INTRODUCTION

In the modern world, all the activities are concerned with the economic activities and
very particular to earning profit through any venture or activities. The entire business activities
are directly related with making profit. (According to the economics concept of factors of
production, rent given to landlord, wage given to labor interest given to capital and profit given
to share holders or proprietors), a business concern needs finance to meet all the requirements.
Hence finance may be called as capital, investment, fund etc.., but each term is having different
meanings and unique characters .Increasing the profit is the main aim of any kind of economic
activity.
NATURE OF FINANCIAL MANAGEMENT:
Financial Management is that managerial activity which is concerned with the planning
and controlling of the firms financial resources. As a separate activity or discipline it is of
recent origin it was a branch of economics till 1890. Still today it has no unique body of
knowledge of its own, and it draws heavily on economics for its theoretical concepts.
DEFINITION:
The subjects of financial management are of immerse interest to both academicians and
practicing managers. It is of great interest to academicians because the subject is still
developing, and there are still certain areas where controversies exist for which no unanimous
solutions have been reaching as yet. Practicing managers are interested in this subject because
among the most crucial decisions of the firms are those which relate to finance and an
understanding of the theory of financial management provides them with conceptual and
analytical insights to make those decisions skillfully.
SCOPE OF FINANCE FUNCTIONS
Three most important activities of a business firm are:
1

Finance

Production

Marketing.

The firm secures capital it needs and employs it in activities, which generate returns on
invested capital. A business firm thus is an entity that engages in activities to perform the
functions of finance, production and marketing.
The raising of capital funds and using them for generating returns and paying returns to
the suppliers of funds is called the finance function of the firm. The main functions of the
financial managers are to plan for analyzing and utilizing funds to make the maximum
contribution for the operation of the organization.
It realizes knowledge of the financial market from which the funds are drawn. It
realizes knowledge of how to make sound investment decisions and to simulate efficient
operations in the organization.
A large number of alternative choices involved in financial decisions. The choices
include the use of internal resources, external funds, Long-term funds a higher rate of growth
or lower rate of growth and soon.
FUNCTIONS OF FINANCE
1. Investment Decision
2. Working Capital Management
3. Financing Decision
4. Dividend Policy Decision
THE CHANGING ROLE OF FINANCIAL MANAGEMENT
As with many things in the contemporary world financial management has undergone
significant changes over the years. The financial management had a very limited role in a business
enterprise. Finance manager is responsible only for maintaining financial records, preparing
reports of the companys status, performance and arranging funds recorded by the company so that
it would meet its obligation in time.

The financial manager as a matter of fact, was regarded as a specialized staff officer in
the company concerned only with administering sources of funds. He was called upon only when
the company experienced the problem of shortage of funds. The management relates the financial
manager to locate suitable continued in recent years.
First there was been increased belief that source of capital produce requires accurate
measurements of the cost of capital. Secondly capital has been in short supply the old interest in
the ways of raising funds.
Third, there has been a continued activity that has led to revealed interest in takeovers.
Fourth accelerated progress in transportation and communication has brought the countries of the
world close together. They in turn have stimulated interest in the international finance. Finding the
firms appropriate role in efforts they solve these problems, demanding on increasing proportion of
these items of financial managers.
The financial system is possibly the most important institutional and functional vehicle
for economic transformation. Finance is a bridge between the present and the future and whether
the mobilization of savings or their efficient, effective and equitable allocation for investment, it
the access with which the financial system performs its functions that sets the pace for the
achievement of broader national objectives.
According to Christy, the objective of the financial system is to supply funds to various
sectors and activities of the economy in ways that promote the fullest possible utilization of
resources without the destabilizing consequence of price level changes or unnecessary
interference with individual desires.
According to Robinson, the primary function of the system is to provide a link between
savings and investment for the creation of new wealth and to permit portfolio adjustment in the
composition of the existing wealth.

A financial system or financial sector functions as an intermediary and facilitates the flow
of funds from the areas of surplus to the deficit. It is a composition of various institutions,
markets, regulations and laws, practices, money manager analyst, transactions and claims and
liabilities.
The word system implies a set of complex and interrelated factors organized in a
particular form. These factors are mostly interdependent but not always mutually exclusive. The
financial system of any country consists of several ingredients. It includes financial institutions,
markets, financial instruments, services, transactions, agents, claims and liabilities in the
economy.
Financial system is a system to canalize the funds from the surplus units to the deficit
units. Deficit units is a case where current expenditure exceeds their current income. There are
other entities whose current income exceeds current expenditure which is called as Surplus
Units. An efficient financial system not only encourages savings and investments, it also
efficiently allocates resources in different investment avenues and thus accelerates the rate of
economic development.
The financial system of a country plays a crucial role of allocating scarce capital
resources to productive uses. Its efficient functioning is of critical importance to the economy. It
is a system for the efficient management and creation of finance. The economic development of
a nation is reflected by the progress of the various economic units, broadly classified into
corporate sector, government and household sector. While performing their activities these units
will be placed in a surplus/deficit/balanced budgetary situations.
Definitions
According to Robinson, financial system provides a link between savings and
Investment for the creation of new wealth and to permit portfolio adjustment in the position of
the existing wealth.

