemination
16
Why are they not present today?
Awareness/Ignorance
Production quantity
Access to
bourses
Nuances
MTM
Margin Delivery
Quality Online Credit
Basis
farmers
to the
Infrastructure
Commexes
Bringing the
as
hedgers
Aggregator?
Bank
SHG
NGO
Coop
Smaller contracts
Awareness
Demat
What do we need to get them on-board? Exchanges are creating this…
Warehousing
17
Assaying
Warehouse receipt
Related products:
finance
Insurance, inputs etc
Issues to be resolved
18
Issues to be resolved
Instruments like Options,
Indices, weather
derivatives
Initiatives to
be taken up
by policy
makers
Participation from mutual
funds, banks and
international capital
Strengthening of regulation
19
Thank You
20