COMMODITY MARKETS Study Material (IV Mcom April-2020) PDF

COMMODITY MARKETS Study Material Ms.
Gayathri K
Dept. of Commerce & Management
COMMODITY MARKETS
M.com IV SEM MARCH/APRIL-2020
Unit-1 Commodity Markets and Exchanges
Introduction
Commodities market is one of the fastest growing markets with total value of commodities
futures traded in India in the financial year 2011-12 was Rs.181.3 trillion. Commodity futures
trading started in India on April 1, 2003 with an amount of trade of Rs1.3 trillion in the financial
year 2003-0417. The trade volume has increased almost 180% from the year 2003 to 2012.
This growth was triggered by the trading activity in bullion and agricultural commodities.
Bullion grew up in volume of 85% over the year 2011, while agriculture commodities and the
energy commodities recorded a year-on-year increase of 51% and 23 % respectively. Indian
commodity exchanges have not only provided a room for better price discovery and price risk
management but also have helped the farmers/producers in enhanced choice of crop/produce.
It has helped framers make decision to store or sell in the market or making better storage
decisions.
The term commodity refers to any material, which can be bought and sold. Commodities in a
market’s context refer to any movable property other than actionable claims, money and
securities. Commodities represent the fundamental elements of utility for human beings.
There are numerous ways to invest in commodities. An investor can purchase stock in
corporations whose business relies on commodities prices, or purchase mutual funds, index
funds or Exchange Traded Funds (ETFs) that have a focus on commodities related companies.
The most direct way of investing in commodities is by buying a futures contract. The
commodities are classified into two types such as
a) Soft commodities / Agricultural commodity
b) Hard commodity / Non- Agricultural commodity

COMMODITY MARKETS Study Material Ms. Gayathri K
BENEFITS OF COMMODITY MARKETS
1. A safe investment during crisis – Investing in precious metals like silver, gold & platinum
offer a clear protection during inflation and times of economic uncertainty.
2. Diversified investment portfolio – An ideal asset allocation plan means having a diversified
portfolio. Thus, an investor who has invested in stocks is suggested to invest in commodities
so that in case of a stock crash he has some safety from commodity sector.
3. Transparencies in the process – Trading in commodity is a transparent process. The course

of action leads to fair price discovery which is controlled by large scale participation.
4. Profitable returns – Commodities have huge swing in prices which can provide profitable
returns in investments are planned correctly and calculated risks are taken.
5. Protection against inflation – the price of commodities usually go up during high inflation,
accordingly price of raw materials also sees an upward trend , which will help those who have
invested in such commodities.
6. Trading on lower margin – Commodity traders need to deposit a margin with broker which
can be close to 5-10% of the total value of the contract, which is much lower considering other
asset classes. Such low margins allow traders to take larger positions at a lesser capital.
7. Managing the risk – Exchanges have well-structured settlement procedures and prudent risk
management practices , which reassures an investor. The absence of counter party risk and
existence of clearing house as a legal counter party increases the faith of investors and risk is
manged well.
8. Beneficial to farmers – India is a traditionally agricultural economy and price fluctuations

during harvest season has always been a major concern for the farming community. Thus
futures trading has emerged as a beneficial option for providing a greater degree of assurance
on the price front. Also, using the futures platform farmers can store their produce in the
exchange provided warehouse till the time that their produce fetches reasonable returns.
Major Segments of Commodities
Structure of Commodity Market In India

Major Commodity Exchanges in the World
1. London Metal Exchange (LME) – Europe
It is a future exchange with a large market for options in metals. It is considered as a world’s
major market for non-ferrous metals.
2. Climax – Netherlands – Europe
This is an exchange for energy contracts and environmental commodities.
3. Chicago Mercantile Exchange (CME) – USA
It is a derivative and commodity market. It offers a range of future and option contracts.
4. New York Mercantile Exchange (NYMEX) – USA
It is the largest commodity futures exchange in the world in physical terms.
5. Dubai Mercantile Exchange (DME) – ASIA
This is the first energy futures exchange for the Middle East The main trade is the Oman oil
futures contract.
6. Zhengzhou Commodity Exchange (ZCE) – ASIA
This is the futures exchange in commodities like agriculture and chemicals located in China
7. Multi Commodity Exchange (MCX) – ASIA
This is an independent commodity exchange based in Mumbai.
8. Tokyo Commodity Exchange (TOCOM) – ASIA
It is a nonprofit organization. It regulates option and future contracts of all commodities.
9. Singapore Exchange Limited (SGX) – ASIA
It offers equity index futures and options, interest rates options.
10. Australian Securities Exchange (ASX) – Australia
It is an electronic exchange for trading in various commodities.

Market Participants
A large number of market participants with diverse risk profiles is demanded for an efficient
market for commodity futures. Ownership of the underlying commodity is generally not
expected for trading in commodity futures. To cover the margin requirements, the market
participants need to deposit sufficient money with brokerage firms. Market participants can be
typically divided into hedgers, speculators and arbitrageurs.
Hedgers:
Hedgers are the commercial producers and consumers of the traded commodities. They enter
into the market to manage their spot market price risk. Commodity prices are volatile and their
participation in the futures market allows them to hedge or protect themselves against the risk
of losses from fluctuating prices.
Speculators:
Speculators are the traders who speculate on the direction of the futures prices with the
intention of making money. Trading in commodity futures is an investment option for the
speculators. Most speculators do not prefer to make or accept deliveries of the actual
commodities; rather they liquidate their positions before the expiry date of the contract.
Arbitrageurs:
The traders who buy and sell to make money on price differentials across different markets are
the arbitrageurs. Arbitrage demands the simultaneous sale and purchase of the same
commodities in different markets. Arbitrage continues to the prices in different markets in line
with each other.
Agricultural Commodities Market
Agriculture sector in India has always been a major field of government intervention since long
back. Government tries to protect the interests of the poor Indian farmers by procuring crops
at remunerative prices directly from the farmers without involving middlemen in between. This
way Government maintains sufficient buffer stocks and at the same time provides the farmers
safeguard against the fluctuating food crop prices. But government at the same time has
restricted this traditional sector by fixing prices of crops at a particular level and also by
imposing several other restrictions on export and import of agricultural commodities. All these
restrictions prevented this sector to move out its traditional features. So according to many
economist’s liberalization of this traditional agricultural sector could have been of great benefit
to our economy. But questions will naturally come up about the maintenance of buffer stocks
and provisions of remunerative prices to the farmers. In absence of government's intervention
farmers will not be getting any prior information about the future markets of their products.
Naturally a sudden price crash of food crops will have devastating effects on farmers. Here
comes the significant role of futures market. If the buyers in the commodity market anticipate
shortage of a particular crop in the coming season, future price of that crop will increase now
and this will act as a signal to the farmers who will accordingly plan their seeding decisions for
the next season. In the same way, an increase in future demand of food crops will be reflected
in the today's price in futures market. In this way the system of futures market can be of great
help to the Indian farmers preventing them from being directly exposed to the unexpected price
changes all of a sudden. It also helps towards evolving a better cropping pattern in our country.
If the peasants are farming some crop now and are very much concerned that price will crash
by the time the crop comes in, then if there is futures market, they will have the option to sell
their products in it. Price in the future markets being fixed; by selling products in future markets
they get rid of their worries about the about the unexpected price fall. This helps them to take
the risk of innovations, by using new high yielding varieties of seeds, fertilizers and new
techniques of cultivation. Futures Market will act as a smoothing agent between the present
and future commodity market. If the price, which is going to prevail in future, is high compared
to what is it now, then the arbitragers would like to buy the commodities now to sell those in
future. The reverse process is also true. So the existence of a futures market is always good for
any economy. It opens up a new opportunity to people to protect themselves from unexpected
risks.
In 2013, Cornell Law School defined agricultural products as including lumber, Soya beans,
oil seeds, livestock and dairy products. Agricultural commodity can include lumber (timber
and forests), grains excluding stored grain (wheat, oats, barley, rye, grain sorghum, cotton, flax,
forage, tame hay, native grass), vegetables, fruits, corn, tobacco, rice, peanuts, sugar cane,
sugar beets, sun flowers, raisins, nursery crops, nuts, soya bean complex, aqua cultural fish
farm species such as fin fish, mollusc, crustacean, aquatic invertebrate, amphibian, reptile or
plant life cultivated in aquatic plant farms.
Hard Commodity/Non-Agricultural Commodity
Non-agriculture commodity has been categorised into five segments in the Multi Commodity
Exchange (MCX) namely precious metals, non-precious metals, energy commodities,
environment commodities and ferrous metals. MCX is the top most commodity exchange in
non-agriculture commodities trade. The following are the segments of non-agricultural
commodity.
1. Precious Metals: Gold and silver
2. Non-precious metals: Aluminium, copper, lead, nickel, zinc, tin, steel long and steel flat.
3. Energy commodities: Crude oil, brent crude oil, middle east crude oil, furnace oil, heating
oil, natural gas, gasoline, electricity, Aviation Turbine Fuel (ATF), HDPE, PVC, and Thermal
coal.
4. Environmental Commodities: Carbon (CER) and carbon (CFI) 5. Ferrous metals: Steel and
iron
Commodity includes all kinds of goods. Foreign Contribution Regulation Act (FCRA) defines
“good” as “every kind of movable property other than actionable claim, money and securities.”
Future trading is organized in such goods or commodities as are permitted by the Central
Government. At present, all goods and products of agricultural (including plantation), mineral
and fossil origin are followed for futures trading under the auspices of the commodity
exchanges recognized under the FCRA. The national commodity exchanges have been
recognized by the Central Government for organizing, trading in all permissible commodities
which include precious (Gold and Silver) and non-ferrous metals; cereals and pulses; ginned
and unginned cotton; oilseeds, oils and oilcakes, raw jute and jute goods; sugar; potatoes and
onions; coffee and tea; rubber and spices, and so on.
Commodities actually offer immense potential to become a separate assets class for market-
savvy investors, arbitrageurs and speculators. Retail investors, who claim to understand the
equity markets, may find commodities an unfathomable market. But commodities are easy to
understand as far as fundamentals of demand and supply are concerned. Retail investors should
understand the risks and advantages of trading in commodities futures before taking a leap.
Historically, pricing in commodities futures has been less volatile compared with equity and
bonds, thus providing an efficient portfolio diversification option.
Commodity Exchange
A commodity exchange is an organized, regulated market that facilitates the purchase and sale
of contracts whose values are tied to the price of commodities (e.g., corn, crude oil and gold).
Typically, the buyers of these contracts agree to accept delivery of a commodity, and the sellers
agree to deliver the commodity.
list of commodity exchanges in India and the products traded on these exchanges:
1. Multi Commodity Exchange of India Limited (MCX)
The Multi Community Exchange of India Limited (MCX), India’s first listed exchange, is a
state-of-the-art, commodity futures exchanges that facilitates online trading, and clearing and
settlement of commodity futures transactions, thereby providing a platform for risk
management. It was established in 2003 and is based in Mumbai. It is regulated by the FMC.
Vision & Mission of MCX
Vision: We envision a unified Indian commodity market that is driven by market forces and
continually provides a level playfield for all stakeholders ranging from the primary producer
to the end-consumer; corrects historical aberrations in the system; leverages technology to
achieve exceptional efficiencies and ultimately lead to a common world market. Mission: The
Exchange will continue to minimize the adverse effects of price volatilities; providing
commodity ecosystem participants with neutral, secure and transparent trade mechanisms;
formulating quality parameters and trade regulations in conjunction with the regulatory
authority.
Features:
• MCX is a state-of-the-art electronic commodity future exchange with permanent

government recognition.
• MCX offers more than 40 commodities across various segments such as bullion, ferrous
and non-ferrous metals , energy and agro commodities.
• It has introduced standardized commodity futures contracts on its platform. 8. It has
several strategic alliances with various leading global commodity exchanges.
• MCX COMDEX is India’s first and only composite commodity price index.
2. National Commodity & Derivatives Exchange Limited (NCDEX)
• NCDEX is a professionally managed online multi commodity exchange based in India

and located in Mumbai.
• It was incorporated as a private limited company incorporated in April 2003 under the
Companies Act, 1956. It was originally promoted by ICICI Bank, NSE, NABARD and
LIC.
• It is the country’s second largest commodity exchange which mainly deals in
agricultural commodities.
• Its shareholders include national level institutions, large public sector bank and
companies.
• It is regulated by the FMC.
Facilities provided by NCDEX include:
1. NCDEX offers trading in more than 31 agri & non agri commodities
2. NCDEX provides an agricultural commodity index called DHAANYA which is weighted

value index.
3. It has introduced N-charts – an advanced web-based charting tool provided to users free of
cost, helping them in technical analysis.
4. Launched COMTRACK – a proprietary electronic warehouse accounting system
5. Exchange for physicals – recently announced EFP (Exchange for Physicals)
3. National Multi Commodity Exchange (NMCE)
National Multi Commodity Exchange of India Ltd. (NMCE) was promoted by commodity-
relevant public institutions, viz., Central Warehousing Corporation (CWC), National
Agricultural Cooperative Marketing Federation of India (NAFED), Gujarat Agro-Industries
Corporation Limited (GAICL), Gujarat State Agricultural Marketing Board (GSAMB),
National Institute of Agricultural Marketing (NIAM), and Neptune Overseas Limited (NOL).
While various integral aspects of commodity economy, viz., warehousing, cooperatives,
private and public sector marketing of agricultural commodities, research and training were
adequately addressed in structuring the Exchange, finance was still a vital missing link. Punjab
National Bank (PNB) took equity of the Exchange to establish that
Linkage. Even today, NMCE is the only Exchange in India to have such investment and
technical support from the commodity relevant institutions.
Mission
• Improving efficiency of marketing through online trading in dematerialized form.

• Minimization of settlement risks.
• Improving efficiency of operations by providing best infrastructure and latest
technology.
• Rationalizing the transaction fees to optimum level.
• Implementing best quality standards of warehousing grading and testing in tune with
trade practices.
• Improving facilities for structured finance.
• Improving quality of services rendered by suppliers.
• Promoting awareness about on-line features trading services of NMCE across the
length & breadth of the country.
4) Indian Commodity Exchange Limited (ICEX)
Indian Commodity Exchange Limited is a nation-wide screen based online derivatives

exchange for commodities and has established a reliable, efficient and transparent trading
platform. It has put in place assaying and warehousing facilities in order to facilitate deliveries.
Vision & Mission of ICEX
• Provide fair, transparent and efficient trading platform to all participants.

• Meet the international benchmarks for the Indian commodity market.
• Provide equal opportunity and access to investors all over the country through the
modern communication modes.
• Attract a wide array of end-users, financial intermediaries and hedgers.
• Become a major trading hub for most of the commodities.
• To provide product portfolio to suit the trading community needs in an efficient manner.
5.ACE Commodity Exchange
Kotak promoted, Ace Derivatives and Commodity Exchange Limited is a screen based online
derivatives exchange for commodities in India. Ace Commodity Exchange earlier known as
Ahmedabad Commodity Exchange has been in existence for more than 5 decades in
commodity business, bringing in the best and transparent business practices in the Indian
commodity space
National and Regional Commodity Exchanges
National level and regional commodity exchanges Demutualisation has gathered pace around
the world and Indian commodity exchanges are also looking into it. Existing single and regional
commodity exchanges have realised the possible threat that the national level exchange may
pose on their future. Given the experience of the regional stock exchanges in India, commodity
exchanges are becoming proactive to counter such a threat. Commodity exchanges may not
face the threat of extinction because of the following reasons:
(1) Commodity exchanges are trading in futures contracts on those commodities, which have
some regional relevance. It is not going to be as easy as a share of as company to get listed in
a different exchange.
(2) Delivery of commodity is a physical activity, while delivery of shares is an electronic

activity.
(3) Commodity exchange members are stakeholders in those commodities wherein stock
exchange members were never the owners of the stock to control where the stock should get
traded.
(4) Importance of commodity exchanges are linked to the stakeholders of that particular
commodity wherein success of a stock exchange is more on transparency and low transaction
cost.
List of Exchanges:
Commodity Exchange Membership
1. Trading Member (TM): Trading members of the Multi Commodity Exchange may trade on
behalf of themselves and clients, but may not clear such trades: this has to be done by members
with clearing privileges. Individuals, partnerships, trading organisations and Hindu Undivided
Families (HUFs) are eligible for this grade of membership. Applicants must also have a
minimum net worth: Rs.10 Lakh in the case of private individuals, RS.25 Lakh in the case of
organisations.
2. Professional Clearing Member (PCM): these members have the right to trade, and to clear
their trades and those of clients through MCX’s clearing house. Any company or similar
organization is eligible for PCM membership, though financial institutions and banks are most
common.
3. Trading-cum-Clearing Member (TCM): these members have the right to trade on the
exchange and to clear those trades, but cannot clear the trades of others. Available to
individuals, partnerships, associations, co-operatives, companies, banks, financial institutions
and Hindu United Families (HUFs).
4. Institutional Trading-cum-Clearing Member (ITCM): these members have the same rights
as standard TCMs, with the additional ability to be able to appoint subsidiary organizations and
individuals as traders (though the ITCM will have to clear these trades). Membership of this
type is generally only available to larger organizations and institutions such as commodity
brokers or brokerages, commodity exchanges, stock exchanges, co-operatives and the like.
Capital Requirements
NCDEX has specified capital requirements for its members. On approval as a member of
NCDEX, the member has to deposit the following capital.
Base Minimum Capita (BMC)
Base minimum capital comprises of the following:
1. Interest free cash security deposit
An amount of Rs. 15 Lacs by trading cum clearing members (TCM) and Rs.25 lacs by
professional clearing members is to be provided in cash. The same is to be provided by issuing
a cheque/demand draft payable at Mumbai in favor of National Commodity and derivatives
Exchange Limited
2. Collateral security deposit
The minimum-security deposit requirements are Rs. 15 Lacs for TCM and Rs. 25 Lacs for
PCM
All members have to comply with the security deposit requirement before the activation of
their trading terminal. Members may opt to meet the security deposit requirements by way of
the following:
Cash: the same is to be provided by issuing a cheque / demand draft payable at Mumbai in
favor of National Commodity and Derivatives Exchange Limited.
Bank Guarantee: Bank Guarantee in favor of NCDEX as per the specified format. The
minimum term of the bank guarantee should be 12 months.
Fixed deposit receipt:
Fixed deposit receipts issued by approval banks are accepted. The FDR should be issued for a
minimum period as specified by the exchange from time to time from any of the approved
banks.
Government of India securities: national commodity clearing limited is the approved custodian
for acceptance of government of India securities. The securities are valued on a daily basis and
a haircut as prescribed the exchange is levied.
Current Scenario of Exchanges
Currently 5 national exchanges, viz. Multi Commodity Exchange, Mumbai; National

Commodity and Derivatives Exchange, Mumbai and National Multi Commodity Exchange,
Ahmedabad, Indian Commodity Exchange Ltd., Mumbai (ICEX) and ACE Derivatives and
Commodity Exchange, regulate forward trading in 113 commodities. Besides, there are 16
Commodity specific exchanges recognized for regulating trading in various commodities
approved by the Commission under the Forward Contracts (Regulation) Act, 1952.
The commodities traded at these exchanges comprise the following:
Edible oilseeds complexes like Groundnut, Mustard seed, Cottonseed, Sunflower, Rice bran
oil, Soy oil etc.
Food grains – Wheat, Gram, Dals, Bajra, Maize etc.
Metals – Gold, Silver, Copper, Zinc etc.
Spices – Turmeric, Pepper, Jeera etc.
Fibers – Cotton, Jute etc.
Others – Gur, Rubber, Natural Gas, Crude Oil etc.

