Mcx Stp Presentation
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Commodity Futures
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What is Commodity & Commodity Future?
Commodity is a producthaving commercial value andwhich can be produced,bought, sold and consumed
Futuresare standardized forwardcontracts traded on regulated exchanges.
Futures contractis a contractualagreement between two parties to buy orsell an asset of a specified quantity andquality at a specific time in future at aspecific price through the Exchange
The main functions of an Exchangetraded futures contract are -
Trade Guarantee Risk Management Price Discovery Transactional Efficiency Liquidity
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Commodities are an unique asset class that can provide valuable diversification benefitsto an investment portfolio
Used in combination with traditional assets like stocks and bonds, they can potentiallyreduce overall portfolio long-term risk while increasing upside potential.
The historically low correlation between commodities and financial assets means thatcommodities may perform well in neutral or negative years for stocks or bonds.
Why Commodities?
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EQUITIES COMMODITIES
1. Exposure to specific sector as well asmanagement of the company
1. Exposure to specific sector only
2. Long term view may be specific to industry 2. Long term view in general is bullish as directly
correlated with economy growth
3. Downside unlimited 3. Downside Limited
4. Equity Volume
= Approx. 20-30k crores every day in Cash
= Approx. 75-90k crores every day in F & O
4. Commodity Futures Market Volume
= Approx. 25K Crores Every Day
5. Options, Indices, PMS and participation from
Institutional players
5. Permissions in process
6. Futures market took 2 years to reach 1000Crores
6. Commodity futures took 9 months to reach
1000 Crores
7. Shorter Bull & Bear Cycle 7. Longer Bull & bear Cycle
Equities vis-a-vis Commodities
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Regulatory Mechanism
Regulated under FCRA 1952 and FCRR 1954
Regulated byMinistry of Consumer Affairs, Food and PublicDistribution, Government of India
The Forward Markets Commission
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Ministry of Consumer Affairs
FMC(Forward Markets Commission)
Commodity Exchanges
NationalExchanges
RegionalExchanges
MCX NCDEX NMCE NBOT20 OtherRegional
Exchanges
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Multi Commodity Exchange ofIndia (MCX)
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MCX is a fully electronic multi commodity futures exchange with permanent recognition
from Govt. of India.Live operations since November 10, 2003
Average Daily Turnover (In Month of Oct 2010 ) Rs. 42384 Crores (US$9.54Bn)
Highest Daily Turnover Rs. 61368.73 Crores (US$13.78 Bn) - 10th Nov10
Highest Daily Turnover GOLD Rs. 23301 Crores ( US$5.04 Bn) - 27th Nov 09
Highest Daily Turnover SILVER - Rs. 25435.10 Crores (US$ 5.71Bn) - 10th Nov 10
Highest Daily Turnover CRUDE OIL- Rs.10971.23 Crores (US$ 2.37 Bn) -18 August 10
Operations from 650+ centers with over 1900+ members & 18000+ Trading Terminals
(TWS)
Among the leading commodity exchanges globally (in terms of contracts traded)No. 1 in Silver futures trading
No.3 in Gold and Crude Oil futures trading
MCX : An Overview
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KeyShareholdersofMCX
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Cross-border Strategic Alliances
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Energy
Crude Oil Brent Crude Oil Furnace Oil Natural Gas Carbon Credits
Oils and Oilseeds Soy Seed & Meal
Castor Seed & Oil Mustard Oil Sesame Seed Crude Palm Oil Groundnut Oil RBD Palmolein Cotton Seed & Oilcake Refined Sunflower Oil
Coconut Oil
Jaggery Gur Sugar S-30 Sugar M-30
Plastics Polypropylene HDPE PVC
Cereals Maize
Plantation
Coffee
Spices Black Pepper Cumin Seed (Jeera) Red Chilli Turmeric Cardamom
Others Cashew Kernel
Guarseed /Gum
Mentha Oil
Arecanut
MCX Commodities
Bullion
Gold 1 kg, 100 gm,8 gm Silver 30 Kg, 5 Kg Platinum
Fibre
CottonMedium Staple
Cotton Long Staple
Kapas
Cotton-Short Staple
PulsesMasur (Masra)
Yellow Peas
MetalsCopper
Aluminum
Zinc
Tin
Nickel
Lead
Sponge Iron
Steel flat/Long
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Concepts
Every commodity has a contract running with an expirydate
Expiry Date
Tender Period
DDR
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Trading Features
Automated screen-based trading
National reach
Order driven trading system
Transparent, Objective and Fair system of order matching
Identity of the trader undisclosed
Daily Turnover limits for Buy and Sell for each User
Trading Hours
Monday to Friday
Agricultural commodities - 10.00 a.m. to 5.00 p.m.
Bullion, Metals, Energy, Coffee and Petro-chemicals
10.00 a.m. to 11.30 p.m.
Saturday (all commodities) - 10.00 a.m. to 2.00 p.m.
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Due Date RateAverage of the spot market price polled, after approvaldisseminated to the members on TWS.
Due date rate is calculated by taking simple average ofspecific number of days (1, 3 or 5) prior to expiry of the
contract as specified in the contracts.
