COMMODITY PPT 22

Market

Evolution of Commodity  Need for ensuring continuo  Organized trading in comm middle of the 19th century  Railroad and Telegraph  Evolution of “futures“ trad

Markets ous supply of seasonal crops modities evolved in the y, in Chicago, United States ding

History of commodity ma  Commodity Derivatives trading dates back to the n initiating futures trading way back in 1875.  Bombay Cotton Exchange Ltd established in 1893.  Futures trading in oilseeds (groundnut, castor seed Mandal.  Chamber of Commerce at Hapur setup in 1913 wa  Calcutta Hessian Exchange Ltd was established in 1 in 1927 with East Indian Jute Association Ltd, orga  Futures trading in bullion began in 1920 in Bomba  Commodity derivatives trading thrived to the exten markets existed across the country, trading in possi  Interestingly, even options were traded during thos

arket in India nineteenth century, with the Cotton Trade Association . and cotton) started in 1900 with the Gujarati Vyapari as most notable futures exchange for wheat. 1919 for futures trading in Jute & Jute goods. And further anized futures trading started in Jute. ay nt that prior to World War II, as many as 300 futures ibly more than 30 different commodities. se times.

Post – Independence  Post independence India, in 1950 placed the in the Union list  Devolving the responsibility for regulation of  Late 50s & initial 60s turned out to be hey-d  Volumes picked up, and more importantly fo  However….  As food price inflation started pouring its ve committed to a socialistic pattern of develop  Commodity bourses became the first victim, o create inflation in the economy.  Initiative for agricultural liberalization – daw

e subject of \"Stock Exchanges and Futures Market\" f forward contracts on Government days for futures trading; or the agro-commodities. enoms, immediate response of the government pment was to close down markets. on the assumption that such trading is prone to wn of a new era for commodities

The Four Com Shroff Dantwalla Committee, committee, 1950 1966 Scrutinized Reviewed the the functioning of comments of the FMC stakeholders amidst and revised changing the draft economic Futures conditions in Market the country Regulation Bill 27

mmittees Khusro Kabra Committee, Committee, 1980 Studied the 1994 feasibility of introducing futures Examined role of trading in selected commodities and futures trading recommended reintroduction of amidst changing futures trading in major commodities economic scenario. www.isfm.co.in Recommended futures trading in 17 commodity groups & strengthening of the FMC, and amendments to FCRA, 1952 to allow options trading in goods 24 May 2022

Size of Commodity M www.isf Indian Commodity Futures Market, A m.co.7i0n,000 6,952 11,977 13,375 17,042 60,000 50,000 1,970 40,000 30,000 20,000 10,000 - 2004-05 2005-06 2006-07 2007-08 2008-09 Source: Derived from FMC data, No. of trading days at MCX considered fo

Market Average Daily Turnover (Rs Crores) 58,471 55,891 38,922 32,725 25,458 24,190 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 28or computed ADT 24 May 2022

Commodity Launch Proc  Research  Study various commodities, their economic significance, seas  Identification of commodities to be launched for trading  Conducting market feasibility study through feedback analysi  Design  Spot market specifications – the most important principle.  Unit of price quotation and unit of trading - prevailing spot m  ‘Basis’ – the standard quality/grade – variety having maximu  Delivery centers – Maximum production or distribution center  Contract to be fair to both buyers and sellers  Availability of adequate supply of the deliverable commodity  Launch  SEBI approval regarding Contract Specifications,  Circular to market intimating the commencement of trading

cess sonality, geographical diversity, variants and alternatives is market practices um production/availability rs y

Lesson –5 Major Pro 30

oducts www.isfm.co.in 24 May 2022

Major Com BULLION : ENERGY: Gold, Gold M, Gold Guinea, Gold Light Swee Petal, Silver, Silver M, Silver Brent Crud Micro Gas PLANTATION: OIL &OIL Rubber, Coffee Mustard Se Oil, Soy Se 24 May 2022 Khalli,

mmodities www.isfm.co.in 31 : METALS: et Crude Oil, Copper, Nickel, de Oil, Natural Aluminium, Lead, Zinc – Main & Mini L SEEDS : eed, Castor Seed, Crude Palm eed, Refined Soy Oil, Kapasia

Major C FOODGRAINS :, PULSES : Wheat, Maize, Bajra Chana FIBRE : SWEETNE Kapas, Cotton Gur, Sugar 24 May 2022