According to Van Horne, financial system is defined as the purpose of financial Markets
to allocate savings efficiently in an economy to ultimate users either for investment in real
assets or for consumption.
Thus the financial system mainly stands on three factors:
1) Money is the unit of exchange or medium of payment. It represents the value of
financial transactions in qualitative terms.
2) Credit, on the other hand, is a debt or loan which is to be returned normally with
interest.
3) Finance is monetary wealth of the state, an institution or a person. Comprising these
factors in a systematic order forms a financial system.
Objectives of the financial system
Accelerating the growth of economic development.
Encouraging rapid industrialization.
Acting as an agent to various economic factors such as industry, agricultural sector,
government etc.
Accelerating rural development.
Providing necessary financial support to industry
Financing housing and small scale industries.
Development of backward areas, infrastructure and livelihood.
Imposing price control in need.
Protecting environment.
The evolution of the financial system in India is nothing but the reflections of its political
and economic history. The evolution process has been influenced by the factors of urbanization
of society, advent or large scale industrialization, introduction of railways and telegraphic
communications in the 19th century, nationalization of financial institutions in 20th century and
implementation of information technology on the eve of the 21st century. Government policies
have greatly influenced the interest rates, credit control and functions of financial intermediaries.

COMMODITY TRADING
Commodity Trading is characterized by high market volatility and risk. Globalization
and advances in technology have significantly changed the way trading is done the factors
differencing prices and the frequency with which prices change has increased exponentially
timely access to information and analysis is the only way to succeed in commodity. Commodities
actually offer immense potential to become a separate asset class for market survey 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.
The primary objective of the project is to understand and know the concepts and
mechanism of commodity trading with special reference to Gold & Silver. The objective was
also to know and analyze the growth of commodity trading in India and find out the factors that
affect the trading of gold and silver commodities.
This project has been undertaken to give an outlook on the potential growth of
commodities trading in India. The project also aims to study the commodity trading and its
clearing & settlement; analyze the factors that influence the prices of gold and silver; study the
commodity trading with reference to gold and silver and analyze the gold and silver trend in
commodity market.
A commodity market is a market that trades in primary rather than manufactured
products. Soft Commodities are agricultural products such as wheat, coffee cocoa and sugar hard
commodities are mined, such as (gold, rubber and oil).

Investors access about 50 major commodity markets worldwide with purely financial
transactions increasingly outnumbering physical trades in which goods are delivered. Futures
contracts are the oldest way of investing in commodities.
Futures are secured by physical assets. Commodity markets can include physical trading
and derivatives trading using spot prices, forwards, futures, and options on futures. Farmers have
used a simple form of derivative trading in the commodity market for centuries for price risk
management.
A financial derivative is a financial instrument whose value is derived from a commodity
termed as underlying. Derivatives are either exchange-traded or over-the-counter (OTC). An
increasing number of derivatives are traded via clearing houses some with Central Counterparty
Clearing, which provide clearing and settlement services on a futures exchange, as well as offexchange in the OTC market.
Derivatives such as futures contracts, Swaps (1970s-), Exchange-traded Commodities
(ETC) (2003), forward contracts have become the primary trading instruments in commodity
markets. Futures are traded on regulated commodities exchanges. Over-the-counter (OTC)
contracts are "privately negotiated bilateral contracts entered into between the contracting parties
directly".
Exchange-traded funds (ETFs) began to feature commodities in 2003. Gold ETFs are
based on "electronic gold" that does not entail the ownership of physical bullion, with its added
costs of insurance and storage in repositories such as the London bullion market. According to
the World Gold Council, ETFs allow investors to be exposed to the gold market without the risk
of price volatility associated with gold as a physical commodity.
Domestic production being minuscule practically the entire demand is met by imports
and recycling of previously accumulated stock and scrap generated from it. There was a big spurt
in the consumption following the Liberalization of gold imports in 1992.

Consumption seems to remain around 400-425 tons in the next couple of years. Before
resuming the rising trend, estimated consumption was more than twice the level recorded in 1990
and nearly 70% higher than in 1992.
A major step in the development of gold markets in India was the authorization in July
1997 by the RBI to commercial banks to import gold for sale or loan to jewelers and exporters.
Initially, seven banks were selected for this purpose on the basis of certain specified criteria like
minimum capital adequacy, profitability, risk management expertise, previous experience in this
area, etc. World demand for gold was about 3200 tons in 2008. Corresponding to that in India
was about 842 tons with imports occupying major chunk of 650 tons, domestic production 2 tons
and remaining being recycled gold.
For the purpose of study, both primary and secondary data has been collected. The
observational method and survey research method is used to collect the primary data. The main
research instruments used the required data is a well-structured questionnaire. A detailed
questionnaire has been prepared to reflect the opinions on the commodity trading in India and the
customers opinion towards investment patterns in commodities market.
Additional margin: In case of sudden higher than expected volatility, the exchange calls
for an additional margin, this is a preemptive move to prevent breakdown. This is imposed when
the exchange fears that the markets have become too volatile and may result in some payments
crisis, etc.,
Mark-to-Market margin (MTM): At the end of each trading day, the margin account is
adjusted to reflect the traders gain or loss. This is known as marking to market the account of
each trader. All futures contracts are settled daily reducing the credit exposure to one days
movement. Based on the settlement price, the value of all positions is marked-to-market each day
after the official close, i.e., the accounts are either debited or credited based on how well the
positions fared in that days trading session.

