18.3 Commodity exchanges in India
Just as stocks and stock derivatives are traded in stock exchanges, commodity derivatives are traded in commodity exchanges. Right now in India commodity derivatives trading in various exchanges is limited to commodity futures. National level multi-commodity exchanges namely,
- Multi-Commodity Exchange of India Ltd (MCX), Mumbai,
- National Commodity and Derivatives Exchange Ltd (NCDEX), Mumbai,
- National Multi-Commodity Exchange of India Ltd (NMCE), Ahmedabad,
- Indian commodities exchanges (ICE)
are some of the leading online commodity exchanges in India. The regulatory body is the Forward Markets Commission under the Government of India which was set up in 1953. At present, 22 exchanges are recognized/registered for conducting forward/ futures trading in commodities. An exchange designs a contract which is traded on the exchange. The contract is not capable of being modified by participants, i.e., it is standardized. The exchange also provides a trading platform, which converges the bids and offers emanating from geographically dispersed locations. This creates competitive conditions for trading. The exchange also provides facilities for clearing, settlement and arbitration. The exchanges fix rates of ordinary/initial margin keeping in view the need to balance high security of contract and low cost of entering into contract. Different margins payable on futures contracts are: ordinary/ initial margin, mark-to-market margin, special margin, volatility margin, and delivery margin. Please note that all members/brokers need to get registered with the Forward Markets Commission.
Multi Commodity Exchange of India Limited (MCX):
Headquartered in Mumbai Multi Commodity Exchange of India Limited (MCX) 2003, is an independent and demutualised exchange with a permanent recognition from Government of India. Key shareholders of MCX are Financial Technologies (India) Ltd., State Bank of India, Union Bank of India, Corporation Bank, Bank of India and Canara Bank. MCX facilitates online trading, clearing and settlement operations for commodity futures markets across the country.
National Commodity & Derivatives Exchange Ltd (NCDEX) :
National Commodity & Derivatives Exchange Ltd (NCDEX) located in Mumbai is a public limited company incorporated on April 23, 2003 under the Companies Act, 1956 and had commenced its operations on December 15, 2003. It is promoted by ICICI Bank, Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India (NSE).
National Multi-Commodity Exchange of India Ltd (NMCEIL):
National Multi-Commodity Exchange of India Ltd (NMCEIL) is the first demutualized, electronic multi-commodity exchange in India. On 25th July, 2001, it was granted approval by the Government to organize trading in edible oil. It became operational from November 26, 2002. It is being supported by Central Warehousing Corporation Ltd., Gujarat State Agricultural Marketing Board and Neptune Overseas Limited. It got its recognition in October 2002.
Indian Commodities Exchange Ltd (ICEX):
Indian Commodity Exchange Ltd is a screen-based on-line derivatives exchange for commodities and has established a reliable, time-tested and a transparent trading platform. It is also in the process of putting in place robust assaying and warehousing facilities in order to facilitate deliveries. It is jointly promoted by Indiabulls Financial Services Ltd and MMTC Ltd, and has Indian Potash Ltd., KRIBHCO and IDFC among others, as its partners. Its head office is located in Gurgaon, Haryana.
Some of the leading commodity exchanges of the world are :
- New York Mercantile Exchange (NYMEX)
- London Metal Exchange (LME)
- Chicago Board of Trade (CBOT). (Now CME Group: largest in the world)
Regulatory Body in India
The Forward Markets Commission (FMC) is the regulatory body for commodity futures/forward trade in India. The commission was set up under the Forward Contracts (Regulation) Act of 1952. It is responsible for regulating and promoting futures/forward trade in commodities. The FMC is headquartered in Mumbai while its regional office is located in Kolkata. Curbing the illegal activities of the diehard traders who continued to trade illegally is the major role of the Forward Markets Commission.
Powers of FMC include
- Governing, regulating and supervising
- Granting/withdrawal of recognition to exchanges
- Curbing illegal forward trading
- Taking initiatives for increasing the awareness
At present, there is a three tier system of regulations of forward/futures trading in India, namely, Government of India, Forward Markets Commission and Commodity Exchanges. Volume of Trading and Value of Trade during the period 2007-08 at Major Commodity Exchanges.