Commodities www.isfm.co.in 32 : SPICES: Black Pepper, Jeera, Red Chilli, Turmeric, Cardamom ERS: OTHERS: r Medium Grain, Mentha Oil, Guar Seed, Guar Gum, Potato

Exchange Traded Com Classificatio 33 Precious Metal Base M Gold Cop Silver Zi Le Nic Alu iu Ste

mmodities on Metal Energy Agri pper Crude Wheat inc Oil ead Chana ckel Natura Soya umin l Gas Oil um Soya eel Bean Jeera Turmer ic www.isfm.co.in 24 May 2022

Lesson – 6 Contract 34

Specification www.isfm.co.in 24 May 2022

Contract Specification  Trading related information  No. of contracts in a year  Opening of contracts  Maximum duration  Trading unit  Tick size  Quotation / Base value  Price quote  Daily price range (DPR)  Initial margin  Maximum order size  Trading period / Session  Maximum Allowable Open Position

Delivery related information Delivery unit Delivery center(s) Delivery Margin Quality Specification Grades Standard Tolerance limit for variation Packaging

Standardized Terms of Futur 36 Gold 1 Kilogram Contract Feb, Apr, Jun, Aug, Oct, Dec Parameters 5th of contract month Contracts Last Trading Day 1 Kilogram Trading & Delivery Unit Trading Period & Session Monday to Friday Price Quotation (in Rs.) 10 grams Ex-Ahmedabad (inclusive of a Tick Size to imports, but excluding sale Maximum Order Size local taxes & octroi) Initial Margin Quality Specifications Re. 1 per 10 grams Deliverable quality & quantity Delivery logic 10 kilograms Minimum 5% or based on SPA 995 purity 995 to 999 purity imported b Compulsory

res Contracts Cotton 29mm Contract All months except Aug & Sep Last day of contract month 25 Bales & 100 Bales all taxes related 1 Bale (170 kilograms) es tax & VAT, Ex-Rajkot (within 100 kilometers) & excluding all taxes & levies Rs. 10 per 1 bale 1200 bales AN whichever is higher 29 mm bars 27 mm to 32 mm; 100 bales +/- 7% www.isfm.coC.oinmpulso2r4y May 2022

Settlement of Trading



Settlement  Daily Settlement  Daily Settlement implies the settlement of MTM pr loss on a daily basis (T+1).  Exchange computes the MTM profit/ loss for the d all the members.  Exchange sends debit/credit instructions to the me settlement account with the clearing banks for MTM in/ pay-out obligation on T+1 basis.  Final Settlement  Final Settlement implies the settlement at the expir contract.  Based on the delivery logic provided in the contra specification for a commodity,  the delivery intentions are accepted by the Exchan

rofit/  Auction Settlement day for  Sell out auction conducted in case of buyer defaults in delivery obligations. ember’s M pay-  Highest bidder in the auction allocated the delivery.  Defaulting buyer to make good the difference between the highest bid and DDR, if any. ry of a act nge

MTM Settlement 39 BROKER A Client 1 CL BA Client 2 BROKER B

Obligations are given to members Makes arrangement for funds Exchange With the Bank Clearinghouse LEARING ANK Banks credits the funds into Broker B’s bank a/c Obligations are given to members www.isfm.co.in 24 May 2022

Way Forward- Untappe Particulars Indian Commodi Operating Hours Generally restricted 14 hours) Contract Denomination Availability of only Innovative and intangible denominated contra Contracts Options and indexe Participation Restricted (domestic Cross trading between only, Banks and FIs exchanges Not available Transaction Tax Commodity Transac applied on non-agr

ed Potential ity Exchanges US & European Commodity d hours (less than Exchanges y rupee Unrestricted (greater than 20 acts hours) Availability of common currency denominated contracts (such as US Dollar) es not available Advanced Unrestricted (Global) c participation not allowed) ction Tax (CTT) Available ri commodities No Transaction Tax

Commodity Exchanges 1. Minneapolis Grain Exchange 2. Multi Commodity Exchange 3. National Commodity and Derivatives Exchange 4. National Multi-Commodity Exchange of India Ltd 5. National Food Exchange 6. New York Mercantile Exchange 7. New York Board of Trade 8. Rosario Board of Trade 9. Kansas City Board of Trad 10. London Metal Exchange 11. Winnipeg Commodity Exchange 12. National Spot Exchange