Electronic Spot Exchanges
NCDEX Spot Exchange Ltd. (NSPOT) is the leading National Spot Exchange in India. It works
with domain experts and offers trading platforms for trading in a host of commodities, both
agricultural and non-agricultural to various market participants, primary producers including
farmers, traders, processors etc. These trading platforms combine technological efficiency and
market friendly trading features in a transparent atmosphere to make trading a rich and
rewarding experience.
NSPOT provides a complete solution to its customers including trade-facilitation, collateral

management, logistics and supply chain management and clearing 7and settlement.
NSEL is the national –level, institutionalized, electronic, transparent spot trading platform for
commodities. It is also known as National Spot Exchange Limited. It is a structured market
place, set-up to transform the commodity market by way of reducing the cost of intermediation
and thereby improving marketing efficiency. Its state-of-the-art technology facilitates risk free
and hassle free purchase and sale of various commodities. NSEL provides customized solution
to farmers, traders, processors, exporters, importers, arbitrageurs, investors and other
stakeholders pertaining to commodity procurement, storage, marketing, warehouse receipt
financing, etc.
UNIT-2 QUALITY ASSURANCE
Introduction
Quality management is the act of overseeing different activities and tasks within an
organization to ensure that products and services offered, as well as the means used to achieve
them, are consistent. It helps to achieve and maintain a desired level of quality within the
organization.
Quality management consists of four key components, which include:
Quality Planning – The process of identifying the quality standards relevant to the project and
deciding how to meet them.
Quality Improvement – The purposeful change of a process to improve the confidence or

reliability of the outcome.
Quality Control – The continuing effort to uphold a process’s integrity and reliability in
achieving an outcome.
Quality Assurance – The systematic or the planned actions necessary to offer sufficient
reliability that a particular service or product will meet the specified requirements.
The aim of quality management is to ensure that all the organization’s stakeholders work
together to improve the company’s processes, products, services, and culture to achieve the
long-term success that stems from customer satisfaction.
The process of quality management involves a collection of guidelines that are developed by a
team to ensure that the products and services that they produce are of the right standards or fit
for purpose.
Quality assurance (QA) is any systematic process of determining whether a product or service
meets specified requirements.
Standardization & Grading
Standardization is the process of fixing certain norms for the product. These norms are
established by customs or tradition or by certain authority. It involves determination of basic
characteristic of a product on the basis of which the product can be divided into various groups.
It also means determining the standard of product to be produced with regard to size, color,
form, weight, shape and quality. Standards are model products which form the basis of
comparison.
Without standardization the rule of caveat (law) prevails and there may be confusion and
unfairness. The term of standardization is used in a broader sense. Standardization is a
application of standard to goods meant for marketing with a view to further sub dividing them
into several grades or classes. Thus standardization means making the quality specification of
the grade uniform among buyers and sellers over space and time.
According to National Commission on Agriculture standardization is defined as, “the

determination of basic limits or grades in the form of specification to which manufactured
goods must conform and a class into which the product of agriculture and the extra active
industries may be sorted is known as standardization.”
Basis of standardization:
Agricultural goods are standardized on the basis of different factors, based on which they are
classified into different grades. The following are some of the factors on the basis of which
standards are set:
1) On the basis of quantity, weight and measures.
2) On the basis of size and shape.
3) On the basis of color such as apples.
4) On the basis of quality such as food grains and cotton.
Process of standardization leading to Variety Reductions:
The process of standardization leads to simplification of variety reductions. These implies

reduction necessary varieties and standardizing to be most economically sizes, grades, shape,
colors, types of parts and so on. The process of standardization and variety reductions as
follows:
1) Prepare the list of all the items use to make the final product. The list can be made out of the
design blue print in case the product design is just over but production has not started, or from
the actual record of consumption in case the product is in production.
2) Classify the items according to their performance and dimensional characteristics.
3) Group the items with similar functional characteristics and then subgroup according to major
dimensional values. For example, all bushes around 5 cm dia. Will be in one group. While all
around 3 cm dia will be in another group and so on.
4) For a group of items with similar functional characteristics, study the dimensional features.
In case of large number of items, several items with the same and similar functional
requirements are likely to show the dimension clustered in much closed vicinity. If the
performance characteristics are within satisfactory zone, these items are produce of the same
dimensions. This a very important step in variety reduction.
5) If performance is acceptable, the items has been standardized according to the National or
International standards. If the performance is not satisfactory, organization will adapt a local
standard, the dimensions being of the representative value.
Advantages of Standardization:
1. Uniformity in quality:
With standardized goods, there is homogeneity and consistency in quality. Hence, a consumer
can buy a product without much hesitation and risk as the quality of product will not change
over a period of time, thus leading to better goodwill.
2. Differential pricing:
When goods are standardized and classified into various types, one can used differential pricing
for different grades of the product. Thus, assuring better return to both buyer as well as seller.
E.g. Dettol and savlon
3. Increased in demand:
As there is uniformity in size, form, quality and utility of all products of an enterprise, the
customers rely on these products. Sale of standardized goods increases.
4. Elimination of risk:
The standards of products are determined keeping in mind the habits, tastes and nature of
consumers and the risk of selling standards goods is reduced.
5. Expanding the market:
There is large-scale production of standard goods which results in many types of saving in
production, distribution, advertising and sales promotion because of these the manufacturer is
in a position to produce best quality goods at minimum cost thus attracting a number of
customers.
6. Availability of finance:
Finance can be obtained easily for standard goods as financial institution prefer giving finance
to those enterprises who deal in standard goods.
7. No need for inspection:
There is no need for inspecting the quality of a product as the form of size, quality and utility
of all the products in a lot are uniform in all respects and the consumers are convinced with it.
8. Standardization helps to reduce inventory items
9. It helps in evolving better means of communications about an item in the company.
10. It forms a base for the inventory analysis.
11. The specifications of items can be more clearly spelt out, making quality control.
12. In a developing economy like ours, where the need is to promote exports insistence on
standards helps in creating confidence in the international market.
Grading
Grading means sorting of unlike lots of produce into different lots according to quality
specification laid down. Each lot has substantially the same characteristics as far as quality is
concerned. Grading is an important function of standardization. It implies the division of
products into classes made up of unit possessing similar characteristics of size and quality.
Grading is mostly done in case of raw materials, mineral products and agricultural products.
There is no need to divided industrial product as they are produced according to pre-
determined standards. There may be difference in quality or size or shape or characteristics of
the products. The grade standards for commodities are laid down first and then the commodities
are sorted out according to accepted standards. Grading helps the producer to get proper prices
for these products because different price may be fixed for different lots.
Grading is categorizing the produce into different lots, each containing similar characteristics.
The characteristics could be one or more of the following types:
• Size – Big, medium, small, long, short, roundish, oblong etc.

• Flavour – which in turn speaks of taste or class
• Ripeness – raw, semi-ripe, ripe in case of fruits, oilseeds, pulses and cereals.
• Length of staple – in case of cotton and jute.
• Location oriented – like Goa Alfanso, Bydagi chillies, Baiganpalli mango, and Nagpur
orange
• Nasik grapes – having specific tastes, shape, colour etc.
Purpose of Grading
• It is a means to describe the quality of produce for sale/purchase activity
• It protects consumers from unfair trade practices by traders or farmers and also enables
farmers to get price as per quality and grade
• It works as a basis for fixing price and premium price as per quality
Advantages and Importance of Grading:
Grading in general is helpful to all the stockholders in agro-related activities: the farmers,
traders, co-operative and the ultimate consumers. The advantages of grading are:
1. Production of Large Scale:
Goods are produced on a large scale, as grading of goods helps in increasing its demand. It
becomes easy for a producer to produce these goods on a large scale as goods are graded.
2. Increase in Sales:
Customers do not bother to enquire about the goods graded, as they are very easy to be sold.
Therefore, marketing of graded goods becomes easy.
3. Quality Certainty:
Certainty provides producers a reasonable price for their products and provides standard goods
of uniform quality to customers at reasonable prices. It helps the producers as well as the
buyers.
4. Helpful in Financial Management:
For the financial management of the enterprise graded products are very helpful. These
products can be used easily, as security loans can be arranged as security of these products.
5. Helpful in Future Contracts:
Supply contracts may be entered into future for graded products as the identification of graded
products become easy and different types of products are divided into different groups.
Types of Grading:
Grading may be done on the basis of fixed standards or variable standards. It is of three types:
1. Fixed or mandatory grading:
Under this the goods are sorted out according to the size, quality and other characteristics which
are of fixed standards. These do not vary over time and space. It is mandatory for a person to
follow these grade standards if he intends to sell graded products.
The Agriculture Marketing Advisor Government of India has fixed grade standards for a
number of agricultural commodities and it is compulsory to grade the produce according to
these grade specifications. The use of mandatory standards is compulsory for export of the
agricultural commodities to various countries.
For many of the agricultural produce, certain grades and standards are fixed by Agricultural
Marketing Advisor, Government of India. This is done for having and maintaining high
standard and clarity of quality in case of exports of agro-produce. Farmers are not free to use
their own standards and classifications in case of exports. The Government of India has made
standards based on size, quality and other characteristics which are fixed standards hence
mandatory for exporters.
2. Permissive or variable grading:
Under this the goods are graded according to the standards which vary over a period of time.
The grading specifications are fixed in over time and space in this case but changed every year
according to the quality of the produce in that particular year. In India grading by this method
is not permissible.
3. Centralized/decentralized grading:
Under the centralized grading system an authorized packer either sets up for his own laboratory
manned by qualified chemists or seeks access to an approved grading laboratory set up for the
purpose by state authorities or co-operative association or private agencies. Grading in respect
of commodities such as ghee, butter and vegetable oil where elaborate testing facilities are
required for checking the purity as assessing the quality has been placed under the centralized
system.
The directorate of Marketing and Inspection exercise close supervision on grading work of the
approved chemist by way of periodical inspection of grading stations and the quality of graded
produce. Under this system, the state marketing authorities under the overall supervision and
guidance of the directorate of marketing and inspection implement the decentralized grading
system. This system is followed in those commodities which do not have elaborate testing
arrangements for assessing the quality.
E.g. Vegetables, fruits, eggs, pulses and cereals, the grades for these produces are determined
on the basis of physical characteristics. Both these grading programmes are consumer oriented.
In addition to these programmes, the state marketing authorities also implement a grading level.
Free grading services are provided to farmers for sorting the produce.
4. Grading at producers’ level:
Under this programme, free grading services are provided to the farmers for sorting the produce
before offering for sale. This enables them to realize prices commensurate with the quality of
produce. Several regulated markets and warehouses are manned with grading personnel with
the central assistance.
Farmers on their own also do grading, which is actually categorizing as per their own thinking.
They do not have an idea of standards and grades as per DMI. Farmers do only from the point
of view of getting fair rates to their produce. Marketing agents also develop some expertise in
gradation of agricultural produce and their opinion is given importance in price fixing and
negotiations.
Problems in Standardization & Grading:
1. Lack of Standards & Grades:
One difficulty in the development of standardization and grading is that for many products
standards have not been developed.
2. Misuse of Standards & Grades:
It is seen that many producers use standards and grades in an authorized manner. There is lack
of feeling of responsibility and national character among our producers and it is a big hindrance
in the development of standardization and grading
3. Lack of Public Consciousness:
Lack of public consciousness is the problem in the way of development of standardization and
grading in our country. The reasons for lack of public consciousness are (i) low standard of
living, (ii) Illiteracy, (iii) Dominance of rural population.
4. Lack of Testing Facilities:
This is also a great problem in development of standardization and grading. Manufacturers feel
the difficulty if getting these standards and grades to be tested.
5. Lack of Facilities:
There is lack of proper facilities for standardization and grading. Many industrial enterprises
and manufacturers do not like to indulge themselves because of this reason.
The grading of agriculture produce has not made much progress in our country for the
following reasons;
1. Some the agricultural products are perishable and even graded products, by the time they
reach the consumers, deteriorate in quality resulting in customer complaints
2. Grading agriculture products is more difficult since the producer has to examine each and
every product for grading.
3. The producer does not get higher prices for graded products since the consumers are not very
quality conscious in most of the markets.
4. Common man does not understand the grading system.

5. Grades such as, C, D makes a negative impression with consumers although the difference
may be only marginal.
6. Consumer preferences vary and based on number of factors and are therefore very difficult
to meet their individual requirements.
Suggestions for making grading & standardizing popular
1. Grading & standardization have to cover all types of agricultural commodities and be made
compulsory for trading in agricultural commodities at all levels.
2. Samples of graded product should be exhibited in all markets for the benefits of traders &
consumers.
3. Create awareness about the benefit of using AGMARK products among consumers.
4. Highlight the benefit of selling graded products to the producers.
CONSUMER’S PERCETION TO GRADING
Consumers in case of agricultural products are full population of the country. Food is the basic
requirement and rural produce like grains, fruits, vegetable, milk and milk products etc. are all
food items. Before giving details about perception, the consumers can be categorized as
follows:
• Consumers in category 1 and 2 are aware of grades, standards, can read labels and slips and
be choosy. This category appreciates the gradation and pays accordingly. They mostly belong
to rich and/or salaried category.
• Consumers in category 3 and 4 are either not aware or not bothered about grades and standards
of food products and agro-products. Normally this category people are poor and very poor and
majority of India’s population is in this category. Hence, ‘AGMARK’ grade is not known to
majority of the population. It is very difficult for them to understand the grades nor are they
interested.
• Consumer confidence in grade is not high as most of these produces are perishable with time.
Also, few traders indulge in unfair practices, thus creating doubt in the consumer’s mind about
genuinity of grades.
• Wherever expiry date is put on the label, the items should be taken out of the shelf once the
expiry time is reached much after expiry date, resulting in loss of customer loyalty.
• In busy shops, customers do not have time to read labels. Also grades are A, B, C, D or I, II,
III, and IV. A customer is not aware of the difference in these categories. A new method needs
to be developed to infuse confidence.
• The control measures are not adequate for misuse of labels.
Indian Standard Institute (ISI):
ISI came into existence in 1940 as the consequence of industrial conference held at that time.
In January 1947 government of India established Indian Standards Institute under industrial
development plan. Institutional head office is in Delhi.
Structure of the organization:
ISI is managed by the Board. The ex-officio chairmen is the Industrial Development Minister
of Union of India, central government, state government, education and research institution
testing laboratories different industries and developmental boards are its representatives. There
are five departments of ISI:
(1) Engineering, (2) Construction, (3) Economics, (4) Weaving and (5) Agriculture.
Functions of ISI:
1. Giving suggestions in respect of the product
2. Conducting necessary researches and experiments in field of standardization
3. Determining standards of different products at National and International Level
4. Suggesting in request of products
5. Making the standards popular
6. Checking new products and determining the standard mark for them
7. Developing a feeling of competition for the purpose of promoting the production of high-
quality goods.
8. Collecting necessary data.

Indian Standards Institution Act, 1952:
ISI ACT was passed in1952. This ACT gave power to the institute to the test the quality and
characteristics of agriculture product and mark them with “AGMARK”. It also gave power to
the producers of quality product to use mark ‘959’.
Progress of ISI:
ISI established its own network of testing its laboratories at Delhi (Sahibabad), Mumbai,
Kolkata, Chennai, Chandigarh and Patna. This institution also gives training to the engineers.
Government of India has launched a scheme of compulsory quality control for export
promotion. In this scheme all products which are to be exported must be quality prescribed by
the institution. ISI has established liaison with national standard bodies of other countries both
their technical work and in their policy planning and its associated with International Standard
Organization (ISO) and International Electro Technical Commission (IEC). ISI is playing a
very important role in protecting the interest of consumer.
USE OF UNIFORM STANDARD
One of the main defects of unregulated market is the use of non-standard and arbitrary weight
by arhatiyas and brokers. This was used to cheat the farmers. Lack of uniform standardising
weights, will containing to keep marketing in unsatisfactory condition.
In 1939, the standard weights were passed under which the state government promoted the use
of standard weight. But not the much head way could be made in this situation for different
standard weights were used by different state. Later on, in order to bring about uniformity in
weight, the government encoded legislation and adopted the metric system of measures, in
1958.
Since 1962 the use of metric weight has been made compulsory. In spite of this, one still finds
old measures still existing in some villages.
Legislative Measures for Improving Agricultural Marketing:
The following ACT was enacted by the government to improve agriculture marketing in the
country.
Grading of Commodities:
A) Agricultural commodities: The agriculture produces grading and making act 1937. This act
provides for grading and marking of agriculture commodities. The act authorizes the central
government to frame rules relating to fixing of grades standards and the procedure to be
adopted for grading the agriculture commodities included in the schedule. This act was
amended in 1986. The amended act seeks to review the provisions of the act strengthen the
same with a view to promoting and protecting the interest of the consumer and makes the penal
provisions of the act more deterrent.
b) For manufactured commodities: The Indian Standards Institutions (Certification Marks) Act,
1952
Manufacture products are graded in accordance with the standards laid down by the Indian
Standards Institutions established under the act and graded products bear the ISI label. The
name of the Indian Standards Institution has been changed to Bureau of Indian Standards (BIS)
under the Bureau of Indian Standards Act 1986. The scope of the activity has been enlarged
with greater trust to consumer protection improving the quality of Indian products and
providing of larger networks of testing and consultancy services.
Recommendations of National Commission on Agriculture:
The NCA had the made the following suggestion to make grading and standardization popular
in the country:
1) Grading and Standardization should be made compulsory for transactions in agriculture

commodities at all levels for local Interstate and export trade.
2) Grading and standardization must cover all type of agricultural commodities viz, livestock
and livestock products, crops including horticulture and plantation, fish and fish products, and
minor forest products.
3) The grading system should be made efficient and full proof. For this trained and well
qualified grade should be appointed.
4) Samples of graded commodities should be displayed in all the markets for verification by
the graders and participating consumers.
5) Duplication and overlapping of functions linked with the formulation of grades standards of
agricultural commodities should be abolished.
6) In order to avoid duplication, the work should be distributed among the central and state
government.
Other Provisions of Grade Standards and Quality Specification:
Apart from the agriculture product (Grading and Marketing) act, 1973, there are few other legal
provisions which lay down standards for food products. Some of the important acts are:
1) The Bureau of Indian Standards (BIS). Under Indian Standards Institutions (Certification
Mark) Act,1952.
2) The Prevention of Food Adulteration Act, 1954
3) The Fruit Products Order, 1956
4) Solvent extracted oil, de-oiled meal and edible oil (control) order 1967
5) The Meat food products order 1973
6) Vegetable oil products (standard of quality) order 1975.
Inspection
1. Initial Production Check
Pre-product inspections are carried out before production begins and up until 20% of
production has been completed. Inspections of the factory by impartial third-party quality
control inspectors help clarify production requirements and specifications and firmly establish
whether the manufacturer will be able to deliver on the promise to produce a quality product
using the correct materials and manufacturing process.
First Article Inspection, an important part of the Initial Production Check, is to inspect the first
item to come off the production line at the factory. This is the first and last chance to physically
inspect the final product and spot any defects so corrections can be made ahead of mass
production. This inspection assesses whether the final product meets all the engineering,
design, and specification requirements. The results are documented and sent to the client for
verification.
2. During Production Inspection (DUPRO)
DUPRO is an essential preventative measure taken in the early stages of production, which can
mitigate costly mistakes in the long run by highlighting any problems before too many
defective items are produced.
Quality control inspectors usually perform on-site DUPRO inspections when about 20% of the
batch has come off the production line. If an issue is found at this time, it may be possible to
find a workaround to fix the defective products and/or make necessary adjustments to the
manufacturing process.
3. Daily Production Monitoring
Quality control inspectors carry out on-site inspections at the factory every day to strictly
monitor production and keep the factory accountable from start to finish. This is an especially
beneficial option for suppliers working with a new factory to establish a professional working
relationship. Daily inspections during product monitoring include scrutinizing factory
processes, enforcing specifications, and physically inspecting random units.
4. Pre-Shipment Inspection (PSI)
Using ISO standard sampling procedures for a PSI, inspectors systematically inspect a portion
of randomly selected units in all batches when production is at least 80% complete. This is the
last chance to spot any defects and take corrective action before production is complete, and
before the products are packed for shipping.
5. Container Loading Check (CLC)
The final but crucial step in the quality control process is packing up the new product and
properly preparing batches for shipping to destination markets.
During the container loading check inspectors ensure the correct amount of different styles,
sizes and quantities are sent out, and that they are properly loaded to minimize the risk of
damage during transit.
Quality control inspectors also check the packaging to ensure it complies with safety standards
for the destination market and ensure that coverings will prevent damage from soiling. Proper
ventilation in the packaging is also checked to prevent dampness and reduce the risk of mold
growth during transit and storage.
Quality Control
Quality control is the set of measures and procedures to follow in order to ensure that the quality
of a product is maintained and improved against a set of benchmarks and that any errors
encountered are either eliminated or reduced. The focus of quality control is to ensure that the
product and product manufacturing are not only consistent but also in line with customer
requirements.
Certain institutions have been established exclusively for the purpose of quality control and
inspection in India. These include export inspection council, export inspection agencies,
Bureau of Indian Standards, etc.
1. Export Inspection Council
The Export Inspection Council (EIC) was set up under section 3 of the Export (Quality Control
and Inspection) Act. this council advises the government on measures for enforcement of
quality control and inspection in relation to commodities intended for export. It also arranges
for voluntary pre-shipment inspection of commodities not covered by compulsory inspection.
2. Export Inspection Agencies
Export Inspection Agencies have been established in Bombay, Calcultta, Cochin, Delhi and
Madras. They all function under the administrative and technical control of the Export
Inspection Council. They establish sub offices at ports. Testing laboratories are also available
in such sub offices. Export inspection agencies conduct pre-shipment inspection in order to
determine whether the products comply with the specifications laid down under the Export
(Quality control and inspection) Act or any other specifications contained in the contract.
3. Bureau of Indian Standards
The Indian Standards institution (ISI) was established by the Government of India in 1947.
Later it was renamed as Bureau of Indian Standards.
Aims and objectives
The aims and objectives of Bureau of Indian Standards are as follows:
(i) To prepare standards relating to commodities, products, materials and prices.

(ii) To promote standards specified by it at national and international levels.
(iii) To certify industrial producers
(iv) To assist in the production of quality goods
(v) To circulate information relating to standardization.
The standards laid down by the BIS ensure quality and safety of products, minimize wastage,
reduce costs, cut down unnecessary varieties, ensure interchangeability and increase
productivity, Moreover, they guide production of goods and services, formulate basis for trade
transactions, help technologists judge quality and performance and solve recurring problems
of the designers and builders.
The Bureau of Indian Standards grants licenses to manufacturers producing goods in

compliance with Indian standards to grant ISI mark for their products. The BIS has its central
laboratory at Ghaziabad, Uttar Pradesh for testing certified products. Apart from this,
laboratories on a smaller scale have also been established at the regional offices in Mumbai,
Calcutta, Chennai and Mohali near Chandigarh. Laboratories have also been set up at Patna
and Bangalore offices in collaboration with the respective state Governments.
ISI mark or a certificate of conformity issued by the Bureau is a must for export of a number
of products. Products with ISI mark are not subject to any further inspection. Enactments such
as Sea Customs Act, Tea Act, Export (Quality Control and Inspection) Act etc., have
recognized ISI mark for products meant for export.
International Standard Organization (ISO)
The International Organization for Standardization is an international standard-setting body

composed of representatives from various national standards organizations. Founded on 23
February 1947, the organization promotes worldwide proprietary, industrial, and commercial
standards.
The ISO 9000 definition is a description of a quality management system. The object of the
ISO 9000 family of standards is to provide organizations with the guidance and tools needed
to ensure that their products and services meet external requirements and drive consistent
quality improvement.
Both the ISO 9000 and 9001 standards are based on a number of quality management principles
including a strong customer focus, the motivation, and implication of top management, the
process approach and continual improvement. The seven quality management principles
include the following as described by the ISO:
• Customer focus – Quality management primarily focuses on meeting customer

requirements and striving to exceed customer expectations.
• Leadership – Helping leaders to establish unity of purpose and direction at all levels
and to create conditions to engage members of the organization in achieving the
organization’s quality objectives.
• Engagement of people – Obtaining and maintaining (at all levels throughout the
organization) competent, empowered, and engaged people to enhance the
organization’s capability to create and deliver value.
• Process approach – Delivering consistent and predictable results through the use of
effective and efficient activities that are understood and managed as interrelated
processes that function as a coherent system.
• Improvement – Maintaining an ongoing, organization-wide focus on improvement.
• Evidence-based decision making – Using the analysis and evaluation of data and
information in the decision-making process to produce desired results.
• Relationship management – Managing the organization’s relationships with related
parties, such as partners or vendors, for sustained success.
The application of ISO 9001 when implementing a quality management system can provide
the following benefits the organizations:
• Clear understanding of your objectives and new business opportunities.