If the account falls below the maintenance margin level the trader needs to replenish the
account by giving additional funds. On the other hand, if the position generates a gain, the funds
can be withdrawn (those funds above the required initial margin) or can be used to fund
additional trades.
Flexibility, certainty and transparency in purchasing commodities facilitate bank
financing. Predictability in prices of commodity would lead to stability, which in turn would
eliminate the risks associated with running the business of trading commodities. This would
make funding easier and less stringent for banks to commodity market players.
The era of liberalization has revolutionized the commodity market. In such a scenario it is
necessary to make an assessment of commodity market as more and more investors are seeking
commodity market as of the important investment avenues, it is necessary to make a detailed
analysis. Such an analysis will help any person who is to invest in commodity market.
The need of the study arises due to lack of knowledge about the commodity market
because now-a-days, commodity trading has become an important investment avenue and most
of the investors are still unaware about its advantages and shortcomings. Huge amount of
investment is required for trading in commodity market. To know the impact of other markets on
commodity market, it became necessary to understand the trading of commodity market.

NEED FOR THE STUDY

1) The need of the study arises due to lack of knowledge about the commodity market
because now-a-days, commodity trading has become an important investment avenue and
most of the investors are still unaware about its advantages and shortcomings.
2) Huge amount of investment is required for trading in commodity market.
3) It helps in the allocation of surplus funds in hand among a variety of financial assets open
for investment.
4) In the stock exchanges we can know the total information regarding the companies
buying and the selling activities.
5) The purpose of the study is to known about stock markets in India, how they work,
fundamental requirements before entering the stock market, how to enter the stock
market design, stock selection, when to buy or sell a commodity , how to invest and
knowing about market intermediaries.

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SCOPE OF THE STUDY

1) The study mainly focuses on Indian commodity market, its history and latest
development in the Indian commodity market.
2) The scope of the study limited to Indian commodity market.
3) The study vastly covered the accepts of commodity market, clearing house and settlement
mechanisms in Indian commodity market.
4) A study also keeps a birds-eye view on global commodity market and its development.
5) The rationale, timeliness and/or relevance of the study to existing conditions must be
explained or discussed. For instance, a survey test in science reveals that the performance
of the students in the high schools of Province A is poor. It must be pointed out that it is a
strong reason why an investigation of the teaching in science in the said high schools is
necessary.
6) The study is timely and relevant because today, it is science and technology that are
making some nations very highly industrialized and progressive. So, if science is properly
studied and taught and then applied, it can also make the country highly industrialized
and progressive.

OBJECTIVES OF THE STUDY

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The Main objective of the project is to understand and know the concepts and mechanism
of commodity trading with special reference to Gold & Silver. The objective was also to know
and analyze the growth of commodity trading in India and find out the factors that affect the
trading of gold and silver commodities.
This project has been undertaken to give an outlook on the potential growth of
commodities trading in India.
1) To understand the concept of commodity trading in India
2) To study the commodity trading and its clearing & settlement.
3) To analyses the factors that influence the prices of gold and silver.
4) To study the commodity trading with reference to gold and silver.
5) To analyze the gold and silver trend in commodity market.
6) To suggest potential investors on commodity trading in gold and silver.
7) Hedging with the objective of transferring risk related to the possession of physical assets
through any adverse moments in price. Liquidity and Price discovery to ensure base
minimum volume in trading of a commodity through market information and demand
supply factors that facilitates a regular and authentic price discovery mechanism.
8) Maintaining buffer stock and better allocation of resources as it augments reduction in
inventory requirement and thus the exposure to risks related with price fluctuation
declines. Resources can thus be diversified for investments.
9) Price stabilization along with balancing demand and supply position. Futures trading
leads to predictability in assessing the domestic prices, which maintains stability, thus
safeguarding against any short term adverse price movements. Liquidity in Contracts of
the commodities traded also ensures in maintaining the equilibrium between demand and
supply. Flexibility, certainty and transparency in purchasing commodities facilitate bank
financing.

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METHODOLOGY OF THE STUDY:

Research is a procedure of logical and systematic application of the fundamentals of

science to the general and overall questions of a study and scientific technique by which provide
precise tolls, specific procedures and technical, rather than philosophical means for getting and
ordering the data prior to their logical analysis and manipulation.

Different type of research designs is available depending upon the nature of research
project, availability of able manpower and circumstances. The study about Trends and future of
derivatives in India is descriptive in nature. So survey method is used for study.

Sampling Procedure:
The small representative selected out of large population is selected at random is called
sample. Well-selected sample may reflect fairly, accurately the characteristic of population. The
chief of sampling is to make an INTERPRETATION about unknown parameters from a
measurable sample statistics. The statistical hypothesis relating population.

Sources of Data:
The sources of data include both primary sources and secondary data sources.

Primary Data:

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The primary data was collected through observation, personal interview and observation
methods.

Secondary Data:
The secondary data was collected from Journals, Magazines and Project reports,
Management Books, Management Journals, Publications and Internet.
The secondary data include material collected from:
Newspapers
Magazine
Data collection instruments:
The various methods of data gathering involve the use of appropriate recording forms.
These are called tools or instruments of data collection.
Collection Instruments:
1. Observation
2. Interview guide
3. Interview schedule
Each tool is used for specific method of data gathering. The tool for data collection
translates research objectives into specific term/questions to response, which will provide
research objective.
The instrument data collection in our study interview schedule mainly. Every respondent
was conducted personally with an interview.
Schedule contains questions; Interview method was used because it can be explained
more easily and clearly and takes less time to answer.
Assumptions:

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1) The methodology used for this purpose is survey and questionable method. It is assumed that
this method is more suitable for collection of data.
2) It is assumed that the respondent have sufficient knowledge to ensure questionable.

