Indian Commodity Exchanges – A Fruitful Decade Gone By…

India stands at a very unique place in terms of the investment environment today. It has become convenient for an Indian investor to choose from various investment and financial products. The country today hosts an organized, structured and regulated market platform in the equities, commodities and currencies space. 

Emergence Of Commodities Trading
Within the commodities segment, India has seen a phenomenal growth phase in the past decade. One can vouch for a well-established commodity futures platform that has negated the scope of losses related to quality or physical deliveries on a regulated exchange. The history of the Indian commodity futures exchanges can be traced back to 2003, when the MCX (Multi Commodity Exchange), NCDEX (National Commodities Derivatives Exchange) and the NMCE (National Multi-Commodity Exchange) were launched. Once trading on these modernized and electronically traded exchanges began, there was no looking back. Volume saw a phenomenal surge and Indian investors became accustomed to the new investment and trading segment i.e. commodities. 

While just 10 years ago one would feel that commodities was a new market for India, the current scenario suggests, that Indian commodity exchanges have risen to global standards and have become one of the top exchanges in the world. The MCX stands as the third largest commodity futures exchange in the world in terms of the number of futures contracts traded. Earning this accolade has in turn made India stand neck-to-neck with global commodity players. Apart from this, the MCX has also bagged the tag of the world’s No.1 exchange for gold and silver futures, No.2 rank for copper and natural gas futures and No.3 position in crude oil futures contracts. This shows the strength of Indian commodity exchanges and also showcases that the future in the commodities business looks bright. 

Since Indian commodity exchanges began their journey only about a decade ago, they are still in an evolving stage. A look at the past and existing structures of the exchanges shows that business patterns and products, though constant to a large extent are still witnessing transformation. While the MCX began as an exchange focused on non-agricultural commodities, in today’s time it too is looking forward to diversify and enhance business in the agricultural commodities. Similarly, the NCDEX that was initially focused on trading in farm commodities is now seen expanding its trading horizon as the exchange is introducing a host of non-farm commodities. 

In the Indian commodities market, the NCDEX has become a benchmark for futures trading in agricultural commodities and even though the exchange is targeting newer non-farm futures contracts, one can be assured that the wide and well-placed physical delivery mechanism at the NCDEX remains unparalleled. Recently, the exchange re-launched its Steel futures contract and additionally has taken a big leap forward by launching India’s first Gold-Hedge contract. Now this surely assures newcomers in the commodities business of the ever-growing opportunities of trade and investment. 

Apart from the MCX and the NCDEX, other exchanges that also have a foothold in the Indian commodity futures market are the NMCE and the ACE (Kotak Anchored Enterprise).  While the NMCE stands strong in futures trading of plantation crops like coffee and rubber, the ACE on the other hand is a multi-commodity exchange. 

Apart from development of a strong and sustainable commodity futures platform, the investor is assured of multiple benefits of trading on these exchanges. Firstly, risks associated with quality, stocks at warehouse and physical delivery, are monitored regularly on the regulated commodity futures exchanges. Prudent checks and balances ensure that the exchanges keep a tab on the quality and quantity of commodities. Understanding the position of an investor, the guiding authority makes sure that strict regulation and monitoring of financial markets and products continues at all times. For this purpose, a settlement guarantee fund in a regulated exchange minimizes the risk factor when compared to that on the unregulated and opaque markets. 

Secondly, the market is regulated by a watchdog, thus ensuring a complete check and count. While the SEBI (Securities and Exchange Board of India) is the regulator for the Indian equities market, the Indian commodity futures exchanges come under the jurisdiction of the FMC (Forward Markets Commission). The end-investors are secured due to the strict regulation and guidelines that the FMC sets up for the member brokers; thus ensuring a safe investment and trading environment. From a real-time margin system to high compliance structures, standard audits of members, proper surveillance and a transparent and market driven price mechanism, the investor is covered from all vagaries. 

This strictly regulated environment has helped the Indian commodity markets achieve a controlled and structured platform, thus making it beneficial for the investor who is seeking to widen his/her portfolio and trade in commodities.