• Identifying and addressing the risks associated with your organization.
• Renewed emphasis on putting your customers first.
• Meeting the necessary statutory and regulatory requirements.
• Organizational and process alignment to increase productivity and efficiency.
An organization must demonstrate the following in order to be ISO 9001 certified:
• The company follows the guidelines within the ISO 9001 standard;
• The company meets its own requirements;
• The company meets its customer requirements and statutory and regulatory
requirements; and
• The company maintains documentation of its performance.
An ISO 9001 certification can enhance an organization’s credibility as it shows customers that
the organization’s products and services meet quality expectations. Additionally, there are
some instances where an ISO 9001 certification is required or legally mandated for businesses
in some industries.
QS 9000
QS 9000 is the name given to the Quality System Requirements of the automotive industry
which were developed by Chrysler, Ford, General Motors and major truck manufacturers and
issued in late 1994. QS-9000 replaces such quality system requirements as Ford Q-101,
Chrysler's Supplier Quality Assurance Manual, GM's NAO Targets for Excellence and the
Truck Manufacturer's quality system manuals. The influence of QS-9000 is being seen
throughout the automotive industry as it has virtually eliminated varying demands and waste
associated with redundant systems. Proof of conformance to QS-9000 is
certification/registration by an accredited third party such as Underwriter's Laboratories (UL)
or the American Bureau of Shipping (ABS). Companies that become registered under QS-9000
will be considered to have higher standards and better-quality products. This paper will
describe the steps a company needs to take to achieve this goal.
The QS-9000 Quality Statement tells of your company's objectives for quality and commitment
to quality, and is relevant to company goals and customer needs and expectations. The Quality
Statement will be given to all associates in the form of a laminated card that they must keep
with them at all times. The Quality Statement should be posted in all areas of the facility.
Though it is not necessary for each associate to memorize the quality policy statement, they
should be able to read it from the card or wall and tell what it means to them. All management
personnel must know the quality policy statement.
Tools for Quality Improvement
• Cause-and-effect diagram (also called Ishikawa or fishbone diagrams): Identifies many

possible causes for an effect or problem and sorts ideas into useful categories.
• Check sheet: A structured, prepared form for collecting and analysing data; a generic
tool that can be adapted for a wide variety of purposes.
• Control chart: Graph used to study how a process changes over time. Comparing current
data to historical control limits leads to conclusions about whether the process variation
is consistent (in control) or is unpredictable (out of control, affected by special causes
of variation).
• Histogram: The most commonly used graph for showing frequency distributions, or
how often each different value in a set of data occurs.
• Pareto chart: A bar graph that shows which factors are more significant.
• Scatter diagram: Graphs pairs of numerical data, one variable on each axis, to look for
a relationship.
• Stratification: A technique that separates data gathered from a variety of sources so that
patterns can be seen (some lists replace stratification with flowchart or run chart).
UNIT-3 COMMODITY DERIVATIVES
Introduction
Commodity derivatives made their appearance before financial derivatives in the world and
also in India. Informal trading in commodity derivatives was there even in ancient India, but
the formal market took shape in the late nineteenth century. However, the growth path of the
Indian derivative market was not smooth.
Commodity Derivatives
Futures contracts in pepper. turmeric, gur (jaggery). hessian (jute fabric), jute sacking, castor
seed, potato. coffee, cotton, and soybean and its derivatives are traded in 18 commodity
exchanges located in various parts of the country. Futures trading in other edible oils. oilseeds
and oil cakes have been permitted. Trading in futures in the new commodities. especially in
edible oils. The sugar industry is exploiting the merits of trading sugar futures contracts.
The policy initiatives and the modernization programme include extensive training, structuring
a reliable clearinghouse, establishment of a system of warehouse receipts, and the thrust
towards the establishment of a national commodity exchange. The Government of India has
constituted a committee to explore and evaluate issues pertinent to the establishment and
funding of the proposed national commodity exchange for the nationwide trading of
commodity futures contracts. and the other institutions and institutional processes such as
warehousing and clearinghouses. With commodity futures. delivery is best affected using
warehouse receipts (which are like dematerialized securities). Warehousing functions have
enabled viable exchanges to augment their strengths in contract design and trading. The
viability of the national commodity exchange is predicated on the reliability of the warehousing
functions. The programme for establishing a system of warehouse receipts is in progress. The
Coffee Futures Exchange India (COFEI) has operated a system of warehouse receipts since J
998.
Derivatives are financial instruments whose value is derived from the value of something else.
The main types of derivatives are futures, forwards, options, and swaps.
Definition of Derivatives The term “Derivative” indicates that it has no independent value,
i.e. its value is entirely “derived” from the value of the underlying asset. The underlying asset
can be securities, commodities, bullion, currency, livestock etc. Derivatives can be traded in
the form of Futures or Options or its variants.
Functions of Derivatives Market
Like other segments of Financial Markets, Derivatives Market serves the following specific
functions:
• Derivatives market helps in improving price discovery based on actual valuations and
expectations.
• Derivatives market helps in transfer of various risks from those who are exposed to risk
but have low risk appetite to participants with high risk appetite. For example hedgers
want to give away the risk where as traders are willing to take risk.
• Derivatives market helps shift of speculative trades from unorganized market to
organized market. Risk management mechanism and surveillance of activities of
various participants in organized space provide stability to the financial system.
Participates in Derivatives Market
Hedgers
These are risk-averse traders in stock markets. They aim at derivative markets to secure their
investment portfolio against the market risk and price movements. They do this by assuming
an opposite position in the derivatives market. In this manner, they transfer the risk of loss to
those others who are ready to take it. In return for the hedging available, they need to pay a
premium to the risk taker.
E.g. An investor holds 100 shares of XYZ company which are currently priced at Rs. 120. His
aim is to sell these shares after three months. However, he doesn’t want to make losses due to
a fall in market price. At the same time, he doesn’t want to lose opportunity to earn profits by
selling them at a higher price in future. In this situation, he can buy a put option by paying a
nominal premium that will take care of both the above requirements.
Speculators
These are risk-takers of the derivative market. They want to embrace risk in order to earn
profits. They have a completely opposite point of view as compared to the hedgers. This
difference of opinion helps them to make huge profits if the bets turn correct. In the above
example, you bought a put option to secure yourself from a fall in the stock prices. Your
counterparty i.e. the speculator will bet that the stock price won’t fall. If the stock prices don’t
fall, then you won’t exercise your put option. Hence, the speculator keeps the premium and
makes a profit.
Margin traders
A margin refers to the minimum amount that you need to deposit with the broker to participate
in the derivative market. It is used to reflect your losses and gains on a daily basis as per market
movements. It enables to get a leverage in derivative trades and maintain a large outstanding
position. Imagine that with a sum of Rs. 2 lakh you buy 200 shares of ABC Ltd. of Rs 1000
each in the stock market. However, in the derivative market you can own a three times bigger
position i.e. Rs 6 lakh with the same amount. A slight price change will lead to bigger
gains/losses in the derivative market as compared to stock market.
Arbitrageurs
These utilize the low-risk market imperfections to make profits. They simultaneously buy low-
priced securities in one market and sell them at higher price in another market. This can happen
only when the same security is quoted at different prices in different markets. Suppose an equity
share is quoted at Rs 1000 in stock market and at Rs 105 in the futures market. An arbitrageur
would buy the stock at Rs 1000 in the stock market and sell it at Rs 1050 in the futures market.
In this process he/she earns a low-risk profit of Rs 50.
Types of Derivatives Instruments
Forward
A forward contract is an agreement to buy or sell an asset on a specified date for a specified
price. One of the parties to the contract assumes a long position and agrees to buy the
underlying asset on a certain specified future date for a certain specified price. The other party
assumes a short position and agrees to sell the asset on the same date for the same price. Other
contract details like delivery date, price and quantity are negotiated bilaterally by the parties to
the contract. The forward contracts are normally traded outside the exchanges.
The salient features of forward contracts are:
• They arc bilateral contracts and hence exposed to counter-party risk.

• Each contract is custom designed, and hence is unique in terms of contract size,
expiration date and the asset type and quality.
• The contract price is generally not available in public domain.
• On the expiration date, the contract has to be settled by deli very of the asset.
• If the party wishes to reverse the contract, it has to compulsorily go to the same
counterparty, which often results in high prices being charged.
Limitations of forward markets
• Lack of centralization of trading

• Liquidity
• Counter-party risk
Futures
Futures markets were designed to solve the problems that exist in forward markets. A futures
contract is an agreement between two parties to buy or sell an asset at a certain time in the
future at a certain price. But unlike forward contracts, the futures contracts arc standardized
and exchange traded. To facilitate liquidity in the futures contracts, the exchange specifies
certain standard features of the contract. It is a standardized contract with standard underlying
instrument, a standard quantity and quality of the underlying instrument that can be delivered,
(or which can be used for reference purposes in settlement) and a standard timing of such
settlement. A futures contract may be offset prior to maturity by entering into an equal and
opposite transaction. More than 99% of futures transactions are offset this way.
Futures contracts can be characterized by:
• An organized exchange,
• Standardized contract terms viz. the underlying asset, the time of maturity and the manner of
maturity etc.,
• Associated clearinghouse to ensure smooth functioning of the market,

• Margin requirements and daily settlement to act as further safeguard, and
• Existence of a regulatory authority
Futures contracts being traded on organized exchanges impart liquidity to a transaction. The
clearinghouse, being the counter party to both sides of a transaction, provides a mechanism that
guarantees the honouring of the contract and ensuring very low level of default.
The standardized items in a futures contract are:
• Quantity of the underlying

• Quality of the underlying
• The date and the month of delivery
• The units of price quotation and minin1uln price change
• Location of settlement
Futures terminology:
Spot price: The price at which an asset trades in the spot market.
Futures price: The price at which the futures contract trades in the futures market.
Contract cycle: The period over which a contract trade. The index futures contracts on the
NSE have one-month, two-month and three-month expiry cycles, which expire on the last
Thursday of the month.
Expiry date: It is the date specified in the futures contract. This is the last day on which the
contract will be traded, at the end of which it will cease to exist.
Contract size: The amount of asset that has to be delivered under one contract. For instance,
the contract size on NSE's futures market is SO Nifty’s.
Basis: In the context of financial futures, basis can be defined as the futures price minus the
spot price. There will be a different basis for each delivery month for each contract. In a normal
market, basis will be positive. This rcf1ects that futures prices normally exceed spot prices.
Cost of carry: The relationship between futures prices and spot prices can be summarized in
terms of what is known as the cost of carry. This measures the storage cost plus the interest
that is paid to finance the asset less the income earned on the asset.
Initial margin: The amount that must be deposited in the margin account at the time a futures
contract is first entered into is known as initial margin.
Maintenance margin: This is somewhat lower than the initial margin. This is set to ensure
that the balance in the margin account never becomes negative. If the balance in the margin
account falls below the maintenance margin, the investor receives a margin call and is expected
to top up the margin account to the initial margin level before trading commences on the next
day.
Difference between Forward & Future Contract
Option
The literal meaning of the word 'option' is 'choice· or we can say 'an alternative for choice', In
derivatives market also, the idea remains the same. An option contract gives the buyer of the
option a right (but not the obligation) to buy I sell the underlying asset at a specified price on
or before a specified future date. As compared to forwards and futures, the option holder is not
under an obligation to exercise the right.
Another distinguishing feature is that, while it does not cost anything to canter into a forward
contract or a futures contract, an investor must pay to the option writer to purchase an option
contract. The amount paid by the buyer of the option to the seller of the option is referred to as
the premium. For this reward i.e. the option premium, the option seller is under an obligation
to sell / buy the underlying asset at the specified price whenever the buyer of the option chooses
to exercise the right.
Option terminology
Index options: These options have the index as the underlying. Some options are European
while others are American. Like index futures contracts, index options contracts are also cash
settled
Stock options: Stock options are options on individual stocks. Options currently trade on 267
stocks in the National Stock Exchange. A contract gives the holder the right to buy or sell
shares at the specified price.
Buyer of an option: The buyer of an option is the one who by paying the option premium buys
the right but not the obligation to exercise his option on the seller/writer.
Writer of an option: The writer of a call/put option is the one who receives the option premium
and is thereby obliged to sell/buy the asset if the buyer exercises on him.
There are two basic types of options, call options and put options.
Call option: A call option gives the holder the right but not the obligation to buy an asset by a
certain date for a certain price.
Put option: A put option gives the holder the right but not the obligation to sell an asset by a
certain date for a certain price.
Option price: Option price is the price which the option buyer pays to the option seller. It is
also referred to as the option premium.
Expiration date: The date specified in the options contract is known as the expiration date,
the exercise date, the strike date or the maturity.
Strike price: The price specified in the options contract is known as the strike price or the
exercise price.
American options: American options are options that can be exercised at any time up to the
expiration date. Most exchange-traded options are American. In India all Single stock options
are American Options.
European options: European options are options that can be exercised only on the expiration
date itself. European options are easier to analyse than American options, and properties of an
American option are frequently deduced from those of its European counterpart. In India all
the index options are European options.
Swaps
A swap is an agreement between two parties to exchange cash flows on a determined date or
in many cases multiple dates. Typically, one party agrees to pay a fixed rate while the other
party pays a floating rate. For example, when trading commodities the first party, an airline
company relying of kerosene, agrees to pay a fixed price for a pre-determined quantity of this
commodity. The other party, a bank, agrees to pay the sport price for the commodity. Hereby
the airline company is insured of a price it will pay for its commodity. A rise in the price of the
commodity is in this case paid by the bank. Should the price fall the difference will be paid to
the bank.
Types of Interest
1. Interest Rate Swaps
It involves exchanging cash flows at a fixed interest rate with those that have a floating interest
rate. The parties do not swap the principal. The notional amount is the size of the swap and is
what we use to calculate the cash flows.
There are different kinds of interest swaps which include:
• Plain vanilla swap – It is the most straightforward kind where one party exchanges a
fixed rate for a floating rate and vice versa on the pre-agreed intervals in the life of the
contract.
• Basis swap – Where both legs have a floating charge, the parties could exchange the
floating rates using benchmark rates as the basis.
• Amortizing swap – As the swap meaning suggests, one could provide for a reduction
in the notional amount to correspond to the amortization of a loan.
• Step-up swap – Opposite of the amortizing swap, notional amount increases as per
agreement.
• Differential swap – In these swaps, one leg of provides for payment of an interest rate
for another currency other than that of the initial principal amount. The other leg caters
for paying interest at the rate and currency of the initial principal.
2. Currency Swap
This type of swap involves the counterparties exchanging the principal amount and interest
payments in different currencies. They hedge another investment position from fluctuations in
the currency exchange rate.
3. Basis Swaps
In basis swaps, both legs have different floating rates. It could either be an interest rate swap
or a currency swap where both streams of cash flow have a floating rate. Most swap contracts
base payments on a fixed rate against a floating rate. In this case, we calculate both legs on
floating rates.
4. Commodity swap
For commodity swap contracts, the counterparties exchange floating cash flows based on a
commodity’s spot price for fixed cash flows. They determine them based on a pre-agreed
amount of a product.
5. Credit default swap
Commonly known as CDS, it provides insurance from the default of a financial debt
instrument. The purchaser transfers the premium payments to the seller. If by any chance the
asset defaults, the seller is bound to reimburse the buyer face value of the asset in question.
Pricing Derivatives
Price Discovery’ is the method of determining the best possible price at which a buyer and
seller can trade a futures contract for a specific expiration date. The process of price discovery
continues during the market’s trading session. The prices are openly and competitively derived
and therefore it is considered to be superior to the administered or privately decided prices. The
low transaction costs and recurrent trading promotes the broad involvement in futures markets
reducing the opening for control by a few buyers and sellers.
One of the economic functions of futures markets is price discovery. It reveals information
about future spot price through futures market. The price discovery between spot and futures
markets has received considerable attention by academicians, investors, and regulators for the
following reason; the issue is linked to informational efficiency and arbitrage strategies. Price
discovery refers to the use of futures prices for pricing cash market transactions (Working
1948). Price discovery in futures markets is defined as the use of futures prices to determine
expectations of (future) cash market prices (Schroeder & Goodwin, 1991). According to Black
(1976) the primary benefits from commodity futures markets are informed production, storage
and processing decision. The essence of price discovery function is to establish a reference
price from which the spot market can be derived and hinges on whether new information is
reflected first in changed futures prices or in changed cash prices. The futures price serves as
the market’s expectation of subsequent spot price.
The significance of price discovery depends upon a close relationship between futures and spot
price. The performance of price discovery function can be measured from the temporal relation
between futures and spot prices. The causal relation investigates whether the spot market leads
the futures market or the futures market leads the spot market or whether there exists
bidirectional relation between the two markets. If information is first reflected in futures price
and later in spot price, futures price should lead spot price indicating that the futures market
performs the price discovery function. An important component in understanding and
managing market price risk for different commodities is identifying and comparing the
relationship between futures market and spot market by cost of carry relationship.
Silvapulle and Moosa (1999) argue that futures prices respond to new information more quickly
than the latter due to lower transaction costs and ease of shorting, while Newberry (1992)
postulates that futures market provide opportunities for market manipulation. According to this
argument the futures market can be manipulated either by the larger at the expense of the
smaller or by the better informed at the expense of the uniformed. There are also arguments for
the opposite hypothesis, that spot price lead futures prices (Silvapulle and Moosa, 1999; Quan,
1992; Moosa, 1996). Moosa (1996) presents a model where the change in the spot price will
trigger action from the different kinds of market participants, and these actions will
subsequently change the futures price.
Based on the above back ground, the main motivation of the present study is to analyse how
information is transmitted between spot and futures markets. An investigation of the price
discovery role of futures markets helps to understand whether the process of information in the
desired manner or not. For the futures to be an unbiased predictor of subsequent spot price the
futures price should lead the spot price and not vice versa. This issue needs to be investigated
empirically in this study.
Commodity Derivative Markets in India
Commodity futures markets have a long history in India. Cotton was the first commodity to
attract futures trading in the country leading to the setting up of the Bombay Cotton Trade
Association Ltd in 1875. The Bombay Cotton Exchange Ltd. was established in 1893 following
the widespread discontent amongst leading cotton mill owners and merchants over the
functioning of Bombay Cotton Trade Association.
Subsequently, many exchanges came up in different parts of the country for futures trading in
various commodities. Futures trading in oilseeds started in 1900 with the establishment of the
Gujarati Vyapari Mandali, which carried on futures trade in groundnut, castor seed and cotton.
Before the Second World War broke out in 1939, several futures markets in oilseeds were
functioning in Gujarat and Punjab.
Futures trading in wheat existed at several places in Punjab and Uttar Pradesh, the most notable
of which was the Chamber of Commerce at Hapur, which began futures trading in wheat in
1913 and served as the price setter in that commodity till the outbreak of the Second World
War in 1939.
Futures trading in bullion began in Mumbai in 1920 and subsequently markets came up in other
centers like Rajkot, Jaipur, Jamnagar, Kanpur, Delhi and Kolkata. Kolkata Hessian Exchange
Ltd. was established in 1919 for futures trading in raw jute and jute goods. But organized
futures trading in raw jute began only in 1927 with the establishment of East Indian Jute
Association Ltd. These two associations amalgamated in 1945 to form the East India Jute &
Hessian Ltd. to conduct organized trading in both raw jute and jute goods. In due course several
other exchanges were also created in the country to trade in such diverse commodities as
pepper, turmeric, potato, sugar and gur (jaggery).
Uses of Derivatives
Generally, derivatives are used as risk management tools. Here is the brief description of their
uses and functions. Derivatives are supposed to provide the following services:
1 Risk aversion tools: One of the most important services provided by the derivatives is to
control, avoid, shift and manage efficiently different types of risks through various strategies
like hedging, arbitraging, speculation, spreading, etc. Derivatives assist the holders to shift or
modify suitably the risk characteristics of their portfolios. These are specifically useful in
highly volatile financial market conditions like erratic trading, highly flexible interest rates,
volatile exchange rates and monetary chaos.
2. Prediction of future prices: Derivatives serve as barometers of the future trends in prices
which result in the discovery of new prices both on the spot and futures markets. Further, they
help in disseminating different information regarding the futures markets trading of various
commodities and securities to the society which enable to discover or form suitable or correct
or true equilibrium prices in the markets. As a result, they assist in appropriate and superior
allocation of resources in the society.
3. Enhance liquidity
As we see that in derivatives trading no immediate full amount of the transaction is required
since most of them are based on margin trading. As a result, large number of traders,
speculators, arbitrageurs operate in such markets. Therefore, derivatives trading enhance
liquidity and reduce transaction costs in the markets for underlying assets
4. Assist investors: The derivatives assist the investors, traders and managers of large pools of
funds to devise such strategies so that they may make proper asset allocation to increase their
yields and achieve other investment goals
5. Catalyst growth of financial markets: The derivatives trading encourages the competitive
trading in the markets, different risk-taking preference of the market operators like speculators,
hedgers, traders, arbitrageurs, etc. resulting in increase in trading volume in the country. They
also attract young investors, professionals and other experts who will act as catalysts to the
growth of financial markets.
UNIT-4 WAREHOUSING TRADING AND SETTLEMENT
Introduction
Warehousing is one of the important auxiliaries to trade. It creates time utility by bridging the
time gap between production and consumption of goods. The effective and efficient
management of any organization requires that all its constituent elements operate effectively
and efficiently as individual SBUs / facilities and together as an integrated whole corporate.
Across the supply chains, warehousing is an important element of activity in the distribution
of goods, from raw materials and work in progress through to finished products .It is integral
part to the supply chain network within which it operates and as such its roles and objectives
should synchronize with the objectives of the supply chain. It is not a ‘Stand-alone’ element of
activity and it must not be a weak link in the whole supply chain network.
Warehousing
Warehousing is the storage of goods for profit. The warehouse is a storage facility that receives
goods and products for the eventual distribution to consumers or other businesses. A large size
warehouse is also called a distribution centre. Warehouse management is the process of
coordinating the incoming goods, the subsequent storage and tracking of the goods, and finally,
the distribution of the goods to their proper destinations.
Need for Warehousing
Warehousing is necessary due to the following reasons.
1. Seasonal Production:
Agricultural commodities are harvested during certain seasons, but their consumption or use
takes place throughout the year.
Therefore, there is a need for proper storage or warehousing for these commodities, from where
they can be supplied as and when required.
2. Seasonal Demand:
There are certain goods, which are demanded seasonally, like woollen garments in winters or
umbrellas in the rainy season. The production of these goods takes place throughout the year
to meet the seasonal demand. So, there is a need to store these goods in a warehouse to make
them available at the time of need.
3. Large-scale Production:
In case of manufactured goods, now-a-days production takes place to meet the existing as well
as future demand of the products. Manufacturers also produce goods in huge quantity to enjoy
the benefits of large-scale production, which is more economical. So the finished products,
which are produced on a large scale, need to be stored properly till they are cleared by sales.
4. Quick Supply:
Both industrial as well as agricultural goods are produced at some specific places but consumed
throughout the country. Therefore, it is essential to stock these goods near the place of
consumption, so that without making any delay these goods are made available to the
consumers at the time of their need.
5. Continuous Production:
Continuous production of goods in factories requires adequate supply of raw materials. So there
is a need to keep sufficient quantity of stock of raw material in the warehouse to ensure
continuous production.
6. Price Stabilization:
To maintain a reasonable level of the price of the goods in the market there is a need to keep
sufficient stock in the warehouses. Scarcity in supply of goods may increase their price in the
market. Again, excess production
Type of Warehousing in India
After getting an idea about the need for warehousing, let us identify the different types of
warehouses. In order to meet their requirement various types of warehouses came into
existence, which may be classified as follows.
i. Private Warehouses
ii. Public Warehouses
iii. Government Warehouses
iv. Bonded Warehouses
v. Co-operative Warehouses
(i) Private Warehouses:
The warehouses which are owned and managed by the manufacturers or traders to store,
exclusively, their own stock of goods is known as private warehouses. Generally, these
warehouses are constructed by the farmers near their fields, by wholesalers and retailers near
their business centres and by manufacturers near their factories. The design and the facilities
provided therein are according to the nature of products to be stored.
(ii) Public Warehouses:
The warehouses which are run to store goods of the general public are known as public
warehouses. Anyone can store his goods in these warehouses on payment of rent. An
individual, a partnership firm or a company may own these warehouses. To start such
warehouses a license from the government is required. These warehouses are also used by
manufacturers, wholesalers, exporters, importers, government agencies, etc.
(iii) Government Warehouses:
These warehouses are owned, managed and controlled by central or state governments or
public corporations or local authorities. Both government and private enterprises may use these
warehouses to store their goods. Central Warehousing Corporation of India, State Warehousing
Corporation and Food Corporation of India are examples of agencies maintaining government
warehouses.
(iv) Bonded Warehouses:
These warehouses are owned, managed and controlled by government as well as private
agencies. Private bonded warehouses have to obtain license from the government. Bonded
warehouses are used to store imported goods for which import duty is yet to be paid. In case of
imported goods, the importers are not allowed to take away the goods from the ports till such
duty is paid. These warehouses are generally owned by dock authorities and found near the
ports.
(v) Co-operative Warehouses:
These warehouses are owned, managed and controlled by co-operative societies. They provide
warehousing facilities at the most economical rates to the members of their society
Warehouse Receipt
A document listing the goods or commodities deposited in a warehouse. It is a receipt for the
commodities listed, and for which the warehouse is the bailee. Warehouse receipts may be
negotiable o non-negotiable.
Non-negotiable. A warehouse receipt lacking the word “order” is similar to a non-negotiable