LIMITATIONS OF THE STUDY

Through the project work has been completed successfully, a few limitations are observed.
However, proper care has been taken to overcome the impact of limitations on study.
1)
2)
3)
4)

The period of the study is limited.

The source of data is based on only secondary data.
Limited number of members is available to give the absolute information.
Hard Enough To Fetch Information: It was not an easy task to get information from
investors who invest in commodity. The investors were not always open and forthcoming
with their views, even agitated and not disclosing.

5) Limited Scope: Scope of study is limited to Hyderabad only and because of limited time
and money, the results of study may not be generalized for India as a whole.
6) Results May Be Inaccurate: This study is based on the assumption that perceptions are
true and factual although at times that may not be the case.
7) Existence of Biases: Though every care has been taken to eliminate such biases, but
considering the human factor the possibility of small bias having come up cannot be ruled
out altogether.
8) Investor Behavior: investor behavior is dynamic in nature and thus over the time,
finding of today may become invalid tomorrow.

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i.

The suggestion is based on the study on Fundamental and Technical Analysis is

such as price movement, Relationship of gold with other factor, Volumes and
Open Interest (OI).

ii.

This analysis will be holding good for a limited time period that is based on
present scenario and study conducted, future movement on gold price may or may
not be similar.

INDUSTRY PROFILE
COMMODITY MARKET TRADING MECHANISM
Every market transaction consists of three components trading, clearing and settlement.
TRADING
The trading system on the Commodities exchange provides a fully automated screenbased trading for futures on commodities on a nationwide basis as well as an online monitoring
and surveillance mechanism.

It supports an order driven market and provides complete

transparency of trading operations. After hours trading has also been proposed for
implementation at a later stage.
The NCDEX system supports an order driven market, where orders match automatically.
Order matching is essentially on the basis of commodity, its price, time and quantity. All
quantity fields are in units and price in rupees. The exchange specifies the unit of trading and the
delivery unit for futures contracts on various commodities. The exchange notifies the regular lot
size and tick size for each of the contracts traded from time to time. When any order enters the
trading system, it is an active order. It tries to find a match on the other side of the book. If it
finds a match, a trade is generated. If it does not find a match, the order becomes passive and

16

gets queued in the respective outstanding order book in the system; Time stamping is done for
each trade and provides the possibility for a complete audit trail if required.
COMMODITY FUTURES TRADING CYCLE
NCDEX trades commodity futures contracts having one-month, two-month and threemonth expiry cycles. All contracts expire on the 20 th of the expiry month. Thus a January
expiration contract would expire on the 20th of January and a February expiry contract would
cease trading on the 20th February. If the 20th of the expiry month is a trading holiday, the
contracts shall expire on the previous trading day. New contracts will be introduced on the
trading day following the expiry of the near month contract.

Following Figure shows the contract cycle for futures contracts on NCDEX.
Jan

Feb

Mar

Apr
Time

Jan 20 contract
Feb 20 contract
March 20 contract
April 20 contract
May 20 contract
June 20 contract
ORDER TYPES AND TRADING PARAMETERS
An electronic trading system allows the trading members to enter orders with various
conditions attached to them as per their requirement. These conditions are broadly divided into
the following categories:
Time conditions
Price conditions
Other conditions

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Several combinations of the above are possible thereby providing enormous flexibility to
users. The order types and conditions are summarized below. Of these, the order types available
on the NCDEX system are regular lot order, stop loss order, immediate or cancel order, good till
day order, good till cancelled order, good till order and spread order.
TIME CONDITIONS
1. Good till day order:
A day order, as the name suggests is an order which is valid for the day on which it is
entered. If the order is not executed during the day, the system cancels the order automatically at
the end of the day Example: A trader wants to go long on March 1, 2004 in refined palm oil on
the commodity exchange. A day order is placed at Rs.340/- 10 kg. If the market does not reach
this price the order does not get filled even if the market touches Rs.341 and closes.
In other words day order is for a specific price and if the order does not get filled that day,
one has to place the order gain the next day.
2. Good till cancelled (GTC):
A GTC order remains in the system until the user cancels it. Consequently, it spans
trading days, if not traded on the day the order is entered. The maximum number of days an
order can remain in the system is notified by the exchange from time to time after which the
order is automatically cancelled by the system. Each day counted is a calendar day inclusive of
holidays. The days counted are inclusive of the day on which the order is placed and the order is
cancelled from the system at the end of the day of the expiry period. Example: A trader wants to
go long on refined palm oil when the market touches Rs.400/- 10 kg. Theoretically, the order
exists until it is filled up, even if it takes months for it to happen. The GTC order on the NCDEX
is cancelled at the end of a period of seven calendar days from the date of entering an order or
when the contract expires, whichever is earlier.
3. Good till date (GTD)
A GTD order allows the user to specify the date till which the order should remain in the
system if not executed. The maximum days allowed by the system are the same as in GTC order.
At the end this day / date, the order is cancelled from the system. Each day / date counted is