1. Abuja Securities and Commodities Exchange 2. Bhatinda Om & Oil Exchange Bathinda 3. Brazilian Mercantile and Futures Exchange 4. Chicago Board of Trade 5. Chicago Mercantile Exchange 6. Commodity Exchange Bratislava, JSC 7. Dalian Commodity Exchange 8. Dubai Mercantile Exchange 9. Euro next life 10. Intercontinental Exchange

How to Trade in Commodit

ty

How to Trade in Commo  Commodity trading held in 2 Major  1. MCX  2. NCDEX  Before trading commodity we have the market

odity r Stock Exchanges : to understand trading terminology in

Commodity Trading Term 44 Type of Contract Futures Co  1. 2 Name of Commodity Gold 3 Ticker symbol GLD 5 Ap 4 Exchange MCX 5 Unit of trading 1 KG 6 Delivery unit 1 KG 7 Quotation/base value Rs per 10 8 Delivery center Ahmedaba 9 Compulsory Delivery Yes

minology ontract Specifications pril 2017 Grams of Gold with 995 fineness ad www.isfm.co.in 24 May 2022

Trading Terminolog 45 Trading Timing 10. 11. Pay-in and Pay-out: 12. Due date / Expiry Date 13. Price limit 14. Position limits 15. MTM settlement Commodity Expiry LTP Price Quotation 16. 05-Apr-17 28366 10GRMS GOLD 31-Mar-17 23114 8GRMS GOLDGUINEA 05-Apr-17 28417 10GRMS GOLDM 31-Mar-17 2872 1GRMS 31-Mar-17 2871 1GRMS GOLDPETAL GOLDPTLDEL

gy Mondays through Fridays:10:00 AM to 11:30 PM on a T+1 basis Expiry date of the contract: + / - 3,6,9 % both side applicable Member wise : 6 MT or 15% of market wide open position Daily basis Lot Size (Qty) Margin % Lot Value(Rs) Approx Margin (Rs) 100 5.00% 28,36,600 1,41,830 1 5.00% 23,114 1,156 10 5.00% 2,84,170 14,209 1 5.00% 2,872 144 144 www.is1fm.co.in5.00%24 May 20222,871

Trading Margin 46 Commodity Expiry LTP Price L 3229 Quotation 1 CRUDEOIL 20-Mar-17 1BBL CRUDEOILM 21-Aug-17 3529 1BBL 1 SILVER 05-May-17 40528 1KGS 3 SILVERM 30-Nov-17 42511 1KGS 5 SILVER1000 28-Feb-18 43221 1KGS 1 ZINC 31-Mar-17 180 1KGS 5 ZINCMINI 31-Jul-17 182.3 1KGS 1 NATURALGAS 28-Mar-17 199.9 1mmBtu 1 NICKEL 31-Mar-17 660.5 NICKELM 31-Mar-17 660.7 1KGS 2 1KGS 1 * 1 BAR

Lot Size (Qty) Margin % Approx 100 10.05% Lot Value(Rs) Margin (Rs) 3,22,900 32,451 10 9.45% 35,290 3,335 30 6.31% 12,15,840 76,720 5 5.72% 2,12,555 12,158 1 6.29% 43,221 2,719 5000 9.19% 9,00,000 82,710 1000 8.74% 1,82,300 15,933 1250 14.22% 2,49,875 35,532 250 11.66% 1,65,125 19,254 R10R0ELw=ww4.i2sfmU1.1cS.o7.2iGn%AL2L4OMN6a6Sy,02=70021258.987,7L43ITRES

Lesson – 9 Cost of C 47

Carry Model www.isfm.co.in 24 May 2022

The Cost Of Carry Mode  We use arbitrage arguments to arrive at the fair value of futures. For purposes, we  treat the forward and the futures market as one and the same. A futu contract is nothing  but a forward contract that is exchange traded and that is settled at of each day. The  buyer who needs an asset in the future has the choice between buying underlying asset  today in the spot market and holding it, or buying it in the forward m he buys it in the  spot market today, it involves opportunity costs. He incurs the cash out buying the asset  and he also incurs costs for storing it. If instead he buys the asset in th forward market, he  does not incur an initial outlay. However, the costs of holding the asset now incurred by the  seller of the forward contract who charges the buyer a price that is h than the price of the