bill of lading, as it permits delivery only to the named party.
Negotiable warehouse receipt, which was launched in 2011, allows transfer of ownership of
that commodity stored in a warehouse without having to deliver the physical commodity. These
receipts are issued in negotiable form, making them eligible as collateral for loans.
Warehouse receipts are made negotiable under the Warehouse (Development and Regulation)
Act, 2007, and regulated by the Warehousing Development and Regulatory Authority
(WDRA).
These components include:
• Finance for rural farmers

• Storage of produce in local warehouses
• Facilitation of sales between the farmer and potential buyers
• Provision of key market information through price-discovery mechanisms
In a warehouse receipts system, produce is stored in warehouses and used as collateral for
financing from formal financial institutions. Immediate financing for farmers allows them to
pay back debts accrued between harvest seasons while safely storing their harvested
agricultural products until market prices are competitive again. Price-discovery mechanisms
provide farmers with the information they need to sell their produce at opportune times.
There are typically three primary elements associated with a warehouse receipts system:
• Rules and Regulations

• Receipts
• Storage
To implement an effective warehouse receipts system, a secure storage area (with sufficient
infrastructure and management) needs to be identified. Secondly, rules and regulations related
to insurance, certification, inspection, grades and quality standards need to be established and
agreed upon. Quality standards that are accepted and recognized by both farmers and
commercial traders are essential to the success of any warehouse receipts program since buyers
often purchase produce from warehouses sight unseen. Within these quality standards, a variety
of different grades should also be included to address a variety of potential markets. Finally,
clear documentation in the form of receipts and contracts needs to be developed. The scale and
scope of these elements can drastically differ depending on operating environments.
Benefits of Warehouse Receipt
• Reduced post-harvest losses of agricultural crops

• Increased profit for rural farmers due to an extended sales period
• A reduction in seasonal price variation due to a consistent supply of commodity in the
market
• Transparency in market prices due to “price discovery processes”
• Improved food security through a “buy back” function that allows rural farmers to
purchase their food stored at a warehouse during vulnerable periods.
Benefits of Warehouse Receipt Finance
A well-developed warehouse receipt finance system includes farmers, banks, financial

institutions, insurance companies, commodity exchanges. WRF brings about benefits at both
micro and macro level. In fact, the mechanism has the potential to hit many targets with a single
dart.
For Farmers
As against traditional loans by banks, loans against WR are quick. WFR brings about better
price realization for farmers, especially small and marginal farmers thereby reduce poverty. A
major impetus on WFR can help government realize their promise of a 50 per cent profit over
input cost for farmers.
Bye-bye money lender: Lack of access to institutional credit forces farmers to knock the doors
of informal sector that charges hefty interest rates. A well-developed WRF will kill the back
of the informal sector.
Encourage scientific storage
Spoilage and wastage have become the hallmark of Indian agriculture. It is estimated that 25-
30 per cent of agricultural produce every year is lost due to poor storage and frail handling
post-harvest. Increased usage of WFR will kick-start a circle of investments in warehousing
infrastructure – currently, there are 793 government and private warehouses in India, according
to WDRA. More accreditation by WDRA will help scientific storage of farm produce and fix
the missing link in the supply chain.
For banks
The average tenor of loan against WHR is around six months. This helps banks with their asset-
liability mismatch issues as they can churn portfolios quickly. Further, lending against WHR
is safer and more liquid for banks. Intermediaries like collateral managers make the job easier
for banks as far as underlying collateral is concerned. WRF help banks achieve their priority
sector lending targets in an efficient way, rather than following the mandate in a willy-nilly
manner, so far.
Loans against Warehousing Receipt
State/Central Warehousing Corporations (SWCs/CWC) or approved Collateral Managers.
Key Features
• Best suitable for short term fund needs.
• Loan amount up to 70 % of the value of goods pledged/covered by the warehouse receipt, up

to maximum amount of Rs 25 crores.
• Minimal paperwork
• Hassle free processing
• No hidden charges or heavy penalties
• No collateral security needed
• Repayment can be done as Lump sum

• Loan can be availed as demand loan or cash credit
• Primary Security of the loan will be Pledge of warehouse receipts/Storage Receipts issued by
State/Central Ware Housing Corporations or approved Collateral Managers
• Loan period will be up to 12 months
The Central Warehousing Corporation (CWC)
It was established in India in the year 1957 to provide warehouses at suitable places in the
country. It provides storage facilities to individuals, co-operative societies and others. It also
provides facilities for transporting agricultural goods from the place of production to the place
of warehouse.
The CWC acts as the agent of the Government for the purchase, sale, storage and distribution
of agricultural goods, seeds, manures, etc. It also subscribes to the share capital of the State
Warehousing Corporations.
The State Warehousing Corporation (SWC)
Every State in India can establish its own Warehousing Corporation by getting the approval of
the Central Warehousing Corporation. The respective State Government will contribute 50%
of the capital and the CWC will contribute 50%.
The State Warehousing Corporation will provide warehouses in places other than those
reserved for the Central Warehousing Corporation. It can also act as the agent of the Central or
the State Government or the CWC.
Storage
A manufacturer needs to keep adequate stock of raw materials to ensure smooth production. A
trader has to maintain adequate stock of the products he sells to meet the demand. Maintenance
of stocks of raw materials and finished products calls for storage. Storage helps to preserve
goods at a particular place until these are required elsewhere.
Functions of Storage
1. To preserve goods that are produced only during a particular season but are demanded
throughout the year (agricultural goods).
2. To preserve goods that are produced throughout the year but demanded during a particular
season.
3. To preserve the quality of certain goods, which in the absence of proper storage will
deteriorate.
4. To enable businessmen to make speculative gain, i.e., to wait and sell at a higher price.
5. To protect goods from pests and insects.
6. To ensure smooth production and distribution.
Storage practices in India
Traditional methods of storage are a type of knowledge, which has evolved into the community
and has been passed on from one generation to another generation. Certain traditional methods
of grains storage practices are unique to the culture of society and vary among countries,
villages, locals and even communities. These indigenous practices originate from the cultural
connection with specific environmental conditions and are based on traditional societies having
intimate consciousness of their environment.
1. Solarization
The process of heating grain in the sun to kill insects is called solarization. It is an old age
practice by farmers before storing the grains and pulses in regions where the outdoor
temperature reaches 20 °C or higher. The solarisation time is varied based on the products, the
dried grains are chewed to determine whether the grains are dried to satisfactory level. It also
normally applies to grain being kept for food rather than for seed as it may reduce seed viability.
3. Open air/aerial storage
Unshelled maize cobs and other unthreshed cereals are suspended in bunches or sheaves, using
rope or plant material, under eaves, from the branches of trees or the top poles driven into the
ground. The grain dries in the air and the sun until it is needed by the farmer for consumption
or marketing. When the grains are stored in the open air, the farmers always ensure to protect
the grains being from rainfall by covering with polyethene.
4. The Crib is an improvement on platform structure, which is a rectangular shaped enclosed

structure elevated between 0.5 and 1 m above ground, supported on columns and has well-
ventilated sides made of straw, palm leaves, bamboo or wire netting. The entire storage
structure could be constructed with wood, bamboo, metal or wire mesh and roofed with thatch
straw or iron sheet and faced in such a way that the prevailing winds blow perpendicular to the
length. The legs are fitted with rat-proof device to prevent rodent infestation. The Crib is
designed in such a shape that the drying process continues during storage because of the free
flow of air over the stored produce due to natural ventilation.
5. Nahu
Nahu is a traditional storage structure commonly used by the resource-poor farmers in the West
Siang district of Arunachal Pradesh, India for the storage of food grains such as rice, maize,
millet, etc. The storage capacity of Nahu ranges from 5.0–8.0 t and can hold 0.20–0.24 t/ Nahu
for seed purpose and the structure lasts for 20 years. These storage structures are constructed
close to residential areas in the village, and in the cluster apart to avoid a fire outbreak.
6. Storage bags
Short duration storage of food grains in sacks is widely used in farms, villages and commercial
storage centres. Sacks made of woven jute, sisal, local grass, cotton and depend on the materials
that are available in the area. These were earlier used widely in both Nigeria and India until the
introduction of the polypropylene bags, however; farmers still use jute or sisal bags.
7. Use of camphor
Camphor is used for short-term storage of grains required for next season planting. The shelled
grains or paddy are stored in bags or pots after being sun-dried and camphor is placed inside
the storage bags or container. The mode of action of camphor used in such grains storage could
be either fumigant, repellent or antifeedant attributed to pungent odour emanating from the
camphor.
8. Underground pit
Underground grain storage is carried out by farmers in an agro-ecological zone with low water
table for long duration storage of large quantities of threshed grains such as cowpea, millet,
and sorghum ranging from 1000 kg to 200 tons.
9. Mud house storage
Mud houses are used to store large quantities of food grains from 1000 kg to 2500 kg or above.
The size depends on the farmer needs, but an average size dimension is 4 m × 4 m × 3 m to
give a storage capacity of 2500 kg.
Mud houses are made up of either mud alone or the walls are made of mud mixed with paddy
straw and plastered over the bamboo splitted framework and the top is covered with tin roof.
10. Obeh
Obeh is a traditional storage structure mostly used by the resource-poor farmer in the Senapati
district of Manipur, India for the storage of unthreshed rice. Obeh has a storage capacity ranges
from 5.0–10.0 t. These storage structures are made from bamboo sticks interwoven tightly to
create an airtight compartment for storing of grains.
Essentials of storage structure
Underground Storage Structure: This type of storage structure, locally known as khatti in
northern States, khani in Orissa, pain in Maharashtra, patera in Tamil Nadu and khas in
Rajasthan, is made at places where subsoil water is low and used as indoor as well as outdoor
structures. The depth of the structure is unto 5 m. with almost same' diameter and has a narrow;
circular opening at the top. It has an average capacity of about 240-320 quintals and is suitable
for the storage of wheat, maize and pulses. Before storing grains, a layer of straw is spread on
all sides and finally the opening is sealed with a lid made of mud to prevent the seepage of
moisture. The construction cost of the structure is low.
Earthen Pot Storage Structure: As an indoor storage structure locally known as chod, jadi,
kudlr, vadai and matka, it is made up of clay mud with a capacity of about 1-2 quintals. The
structure is of cylindrical type but the diameter at the middle is more than at the top and the
bottom. There is only one opening on the top of the structure to store and take out grains for
use. If the structure is big one, an outlet is provided near the bottom in order to take out grains.
After storing grains, the top opening is sealed with a lid made of moist clay. The life span of
the structure is generally 10-15 years.
Bag Storage Structures: Bags are made of jute or hessian or mesta fibres. The capacity of
each bag is about 100 kg. and can last 2-3 years depending on the storage conditions. Fig. 3.1
shows that the farmers in the village after storing grains in bags put the bags on wooden plank
and stack them along walls while the filled bags are put on the ground which is already covered
with husk and then the bags are covered with husk to prevent the seepage of moisture.
Storage Cost
• Storage cost is the amount spent over the storage or holding of inventory, in simple
terms.
• It is one of the major considerations of inventory management. Storage cost is a subset

of inventory carrying costs, including the cost of warehouse utilities, material handling
personnel, equipment maintenance, building maintenance, and security personnel.
• A company needs to store several materials, starting from raw materials, to finished
products, to machine parts, and so on. It also needs to spend on the safekeeping of these
items, security personnel, and rent for owning storage space, and so on.
• The storage costs of inventory are usually deductible in nature. While most companies
do not add their storage and transportation costs onto the price of the finished product,
some products with very high storage costs do have hidden or indirect storage costs
added to their price.
Inventory Management
Inventory management is a compilation of techniques, strategies and tools for storing,

delivering, ordering and tracking inventory or stock. For that reason, it’s extremely important
for an organization to control the inward and outward inventory in order to reduce losses and
maximize profits – which is where the techniques of inventory management come into play.
Inventory
An inventory is a stock or store of goods maintained by the firm. It might be at a location near
the retail store or the production site. The number of finished products in the storage at any
given moment is known as the on-hand inventory.
There are various other types of inventories that are not related directly to the independent
demand of the finished product, but consist of goods involved in maintaining the production
line.
1. ABC Analysis
ABC analysis is a technique of sorting of inventories into 3 categories. The categorization of

the inventory under the ABC analysis is done according to how well the inventory can sell and
how much it will cost to hold. Always Better Control technique (ABC) analysis classifies
inventory into three categories namely: A, B, and C.
A- Best-selling items that don't partake in warehouse space or cost
B- Mid-range selling items, these items are sold regularly but it cost more than category 'A'
items to hold
C- This inventory is excluding categories 'A' and 'B' that makes up the bulk of inventory costs
2. Just-in-time (JIT) Method
Just-in-time is a Japanese technique of inventory management, in this technique the company

maintains only such quantity of inventory as it requires during the manufacturing/production
process. It implies no excess inventory in hand and saves the cost of warehousing, shipping,
insurance and another allied cost. Further inventory is ordered when the old stock is close
enough to be replenished. However, this is a slightly risky inventory management technique
because a little delay may result in loss of potential sales that can’t be filled. Thus this technique
requires proper planning, efficient supplier and timely arrival of inventory so that new orders
can be timely placed.
3. Safety Stock Inventory
This technique emphasis on maintaining a small stock of inventory in hand to protect against
any unexpected market demands and the timing difference between the initiation and
completion of a production process (lead time). This inventory management technique plays
an important part in the smooth operations of the supply chain in various ways. Such as:
a. Guard against unanticipated market demand
b. Prevention of stock outs

c. Provide compensation in case of inaccurate market forecasts
d. And a buffer for longer-than-expected lead times
Without safety stock inventory an organization could experience:
a. Lost customers
b. Loss of revenue
c. Loss of market share
4. Material Requirement Planning (MRP) Technique
Material Requirements Planning (MRP) is an inventory management technique. Under this

technique, the manufacturers/producers order the inventory after taking into account the sales
forecast. Material Requirements Planning (MRP) system incorporates data from different areas
of the business where inventory is utilized. After considering the data and the market demand,
order for new inventory is placed.
Food Corporation of India
Food Corporation of India (FCI) is a Public Sector Undertaking, under the Department of Food
& Public Distribution, Ministry of Consumer Affairs, Food and Public Distribution.
FCI is a statutory body set up in 1965 under the Food Corporations Act 1964. It was established
against the backdrop of major shortage of grains, especially wheat.
Simultaneously, Commission for Agricultural Costs and Prices (CACP) was created in 1965 to
recommend remunerative prices to farmers.
It has primary duty to undertake purchase, store, move/transport, distribute and sell food grains
and other foodstuffs.
Objectives
• Effective price support operations for safeguarding the interests of the farmers.
• Distribution of food grains throughout the country for public distribution system.
• Maintaining satisfactory level of operational and buffer stocks of food grains to ensure
National Food Security
FCI is a statutory body set up in 1965 under the Food Corporations Act 1964. It was established
against the backdrop of major shortage of grains, especially wheat.
Simultaneously, Commission for Agricultural Costs and Prices (CACP) was created in 1965 to
recommend remunerative prices to farmers.
It has primary duty to undertake purchase, store, move/transport, distribute and sell food grains
and other foodstuffs.
Commission for Agricultural Costs & Prices (CACP)
The CACP is an attached office of the Ministry of Agriculture and Farmers Welfare. The
Commission for Agricultural Costs & Prices (CACP since 1985, earlier named as Agricultural
Prices Commission) came into existence in January 1965.
It is mandated to recommend minimum support prices (MSPs) to incentivize the cultivators to

adopt modern technology, and raise productivity and overall grain production in line with the
emerging demand patterns in the country.
MSP for major agricultural products are fixed by the government, each year, after taking into
account the recommendations of the Commission.
As of now, CACP recommends MSPs of 23 commodities, which comprise 7 cereals (paddy,

wheat, maize, sorghum, pearl millet, barley and ragi), 5 pulses (gram, tur, moong, urad, lentil),
7 oilseeds (groundnut, rapeseed-mustard, soyabean, seasmum, sunflower, safflower,
nigerseed), and 4 commercial crops (copra, sugarcane, cotton and raw jute).
Organizational Set-Up of FCI
FCI coordinates its functions through a country-wide network of offices with Headquarters at
New Delhi with five Zonal Offices, twenty-five Regional Offices and 170 District Offices
under its control.
Objectives of FCI
• To provide remunerative prices to farmers.