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inclusive of the day / date on which the order is placed and the order is cancelled from the
system at the end of the day / date of the expiry period.
4. Immediate or Cancel (IOC)
An IOC order allows the user to buy or sell a contract as soon as the order is released into
the system, failing which the order is cancelled from the system. Partial match is possible for the
order, and the unmatched portions of the order are cancelled immediately.
5. All or none order
All or none order (AON) is a limit order, which is to be executed in its entirety, or not at
all. Unlike a fill-or-kill order, an all-or-none order is not cancelled if it is not executed as soon as
it is represented in the exchange. An all-or-none order position can be closed out with another
AON order.
6. Fill or Kill order
This order is a limit order that is placed to be executed immediately and if the order is
unable to be filed immediately, it gets cancelled.
PRICE CONDITION
1. Limit Order
An order to buy or sell a stated amount of a commodity at a specified price, or at a better
price, if obtainable at the time of execution. The disadvantage is that the order may not get filled
at all if the price of that day does not reach specified price.
2. Stop-loss
A stop-loss order is an order, placed with the broker, to buy or sell a particular futures contract at
the market price if and when the price reaches a specified level. Futures traders often use stop
orders in an effort to limit the amount they might lose if the futures price moves against their
position Stop orders are not executed until the price reaches the specified point. When the price
reaches that point the stop order becomes a market order. Most of the time, stop orders are used
to exit a trade. But, stop orders can be executed for buying / selling positions too. A buy stop
order is initiated when one wants to buy a contract or go long and a sell stop order when one

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wants to sell or go short . The order gets filled at the suggested stop order price or at a better
price. Example: A trader has purchased crude oil futures at Rs.750 per barrel.
He wishes to limit his loss to Rs.50 a barrel. A stop order would then be placed to sell
an offsetting contract if the price falls to Rs.700 per barrel. When the market touches this price,
stop order gets executed and the trader would exit the market. For the stop-loss sell order, the
trigger price has to be greater than the limit price.
OTHER CONDITIONS
Margin is the deposit money that needs to be paid to buy or sell each contract. The margin
required for a futures contract. The margin required for a futures contract is better described as
performance bond or good faith money. The margin levels are set by the exchanges based on
volatility (market conditions) and can be changed at any time.
The margin requirements for most futures contracts range from 2% to 15% of the value of
the contract. In the futures market, there are different types of margins that a trader has to
maintain. We will discuss them in more details when we talk about risk management in the next
chapter. At this stage we look at the types of margins as they apply on most futures exchanges.
1) Initial margin: The amount that must be deposited by a customer at the time of entering
into a contract is called initial margin. This margin is meant to cover the largest potential
loss in one day. The margin is a mandatory requirement of parties who are entering into
the contract.
2) Maintenance margin: A trader is entitled to withdraw any balance in the margin account
in excess of the initial margin. To ensure that the balance in the margin account never
becomes negative, a maintenance margin, which is somewhat lower than the initial
margin, is set. If the balance in the margin account falls below the maintenance margin,
the trader receives a margin call and is requested to deposit extra funds to bring it to the
initial margin level within a very short period of time. The extra funds deposited are
known as a variation margin. If the trader does not provide the variation margin, the
broker closes out the position by offsetting the contract.

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3) Additional margin: In case of sudden higher than expected volatility, the exchange calls
for an additional margin, this is a preemptive move to prevent breakdown. This is
imposed when the exchange fears that the markets have become too volatile and may
result in some payments crisis, etc.,
4) Mark-to-Market margin (MTM): At the end of each trading day, the margin account is
adjusted to reflect the traders gain or loss. This is known as marking to market the
account of each trader. All futures contracts are settled daily reducing the credit exposure
to one days movement.

5)

Based on the settlement price, the value of all positions is marked-to-market each day
after the official close, i.e., the accounts are either debited or credited based on how well
the positions fared in that days trading session.

If the account falls below the

maintenance margin level the trader needs to replenish the account by giving additional
funds.
Just as a trader is required to maintain a margin account with a breaker, a clearing
house member is required to maintain a margin account with the clearing house. This is
known as clearing margin. In the case of clearing house member, there is only an original
margin and no maintenance margin. Clearing house and clearing house margins have
been discussed further in detail under the chapter on clearing and settlement.
CHARGES
Members are liable to pay transaction charges for the trade done through the exchange
during

the previous month. The important provisions are listed below; the billing for the all

trades done during the previous month will be raised in the succeeding month.
1. Rate of charges: The transaction charges are payable at the rate of Rs.6 per Rs. One Lakh
trade done. This rate is subject to change from time to time.

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2. Due date: The transaction charges are payable on the 7th day from the date of the bill
every month in respect of the trade done in the previous month.
3. Collection process: NCDEX has engaged the services of Bill Junction Payments Limited
(BJPL) to collect the transaction charges through Electronic Clearing System.
4. Registration with BJPL and their services: Members have to fill up the mandate form and
submit the same to NCDEX. NCDEX then forwards the mandate form the BJPL. BJPL
sends the login ID and password to the mailing address a s mentioned in the registration
form.
5. The members can then log on through the website of BJPL, and view the billing amount
and the due date. Advance email intimation is also sent to the members. Besides, the
billing details can be viewed on the website up to a maximum period of 12 months.
6. Adjustment against advances transaction charges: In terms of the regulations, members
are required to remit Rs.50, 000/- as advance transaction charges on registration.
7.

The transaction charges due first will be adjusted against the advance transaction charges
already paid as advance and members need to pay transaction charges only after
exhausting the balance lying in advance transaction.

8. Penalty for delayed payments: If the transaction charges are not paid on or before the due
date, a penal interest is levied as specified by the exchange. Finally, the futures market is
a zero sum game i.e. the total number of long in any contract always equals the total
number of short in any in time is called the Open interest.

