Commodities Exchange in India

Commodities (commodity) are basic raw materials and foodstuffs such as metals, petroleum, coffee, grain etc. Commodities are traded on a commodity exchange both by the companies that use them (e.g. chocolate manufacturers) and by speculators. Futures contracts allow commodity producers and commodity users to bring some predictability and stability to pricing. By buying futures contracts, they can hedge against underlying price changes in the commodity.

Commodity exchange are the   exchanges where the trading of futures and forwards take place, basically commodity exchange   are trading   in future contacts on those   commodities   which have some   regional   relevance it is   not going   to be as easy   as a share   of a company   to get   listed   in a different exchange.

Commodity exchanges in India are expected to contribute significantly in the strengthening Indian economy to face the challenges of globalization. The Commodity Exchange makes commodity money available to all as a medium of exchange, store of wealth and unit of account. As long as the commodity exchange does not provide credit or interest, it is easily established and avoids banking regulations. As a barter exchange mechanism, there is no fiduciary responsibility. With the value India commodity economy being around Rs 300,000 crore a year

Delivery of commodity is a physical activity in which the Commodity exchange members are stakeholder in those commodities.   Importance of commodity exchanges are linked to the stake holders of that particular commodity

Introduction To Commodity Exchange

Virtually all of the futures exchanges in the United States date from the late nineteenth or early twentieth century. They all started as commodity exchanges, but since the early 1980s trade in financial futures has become more and more important for most of them. Until 1998, the Chicago Board of Trade used to be the worlds largest futures exchange, but is now the second-largest place with a volume of 255 million contracts in 1999   (11 per cent of total world volume). The Chicago Mercantile Exchange, the worlds fourth-largest, accounted for about 8.5 per cent of world volume, while the New York Mercantile Exchange (former NYMEX and COMEX), the worlds eighth-largest, accounted for more than 4 per cent. Among the large exchanges, NYMEX is the only one trading solely commodities, and is the world’s largest commodity exchange. Two years ago, the CSCE, NYSE and NYCE merged to form the New York Board of Trade which was in 1999 the world’s twentieth-largest exchange. Up to 1993, the United States exchanges used to account for the major part of world futures and options trade.

Commodity futures markets have a long history in India. The first organized futures market, for various types of cotton appeared in 1921. In the 1940s, trading in forward and futures contracts as well as options, was either outlawed or made impossible through price controls. This was the situation until 1952, when the Government passed the Forward Contracts Regulation Act, which to this date controls all transferable forward contracts and futures. During the 1960s, the Indian Government either banned or suspended futures trading in several commodities. The Government policy softened in the late 1970s and recommendations to revive futures trading in a wide range of commodities was made. With the full convertibility of the rupee, the ongoing process of economic liberalization and the Indian economy’s opening to the world market; the role of futures markets in India is being reconsidered. Most of contracts being traded are unique in the world. Although some are clearly domestic oriented, others (such as raw jute, pepper, and oilseeds) have the potential to become of regional or even international importance. The first new contract allowed was an international pepper futures contract in Cochin officially launched in 1997. In the Philippines, the Manila International Futures Exchange was active from 1985 to 1996, but was then closed down by government regulators.

Nation-Wide Multi Commodity Exchange

These Associations/Exchanges are at different stages of completing the procedural formalities for setting up the exchange/commencing trading. After assessing the market situation and taking into account the recommendations made by the Board of Directors of the Exchange, the FMC prescribes various regulatory measures from time to time, for prudential regulation of futures/forward trading. Govt. has recently removed prohibition on  further 81  more items, thereby removing prohibition on all commodities.   Similarly NTSD Contracts in commodities  are also  taken out of the purview  of FC(R) Act. .Under a World Bank aided Grant Scheme to support development of commodity futures markets in India, a number of consultancy assignments, training program, study tours, office automation of FMC etc. have been undertaken.   The project was successfully completed on 31^st October, 2000.   A Plan Scheme under the 10^th Five Year Plan for generating awareness about the activities, mechanism and benefit of futures trading among farmers is being implemented. In enhancing the institutional capabilities for futures trading the idea of setting up of  National Commodity Exchange(s) has been pursued since 1999. Recently on the basis of comprehensive examination of various applications/expressions of interest received from 16  parties, four exchanges/proposed exchanges  have been identified for giving the  “National Status”.   While the Online Commodity Exchange of India Ltd (OCEIL) ( later on renamed as National Multi-Commodity Exchange of India Ltd., NMCE)   has been given final approval, others   National Board of Trade (NBOT), Indore, National Commodity & Derivatives Exchange   (NCDEX), Mumbai,   and Multi Commodity Exchange (MCX), Mumbai have   been given in-principle approval.   “National Status” implies that these exchanges would be automatically permitted   to   conduct futures trading in all approved commodities,   exempting     sensitive items such as rice, wheat, gold & silver, subject to clearance of   bye-laws and contract specifications by the FMC.   While the NMCE, Ahmedabad has commenced futures trading in November, 2002, and NBOT, Indore has been trading as a regional     exchange since 2000, its up-gradation to  national level and NCDEX and MCX, Mumbai commencing operations etc.

Indian Commodity Exchanges

Commodity trading in India is regulated by the Forward Markets Commission (FMC) headquartered at Mumbai, it is a regulatory authority which is overseen by the Ministry of Consumer Affairs and Public Distribution, Govt. of India. It is a statutory body set up in 1953 under the Forward Contracts (Regulation) Act, 1952.

List of major commodity exchanges in India:

Source: Scribd.com