• To help in transforming the crisis management-oriented food security into a stable
security system to ensure availability, accessibility and affordability of food grains to
all people at all times so that no one, nowhere and at no time should go hungry.
• Ensuring food security of the nation by maintaining satisfactory level of operational

buffer stocks of food grains.
• Distribution of food grains throughout the country for Public Distribution System.
• Effective Price Support Operations for safeguarding the interest of farmers.
• Food Security
According to Food and Agriculture Organization (FAO), food security has basically four
pillars:
1. Availability: food should be available in sufficient quantity at all times and at all places;
2. Affordability: food should be affordable, i.e., people should have economic access (ample
income) to buy food;
3. Absorption: food should be safe and nutritious that body can absorb for a healthy life; and
finally.
4. Stability: food system should be reasonably stable, as high volatility in food systems impacts
adversely not only the poor but also endangers the stability of political and social systems.
Major Activities Undertaken by FCI
1. Procurement
• The Central Government extends price support for procurement of wheat, paddy and
coarse grains through the FCI and State Agencies. All the food grains conforming to
the prescribed specifications are procured by the public procurement agencies at the
Minimum Support Price (MSP) plus incentive bonus announced, if any.
• Procurement is undertaken both in direct and in-direct mode.
• Under Decentralized Procurement Scheme (DCP), introduced in 1997-98, food grains
are procured and distributed by the State Governments themselves. The designated
States procure, store and issue food grains under Targeted Public Distribution System
(TPDS) and other welfare schemes of the Government.
• The decentralized system of procurement was introduced to enhance the efficiency of
procurement for PDS and to encourage procurement in non-traditional States as well as
to save on transit losses and costs.
• Before the start of each procurement season, Central Government announces uniform
specification for quality of wheat, paddy, rice and coarse grains.
• Quality Control Division of FCI ensures procurement of food grains from procurement
centres strictly in accordance with Govt. of India's uniform quality specifications.
• FCI has also been nominated as an additional nodal Agency for procurement of Pulses
and Oilseeds.
2. Distribution
• FCI meets the requirements of TPDS through grains procured which are issued at
Central Issue Price fixed by Government to fulfill the objective of helping the
economically vulnerable sections of society.
• FCI delivers food grains to State Govt./ State Agencies from its base depots for
distribution by the latter through Fair Price Shops.
• The role of FCI becomes even more important in the backdrop of National Food
Security Act, 2013, that commits to distribute grains through TPDS and other welfare
schemes, at highly subsidized prices.
3. Public Distribution System
• Public distribution of essential commodities was in existence in India during the inter-
war period. However, PDS, with its focus on distribution of food grains in urban
scarcity areas, had emanated from the critical food shortages of 1960s.
• PDS had substantially contributed to the containment of rise in food grain prices and
ensured access of food to urban consumers. As the national agricultural production had
grown in the aftermath of the Green Revolution, the outreach of PDS was extended to
tribal blocks and areas of high incidence of poverty in the 1970s and 1980s.
• PDS is supplemental in nature and is not intended to make available the entire
requirement of any of the commodities distributed under it to a household or a section
of the society.
• PDS is operated under the joint responsibility of the Central and the State Governments.
The Central Government, through FCI, has assumed the responsibility for procurement,
storage, transportation and bulk allocation of food grains to the State Governments.
• The operational responsibilities including allocation within the State, identification of
eligible families, issue of Ration Cards and supervision of the functioning of Fair Price
Shops etc., rest with the State Governments.
• Under the PDS, presently the commodities namely wheat, rice, sugar and kerosene are
being allocated to the States/UTs for distribution. Some States/UTs also distribute
additional items of mass consumption through the PDS outlets such as pulses, edible
oils, iodized salt, spices, etc.
4. Revamped Public Distribution System
• The Revamped Public Distribution System (RPDS) was launched in June, 1992 with a
view to strengthen and streamline the PDS as well as to improve its reach in the far-
flung, hilly, remote and inaccessible areas where a substantial section of the poor live.
• It covered 1775 blocks wherein area specific programmes such as the Drought Prone
Area Programme (DPAP), Integrated Tribal Development Projects (ITDP), Desert
Development Programme (DDP) were being implemented and in certain Designated
Hill Areas (DHA) which were identified in consultation with State Governments for
special focus.
5.Targeted Public Distribution System
• The Targeted Public Distribution System (TPDS) was launched in 1997 to benefit the
poor and to keep the budgetary food subsidies under control to the desired extent
following failure of the earlier PDS system.
• Conceptually, the transition from universal PDS to TPDS was a move in the right
direction, as it was designed to include all the poor households and raise the unit subsidy
and ration quota considerably for them.
• TPDS aims at providing food grains to people below the poverty line at highly
subsidised prices from the PDS and food grains to people above the poverty line at
much higher prices than the poverty line.
• Thus, the TPDS adopted by the Government of India maintains the universal character
of the PDS but adds a special focus on the people below the poverty line.
• The National Food Security Act, 2013 (NFSA) has been notified which provides for all
India coverage of upto 75% of the rural population and up to 50% of the urban
population of the country for receiving highly subsidized food grains.
The main function of F.C.I.
• To maintain harmonious Industrial Relation between Food Corporation of India

Management at various levels and the food handling labourers engaged in various
depots/godown/ ports for handling food grain bags for the purpose of various schemes
of the Government of India
• To make policy decisions in respect of labourers engage in various

depots/godowns/ports with regard to their. engagement, employment, payment etc.
• To organize meeting with various labour unions at headquarter level.
• To issue necessary instructions/directions to EDs and GMs on the agreed issues relating
to food handling labourers as per MOS/MOU/Arrangements.
• To examine and decide wage revision periodically and separately for departmental DPS
and NO WORK NO PAY labour system.
• To frame policies with regard to welfare amenities to be provided to the food handling
labourers engaged under departmental DPS and NWNP system in various godown
throughout the country.
• To revise various incentives piece rate schemes periodically from time to time meant
for departmental labourers working in various depots and ports throughout the country.
• To deal with the policy of abolition of Contract Labour System in various depots
throughout the country.
• To deal with all court cases and ID cases raised by departmental, DPS and NWNP
labourers working in various godowns/depots.
• Maintenance of contracts and relations with Labour Commissioners, Asst. Labour
Commissioner and other Govt, authorities.
• Maintenance of contacts and relation with labour union.
Capacity and Utilization of FCI
The storage function assumes paramount importance in organization such as Food Corporation
of India because of its requirement to hold huge inventory of food grains over a significant
period of time. Storage plan of FCI is primarily to meet the storage requirement for holding
stocks to meet the requirements of Public Distribution System and Other Welfare Schemes
undertaken by the Government of India. Also, buffer stock is to be maintained for ensuring
food security of the nation. Adequate scientific storage is pre-requisite to fulfil the policy
objectives assigned to the Food Corporation of India for which FCI has a network of
strategically located storage depots including silos all over India.
Besides having own storage capacity, FCI has hired storage capacities from Central
Warehousing Corporation, State Warehousing Corporations, State Agencies and Private
Parties for short term as well as for guaranteed period under Private Entrepreneurs Guarantee
Scheme.
New Godowns are being constructed by FCI mainly through Private Participation under Private
Entrepreneurs Guarantee Scheme. FCI is also augmenting and modernizing its storage capacity
in the form of silos through Public Private Partnership.
Storage Capacity for Central Pool Stocks for the last five Years:
(Fig in Lakh MT)

UNIT-5 TRADING ON COMMODITY EXCHANGES
Introduction
The trading of commodities consists of direct physical trading and derivatives trading. The
commodities markets have seen an upturn in the volume of trading in recent years. “Over 40%
of commodities trading on exchanges was conducted on US exchanges and a quarter in China.
Trading on exchanges in China and India has gained in importance in recent years due to their
emergence as significant commodities consumers and producers”
Membership of Commodity Exchange:
To become a member of Commodity Exchange the person should comply with the following
Eligibility Criteria.
1. He should be Citizen of India.
2. He should have completed 21 years of his age.
3. He should be Graduate or having equivalent qualification.
4. He should not be bankrupt.
5. He has not been debarred from trading in Commodities by statutory/regulatory authority,
There are following three types of Memberships of Commodity Exchanges
1. TRADING-CUM-CLEARING MEMBER (TCM):
A TCM is entitled to trade on his own account as well as on account of his clients and clear
and settle trade himself. A sole proprietor, partnership firm, a joint Hindu Undivided Family
(HUF), a corporate entity, a co-operative society, a public sector organization or any other
Government or Non-Government entity can become a TCM.
There are two types of TCM, TCM-1 and TCM-2. TCM-1 refers to transferable non-deposit-
based memberships and TCM-2 refers to non-transferable deposit-based memberships.
A person desired to register as TCM is required to submit an application as per the format
prescribed under the business rules, along with all enclosures, fee and other documents
specified therein. He is required to go through interview by Membership Admission Committee
and committee is also empowered to frame rules or criteria relating to selection or rejection of
a member.
2. INSTITUTIONAL TRADING-CUM-CLEARING MEMBER (ITCM):
Only on institution/Corporate can be admitted by the Exchange as a member, conferring upon

them the right to trade and clear through the clearing house of exchange as an Institutional
Trading-Cum-Clearing Member (ITCM). The member may be allowed to make deals for
himself as well as on behalf of his clients and clear and settle such deals. Trading Members
who would be registered as trading members.
3. PROFESSIONAL CLEARING MEMBER (PCM):
A PCM entitled to clear and settle trades executed by other members of the exchange. A
corporate entity and an institution only can apply for PCM. The member would be allowed to
clear and settle trades of such members of the Exchange who choose to clear and settle their
trades through such PCM.
Commodity Brokerage
A commodity broker is a firm or an individual who executes orders to buy or sell commodity
contracts on behalf of the clients and charges them a commission. A firm or individual who
trades for his own account is called a trader. Commodity contracts include futures, options, and
similar financial derivatives.
A stockbroker is a licensed and regulated financial firm that facilitates buying and selling
transactions in various financial instruments such as - stocks, derivatives, bonds, and IPOs, for
both retail and institutional investors. Basically, all financial market transactions have to be
executed through a broker and they charge commission or brokerage charge for their services.
There are two main types of stockbrokers:
• Traditional Brokers
• Discount Brokers
The Discount Brokers usually charge much less, while full-service brokers or the traditional
brokers can be very expensive; however, they provide customized service. We advise investors
and traders to go through both discount and traditional brokers and get awareness of each of
these types of brokers before opening an account.
Here is the brief explanation that can help you in understanding the types of stock brokers.
Traditional Brokers
Traditional stock brokers or full-service stock brokers offer a wide array of services and
products, including financial and retirement planning, investing and tax advice, regular
portfolio updates, and margins to purchase investment products on credit which will be
subjected to necessary terms and conditions.
Since the traditional brokers offer personalized investment or trading recommendations and
services, brokerages charges can be expensive. Take a look at some of the leading Traditional
Brokerage firms that let customers invest and trade in stocks, futures, options, currencies, and
bonds in the Indian Stock Market.
Discount Brokers
Discount stock brokers or online stock brokers usually allow clients to trade on their own with
little or no interaction with a live broker. Discount brokers could be a better choice for the fee-
conscious investors who prefer to do it all by themselves. These brokerages will generally not
offer investment advice, although it’s common for a discount broker to offer free research and
educational tools to help you make better investment decisions.
Since the discount brokers offer fewer services and/or support, brokerages often come with
lower fees than a traditional brokerage firm. Take a look at some of the leading Discount
Brokerage firms and their brokerage charges, account opening charges, and annual
maintenance charges.
Commodity Exchange Platform
National Securities Depository Limited (NSDL)
NSDL is the first Depository of its kind, set up in India. Depository is an Organisation where
the securities of a shareholders are held in the electronic form in the same way as a bank holds
money. Depository should be formed and registered under the Companies Act 1956 and should
be granted the Certificate of registration under Section 12 (1A) of SEBI Act 1992. NSDL is an
Organisation and unlisted Company which was registered in June 1996 under the Companies
Act. 1956. Its shares are transferable among its members. It obtained a Certificate of
Registration under SEBI Act 1992 on T01 June 1996 and started its operations with effect from
8th Nov. 1996.
• The aim of NSDL is to eliminate the un widely paper work hounding the physical
delivery segment and to provide electronic facilities for securities traded in the equity
and debt market. It is a significant reform to launch NSDL in the Capital Market. It is
playing a crucial role in driving market efficiency.
• NSDL is a Public limited company, incorporated under the Companies Act. 1956.
• NSDL is promoted by Industrial Development Bank of India (IDBI), Unit Trust of India
(UTI), and National Stock Exchange (NSE).
The principal shareholders of NSDL are as follows –
• Axis Bank Limited

• Citibank
• Deutsche Bank
• HSBC
• State Bank of India (SBI)
• HDFC Bank
• Standard Chartered Bank
• Dena Bank
• Canara Bank
• Oriental Bank of Commerce
Services Offered by NSDL
The services offered by NSDL can be grouped under 3 categories:
• Basic Services: As per the provisions of the Depositories Act, NSDL provides various
services to investors, brokers, banks and other security issuers participating in the
Indian financial market. Any investor, broker or intermediary who wants to avail
services of NSDL, is required to open a depository account with DPs.
Services provided on the above-mentioned accounts are:
1. Dematerialization: It is a process by which an investor can convert physical certificates into

electronic balances.
• For dematerialization, the investor needs to deface the certificates and surrender
them to the Depository Participant.
• DP intimates NSDL and sends the certificates to the concerned Issuer/ R&T
agent.
• If the Issuer/ R&T agent is satisfied with the certificates, confirmation request
is communicated to NSDL.
• Once the confirmation is received, securities are credited in the depository
account of investor by NSDL
2. Rematerialzation: It is the process through which an investor can convert his securities held
in electronic form into physical certificates. For Rematerialzation,
• The investor is required to submit a Rematerialzation request to the DP who has the
investor’s account.
• The DP blocks the holding of the investor by entering the rematerialzation request in
the system.
• The securities are blocked only to the extent to which rematerialzation request is
received.
• The DP sends the request to NSDL along with request form to Issuer/ R&T agent.
• On receiving the request form, the Issuer/ R&T agent prints the certificates and
dispatches them to the client.
• NSDL is also intimated about the acceptance of the request.
• Thereafter, the client’s blocked balances are debited.
3. Market Transfer: The investor can buy or sell the securities held by them in the
dematerialized form.
4. Off-Market Transfer: Trades which are not settled through the Clearing Corporation/
Clearing House of an exchange are classified as “Off-Market Trades”. Delivery of securities
to or from sub brokers and delivery for trade-for-trade transactions are some of the examples
of off-market trades.
5. Inter-depository transfer: Transfer of securities from an account in one depository to an

account in another depository is known as inter-depository transfer.
6. Transmission: Transmission is devolution of title to shares other than by transfer i.e.

devolution by death, succession, inheritance, bankruptcy, marriage, etc. This is operational by
law.
7. Corporate Actions: Corporate actions are benefits given by companies to the investors.
These benefits can be monetary such as dividend, interest, etc. or non-monetary such as bonus,
rights, etc.
NSDL was created to address issues arising because of ownership of securities held in physical
form and its transfer. Some of the benefits of the subscription from the organisation are as
follows:
1. No bad deliveries: In case of paper-based transaction, the buyer did not have the
facility of examining quality of asset before buying it, hence there was a risk involved.
The risk has been eliminated by NSDL as securities are held in dematerialized form
and hence there are no chances of bad deliveries.
2. Elimination of risks related to physical certificates: – There is a lot of risk involved
with physical certificates such as risk of theft, damage due to wear and tear, mutilation,
destruction, etc. In depository system, since these certificates are now held in demat
form, there is no such risk involved. It also saves the cost incurred for issuing duplicate
certificates.
3. Stamp duty: Stamp duty was essential in the traditional method, now there is no need
of paying stamp duty in case securities are transferred through depositories. This rule
is also applicable in case of transfer of equity shares, debt instruments and mutual funds.
4. Immediate transfer and registration of securities: In depository system, once the
security has been credited to the investor account, he becomes the owner of that security
legally. This is unlike physical system, where he/she was required to send them to
company registrar for changing the ownership which used to take a lot of time. It also
exposed the investor to the risk of them being lost in transit and opportunity cost in case
there is a delay in transfer.
5. Faster settlement and more liquidity: In case of NSDL, settlement is done on
2nd working day from the trade day, i.e. T+2 rolling settlement. This enables faster
turnover of transaction and the liquidity with investor improves.
6. Faster disbursal of non-cash corporate benefits: NSDL facilitates direct credit of
corporate benefits in non-monetary forms such as bonus shares, right shares, etc. to the
account of the investor. It offers the facility of quick and safe transfer of securities, thus
the risk of certificates being lost in transit is eliminated.
7. Reduction in brokerage: Transfer of securities through depositories helps in reducing
the back office paper work, efforts required at the end of brokers and risk faced by them
being an introducer. As a result, the brokerage charged by brokers is also reduced. It is
beneficial to both investors as well as brokers, thus this is a win–win situation for both.
8. Education in handling huge paper work: Online transaction of securities leads to
reduction in paper work as everything is available online and at a click of few buttons.
This doesn’t require maintaining a number of trail documents for the transaction.
9. Status Reports: Periodic statement of accounts containing the details of transactions
executed and status of holding are provided to the investors; thus, facilitating better
controls.
10. Ease in change of investor details: In traditional system, if there was any change in
the details of the investor such as communication address, the investor had to go
through the cumbersome process of getting it changed in every company in which he
has invested. This process has been simplified as now the investor needs to inform his
Depository Participants (DPs) about the change and submit relevant documents. The
data is updated everywhere immediately and there is no need to inform every company
separately.
11. Simplified process of transmission: The transmission of shares held in demat form
can be done by simply providing required documents to DPs and transmission is
reflected in the database of all the companies wherein the investor is listed as a
registered owner of securities. Thus, eliminating the traditional practice in which the
nominee or joint holder had to individually communicate to all the companies in which
he holds shares.
12. Simplified process for sale of securities held on behalf of minor: The guardian who
has been designated as being responsible for minor is not required to take prior approval
of court for selling the securities held in demat form purchased on behalf of the minor.
Since huge amount of money is involved in execution of transactions at NSDL, it is important

to take necessary steps or measures to ensure safety. Various safety measures are carried in
depository system for investors holding such as:
1. Selection criteria decided by SEBI for DP: SEBI, ensures that only credible entities
are selected as depository participants
2. Recording of transactions at central NSDL server: Every transaction executed
through NSDL is duly recorded on its central server and is also reflected in the database
maintained by business partners.
3. Periodic Statement: DPs are required to provide periodic account statements to
investors for better controlling.
4. Periodic checking/inspection: Depository participants and Registrar & Transfer
(R&T) Agents are subject to regular audits by NSDL.
5. Random counter checks: Random checks are done by NSDL by forwarding statement
to random list of investors so that they can match the statement issued by DP & find
out the discrepancy, if any.
6. Control on account entries: Only after the verified instruction of client, DPs are
allowed to execute any debit or credit entries in the concerned account.
7. Protection of data: Data exchange between NSDL & its business partners are protected
by encryption in accordance with latest technologies.
8. Freeze Facility: A Depository account holder can avail freeze options for freezing the
securities lying in the account as long as the account holder wants. An account holder
can activate any of the following freeze options –
1. Debits only
2. Debits & Credits
3. Freezing just an individual ISIN in the account
4. Freezing a specified number of securities that exist as part of an ISIN in an
account
9. Investor Grievance: All the concerns and grievances of investors have to be resolved
by the concerned business partner. If the same cannot be resolved by the business
partner, then one can directly approach to NSDL.
10. Insurance Cover by NSDL: To protect the investors from the loss due to omissions,
errors, negligence of DPs, etc., NSDL covers and compensates for any such loss.
11. Computer & Communication Infrastructure: It is ensured that the computer
hardware and software used by NSDL & its business partner are high end and in
conformation to the industry standards.
Central Depository Services (India) Limited (CDSL)
Central Depository Services (India) Limited (CDSL) was incorporated at Mumbai on

December 12, 1997. The company was initially registered by way of a certificate of registration
on August 19, 1998 by SEBI under the Depositories Regulations and subsequently obtained its
certificate of commencement of business as a depository under Depositories Regulations.
CDSL commenced their depository business in 1999 with the objective of providing
convenient, dependable and secure depository services at affordable cost to all market
participants. The company was initially promoted by BSE, which subsequently divested a part
of its stake to leading Indian banks. CDSL is connected with clearing corporations of all the
leading Indian stock exchanges including the BSE, National Stock Exchange (NSE) and
Metropolitan Stock Exchange of India. CDSL has also entered into MoUs with depositories
across the globe, including Depository Trust & Clearing Corporation, New York (DTCC),
Japan Securities Depository Center, Inc., Tokyo. (JASDEC) and Euroclear.
Company competitive strengths
• Stable revenue base resulting from repeat business in multiple offerings in the Indian
securities and financial services market
• High economies of scale leading to steady growth in profitability
• It is the leading securities depository with the highest share of incremental growth of BO
accounts and second largest in terms of market share
• Provides convenient and dependable depository services at competitive prices for a wide
range of securities
• State-of-the-art technology and robust infrastructure and IT systems
• Led by an experienced senior management team
WHY A DEMAT ACCOUNT WITH CDSL?
1. Convenience:
Wide DP Network: CDSL has a wide network of DPs, operating from over 17,000 sites,
across the country, offering convenience for an investor to select a DP based on his location.
On-line DP Services: The DPs are directly connected to CDSL thereby providing on-line and
efficient depository service to investors.
Wide Spectrum of Securities Available for Demat: The equity shares of almost all A, B1 &
B2 group companies are available for dematerialisation on CDSL, consisting of Public (listed
& unlisted) Limited and Private Limited companies. These securities include equities, bonds,
units of mutual funds, Govt. securities, Commercial papers, Certificate of deposits; etc. Thus,
an investor can hold almost all his securities in one account with CDSL.
Competitive Fees Structure: CDSL has kept its tariffs very competitive to provide affordable
depository services to investors.
Internet Access: A DP, is required to mandatorily register with CDSL.
2. Dependability:
On-line Information to Users: CDSL's system is built on a centralised database architecture