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COMPANY PROFILE
Nirmal Bang Group is one of the largest retail broking houses in India, providing the investors
state of art services in capital markets in the country. They are a financial services company in
India, offering a wide range of financial products and services targeted at retail investors, high
net worth individuals and corporate and institutional clients. The Group has memberships of
Bombay Stock Exchange Limited, National Stock Exchange of India Limited, Multi Commodity
Exchange of India Limited, National Commodity and Derivatives Exchange limited and is also a
Depository participant of NSDL and CDS (I) L, the Depositories of the country.
People are our greatest asset. Drawn from a diversity of professional backgrounds, their
blend

of

experience,

skill

and

dedication

is

shared

with

all

our

clients.

We emphasize adequate, thorough research local and world-wide developments,

balancing these with the astute discovery of intrinsic values, synergies and growth.
Simply to help you maximize your returns. Your interests no matter how big or small - come
first.

Comprehensive

and

available

to

meet

every

investment

To provide service, par excellence and become your spirit of change.

23

financial

need.

Scrips: Funding only against approved securities as per the list approved by the management
from time to time.
Benefits

Corporate Action benefits like bonus, dividend etc continues to accrue to the borrower.

Any appreciation in the value of the Securities given as margin would automatically
allow enhancement in drawing power.

Interest will be calculated on the amount utilized & the actual period for which it is
utilized.

Clients can view their financial statement and holdings online.

Risk Monitoring System In case of shortfall in the margin the client has to follow the

prescribed norms and replenish the short margin or else the shares would be liquidated to the
extent of the shortfall.
Documents Requirement
A) Individuals
1. Client has to open a bank account with Axis Bank and Demat account with Nirmal Bang
Securities Pvt Ltd both under POA with us.
2. Loan agreement to be duly filled up and signed therein.
3. Copy of PAN card
4. Copy of Address Proof
5. Two passport sized photographs
6. Copy of latest two years ITRs

24

7. Two Post dated cheques , one for principal & other for interest in the name of Nirmal
Bang Financial Services Pvt Ltd
8. Cheque of Rs 600 towards the loan documentation charges
9. Cheque of Rs 6000/- in favour of Axis bank for maintaining minimum balance, this
cheque will be credited in clients Axis bank a/c only
B) Company all documents as mentioned in point no 1 to 8 in case of individual are required.
Additional documents to be collected are:
1. Copy of annual report of last two years
2. Memorandum and article of association
3. List of directors
4. Two photographs of all the directors.
5. Board resolution on letter head of the company.
6. Cheque of Rs 11000/- in favour of Axis bank for maintaining minimum balance, this
cheque will be credited in clients Axis bank a/c only.

Kindly note

All documents should be self attested

All Photographs and signatures should match with the proof given

Additional documents need to be submitted in case of any discrepancy is noticed.

Portfolio Management Services (PMS)-Cultivating a taste for success Investing is no longer a

means to save the extra income earned, but has become an essential ingredient of high living.

25

PMS, as a product category, is designed to help clients navigate the increasingly tough and
uncertain terrain of the investment world with total ease and equanimity. Concentrated calls
taken by professionals, who have the experience of negotiating a number of market cycles over
the years, help investors both defend their investments/savings and consistently perform better
than the markets. Thus, Nirmal Bang PMS offers the vehicles for a comfortable and smooth
journey to wealth creation in the investment arena.
We have plans for a range of products, occupying various positions along the risk-return
matrix, thus catering to the needs of clients with different approaches to investing. In
continuation with the tradition of delivering quality with sincerity at Nirmal Bang, these marks
yet another step towards becoming a complete financial solution provide
Investing in the stock market requires in-depth analysis of the scrip and the companies
and the business that they are involved in. Retail investors seldom have the time and expertise to
analyze stocks.
In India, Mutual funds come to the rescue of such investors. All wary investors know that
the best way to make money is to involve in stock market investing and buying Indian mutual
funds.
Mutual Funds in India comprise of a group of investors come together and create a
corpus which in invested in the stock market by a fund manager. Thus, the investors can depend
on the expertise of the fund manager in order to maximize the returns on their mutual fund
portfolio.
In India, Mutual Funds invest in different securities subject to the investment objective as
set forth in the prospectus. The prospectus is a legal document under SEBI laws and contains a
lot of information about the mutual fund.
Investing in mutual funds in India has many benefits:

26

The expertise of the fund manager of the AMC that manages mutual funds money in
India helps the investor to maximize the profits on the amount invested in the mutual
fund.

Indian Mutual Funds invest money in a widespread basket of shares and equities,
depending on the nature of the Fund and switch investments to different securities
depending on the Equity market conditions

In India, Mutual funds are an easy and cost efficient way of investing along with tax
benefits.

There are many kinds of mutual funds available for the investors to choose from.

Sector Specific Mutual Fund

Large/Small/Mid cap Mutual Fund

Index Mutual Funds

Here is some information on companies that would enable you to invest in some of the best
mutual funds in India:

SBI Mutual Fund

Franklin Templeton Mutual Fund

Reliance Mutual Fund

Tata Mutual Fund

Sundaram BNP Paribas Mutual Fund

Fidelity Investments Mutual Fund

27

Our principal group companies are:

1) Nirmal Bang Securities Private Limited
Member- National Stock Exchange of India Limited
Member- Bombay Stock Exchange Limited
Participant- National Securities Depository Limited
Participant- Central Depository Services (India) Limited
2) Nirmal Bang Commodities Private Limited
Member- Multi Commodity Exchange of India Limited
Member- National Commodity & Derivatives Exchange Ltd
3) Bang Equity Broking Private Limited
Member- Bombay Stock Exchange Limited
4) Nadi Finance & Investment Private Limited
RBI registered Non Banking Finance Company
Shresth Financial & Insurance Services Pvt Ltd We started in 1986 under the leadership
of Late Shri Nirmal Bang and has grown steadily and progressively since then. Our clients as
well as Business Partners have contributed tremendously to our growth we recognize and
applaud this, we value our relationship with them and for their convenience have all investing
avenues under one roof. It is a consistent profit making company from Last 5 years. Its an
extremely well capitalized company with high Net worth (more than 4000 crore).