Announcement of DDR after trading session
Ferrous and LME based non-ferrous metal contracts aredisabled for trading after due broadcast notice to market andthen announced.
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Pre-defined in the Contract Specifications
Circuit Filter provides the maximum price
range (% of variation) during a trading day
Varies for different commodities
Computed on the previous days Close Price
Price Circuit FilterPrice Circuit Filter
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Type of Margin Description
Initial Margin Online Upfront minimum basic margin across all open positions.
Special Margin Online incremental margin levied on DPR relaxation OR
Margin levied as an Exchange / Regulatory RMS
Shall be applicable across all the open market positions
AdditionalMargin
Margin levied over and above the initial & special margins, as an
Exchange / Regulatory RMS
Such margins may be levied on either on both or on long or short
open positions
IncrementalMargin
Online margins levied during the tender period of the contract on
all the open positions till the time of expiry of the contract
Delivery Margin Margins levied on all the open positions marked for deliveryThe margin is calculated on
the contract wise net open positions
at end client level
and summed up for all the clients of the member to arrive at the
total margin required for the member. Positions across the clients
are not netted off to arrive at the margin requirements.
Margins
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Margins at Client level
Payable upfront
Alert signals to Members at 60%, 75% and
90% utilization
Automatic Square off mode if Member
crosses the Permitted Margin limits (100%)
Initial MarginInitial Margin
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Mark-To-Market (MTM) Loss
Monitoring of MTM loss, both notional and booked,
incurred by member up to the last executed trade
This is calculated on Real-time basis by way of computing the
difference between actual traded price and last traded price
Alert signals to Members at 60%, 75%, 90% of MTM Losses
Automatic Square off mode, if Member crosses the Permitted MTMlimit (75% of Deposit)
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Delivery Process - Support Agencies
Sellers Option
Both Options
Compulsory
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Sellers Option:o
The seller has the right to deliver.o On receipt of valid intentions from the members having open sell position,
deliveries are marked for the intended quantities.o Once the seller has given the necessary intention, the buyer is obliged to
take the delivery.
Compulsory Option:o
All the open positions (long & short) at the expiry of the contract shall bemarked for delivery irrespective of the members intention.o Members with open position are required to honor their delivery
obligations i.e seller has to deliver the commodities and the buyer has to
remit the funds.
Both Option:o Under the both options contract, delivery shall be marked only in cases
where the the delivery intentions of both the buyers and sellers match with
each other.o If the intentions submitted by the seller and the buyer do not match, then
all the open positions at the expiry of the contract are closed out at the DDR.
Delivery Logic
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Characteristics of Gold
1. International currency
2. Safe commodity
3. Brings liquidity to market
4. Portfolio Diversification
5. Hedge against inflation
GOLD RESPONDS WHEN YOU NEED IT MOST
US Economic indicators affecting
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US Economic indicators affectingGold
Employment data First Friday of month
GDP Last Friday of the month
ISM Mfg. Index First working day of month
Trade Deficit Third week of month
Consumer price index- Third week
Production price index Third week
Industrial production Third week
Retail sale Third week
Durable goods order Last week
Federal bank meeting (8 t imes in a year)
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Gold Regular Gold Mini Gold Guinea
GOLD
Quote 10 gms
Lot Size 1 Kg
+/- Rs. 100/tick
Quote 10 gms
Lot Size 100 gms+/- Rs.
10/tick
Quote 8 gms
Lot Size 8 gms+/- Rs.
1/tick
Contract Specifications
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Contract Specifications - GOLD
GOLD Regular GOLD Mini
Contract Months Feb, April, June, Aug, October & December January to December (monthly contract)
Expiry Date 5th of the Contract month 5th of the Contract month
Trading Unit 1 Kg 100 gms
Quotation 10 grams 10 grams
Price quote Ex- Ahmedabad (inclusive of all taxes & levies relating toimport duty but excluding sales tax/VAT, any otheradditional tax or surcharge & octroi)
Ex- Ahmedabad (inclusive of all taxes & levies relatingto import duty but excluding sales tax/VAT, any otheradditional tax or surcharge & octroi)
Maximum order size 10 Kg 10 Kg
Tick size Re. 1 (per 10 grams) Re. 1 (per 10 grams)
Daily Price Limit 3% 3%
Initial Margin 4% 4%
Tender period 1st to 5th day of contract expiry month 1st to 5th day of contract expiry month
Delivery Period 1st to 5th day of contract expiry month 1st to 5th day of contract expiry month
Delivery period margin 5% incremental margin till the 5th 5 % incremental margin till the 5th
Delivery Unit 1Kg 100 grams
Delivery logic Compulsory Compulsory
Delivery Center Ahmedabad Additonal : Mumbai, Hyderabad,Chennai & Delhi Ahmedabad
Quality Specification 995 purity (Serially numbered Gold bars supplied by LBMAapproved suppliers)
995 purity (Serially numbered Gold bars supplied byLBMA approved suppliers)
Due Date Rate Calculation Simple Avg. of last 5 days spot price at Ahmedabad Simple Avg. of last 5 days spot price at Ahmedabad
S S
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SILV
ER
RE
GULAR
SILV
ER
RE
GULAR
Contract Specifications
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SILVER Regular SILVER Mini
Contract Months May, July, September & December May, July, September & December
Expiry Date 5th of the Contract month Last working day of the month prior to the contract
expiry month
Trading Unit 30 Kgs 5 Kgs
Quotation 1Kg 1 Kgs
Price quote Ex- Ahmedabad (inclusive of all taxes & levies relating toimport duty but excluding sales tax/VAT, any otheradditional tax or surcharge & octroi)
Ex- Ahmedabad (inclusive of all taxes & levies relatingto import duty but excluding sales tax/VAT, any otheradditional tax or surcharge & octroi
Maximum order size 600 Kgs 600 Kgs
Tick size Re. 1 per Kg Re. 1 per Kg
Daily Price Limit 4% 4%
Initial Margin 5% 5%
Tender period 1st to 6th day of contract expiry month 1st working day after expiry of the contract
Delivery Period 1st to 6th day of contract expiry month 1st to 3rd working days after expiry of the contract.