and thus enables DPs to provide on-line depository services with the latest status of the
investor's account.
Convenient to DPs: The entire database of investors is stored centrally at CDSL. If there is
any system-related issues at DPs end, the investor is not affected, as the entire data is available
at CDSL.
Contingency Arrangements: CDSL has made provisions for contingency terminals, which
enables a DP to update transactions, in case of any system related problems at the DP's office.
Meeting User's Requirements: Continuous updation of procedures and processes in tune with
evolving market practices is another hallmark of CDSL's services.
Audit and Inspection: CDSL conducts regular audit of its DPs to ensure compliance of
operational and regulatory requirements.
Dormant Account Monitoring: CDSL has in place a mechanism for monitoring dormant
accounts.
Helpdesk: DPs and investors can obtain clarifications and guidance from CDSL's prompt and
courteous helpline facility.
3. Security:
Computer Systems: All data held at CDSL is automatically mirrored at the Disaster Recovery
site and is also backed up and stored in fireproof cabinets at the main and disaster recovery
site.
Unique BO Account Number: Every BO in CDSL is allotted a unique account number, which
prevents any erroneous entry or transfer of securities. If the transferor's account number is
wrongly entered, the transaction will not go through the CDSL system, unless corrected.
Data Security: All data and communications between CDSL and its users is encrypted to
ensure its security and integrity.
Claims on DP: If any DP of CDSL goes into liquidation, the creditors of the DP will have no
access to the holdings of the BO.
Insurance Cover: CDSL has an insurance cover in the unlikely event of loss to a BO due to
the negligence of CDSL or its DPs.
Corporate Social Responsibility of CDSL
1. Construction of Dormitory and Multipurpose Hall By ADHAR:
As a part of its Corporate Social Responsibility (CSR), CDSL and its group company has
sponsored for construction of New Dormitory and New Multipurpose Hall for ADHAR.
New Dormitory for Male Residents is with the capacity of 50 special adults. The New
Multipurpose hall is to be used for socialisation of the residents and also for various activities
like Morning prayer, Yoga classes, Dance & drawing classes, Residents enjoying movies /
cricket matches on Sundays and holidays (on projector), Playing indoor games like carom,
puzzles etc. The hall can be also utilized for parents’ meetings, Organising various health
camps for residents / staff, Celebration of festivals like - Ganapati, Diwali, Birthday
celebrations, founder day, staff meetings etc. It also will act as Centre station for relaxation
visitors / students’ groups visiting for study tour.
2. Inauguration of Vocational Training Centre By ADHAR
As a part of its Corporate Social Responsibility (CSR), CDSL and CVL has sponsored a
generator set of 40 KVA, 36-seater Bus and construction of Vocational Training Center and
administrative office for ADHAR. The Center was inaugurated on August 15, 2016 by Shri. T.
S. Krishna Murthy, Chairman, CDSL. The Center will endeavour to promote vocational
training to residents so as to develop their skill sets. In the vocational training centre at Adhar,
residents are engaged with different activities like embroidery, screen printing, painting,
drawing and making chalks, candles, Agarbattis, office files, dusters etc.
Commodity Trading Markets
Commodities trade in physical (spot) markets and in futures and forward markets. Spot markets
involve the physical transfer of goods between buyers and sellers; prices in these markets
reflect current (or very near term) supply and demand conditions. Global commodity futures
markets constitute financial exchanges of standardized futures contracts in which a price is
established in the market today for the sale of some defined quantity and quality of a
commodity at a future date of delivery; execution of the contract may be focused on cash
settlement or physical delivery.
Spot Market
Commodities trade in physical (spot) markets and in futures and forward markets. Spot markets
involve the physical transfer of goods between buyers and sellers; prices in these markets
reflect current (or very near term) supply and demand conditions. Global commodity futures
markets constitute financial exchanges of standardized futures contracts in which a price is
established in the market today for the sale of some defined quantity and quality of a
commodity at a future date of delivery; execution of the contract may be focused on cash
settlement or physical delivery.
Types of commodity Derivative Market
a) Forward contracts
They are customized contractual agreements between two parties where they agree to trade a
particular asset at an agreed upon price and at a particular time in future.
These contracts are not traded on an exchange but privately traded over the counter.
b) Futures contracts
These are standardized version of the forward contract which takes place between two parties
where they agree to trade a particular contract at a specified time and at an agreed upon price.
c) Options
It is an agreement between a buyer and a seller which gives the buyer the right but not the
obligation to buy or sell a particular asset at a later date at an agreed-upon price.
d) Swap
The derivatives market involves more than just put and call options. There are also contracts
involving swapping fixed interest rate payment streams for adjustable or floating interest rate
payment streams. A company may have borrowed money under an adjustable interest rate
security such as a mortgage and is now fearful that the interest rate is going to rise. It wants to
protect itself against rises in the interest rates without going through the refinancing of the
mortgage. The company or individual liable for an adjustable rate looks for someone who will
pay the adjustable interest payments in return for receipt of fixed rate payments. This is called
a swap.
Different types of Players in Commodity Market:
Players of commodities market have been classified into three broad categories. They are
Hedgers, Speculators and Arbitrageurs.
Hedgers: Hedging is an investment strategy used for minimising a risk and hedgers are the
practitioners of this strategy. Generally, hedgers are producers or consumers who want to
transfer the price-risk on to the market. Commodities derivatives market provide them an
effective hedging mechanism against adverse price movements. They protect themselves from
risk associated with the price of commodity by using derivatives. For example, an airline
company faces the risk is price rise of fuel. So, they will go for a long position (buy an oil
futures contract) to hedge, just to cover the amount of fuel they expect to buy. Similarly, gold
is the best hedge against inflation.
Speculators: Speculators are sophisticated leading players in commodities futures market.

They are basically risk takers and are never associated with any commodity. They generally
bet against the price movement in the hope of making gains. They undertake speculative
position with respect to anticipating future price movements with a small margin and square-
off anytime during trading hours. They do either by going long or going short positions. Buying
a futures contract in anticipation of price increase is known as 'going long". Selling a futures
contract in anticipation of a price decrease is known as 'going short".
Arbitrageurs: Arbitrageurs are investors who earn from discrepancy in prices between the two
exchanges or between different maturities of the same commodity.
A simple example of arbitraging is simultaneously buying a gold at lower price from one
exchange and selling it on another exchange for higher price. So they make profit from price
difference.
Mechanism of trading
Now we will be dealing on the trading platforms or the software used for trading. In order to
induce more transparency and efficiency in the trading system, NSE and BSE introduced
nationwide online fully automated “Screen Based Trading System”. The trading platform used
by BSE is called BOLT-Bombay Online Trading. The order of investors is placed on the basis
of time and price basis.
Recently BSE has launched new software for trading called BEST (BSE Electronic Smart
Trader). It can be downloaded directly from Android play store and an investor can enjoy zero
transaction charges for 6 months on cross currency derivatives.
Now we will be moving into the trading Process
STEP 1: Finding a Broker
A broker acts as an intermediary or a mediator between the investor and the stock exchange.
The work of a broker is transfer of order electronically from the investor to the exchange. Any
transaction that occurs in stock market is taken care by the stock exchange. Normally in India
the stock exchange for trading is active from 9:15 AM to 3:30 PM. However, from 1st October,
2018 SEBI has decided to extend the trading hours till 11:55 pm in a move to attract the
investors dealing in Indian products on overseas exchanges. The brokers should be selected on
the following basis:
• Watching out for fees taken for opening an online trading account
• Having a proper look at ratings and customer service.

• Brokerage charge for intraday trading
• Brokerage charge on selling a long-held share
• Margin provided by the broker on intraday trading
• The broker must provide information regarding investment opportunities on a regular
basis.
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STEP 2: Opening Account with the Broker
Having selected a broker, it is time to open an online trading account with the broker. A broker
always opens a trading account in the name of the investor/ client only if he/she is satisfied
about the credit worthiness of the client. If the broker feels satisfied with the client, he/she will
open the account by writing the client’s name in the broker’s book. The minimum requirement
for opening a trading account is PAN card, and bank account failing to which the account
cannot be opened.
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STEP 3: Placing the Order
After the account is opened successfully a notification will be provided via email or message.
Then the investor can begin the trading as per his/her wish. The trading or investment is done
by purchasing a specified number of shares of a particular company. The order when placed is
incomplete until the order status shows complete. Different online trading platforms follow
different symbols to mark the order placing. Order can also be placed via a telephonic call with
the broker. There are different types of orders:
Buy Orders
Buy orders are placed when the price of the share is expected to rise. This can be understood
by simple Demand-Supply curve. As the demand increases people buy more and the price
gradually rises. The same logic applies in the share market. As the price of the share rises, the
investors feel the price will further rise and they buy the shares. However the amount of
quantity is fully dependent on the availability of funds and risk associated with the particular
share.
Sell orders
Sell orders are executed when the investor feels that the price of the share will decline from
now on. However, it is totally based on analysis and predictions.
STEP 4: Execution of the Order
The orders are executed by the broker on behalf of the clients. The buy orders must tally the
sell orders if not then the broker will sell/buy to match the order. For this the broker charges an
amount. Normally in an electronic platform the execution occurs automatically.
STEP5: Preparation of Contract Notes
A contract note is a written agreement between the broker and the investor for smooth
execution of the transaction. A contract note is sent through an automated message and via
mail through the registered phone and mail respectively by the end of the day. However it
varies from broker to broker and the timing varies.
A contract contains the transaction name, brokerage charges, trading on BSE/ NSE, SEBI
registration number of the broker, settlement number and a digital signature by the broker.
Below is the portion of a contract note, showing the final amount to be paid by the client.
STEP 6: Contract Settlement
The settlement is done by the clearing agency which functions in each stock exchange. The
clearing agency delivers the share certificates by the end of the day.
Margin Trading
Margin trading is a method of trading assets using funds provided by a third party. When
compared to regular trading accounts, margin accounts allow traders to access greater sums of
capital, allowing them to leverage their positions. Essentially, margin trading amplifies trading
results so that traders are able to realize larger profits on successful trades. This ability to
expand trading results makes margin trading especially popular in low-volatility markets,
particularly the international Forex market. Still, margin trading is also used in stock,
commodity, and cryptocurrency markets.
In traditional markets, the borrowed funds are usually provided by an investment broker. In
cryptocurrency trading, however, funds are often provided by other traders, who earn interest
based on market demand for margin funds. Although less common, some cryptocurrency
exchanges also provide margin funds to their users.
Advantages and disadvantages
The most obvious advantage of margin trading is the fact that it can result in larger profits due
to the greater relative value of the trading positions. Other than that, margin trading can be
useful for diversification, as traders can open several positions with relatively small amounts
of investment capital. Finally, having a margin account may make it easier for traders to open
positions quickly without having to shift large sums of money to their accounts.
For all its upsides, margin trading does have the obvious disadvantage of increasing losses in
the same way that it can increase gains. Unlike the regular spot trading, margin trading
introduces the possibility of losses that exceed a trader's initial investment and, as such, is
considered a high-risk trading method. Depending on the amount of leverage involved in a
trade, even a small drop in the market price may cause substantial losses for traders. For this
reason, it's important that investors who decide to utilize margin trading employ proper risk
management strategies and make use of risk mitigation tools, such as stop-limit orders.
Mark-to-market
Definition:
Mark-to-market refers to the reasonable value of an account that can vary over a period
depending on assets and liabilities. Mark-to-market provides a realistic estimate of a financial
situation. It has been a part of the generally accepted accounting principles in the United States
since 1990 and it is regarded as gold standards in some areas.
Mark-to-market can also be defined as an accounting tool used to record the value of an asset
with respect to its current market price. The mark-to-market principle was largely adopted
during the 20th century.
Mark-to-market is a tool that can change the value on either side of a balance sheet, depending
on the conditions of the market. For example, stocks that an individual hold in his/her demat
account are marked to market every day. At the time of closing of market, the price assigned
to each stock is the price that buyers and sellers decide at the end of the day.
Many people agree that mark-to-market reflects the true value of an asset as it is decided with
respect to the current market price. It can be problematic at times as the value of assets may
vary every second due to changing market conditions and because buyers and sellers keep
coming in and going out in an irregular fashion. In mark-to-market, problems may occur when
market-based measurements do not give the true value of an underlying asset.
Conflict Management
Conflict management is the practice of being able to identify and handle conflicts sensibly,
fairly, and efficiently. Since conflicts in a business are a natural part of the workplace, it is
important that there are people who understand conflicts and know how to resolve them. This
is important in today's market more than ever. Everyone is striving to show how valuable they
are to the company they work for and at times, this can lead to disputes with other members of
the team.
Conflict
Conflicts are natural in all walks of daily life – both at workplace and home. Thus, conflict is
ever present and both charming and maddening. But conflict is a complex and big subject.
There are many sources of conflict. Conflict occurs when individuals or groups are not
obtaining what they need or want and are seeking their own self-interest.
Conflict Management Styles
Conflicts happen. How an employee responds and resolves conflict will limit or enable that
employee's success. Here are five conflict styles that a manager will follow according to
Kenneth W. Thomas and Ralph H. Kilmann:
An accommodating manager is one who cooperates to a high degree. This may be at the
manager's own expense and actually work against that manager's own goals, objectives, and
desired outcomes. This approach is effective when the other person is the expert or has a better
solution.
Avoiding an issue is one way a manager might attempt to resolve conflict. This type of conflict
style does not help the other staff members reach their goals and does not help the manager
who is avoiding the issue and cannot assertively pursue his or her own goals. However, this
works well when the issue is trivial or when the manager has no chance of winning.
Collaborating managers become partners or pair up with each other to achieve both of their
goals in this style. This is how managers break free of the win-lose paradigm and seek the win-
win. This can be effective for complex scenarios where managers need to find a novel solution.
Competing: This is the win-lose approach. A manager is acting in a very assertive way to
achieve his or her own goals without seeking to cooperate with other employees, and it may be
at the expense of those other employees. This approach may be appropriate for emergencies
when time is of the essence.
Compromising: This is the lose-lose scenario where neither person nor manager really
achieves what they want. This requires a moderate level of assertiveness and cooperation. It
may be appropriate for scenarios where you need a temporary solution or where both sides
have equally important goals.
Arbitration
Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one

or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the
parties opt for a private dispute resolution procedure instead of going to court.
Its principal characteristics are:
Arbitration is consensual
Arbitration can only take place if both parties have agreed to it. In the case of future disputes
arising under a contract, the parties insert an arbitration clause in the relevant contract. An
existing dispute can be referred to arbitration by means of a submission agreement between the
parties. In contrast to mediation, a party cannot unilaterally withdraw from arbitration.
The parties choose the arbitrator(s)
Under the WIPO Arbitration Rules, the parties can select a sole arbitrator together. If they
choose to have a three-member arbitral tribunal, each party appoints one of the arbitrators;
those two persons then agree on the presiding arbitrator. Alternatively, the Center can suggest
potential arbitrators with relevant expertise or directly appoint members of the arbitral tribunal.
The Center maintains an extensive roster of arbitrators ranging from seasoned dispute-
resolution generalists to highly specialized practitioners and experts covering the entire legal
and technical spectrum of intellectual property.
Arbitration is neutral
In addition to their selection of neutrals of appropriate nationality, parties are able to choose
such important elements as the applicable law, language and venue of the arbitration. This
allows them to ensure that no party enjoys a home court advantage.
Arbitration is a confidential procedure
The WIPO Rules specifically protect the confidentiality of the existence of the arbitration, any
disclosures made during that procedure, and the award. In certain circumstances, the WIPO
Rules allow a party to restrict access to trade secrets or other confidential information that is
submitted to the arbitral tribunal or to a confidentiality advisor to the tribunal.
An institutional arbitration is one where a specialised institution is appointed and takes on

the role of administering the arbitration process / case management. Each institution has its
own set of rules which provides a framework (such as timelines for the filing of documents or
procedures for making applications etc) for the arbitration and its own form of administration
to assist in the process. Common institutions include the Hong Kong International Arbitration
Centre (HKIAC) and the International Chamber of Commerce (ICC)
The obvious advantage of institutional arbitration is the administrative assistance given by the
institution. For example, the HKIAC now offers tribunal secretary services to the parties. The
availability of established rules also helps move the arbitration forward in a timely manner.
The institution will usually charge a percentage of the disputed sum as their fee – which can
sometimes be substantial in large disputes.
Ad hoc arbitration
On the flip side of the coin, we have ad hoc arbitration. An ad hoc arbitration is one that is not
administered by an institution. Parties will determine between themselves all aspects of the
arbitration, such as the appointment of arbitrator, applicable rules and timetable for filing
various documents.
Without the administering institution, parties in ad hoc arbitrations are free to agree to use the
procedure of their choice. In cases where no procedural rules are agreed, the arbitral tribunal
will administer the arbitration in the way it thinks fit.
An ad hoc arbitration can also be turned into an institutional arbitration. If parties feel they
require the assistance of a specialised institution to run the case at some point, they may by
agreement make such an appointment.
Domestic Arbitration
Domestic arbitration is that type of arbitration, which happens in India, wherein both parties
must be Indians and the conflict has to be decided in accordance with the substantive law of
India. The term ‘domestic arbitration’ has not been defined in the Arbitration and Conciliation
Act of 1996. However when reading Section 2 (2) (7) of the Act 1996 together, it is implied
that ‘domestic arbitration’ means an arbitration in which the arbitral proceedings must
necessarily be held in India, and according to Indian substantive and procedural law, and the
cause of action for the dispute has completely arisen in India, or in the event that the parties
are subject to Indian jurisdiction.
International Arbitration
When arbitration happens within India or outside India containing elements which are foreign
in origin in relation to the parties or the subject of the dispute, it is called as International
Arbitration. The law applicable can be Indian or foreign depending upon the facts and
circumstances of the case and the contract in this regard between the respective parties. To
fulfil the definition of International Arbitration it is sufficient if any one of the parties to the
dispute is domiciled outside India or if the subject matter of dispute is abroad.
Institutional arbitration
Institutional arbitration involves incorporating the rules of the selected institution into the
arbitration clause by reference. That institution will then administer the arbitration. Institutional
rules are designed to set out a framework for the proceedings comprehensively from beginning
to end, so are better suited to cater for contingencies that might arise. This is particularly useful
where a counterpart is refusing to co-operate in the arbitral process.
There are many institutions to choose from. The best-known arbitral institutions include:4
• the International Court of Arbitration at the International Chamber of Commerce (the ICC);
• the London Court of International Arbitration (the LCIA);
• the Singapore International Arbitration Centre (the SIAC);
• the Hong Kong International Arbitration Centre (HKIAC);
• the Arbitration Institute of the Stockholm Chamber of Commerce (the SCC); and
• the American Arbitration Association's International Centre for Dispute Resolution (the
AAA/ICDR).
Marketing Position:
In marketing and business strategy, market position refers to the consumer’s perception of a
brand or product in relation to competing brands or products. Market positioning refers to the
process of establishing the image or identity of a brand or product so that consumers perceive
it in a certain way.
For example, a car maker may position itself as a luxury status symbol. Whereas a battery
maker may position its batteries as the most reliable and long-lasting. And a fast-food restaurant
chain may position itself as a provider of cheap and quick standardized meals. A coffee
company may position itself as a source of premium upscale coffee beverages. Then a retailer
might position itself as a place to buy household necessities at low prices. And a computer
company may position itself as offering hip, innovative, and use-friendly technology products.
The role of market positioning in marketing strategy
Businesses use marketing to create value for customers by making two key decisions:
Decision 1: Choose which customers to serve
This involves:
• Market segmentation (analysing the different parts of a market)

• Targeting (deciding with market segments to enter)
Decision 2: Choose how to serve those customers
This also involves two important parts of marketing strategy:
• Product differentiation (what makes it difference from the competition)

• Market positioning (how customers perceive the product)
Advantages of positioning maps
• Help spot gaps in the market

• Useful for analysing competitors
• Encourages use of market research
Disadvantages of positioning maps
• Just because there is a “gap” doesn’t mean there is demand