28

SERVICES
1) EQUITY AND DERIVATIVES:
Trading platform for equities and equity derivatives on NSE and BSE- the
Company has a reach of over 100 branches at 36 locations in the country to cater to retail
and high net worth individuals. The branches constitute of self owned hubs and franchise/
remissers/ sub broker through whom the business is sourced.

2) COMMODITIES:
Trading platform for commodities on NCDEX and MCX- Commodity trading
facility is provided to all the clients at all the centers and location. The company is
planning to establish itself as a leading research center for commodities market in the
country.

3) DISTRIBUTION
Distribution of retail finance products Mutual Funds and IPOs. The group is
empanelled with all the Fund Houses in the country to sell their Mutual Fund and NFOs
using the retail network. IPOs selling is undertaking from all the branches of the
company.

4) FINANCIAL ADVISORY SERVICES:

Investment and trading advisory services to its clients based on technical,
fundamental and market research- The Company has one of the best fundamental
research and technical analysis teams in the company. We release reports based on

29

fundamental research of industries, sectors, companies and individual stock to our clients
on a basis. The technical research team gives the clients recommendations using charting
tools like Falcon and Metastock. Comprehensive reports on volume breakouts, delivery
reports and F&O open interest positions are given to all the clients.

S W O T analysis of NIRMAL BANG

Strengths:
Company having young management team which consists of very talented and
knowledge professionals from different fields.
Nirmal Bang is a well capitalized group with net worth of more than 3500 crores.
Company is unaffected in this global recession which shows companys never say die
sprits. It means company is armed with proper resources to fight any adverse situation.
Companys research team provides tremendous research calls to their clients which
almost hits and generates level of satisfaction to clients.

Weakness:
Investors are not completely aware of Nirmal Bang, so the brand value of the company is
low.

30

 The market share of the company in commodity and equity market in terms of turnover is
not significant.

Opportunities:
The growth of capital market is very high. Investors are now ready to invest their money
in this market because the return is much higher compare to other place for investment,
so they are ready to bear risk factor associated with it. It means volume will increase year
by year in this sector.

As Nirmal Bang having its presence in 36 location of the country, so company has good
opportunities to extents its branches all over the country.

Company has not come yet with its own IPO, this is a good chance for the company to be
a public limited company which will help company to get money and create brand
awareness in this market.

Threats:
Company has to face a tough competition from major market leaders, so it will be a
difficult task for Nirmal Bang to sustain itself in this cut throat competitions.
Recently financial market is not performing well due to global recession and investors
have suffered a huge loss, so investors now investing their money at much safer place
instead of this market.

31

Commodity Market in India

A commodity may be defined as a product or material or any physical substance like food
grains, processed products and agro-based products, metals or currencies, which investors can
trade in the commodity market. One of the characteristics of a commodity is that its price is
determined as a function of its market as a whole. Well-established physical commodities are
actively traded in spot and derivative commodity market. Commodities actually offer immense
potential to become a separate asset class for market-savvy investors, arbitragers and speculators.
Retail investors, who claim to understand the equity market, may find commodity market
quite tricky. 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
commodity market before taking a leap. Historically, prices of commodities have remained
extremely volatile. The gradual evolution of commodity market in India has been of great
significance for the country's economic prosperity. The commodity futures exchanges were
evolved in 1800 with the sole objective of meeting the demand of exchangeable contracts for
trading agricultural commodities. For example, the cotton exchange located at Cotton Green in
Mumbai (then Bombay) was the one of the first organized commodity market in the country.
A commodity market is a market where various commodities and derivatives products are traded.
Most commodity market across the world trade in agricultural products and other raw materials
(like wheat, barley, sugar, maize, cotton, cocoa, coffee, milk products, pork bellies, oil, metals,
etc.) and contracts based on them.
These contracts can include spot prices, forwards, futures and options on futures. Other
sophisticated products may include interest rates, environmental instruments, swaps, or ocean
freight contracts. Commodities exchanges usually trade futures contracts on commodities, such
as trading contracts to receive a particular commodity in physical form. Speculators and
investors also buy and sell the futures contracts at commodity exchanges to make a profit.

32

The Indian commodity market offers a variety of products like rice, wheat, coal,
petroleum, kerosene, gasoline; metals like copper, gold, silver, aluminum and many more. There
are some commodities such as sugar, cocoa, and coffee, which is perishable, so cannot be
stocked for long time. These days, a wide range of agricultural products, energy products,
perishable commodities and metals can be sold under standardized contracts on futures
exchanges prevailing across the globe.
Commodities have gained importance with the development of commodity futures
indexes along with the mobilization of more resources in the commodity market.
India has around 25 recognized commodity future exchanges including three national-level
commodity exchanges. They are:
1. National Commodity & Derivatives Exchange Limited (NCDEX)
2. Multi Commodity Exchange of India Limited (MCX)
3. National Multi-Commodity Exchange of India Limited (NMCE) All these exchanges are
under the control of the Forward Market Commission (FMC) of Government of India.