Delivery period margin 5% incremental margin 5% incremental margin
Delivery Unit 30 Kgs 30 Kgs
Delivery logic Compulsory Both optionDelivery Center
Ahmedabad Addtl : Chennai, Delhi & Mumbai AhmedabadQuality Specification
999 fineness (Serially numbered Silver bars supplied byLBMA approved suppliers)
999 fineness (Serially numbered Silver bars supplied byLBMA approved suppliers)
Due Date Rate Calculation Simple Avg. of last 5 days spot price at Ahmedabad Settlement rate wil l be the official closing price fixed
by the system on the basis of Si lver 30 Kg contract of
the same day.
Contract Specification - Silver
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Delivery Procedure
DELIVER LOGIC: -COMPULSORY DELIVERY Any seller having openposition on the expiry date fails to deliver then a penalty of 6.5% shall beimposed.
Tender Period: - 1st to 6th day of the contract expiry month.
Delivery Period: -1st to 6th day of the contract expiry month.
Normal trading ends on the last day of the previous month prior to theexpiry month.
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Delivery Procedure
Pay-in of Commodities (Delivery by seller member): On theTender days by 6.00 P.M. except Saturday, Sunday and publicholiday.
Pay- in of Funds: By 11:00 A.M. on Tender day + 1 basis.
Pay-out of Funds and Commodities (Delivery to BuyerMember): By 05:00 P.M. on Tender day +1 basis.
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Delivery Procedure
1st Day: 5% Delivery period margin on an incremental basis over 5 days islevied on all the open positions.
Intention is received from buyers upto 6:00 pm and sellers upto 6:00 pm. Intention
received from the buyers and sellers are matched and marked for delivery after
market close.
Delivery Order Rate: Settlement/closing price of the 1st day.
Before sellers gives intention for the Delivery he has to deposit goods at the
designated clearinghouse of Group 4 Securitas along with all the documents
that is mentioned in the Contract specification, on the same day.
The very next day marked buyer has to deposit the funds in the exchange before
payout, that fund will be transferred to seller in the evening.
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Delivery Procedure
Close out of outstanding positions: All outstanding positions on theexpiry of contract not settled by way of delivery in the aforesaid manner willbe settled as per the Due Date Rate.
DDR (Due Date Rate): DDR is calculated on 5th day or Expiry day of the
contract month. This is calculated by way of taking simple average of last 5days of the spot market of Ahmedabad.
Taxes, duties, cess and levies: Ex-Ahmedabad, Inclusive of allcharges/levies relating to import duty, customs to be borne by seller. But
excluding Sales Tax/ VAT, any other additional tax or surcharge on salestax, local taxes and octroi to be borne by the Buyer.
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IN CASE OF FAILURE TO TAKE OR MAKE DELIVERY BY ANY OFTHE PARTY A PENALTY OF 2.5% IS LEVIED ON THE DEFAULTINGPARTY.2% will be credited to IPF & 0.5% is credited to counter party.
4% is levied as replacement cost to defaulting seller/buyer :Out ofwhich 90% is given to counter party & 10% retained by Exchange as
administrative charges
Option of Delivery: It can be in physical or Demat form. If sellersproduce in Demat form the buyer get in Demat. If sellers produce inphysical form the buyer get in physical form.
VAT IN AHMEDABAD IS 1%
Group 4 Vaulting Charges
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Group 4 Vaulting Charges
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No Vaulting Charges on Gold Guinea
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Base metals:Copper Zinc/ZincMINI
Al Nickel Lead/Lead MINI
Tin
Trading unit 1 t 5 t & 1 t 5 t 250 kg 5 t & 1 t 500 kg
Quotation base Rs/ kg
Max order size(MT)
70 100 150 24 100 20
Tick size (per kg) 5 ps 5 ps 5 ps 10 ps 5 ps 25 ps
Profit/loss on 1 Rsmovement (Rs) 1000 5000 &1000 (M)5000 250 5000 &1000 (M) 500
Initial margin 1 VaR
Based
VaR
Based
VaR
Based
VaR
Based
VaR
Based
VaR
Based1 As on Mar 2010
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Thank You