• Not a guarantee of success
Access to Commodity Exchange
For many poor rural farmers, getting their products to market is one of the most daunting
obstacles they face. Markets in developing countries often have weak integration, characterized
by a lack of communication and information-sharing; thus, while markets in one region may
offer higher prices for a commodity, farmers in other regions have no way of learning about,
and taking advantage of, these price differences. For those farmers and traders who do venture
to more distant markets, the difficulties and risks involved -- everything from the payment of
bribes at roadside checkpoints to the buyer's default on the contract upon delivery -- often mean
a huge loss in profit. Taken together, these factors keep many rural farmers and traders from
investing in and expanding their businesses.
National Commodity & Derivatives Exchange Limited
NCDEX currently facilitates trading of thirty six commodities - Cashew, Castor Seed, Chana,
Chilli, Coffee, Cotton, Cotton Seed Oilcake, Crude Palm Oil, Expeller Mustard Oil, Gold, Guar
gum, Guar Seeds, Gur, Jeera, Jute sacking bags, Mild Steel Ingot, Mulberry Green Cocoons,
Pepper, Rapeseed - Mustard Seed ,Raw Jute, RBD Palmolein, Refined Soy Oil, Rice, Rubber,
Sesame Seeds, Silk, Silver, Soy Bean, Sugar, Tur, Turmeric, Urad (Black Matpe), Wheat,
Yellow Peas, Yellow Red Maize & Yellow Soybean Meal.
Multi Commodity Exchange of India Limited
MCX offers futures trading in the following commodity categories: Agri Commodities,
Bullion, Metals- Ferrous & Non-ferrous, Pulses, Oils & Oilseeds, Energy, Plantations, Spices
and other soft commodities.
National Multi Commodity Exchange of India Ltd. (NMCE)
NMCE's basket of commodities includes cash crops, food grains, plantations, spices, oil seeds,
metals & bullion among others.
Off-farm Support
As securing off-farm support or searching for a market is often a costly affair to farmers, private
agencies come to the fore. Agri Clinics and Agri-Business Centers might also provide off-farm
technology support to farmers as these are widely owned by farming communities and rural
youth. Technology firms can partner non-profit/private agencies to share their internet services
and promote the adoption of software devices among farmers. For instance, farmer identity
card needs to be digitized and shared with the national informatics center/state data centers that
could reduce a potential leakage during the transaction between merchants and farmers.
Through trading on exchange platform, farmers are provided with price risk management
tools such as futures and options to hedge their price risk. Many recent reports suggested
that farmers have benefitted from the commodity exchang e platforms in India. However,
Indian farmers largely being small and marginal are unable to use commodity derivative
exchanges to manage their price risk constrained by inadequate capital, small marketable
surplus, technical know-how etc.
In this context, FPOs can play a significant role in facilitating farmers’ participation in
these markets to cover their price risks. Exchanges such as MCX have been linking FPOs
with the hedging markets, for ensuring risk management and better returns for farmers’
produce. The advantages of farmers aggregating as FPOs to access the commodity
derivatives market are:
• Small and marginal farmers can mitigate their price risks irrespective of their size
of crop produce.
• The use of commodity exchange platforms can break the vicious cycle of poor
income and lack of market access for small holder farmers.
• Small and marginal farmers can get post-harvest loans against goods deposited in
warehouses using warehouse receipts.
Volume and Open Interest
Volume and Open Interest can be a barometer of future activity and direction. Volume
measures the number of contracts that exchanged hands during the trading session. It measures
market activity. Open Interest is the total number of outstanding contracts. It gauges market
participation.
Future Source tracks volume and open interest on an individual delivery month and total
symbol basis. For example, the study on a daily November Soybean chart only displays the
volume and open interest figures for the November contract.
volume represents the total number of shares or contracts that have changed hands in a one-
day trading session in the commodities or options market. The greater the amount of trading
during a market session, the higher the trading volume. A new student to technical analysis can
easily see that the volume represents a measure of intensity or pressure behind a price trend.
The greater the volume, the more we can expect the existing trend to continue rather than
reverse.
It refers to the outstanding, or open, position of traders on a futures or options contract. OI is a

measure of the money that’s flowing into a market or an asset like gold, crude, etc.
UNIT-6 CLEARING AND SETTLEMENT ON COMMODITY EXCHANGES
CLEARING, SETTLEMENT AND DELIVERY PROCEDURE
The Exchange has specified the processes, procedures and operations that every clearing
member shall be required to follow for participation in the clearing and settlement activities
and operating their bank accounts with the clearing Banks appointed by the Exchange.
1. Functions of the Clearing Bank: The Exchange has appointed 12 Clearing Banks viz. SBI,
HDFC Bank, Induslnd Bank, UTI Bank, Kotak Mahindra Bank, Citibank, Union Bank of India,
Corporation Bank, DCB, Yes Bank and ICICI Bank for transfer of funds between clearing
members and the Exchange.
2. Members to have accounts with the Clearing Bank: Every member of the Exchange shall
have designated Clearing Bank, which has electronic funds transfer facility. Members shall
operate the settlement account only for the purpose of settlement of deals entered through the
Exchange for the payment of margin money and for any other purpose as may be specified by
the exchange. Every member of the Exchange is required to open the following accounts with
any of the clearing banks stated above:
• Settlement Account or Clearing account in which the member will not have cheque book
facility for issuing cheques to any outsiders. He can only issue cheques from this account for
transfer of money from this account to his Client Account. Apart from any such transfer, only
the Exchange will have the power to withdraw money from this account by way of direct debit
instructions. In respect of all pay in, margins, charges and other dues payable to the Exchange,
the Exchange will send direct debit instructions to the bank advising them to debit the
settlement account of the respective member by such payable account.
• Client Account- in which the member can deposit all cheques, cash, etc. received from clients
and from members can issue cheques to their clients towards their receivables. The member
has cheque book facility for this account and he will also be entitled to issue transfer
instructions to the bank for transferring money from this account to Settlement account to meet
his pay in or margin obligations.
Clearing Banks act as per the instructions of the Exchange The Exchange shall instruct the
Clearing Banks as to the debits and credits to be carried out for settlement of funds between
members. For this purpose, members of the Exchange will be required to submit a letter to the
bank, as per format given in the rules for authorizing to the Exchange to issue such debit and
credit instructions. The Clearing Bank shall act as to the debits and credits to a member’s
account shall be deemed to be irrevocable, confirmed and binding. In order to enable the
Exchange to issue such instructions for debiting their account and also to authorize the
Exchange in respect of freezing the account or to hold further debits, every member will be
required to submit a written undertaking addressed to the bank to such effect. This undertaking
will also authorize the bank to sweep the client account of the respective member for any
shortfall in the settlement account. Besides, the Exchange will also the power to freeze various
accounts of the member maintained with the clearing bank, in case of any default or shortfall
in pay in or margin account.
3. Clearing Account (s) of Exchange in the Clearing Bank and Operational procedure: The
Exchange maintains its settlement account with the clearing bank and all money received from
the members towards pay in or margin, shall be used appropriately for settlement.
The operational procedure related to the settlement account, pay in and pay out activities and
the exact time schedule in order to maintain financial discipline shall be adhered to by members
of the Exchange. The operational procedure, for the time being, will be as follows:
• After the end of the trading session every day, a files/reports will be downloaded by
members through FTP (File Transfer Protocol), which will contain details of all
transactions executed by the member on that day, positions carried forward from the
previous day, closing position of the day including net obligation of the member.
• The net obligation report will further provide the amount of margin deposit, margin
utilized available deposit/margin required, pay in/pay out amount transaction fee
payable/receivable, etc. The net obligation report is available and can be downloaded
terminal wise. It is also consolidated at the member’s level in terms of net obligation
payable/receivable.
• On the basis of this file, the Exchange will generate an automated statement for debit
and credit of settlement accounts of the respective members by the amount
payable/receivable by them. This file will be sent electronically to the bank the next
day in the morning at 9.00 a.m.
The process of the files being processed by the bank as follows:
• The pay-in files are processed
• Then the pay-out files are processed

• The margin deficit files are then processed
• Throughout the day, shortage files (information containing details of deficit payment) are
processed
• The member must have sufficient clear balance in his settlement account so as to affect
such debits. In case the amount of margin is payable, the member is not allowed to trade
until he deposits the required margin along
with additional deposits the required margin amount, the bank will run the margin file at
10 am and report to the Exchange electronically the successful debits. However, to pay an
additional amount towards additional deposit/margin. On the basis of this written request,
the Exchange will forward individual debit instructions to the bank for debiting the
respective settlement account and crediting the Exchange settlement account. As soon as
the Exchange gets such confirmation, the limits are accordingly increased.
Clearing House Operations
A clearing house acts as a mediator between any two entities or parties that are engaged in a
financial transaction. Its main role is to ensure that the transaction goes smoothly, with the
buyer receiving the tradable goods he intends to acquire and the seller receiving the right
amount paid for the tradable goods he is selling.
Functions of a Clearing House
As mentioned, a clearing house is basically the mediator between two transacting parties.
However, there is also more to what clearing houses do. Let’s take a look at some of their
functions in more detail.
• The clearing house guarantees that the transactions will occur smoothly and that both
parties will receive what is due to them. This is done by checking the financial
capabilities of both parties to enter into a legal transaction, regardless of whether they
are an individual or an organization.
• The clearing firm makes sure that the parties involved respect the system and follow
the proper procedures for a successful transaction. The facilitation of smooth
transactions leads to a more liquid market.
• It is the clearing house firm that provides a level playing field for both parties, where
they can agree on the terms of their negotiation. This includes having the responsibility
for setting the price, quality, quantity, and maturity of the contract.
• The clearing house makes sure that the right goods are delivered to the buyer, in terms
of both quantity and quality, so that at the end of the transaction there are no complaints
nor arbitration necessary.
Importance of Clearing Houses
A common fear of traders about the market is getting involved in transactions that don’t end
well, with one of the parties not fulfilling their end of the agreement. Clearing houses function
to provide extra security so that investors can trade freely, knowing that their investment
decisions will be honoured and enforced by the clearing firm.
DELIVERY PROCEDURE
1. Delivery Period: Each futures contract for specified delivery month shall be deemed to have
entered the delivery period from such date of its expiry month, as specification. The futures
contract can result in delivery of the underlying commodity within this period on designated
tender days fixed by the Exchange will have the right to fix, after, extend or postpone such
delivery period, if it is expedient to do so.
2. Designated Tender Days: The tendering of deliveries shall be permitted only on specific
tender days during the delivery period. The Exchange notifies such tender days in advance.
3. Delivery Logic: Delivery logic refers to the type of choice available to the buyers and seller
having open position during tender/delivery period, for delivery of the commodity. The
different delivery options are “seller’s option”, “both option”, and “compulsory delivery”.
4. Seller Option: In the “seller’s option”, the seller having an open position of a contract during
the tender/delivery period will have the option to give delivery. In this case it obligatory for
the buyer who has been marked, to accept delivery or pay penalty.
5. Compulsory Delivery: In case of “compulsory delivery” both buyers and sellers with open
position upon the expiry of the contract, are obligated to take/give delivery of the commodity.
6. Both Options: In case of “both option” the delivery will be executed only when both buyers
sellers agree to take/give delivery. If they do not give intention for delivery, such open position
are cash settled at the due date rate.
7. Delivery Orders and Delivery Lot: All deliveries tendered by Members on designated tender
days shall be in the form of “Delivery Orders” issued in favour of the buyers, as per instructions
of the MCX. The Delivery Orders shall be filled up in the prescribed form and shall clearly
state the contract particulars including quantity, quality and the delivery centre, along with full
postal address of the place where goods are stored. The delivery orders must be received by
MCX by 3 pm (or the time specified in the contract specification) on the specified delivery
days; otherwise it is treated as valid only for the subsequent delivery day.
Risk Management
Risk management encompasses the identification, analysis, and response to risk factors that
form part of the life of a business, and it is usually done with its best interest in mind. Effective
risk management means total control of future outcomes proactively rather than reactively.
Therefore, effective risk management offers the potential to reduce both the possibility of a
risk occurring and its impact.
Definition: Risk implies future uncertainty about deviation from expected earnings or expected
outcome. Risk measures the uncertainty that an investor is willing to take to realize a gain from
an investment.
1. Identify existing risks
Risk identification mainly involves brainstorming. A business gathers its employees together
so that they can review all the sources of risk. The next step is to arrange all the identified risks
in order of priority. Because it is not possible to mitigate all existing risks, prioritization ensures
that those risks that can affect a business significantly are dealt with urgency.
2. Assess the risks
In many cases, problem resolution involves identifying the problem and then finding an
appropriate solution. However, prior to figuring out how best to handle risks, a business should
locate the cause of the risks by asking the questions “What caused such a risk and how would
it influence the business?”
3. Develop an appropriate response
Once a business entity is set on assessing likely remedies to mitigate the identified risks and
prevent their recurrence, it needs to ask the following questions: What measures can be taken
to prevent the identified risks from recurring? In addition, what is the best thing to do if it does
recur?
4. Develop preventive mechanisms for identified risks
Here, the ideas that were found to be useful in mitigating risks are developed into a number of
tasks and then into contingency plans that can be deployed in future. If risks occur, the plans
can be put to action and thus there would be no need to deploy emergency measures.
Risks Management Structures
Risk management structures are tailored to do more than just point out existing risks. A good
risk management structure should also calculate the uncertainties and predict their influence on
a business. Consequently, the result is choice between accepting the risks and rejecting them.
Acceptance or rejection of risks is dependent on the tolerance levels that a business already
defined for itself.
If a business sets up risk management as a disciplined and continuous process for the purpose
of identifying and resolving risks, then the risk management structures can be used to support
other risk mitigation systems. They include planning, organization, cost control, and budgeting.
In such a case, the business will not experience any surprises because the special focus will be
on proactive risk management.
Response to Risks
Response to risks usually takes the following forms:
1. Avoidance: A business strives to eliminate a particular risk by getting rid of its cause.
2. Mitigation: Decreasing the projected financial value associated with a risk by lowering the
possibility of the occurrence of the risk.
3. Acceptance: In some cases, a business may be forced to accept a risk. The option is possible
if a business entity develops contingencies to mitigate the impact of the risk should it occur.
When creating contingencies, a business needs to engage a problem-solving approach. The

result is a well-detailed plan that can be executed as soon as the need arises. Such a plan will
allow a business organization to handle barriers or blockage to its success and that it can deal
with risks as soon as they arise.
Delivery centres & Delivery varieties
• Gearing up for spot exchange launch, MCX will set up six new bullion delivery centres
one each in Mumbai, Delhi, Chennai, Kochi, Hyderabad and Kolkata in a couple of
months. The exchange currently has delivery centre only in Ahmedabad.
• The country’s largest commodity derivative exchange has joined hands with the Indian
Bullion and Jewellery Association to explore launch of a bullion spot exchange.
• The activities related to Delivery & Settlement of commodities traded on the Exchange
platform are monitored and performed by Delivery Department. The department also
acts as a facilitator for delivery related documentation.
• The functions are performed on a predefined settlement schedule to effect Delivery &
Settlement of commodities.
• In addition to Ahmedabad (basis centre), Mumbai and New Delhi, the exchange has
now set up additional delivery centres at Chennai, Hyderabad, Kochi, Bengaluru and
Kolkata.
The network of eight delivery centres spread across India’s main consumption centres will be
a harbinger of seamless and efficient integration between the spot and derivatives market. This
would facilitate lakhs of jewellers, big and small, to conveniently take physical deliveries of
gold through exchange mechanism from their nearest location. This would further strengthen
country’s bullion eco-system and benefit stakeholders at large. Since inception MCX has
observed deliveries of more than 105 tons of gold
Market Surveillance
• Derivative prices are widely quoted and disseminated throughout the U.S. and abroad.
Business, agricultural, and financial enterprises use futures markets for pricing information and
for hedging price risk.
• The Commission's Market Surveillance Branch is focused on protecting market users and the
public from fraud, manipulation and abusive practices that are prohibited by the Commodity
Exchange Act, and fostering open, competitive, and financially sound derivatives markets. It
does this by monitoring trading activity:
• to detect and prevent manipulation or abusive practices and
• to ensure compliance with the Commission's speculative position limit regulations.
• Futures contracts that require the delivery of a physical commodity are most susceptible
to manipulation when the deliverable supply on such contracts is small relative to the
size of positions held by traders, individually or in related groups, as the contract
approaches expiration.
• The more difficult and costly it is to augment deliverable supplies within the time
constraints of the expiring futures contract's delivery terms, the more susceptible to
manipulation the contract becomes. Examples of some pertinent surveillance questions
for these markets include:
Regulatory Response When Problems Develop
The market surveillance process is not conducted exclusively at the CFTC. Surveillance issues
are usually handled jointly by the CFTC and the appropriate exchange. Relevant surveillance
information is shared. Potential problem situations are jointly monitored and, if necessary,
verbal contacts are made with the participants in question. These contacts may be for the
purpose of understanding their trading, confirming reported positions, or alerting the brokers
or traders as to the regulatory concern for the situation.
The Commission customarily gives the exchange the first opportunity to resolve problems in
its markets, either informally or through emergency action. If an exchange fails to take actions
that the Commission deems appropriate, the Commission has broad emergency powers under
which it can order the exchange to take actions specified by the Commission. Such actions
could include imposing or reducing limits on positions, requiring the liquidation of positions,
extending a delivery period, or closing a market. Fortunately, most issues are resolved without
the need to use the CFTC's emergency powers. The fact that the CFTC has had to take
emergency actions only four times in its history demonstrates its commitment not to intervene
in markets unless all other efforts have been unsuccessful.
Enforcement of Position Limits
The CFTC surveillance staff also monitors compliance with Commission or

exchange speculative limits. These rules help prevent traders from accumulating concentrated
positions that could disrupt a market. To monitor those limits, the market surveillance staff
reviews daily for potential violations. Although bona fide hedgers are exempt from speculative
limits, Commission staff monitors hedgers' compliance with their exemption levels.
Commercial traders that carry futures and option positions in excess of Commission
speculative position limit levels are required to submit a monthly statement of cash positions.
These statements show the total cash position of each trader, which reflects the amount of the
trader's actual physical ownership of each commodity and the amount of the trader's fixed-price
purchases and sales for which the trader has a legitimate cash exposure at risk. Commission
staff compares each trader's cash position to the trader's futures and option positions.
Different Approaches and Strategies to Trading Commodity Futures
Once one understands how commodity trading can be a viable investment vehicle, an
understanding of various commodity trading strategies is paramount to identifying
opportunities when they present themselves, while noticing the level the of risk.
The two primary approaches to Commodity Trading are either fundamental or technical
analysis.
Since most commodities are agricultural such as grains, livestock and softs (cotton,
cocoa, orange juice, coffee and sugar (with the Energies being an exception), there are
cycles that they go through as they go through the growing year or life cycle and can be
traded in a seasonal strategy. These seasonal tendencies, along with supply and demand
analysis, make up some of the Commodity Fundamentals traders use to identify
potential opportunities while acknowledging that even seasonal tendencies can be

unreliable and move counter seasonal.
Then there are those traders, who while they may be aware of some o f the commodity
trading fundamentals, still rely on commodity charts and patterns that form. Commodity
technical traders usually use indicators such as moving averages and overbought -
oversold indicators for confirmation of signals that price charts are ref lecting. There are
a plethora of indicators that commodity traders can choose from and some traders use
them solely for buy and sell signals and are used extensively in Algorithmic trading.
Whether the Trader is trading commodities technically or fundamentally, there are

several basic approaches and commodities trading strategies.
One popular approach is day commodity trading, where a trader closes out all trades
that have been made during the time the commodity trading markets are open, but before
the close. Day Traders use short time frame charts and indicators looking for short,
quick profits without risking much capital. Charts comprised of 1 -min., 5-min., 10-min.
and/or 15-min. price intervals are commonly used.
Another shorter term approach to commodity trading is swing trading, which can still
be a Day Trade but with a slightly longer life span, using 30 -min. or 60-min. charts and
usually looks for the trend for the day and tries to, in the case of an uptrend for example,
buy the dips and sell the rallies and might be in each trade for an hour or two, to a few
days.
One of the oldest approaches to commodity trading is the position or trend trade where
the trader is in the market trying to catch a trend that can last days, weeks and even
months.
Successful commodity traders know the commodity trading secrets and distinguish between
trading different types of financial markets. Trading commodities is different from trading
stocks. It’s a different game, but a game worth learning for investors. Every investment
instrument is unique in terms of how best to generate profits from trading it.
Trend Trading Strategy
Trend trading is a popular strategy as it enables traders to identify and take advantage of market
momentum. Discover how to get started trend trading, including how to use three trend-
following indicators.
Trend trading is a strategy that involves using technical indicators to identify the direction of
market momentum. It is based on the idea that markets have an element of predictability, so by
analysing historical trends and price movements, a trader will be able to forecast what could
happen in the future.
Trend trading is usually considered a mid to long-term trading strategy, but it can in theory
cover any timeframe, depending on how long the trend lasts. It is usually adopted by traders
who prefer a position trading or swing trading style. Position traders are those who will hold a
trade for the entirety of the prevailing trend, ignoring day-to-day fluctuations, while swing
traders are those who will identify a trend and ride it from start to finish.
Three top trend indicators
Traders have come up with a variety of ways to identify these primary trends, including looking
at price action, but the most common trend trading strategies use technical indicators. Popular
trend trading indicators include:
• Moving average
• Relative strength index (RSI)
• Average directional index (ADX)
Margin in Commodity Futures Contracts
One of the unique characteristics of commodity futures contracts is the ability to trade with
margin. If you’ve ever traded stocks, you know that margin is the amount of borrowed money
you use to pay for stock. Margin in the futures markets is slightly different than stock market
margin.
In the futures markets, margin refers to the minimum amount of capital that must be available
in your account for you to trade futures contracts. Think of margin as collateral that allows you
to participate in the futures markets.
• Initial margin: The minimum amount of capital you need in your account to trade
futures contracts
• Maintenance margin: The subsequent amount of capital you must contribute to your
account to maintain the minimum margin requirements
Margin requirements are established for every type of contract by the exchange on which
those contracts are traded. However, the futures broker you use to place your order may
have different margin requirements. Make sure you find out what those requirements are
before you start trading.
UNIT-7 REGULATORY FRAMEWORK OF COMMODITIES BOARD IN INDIA
Introduction
The Central Government may, by notification in the Official Gazette establish a Commission
to be called the Forward Markets Commission for the purpose of exercising such functions and
discharging such duties as may be assigned to the Commission by or under this Act.
Functions of the Commission:
• To advise the Central Government in respect of the recognition of, or the withdrawal
of recognition from, any association or in respect of any other matter arising out of the
administration of this Act;
• To keep forward markets under observation and to take such action in relation to them
as it may consider necessary, in exercise of the powers assigned to it by or under this
Act;
• To collect and whenever the Commission thinks it necessary publish information
regarding the trading conditions in respect of goods to which any of the provisions of
this Act is made applicable, including information regarding supply, demand and
prices, and to submit to the Central Government periodical reports on the operation of
this Act and on the working of forward markets relating to such goods;
• To make recommendations generally with a view to improving the organisation and
working of forward markets;
• To undertake the inspection of the accounts and other documents of 5 [any recognised
association or registered association or any member of such association] whenever it
considers it necessary; and
• To perform such other duties and exercise such other powers as may be assigned to the
Commission by or under this Act, or as may be prescribed.
Forwards Market Commission
The Forwards Market Commission is a statutory entity which is involved in monitoring and
regulating the operations, activities of the Commodities futures market in India.
• It is setup under the Forward Contracts (Regulation) Act of 1952.

• FMC has its headquarters in Mumbai and a regional office in Kolkata.
• It earlier functioned under the Ministry of Consumer affairs; this was prior to the NSEL
crisis. Now it functions under the Department of Economic Affairs of Ministry of
Finance.
Objectives of Forward Markets Commission (FMC):
• The Forward Markets Commission (FMC), is the chief regulator of the Forwards and
Futures market in the country. The Commission gives regulatory insights to
ensure financial integrity, and market integrity. It works towards protecting and
promoting the interest of consumers or non-participants.
• The FMC assesses the market situation and takes into account the recommendations
made by the Commodity exchanges for prescribing the rules and regulations of the
Exchange. The Commission accords permission for conducting trade in distict
contracts, while monitoring the market conditions continuously. It takes remedial
measures wherever necessary to impose regulatory measures.
Composition:
According to the Forward Contracts (Regulation) Act,1952 the commission should comprise
of 2 members and a Chairman. These all three are appointed by the Central government.
Generally, the Chairman is a member of the Indian Administrative Services and the members
are from the Indian Economic Services.
Functions of FMC:
Forward Market Commission functions as a sole institution governing the commodities market
in India. It executes a variety of roles.
1. It counsels the Central Government for matters regarding recognition or withdrawal of

the previously accorded recognition from any of the registered association.
2. It also provides advice on any other matters that arise as a result of the administration
of the Forward Contracts (Regulation) Act 1952.
3. FMC provides suggestions to uplift and improve the functioning of the Commission as
well as the Futures markets.
4. The Commission can cross-check and inspect the accounts as well as any other
documents of the registered associations and their members.
5. It keeps a vigil on the Future commodities market and also exercises its discretionary
powers in the interest and growth of the markets and consumers.
6. FMC is mandated to source, collect and publish the information about trading
conditions for various commodities covered under the purview of the governing act.
These details are generally about the demand, supply and prices.
Commodity exchanges:
6 National level exchanges involved in the Forward Commodity trading in India. These
important six national exchanges are:
1. MCX (Multi-commodity Exchange of India Limited) located in Mumbai.

