Professional Documents
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Agri-Business & Management
Agri-Business & Management
August 2009
Volume 1, Issue 1
Agri-Business &
Management
Spot Exchange
Spot Markets which have highly opaque. Moreover
Inside this issue: been operational in India the farmers face the
since time immemorial.. problem of insufficient
Introduction to concept of 2 These markets whether price-information as the
Spot Exchanges regulated or unregulated prices of the produce is
Salient Features of Spot 2 provides a mechanism known only after he
Exchanges for price discovery and reaches the APMC mar-
Regulations governing 3
physical transaction of ket yard. Concepts like
Spot Exchanges goods. The Mandis ITC e chaupal are Bullions
which are regulated by praiseworthy but the
States in which Spot Ex 3
are operational the APMC acts of the coverage is not very
respective states are high.
Business Model of Spot 3 largely controlled by the due to legal issues like
Exchanges The future markets
middleman. The com- which are supposed to ban on future trading of
Forward Auction 4 mission agents act as the certain commodities.
act as the price informa-
bridge between the pro- tion providers have Hence the concept of
Reverse Auction 4 ducer and the consumers failed to act as a price Spot Exchanges is seen
and the mechanism of discovery mechanism as a revolution in the
price discovery remains field of Agri-Business.
Special points of
interest:
• Unlike Future Ex-
changes Spot Ex-
changes is not regu- The Essence of Spot Exchanges
lated by the FMC.
• Physical delivery of The Spot Exchanges are largely eliminated. is web based.
commodities shall
seen as a revolutionary 3. Prices arrived at shall 4. Counterparty risk
take place
idea because: be realistic as the shall be totally elimi-
• Counterparty risk
shall be eliminated 1. They shall act as plat- participation of buy- nated as the Ex-
• Price discovery and
forms of price dis- ers from across the change shall act as
price information covery. country shall take the guarantor.
shall be free and
2. Middleman shall be place as the platform
fare.
Page 2 Agri-Business & Management Volume 1, Issue 1
Introduction
What is a Spot Exchange? Commodities have been dardized nature of the Exchange are the two spot
traded in the spot market Spot Markets. To do away exchanges that are operat-
from time immemorial. with the shortcomings of ing in India. Reliance Spot
The presence of too many the Spot Markets the con- Exchange is expected to
intermediaries in the sys- cept of Spot Exchanges join the league in a few
tem and an opaque price has been developed. months time as they have
discovery mechanism has already carried out trad-
been the major disadvan- The Spot Exchanges are ing of almonds on an ex-
tage of the present Spot perceived to be the best perimental basis.
Market system. More over thing that can happen to
arriving at the reference the field of Agri-Business
spot prices for the Futures in the coming future. At
Exchanges has also been a present National Spot Ex-
problem due to non stan- change and NCDEX Spot
Regulations
Unlike the Futures Ex- are regulated in each state States in which Spot Ex-
changes which are regu- by the respective state changes ore operational:
lated by the Forward Mar- governments and are be
Gujarat, Maharashtra,
ket Commission the Spot subjected to various laws
Karnataka, Rajasthan and
Exchanges comes under of the land like the Com-
Madhya Pradesh. In addi-
the jurisdiction of the re- panies Act, Stamp Act,
tion to these states since
spective state govern- Contracts Act, APMC Act
Bihar and Kerala does not
ments where the ex- and others which impinge
have APMC act, setting
changes are set up. The on its working.
up Spot Exchanges in
APMC act prevalent in the
these states shall be rela-
various states acts as a
tively easier.
hurdle to the establish-
Control !!!!
ment of Spot Exchanges.
The Exchange operations
Forward Auction
1. The seller brings the goods at the Spot Exchange designated Warehouse location before list-
ing for auction.
2. The selers details are captured.
3. A provisional deposit code is generated.
4. Post weighing the empanelled assayer grades and certifies the quality of the goods and ac-
cepts the goods for warehousing. The warehouse issues a warehouse receipt (WR) towards
the goods stored.
5. A unique deposit code (UDC) is generated by the collateral Manager which captures of WR
No, Quantity, Quality, Grade, Validity, Warehouse Location, Depositors (owners) details etc.
6. The Trading member lists the UDC for auction post approval of Collateral Manager on the
Guess who Wins!!!!!! Online Auction Platform.
7. As the auction opens, the buyers bids for the listings. The bids are allowed only if the buyers
maintain a prescribed margin amount with the Exchange.
8. Upon settlement the buyer pays the balance fund including charges and taxes.
Reverse Auction
1. Buyer specifies the quantity, quality, location and ceiling price of the commodity he wishes to
buy in the Spot Exchange.
2. The Category Manager defines the quality, grade, quantity and the terms and agreement for
How Auction each RFQs. Buyers vet the deal thus structured and Collateral Manager approves the listings.
really work 3. Buyers provide the stipulated amount of money towards margin obligation.
4. The sellers bid to match the buyers specification. The lowest price bidder wind and is obli-
gated to deliver the goods in the specified time frame.
5. Post closure the winner brings the goods to the Exchange designated warehouse where the
goods are inspected, weighed, assayed etc.
6. The warehouse issues a warehouse receipt towards the goods stored.
7. The Buyers pay the balance fund towards settlement and takes the delivery of the goods
against Delivery order issued by the Exchange
Rajdeep Saikia
PGPABM 2008-10
Hoatel 2
National Institute of Agricultural Extension Management Agri-Business & Management is a
(MANAGE), Rajendranagar, Hyderabad-500030
Phone: 09951351151 Newsletter published on a monthly ba-
E-mail: rajdeepmanage08@gmail.com
sis by Rajdeep Saikai and Ankan
Langthasa, two Agri-Business Man-
We are on the Web ! agement students from National Insti-
agribusinessfocus.blogspot.com tute of Agricultural Extension Man-
endeavoring agri values….. agement (MANAGE).
Watch out for the Next Issue on Microfinance and a few tips on
Preparation for GDs and Interviews.