2. NCDEX (National Commodity and Derivatives Exchange Limited) situated in
Mumbai.
3. NMCE (National Multi-commodity Exchange of India Limited) located in Ahmedabad.
4. ICEX (Indian Commodity Exchange Limited) based in New Delhi.
5. ACEINDIA (Ace Derivatives and Commodity Exchange Limited) located in Mumbai.
6. UCX (Universal Commodity Exchange Limited) located in Navi Mumbai
Derivative Market in India
National Stock Exchange (NSE):
National Stock Exchange of India Limited has genesis in the report of the High-Powered Study
Group on Establishment of New Stock Exchanges. It recommended promotion of a National
Stock Exchange by financial institutions (FIs) to provide access to investors from all across the
country on an equal footing. Based on the recommendations, NSE was promoted by leading
Financial Institutions at the behest of the Government of India and was incorporated in
November 1992 as a tax-paying company unlike other stock exchanges in the country.
The National Stock Exchange (NSE) is India's leading stock exchange covering various cities
and towns across the country. NSE was set up by leading institutions to provide a modern, fully
automated screen-based trading system with national reach. The Exchange has brought about
unparalleled transparency, speed & efficiency, safety and market integrity. It has set up
facilities that serve as a model for the securities industry in terms of systems, practices and
procedures. NSE has played a catalytic role in reforming the Indian securities market in terms
of microstructure, market practices and trading volumes. The market today uses state-of-art
information technology to provide an efficient and transparent trading, clearing and settlement
mechanism, and has witnessed several innovations in products & services viz. demutualisation
of stock exchange governance, screen based trading, compression of settlement cycles,
dematerialisation and electronic transfer of securities, securities lending and borrowing,
professionalisation of trading members, fine-tuned risk management systems, emergence of
clearing corporations to assume counterparty risks, market of debt and derivative instruments
and intensive use of information technology.
Products of NSE:
Equities Segment:
• Equities;
• Indices;
• Mutual Funds;
• Exchange Traded Funds;
• Initial Public Offerings;
• Security Lending and Borrowing Scheme.
Derivatives Segment:
• Equity Derivatives;
• Currency Derivatives;
• Interest Rate Futures.
Essential Commodities Act, 1955.
There are many commodities essential to our day-to-day life for the purpose of meeting the
basic needs related to food, clothing, housing, health, education, transportation etc. Due to
greedy tendency of some traders to make more profit, the scope and is a possibility of hoarding,
black marketing and other unfair trade practices had gone up with these essential commodities.
To make these commodities easily available with fair price and quality to the common man,
The Government of India enacted an Act in 1955 called ‘Essential Commodities Act, 1955’ in
the interest of general public for control of production, supply, distribution, trade and
commerce of certain commodities. The Act came in force from 1st April 1955.It is a socio-
economic legislation, which safeguards the interest of common man. The Act and various
Orders issued under this Act provide necessary powers to the Government to deal with certain
emergent situations arising from time to time concerning to Essential Commodities. The Orders
related to food and food processing ensures various aspects of food safety and quality. In order
to meet the changing needs of the society, the Control Orders have been amended from time to
time by notifying in official Gazettes. The major amendments were made in1981 with some
special provisions in various Sections of the Act.
Objectives
1. Maintaining an uninterrupted supply of essential commodities in the country.
2. The government (Ministry of Consumer Affairs, Food & Public Distribution) tries to keep
the price of essential commodities stable. The central government also fixes the maximum
retail price for such goods. As in the case of masks, the maximum retail price of 2 ply masks
has been fixed at Rs 16.
3. Preventing unnecessary storage of essential commodities
4. Stop black marketing of essential commodities
The list of items under the Act include
1. Drugs;
2. Fertilizer, whether inorganic, organic or mixed;
3. Foodstuffs, including edible oilseeds and oils;
4. Hank yarn made wholly from cotton;

5. Petroleum and petroleum products;
6. Raw jute and jute textile;
7. (i) seeds of food-crops and seeds of fruits and vegetables;
(ii) seeds of cattle fodder; and
(iii) jute seeds;
(iv) cotton seed
The Centre can include new commodities as and when the need arises, and take them off the
list once the situation improves.
In view the ongoing outbreak of COVID-19 (Corona Virus) and concern of the logistics for
COVID-19 management particularly during last couple of weeks and that masks (2 ply & 3 ply
surgical masks, N95 masks) and hand sanitizers have been noted to be either not available with
most of the vendors in the market or are available with great difficulty at exorbitant prices,
Government has notified an Order under the Essential Commodities Act to declare these items
as Essential Commodities up to 30th June, 2020 by amending the Schedule of the Essential
Commodities Act, 1955. It has also issued an advisory under the Legal Metrology Act. Under
the E.C Act, after discussions with the manufacturers, States can ask them to enhance their
production capacity of these items, to make the supply chain smooth, while under the L.M. Act
the States can ensure sale of both the items at MRP.
Punishment under the Essential Commodities Act,1955
The States or Union Territories may take action against the offenders under the Essential
Commodities Act,1955 and Prevention of Black-marketing and Maintenance of Supplies of
Essential Commodities Act, (PBMMSEC Act), 1980.
An offender under the Essential Commodities Act,1955 may be punished with imprisonment
up to 7 years or fine or both and under the PBMMSEC Act, he can be detained for a maximum
of 6 months.
Investor grievances and Arbitration
Investors can approach the Exchange at the Investors Grievance Department for the redressal
of their grievance/s against the registered Trading Member of the Exchange. Exchange has a
mechanism of resolving disputes by co-ordinating with the member and the complainant.
Any investor/ clients who has a complaint can lodge/register a complaint with the Exchange in
the prescribed “Client Complaint form (CCF)”or through online portal by clicking on the link
provided below or by sending their complaint through email:
On receipt of complaint, Exchange initially tries to resolve the complaint by following up with
the member and the complainant. All complaints which do not get resolved within fifteen days
from the date of lodging the complaints with Exchange or cases where parties are aggrieved by
the resolution worked out would be referred to Grievance Redressal Committee (GRC).
Arbitration
Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one

or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the
parties opt for a private dispute resolution procedure instead of going to court.
Arbitration in India is governed by the law of arbitration in India which states that the for
adopting the arbitration as a dispute resolution mechanism an agreement to that effect should
be signed between the disputing parties. The parties can either opt for a separate arbitration
agreement to be signed between them or include an arbitration clause in the main contract
between the parties.
Applicable legislation
The Arbitration and Conciliation Act, 1996 (Arbitration Act) applies to arbitrations in India.
Part I of the Arbitration Act deals with arbitrations seated in India and Part II deals with
arbitrations seated outside India. Certain provisions of Part I of the Arbitration Act (such as
court assistance in aid of arbitration) also apply to arbitrations seated outside of India.
There have been a series of judicial decisions and legislative amendments in recent years that
apply partly prospectively and partly retrospectively. The version of the Act that will apply in
any case will depend on the date on which:
• The arbitration was commenced.
• Court proceedings relating to the arbitration (if any) were commenced.
• The arbitration agreement was executed.
For all arbitrations commenced on or after 23 October 2015, the Arbitration Act, as amended
in 2015, will apply. The Arbitration Act was also recently amended in 2019. The amendments
are silent as to whether they would apply to arbitrations initiated prior to the 2019 amendments
coming into force on 30 August 2019; however, for all arbitrations initiated after the
commencement of the 2019 amendments, the Arbitration Act, as amended in 2019, will apply.
The Arbitration Act is largely based on the UNCITRAL Model Law (Model Law). There are
however some significant departures which make it difficult to apply the Model Law
jurisprudence directly to each case. For example, the standard for referring parties to arbitration
under the Arbitration Act is significantly lower than that prescribed under the Model Law. The
Arbitration Act prescribes time limits for the completion of an arbitration, while the Model
Law does not. Further, unlike the Model Law, the Arbitration Act contains detailed provisions
about the imposition of costs.
Commodity Boards in India
The Government of India has set up Commodity Board as a separate organization to promote
the export of commodities. Commodity Boards regard themselves as a match to export
promotion council. However, the following differences may be observed between Commodity
Boards and Export Promotion Council.
1. Commodity Boards look after the export promotion of primary and traditional items of
export. While the export promotion council is responsible for the promotion of non-traditional
items like engineering goods, computers, chemicals, etc.
2. Commodity Boards are statutory bodies, while export promotion councils are registered
bodies under the Indian Companies Act.
3. Apart from export promotion, Commodity Boards take up product development. Export
promotion councils are concerned mainly with the promotion of exports of respective products.
Objective and Function of Commodity Boards
1. Advising the government on policy matters such as fixing quotas for exports, entering into
trade agreements with foreign countries, etc.
2. Undertaking promotional activities such as participation in exhibition and trade fairs,

opening of foreign offices abroad, conducting marketing surveys, sponsoring trade delegations,
etc.
3. Promoting the consumption of commodities in their jurisdiction by opening branch offices

in foreign countries.
4. Resolving all problems relating to commodities in their jurisdiction.
5. Undertaking research activities to develop production and marketing activities within the
country. Commodity Boards have research units of their own. Examples include Central Coffee
Research Institute, Rubber Research Institute, Coir Research Institute at Allepply, the Central
Sericulture Research Station at Berhampur, etc.
There are five statutory Commodity Boards under the Department of Commerce. These
Boards are responsible for production, development and export of tea, coffee, rubber,
spices and tobacco.
1. Coffee Board: The Coffee Board was established under the Coffee Act of 1942. It aims at
the development of the industry and the promotion of its exports. The Coffee Board has set up
a Central Coffee Research Institutes and also six coffee demonstration farms. The results of its
research activities are made available to coffee growers. The Board advertises its product in
foreign trade journal and mass circulation newspaper media. It also participates in trade fairs
and exhibitions to promote the export of the product.
Extension Services
The principal activity of Extension Service of the Coffee Board is to transfer of coffee
technologies standardised by the research department to the coffee growers for achieving better
production/productivity vis-a-vis improving the quality of coffee. Thus it helps to bridge the
gap between coffee planters and research scientists in implementation of coffee technology in
the coffee estates.
Around 3.47 lakh hectares cultivated by over 1.64 lakh growers are covered by the extension
service in the traditional tracts of Karnataka, Kerala and Tamil Nadu.
The Joint Director of Extension at Hassan monitors and guides the extension activities of the
four Dy. Directors of Extension, Seven Senior Liaison Officers and twenty three Junior Liaison
Officers in Karnataka.
The Joint Director of Extension at Kalpetta monitors and guides the extension activities of two
Dy. Directors of Extension, eight Senior Liaison Officers and thirteen Junior Liaison Officers
in Kerala and Tamil Nadu States.
The Director of Research, Central Coffee Research Institute, is in overall supervision for
implementation of Extension Plan Programmes and Extension Services.
The Planning and Co-ordination of various schemes/activities and monitoring of the same is
done by the Planning & Co-ordination Cell at HO, Bangalore.
COFFEE RESEARCH IN INDIA

India is one of the few countries in the world that have initiated research efforts in coffee with
an objective of providing technical guidance to the planting community. The United planters
Association of South India (UPASI) established in 1892 took first major step in organizing
research efforts to tackle various pests and diseases afflicting the coffee plantations. Later,
Dr.L.C.Coleman, the Director of Agriculture in the erstwhile Mysore government, in a major
visionary effort established an exclusive research station for coffee namely the Mysore Coffee
Experimental Station near Balehonnur in Chikmagalur district of Karnataka in the year 1925,
with primary objectives of breeding resistant varieties and to evolve control measures against
pests and diseases. Dr.M.K.Venkata Rao, a Mycologist was the first Research Officer in-charge
of the Experimental Station and was responsible for collection of leaf disease resistant arabica
material from different areas between 1925-31. The pioneering studies of Mr.W.W.Mayne, the
Coffee Scientific Officer deputed by UPASI, on the existence of physiological races of coffee
leaf rust fungus and periodicity of leaf rust incidence paved way for rationalization of Bordeaux
mixture spraying on an extensive scale. His efforts in association with Sri.K.H.Srinivasan,
Asst. Director of Agriculture and Sri.R.L.Narasimhaswamy, Plant Breeding Inspector resulted
in the release of first improved arabica selections S.288 and S.333 for planting by 1940.
2. Tea Board: The Tea Board was established by the Government of India under the Tea Act
of 1955. Development of the tea industry and the promotion of its export are the main
objectives of the Tea Board. The board has set up offices in India as well as abroad. It works
in collaboration with the Tea councils set up in the U.K, the USA, Germany, France, Australia,
New Zealand and Canada with the cooperation of other tea producing countries. The Board
also arranges for pre-shipment inspection and quality control under the Tea Control Order of
1959.
3. Rubber Board: The Government of India established the Rubber Board under the Rubber
Act of 1947 as a statutory body. The Board advises the government on all matters related to
rubber industry. Further, it undertakes control, planning, marketing and acquisition of rubber.
Rubber Board promotes the development of rubber industry in India. It is responsible for the
registration of estates, issue of new planting and replanting licenses and other development
schemes such as replanting subsidy. It has set up a Rubber Research Institute with well-
equipped laboratories. Its publications are very useful for the rubber industry.
The functions of the Board as defined under the Act are:
1.To promote by such measures as it thinks fit the development of the rubber industry.
2.Without prejudice to the generality of the foregoing provision the measures referred to therein
may provide for:
a. Undertaking, assisting or encouraging scientific, technological or economic research.
b. Training students in improved methods of planting, cultivation, manuring and spraying.
c. The supply of technical advice to rubber growers
d. Improving the marketing of rubber.
e. The collection of statistics from owners of estates, dealers and manufacturers.
f. Securing better working conditions and the provision and improvement of amenities and
incentives to workers.
g. Carrying out any other duties which may be vested with the Board as per rules made under
this Act.
3. It shall also be the duty of the Board:
a. To advise the Central Government on all matters relating to the development of the rubber
industry, including the import and export of rubber.
b. To advise the Central Government with regard to participation in any international

conference or scheme relating to rubber.
c. To submit to the Central Government and such other authorities as may be prescribed, half
yearly reports on its activities and the working of this Act, and
d. To prepare and furnish such other reports relating to the rubber industry as may be required
by the Central Government from time to time.
4. Spice Board of India
Spices Board was constituted on 26th February 1987 under the Spices Board Act 1986 (No. 10
of 1986) with the merger of the erstwhile Cardamom Board (1968) and Spices Export
Promotion Council (1960). Spices Board is one of the five Commodity Boards functioning
under the Ministry of Commerce & Industry. It is an autonomous body responsible for the
export promotion of the 52 scheduled spices and development of Cardamom (Small & Large).
Main Functions
• Research, Development and Regulation of domestic marketing of Small & Large Cardamom
• Post-harvest improvement of all spices
• Promotion of organic production, processing and certification of spices
• Development of spices in the North East
• Provision of quality evaluation services
• Export promotion of all spices through support for:
o Technology upgradation.
o Quality upgradation
o Brand promotion
Other responsibilities related to export promotion of spices:
• Quality certification and control

• Registration of exporters
• Collection & documentation of trade information
• Provision of inputs to the Central Government on policy matters relating to import
& export of spices
Package of services for exporters/importers
• Helps exporters and importers in establishing mutual contact.

• Identifies competent supply sources for specific requirements of importers
• Processes and forwards foreign trade enquiries to reliable exporters.
• Organises a common platform for interaction between Indian exporters and
international buyers through participation in major international exhibitions and
meetings.
• Examine complaints from importers for corrective and preventive action
• Spearheads the quality improvement programme for Indian spices.
• Manages a comprehensive and up-to-date data bank for exporters and importers.
• Brings together international bodies, exporters and policy makers through contact
group programmes.
• Makes India’s presence felt in major international food fairs; conducts food festivals
and cooking demonstrations.
5. Tobacco Board of India
The Tobacco Board was constituted as a statutory body on 1st January, 1976 under Section (4)
of the Tobacco Board Act, 1975. The Board is headed by a Chairman with its headquarters at
Guntur, Andhra Pradesh and is responsible for the development of the tobacco industry. While
the primary function of the Board is export promotion of all varieties of tobacco and its allied
products, its functions extend to production, distribution (for domestic consumption and
exports) and regulation of Flue Cured Virginia (FCV) tobacco.
ACTIVITIES OF TOBACCO BOARD
Recognizing the need to regulate production, promote overseas marketing and control recurring
instances of imbalances in supply and demand, which lead to market problems, the Government
of India under the Tobacco Board Act of 1975, established the Tobacco Board, in place of the
Tobacco Export Promotion Council. The Board came into existence from 1-1-1976 and opened
its headquarters at Guntur in Andhra Pradesh, India.
The Tobacco Board Act, 1975 aims at planned development of Tobacco Industry in the
country. The various activities of the Board outlined in the Act for the promotion of the industry
are-
• Regulating the production and curing of Virginia Tobacco with regard to the demand
in India and abroad.
• Constant monitoring of the Virginia tobacco market, both in India and abroad and
ensuring fair and remunerative price to the growers and reducing wide fluctuations in
the prices of the commodity.
• Sustaining and improving the existing international markets and developing new
markets overseas for Indian Virginia Tobacco and its products and devising marketing
strategies in consonance with demand for the commodity including group marketing
under limited brand names.
• Establishing auction platforms for sale of Virginia tobacco by registered growers and
functioning as an auctioneer at auction platforms either established by it or registered
with it.
• Recommending to the Central Government the minimum prices to be fixed for
exportable Virginia tobacco with a view to avoiding unhealthy competition amongst
the exporters. (Under its Exim policy, the Government decided to abolish fixation of
M.E.P. with effect from 1-4-1993).
• Regulating other aspects of Virginia tobacco marketing in India and export of Virginia
tobacco having due regard to the interests of growers, manufacturers, dealers and the
nation.
• Propagating information useful to the growers, dealers and exporters (including
packers) of Virginia tobacco and manufacturers of tobacco products and others
concerned.
• Purchasing Virginia tobacco from growers when the same is considered necessary or
expedient for protecting the interests of the growers and disposing it in India or abroad
as and when considered appropriate.
• Promoting tobacco grading at the level of growers.
• Sponsoring, assisting, co-coordinating or encouraging scientific, technological and
economic research for promotion of tobacco industry.

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COMMODITY MARKETS Study Material Ms.

M.com IV SEM MARCH/APRIL-2020

Unit-1 Commodity Markets and Exchanges

a) Soft commodities / Agricultural commodity

b) Hard commodity / Non- Agricultural commodity

BENEFITS OF COMMODITY MARKETS

3. Transparencies in the process – Trading in commodity is a transparent process. The course

8. Beneficial to farmers – India is a traditionally agricultural economy and price fluctuations

Major Segments of Commodities

Structure of Commodity Market In India

Major Commodity Exchanges in the World

1. London Metal Exchange (LME) – Europe

2. Climax – Netherlands – Europe

This is an exchange for energy contracts and environmental commodities.

3. Chicago Mercantile Exchange (CME) – USA

4. New York Mercantile Exchange (NYMEX) – USA

It is the largest commodity futures exchange in the world in physical terms.

5. Dubai Mercantile Exchange (DME) – ASIA

6. Zhengzhou Commodity Exchange (ZCE) – ASIA

7. Multi Commodity Exchange (MCX) – ASIA

This is an independent commodity exchange based in Mumbai.

8. Tokyo Commodity Exchange (TOCOM) – ASIA

It is a nonprofit organization. It regulates option and future contracts of all commodities.

9. Singapore Exchange Limited (SGX) – ASIA

It offers equity index futures and options, interest rates options.

10. Australian Securities Exchange (ASX) – Australia

It is an electronic exchange for trading in various commodities.

Agricultural Commodities Market

Hard Commodity/Non-Agricultural Commodity

1. Precious Metals: Gold and silver

1. Multi Commodity Exchange of India Limited (MCX)

Vision & Mission of MCX

• MCX is a state-of-the-art electronic commodity future exchange with permanent

2. National Commodity & Derivatives Exchange Limited (NCDEX)

• NCDEX is a professionally managed online multi commodity exchange based in India

Facilities provided by NCDEX include:

2. NCDEX provides an agricultural commodity index called DHAANYA which is weighted

4. Launched COMTRACK – a proprietary electronic warehouse accounting system

5. Exchange for physicals – recently announced EFP (Exchange for Physicals)

3. National Multi Commodity Exchange (NMCE)

• Improving efficiency of marketing through online trading in dematerialized form.

4) Indian Commodity Exchange Limited (ICEX)

Indian Commodity Exchange Limited is a nation-wide screen based online derivatives

Vision & Mission of ICEX

• Provide fair, transparent and efficient trading platform to all participants.

5.ACE Commodity Exchange

National and Regional Commodity Exchanges

(2) Delivery of commodity is a physical activity, while delivery of shares is an electronic

Commodity Exchange Membership

Base Minimum Capita (BMC)

Base minimum capital comprises of the following:

1. Interest free cash security deposit

2. Collateral security deposit

Fixed deposit receipt:

Current Scenario of Exchanges

Currently 5 national exchanges, viz. Multi Commodity Exchange, Mumbai; National

The commodities traded at these exchanges comprise the following:

Food grains – Wheat, Gram, Dals, Bajra, Maize etc.

Metals – Gold, Silver, Copper, Zinc etc.

Spices – Turmeric, Pepper, Jeera etc.

Fibers – Cotton, Jute etc.

Others – Gur, Rubber, Natural Gas, Crude Oil etc.