National Commodity & Derivatives Exchange Limited (NCDEX) located in Mumbai is a public
limited company incorporated on April 23, 2003 under the Companies Act, 1956 and
commenced its operations on December 15, 2003.This is the only commodity exchange in the
country promoted by national level institutions like ICICI Bank Limited, Life Insurance
Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD)
and National Stock Exchange of India Limited (NSE India). It is a professionally managed
online multi-commodity exchange.
Multi Commodity Exchange of India Limited (MCX) in Mumbai is also an independent and demutualised exchange recognized by the Government of India. This commodity exchange which
started operations in November 2003 has above 40 commodities on its platform and has a market
share of around 80% in the Indian commodity market. Key shareholders of MCX are Financial

33

Technologies (India) Ltd., State Bank of India, Union Bank of India, Corporation Bank, Bank of
India and Canara Bank. This commodity exchange facilitates online trading, clearing and
settlement

operations

for

commodity

futures

market

across

the

country.

National Multi Commodity Exchange of India Limited (NMCE) is the first de-mutualized,
Electronic Multi-Commodity Exchange to be formed in India. On 25th July, 2001, it was granted
approval by the Government of India to organize trading in the edible oil complex. It started
operating in the commodity market from November 26, 2002. NMCE is the only Exchange in
India to have investment and technical support from commodity relevant institutions like Central
Warehousing Corporation Ltd., Gujarat State Agricultural Marketing Board, Neptune Overseas
Ltd, National Agricultural Cooperative Marketing Federation of India (NAFED), Gujarat AgroIndustries Corporation Ltd. (GAICL), Gujarat State Agricultural Marketing Board (GSAMB) and
the

National

Institute

of

Agricultural

Marketing

(NIAM).

As compared to other markets in the last ten years, commodity market has performed relatively
better than other markets like bonds, equity or currency. However, the participation in future
trading in Indian commodity market is very low as compared to other countries as there is lack of
knowledge about this market to the investors and traders. It is not for mere trading purpose;
commodity trading is also used for hedge against inflation, price discovery of the commodity and
also as a sound investment.
Nirmal Bang Securities Pvt. Ltd. : BSE SEBI Regn. No. : INB011072759 / BSE FNO Regn.
No. : INF011072759 BSE Currency SEBI Regn. No: INE011072759 NSE Regn. No. :
INB230939139 / NSE FNO Regn. No. : INF230939139 NSE Currency SEBI Regn. No:
INE230939139 MCX-SX Regn. No. INE260939139 Nirmal Bang Commodities Pvt. Ltd. :
MCX Member ID : 16590 / MCX FMC Regn. No. : MCX/TCM/CORP/0490 NCDEX Member
ID: 00362 / NCDEX FMC Regn. No. : NCDEX/TCM/CORP/0075 NCDEX SPOT Member ID :
10084 ICEX membership ID : 1165 / ICEX Regn. No. : 1165

34

Nirmal Bang caters to the need of customers across India through a network of offices
encompassing

almost

every

Indian

state.

35

You

can

locate

branch

near

you...

THEORETICAL FRAME WORK

This is an Open interest figure is a good indicator of the liquidity in every contract. Based on
studies carried out in international exchanges, it is found that open interest is maximum in near
month expiry contracts.
CLEARING & SETTLEMENT
Most futures contracts do not lead to the actual physical delivery of the underlying asset.
The settlement is done by closing out open positions, physical delivery or cash settlement. All
these settlement functions are taken care of by an entity called clearing house or clearing
corporation. National Securities Clearing Corporation Limited (NSCCL) undertakes clearing of
trades executed on the NCDEX. The settlement guarantee fund is maintained and managed by
NCDEX.
CLEARING
Clearing of trades that take place on an exchange happened through the exchangeclearing house.

A clearinghouse is a system by which exchanges guarantee the faithful

compliance of all trade commitments undertaken on the trading floor or electronically over the
electronic trading systems. The main task of the clearing house is to keep track of all the
transactions that take place during a day so that the net position of each of its members can be
calculated. It guarantees the performance of the parties to each transaction.
Typically it is responsible for the following:
1. Effecting timely settlement.
2. Trade registration and follow up.
3. Control of the evolution of open interest.
4. Financial clearing of the payment flow.
5. Physical settlement (by delivery) or financial settlement (by price difference) of
contracts.
6. Administration of financial guarantees demanded by the participants.

36

The clearing house has a number of members, who are mostly financial institutions
responsible for the clearing and settlement of commodities traded on the exchange.
The margin accounts for the clearing house members are adjusted for gains and losses at
the end of each day (in the same way as the individual traders keep margin accounts with the
broker).
CLEARING BANKS
NCDEX has designed clearing bank through who funds to be paid and/or to be received
must be settled. Every clearing member is required to maintain and operate a clearing account
with any one of the designated clearing bank branches. The clearing account is to be used
exclusively for clearing operations i.e., for settling funds and other obligations to NCDE
including payments of margins and penal charges. A clearing member can deposit funds into this
account, but can withdraw funds from this account only in his self-name.
A clearing member having funds obligation to pay is required to have clear balance in his
clearing account on or before the stipulated pay-in day and the stipulated time.

Clearing

members must authorize their clearing bank to access their clearing account for debiting and
crediting their accounts as per the instructions of NCDEX from time to time. The clearing bank
will debit/credit the clearing account of clearing members as per instructions received from
NCDEX. The following banks have been designated as clearing banks ICICI Bank Limited,
Canara Bank, UTI Bank Limited and HDFC Bank Limited, National Securities Clearing
Corporation (NSCCL) undertakes clearing of trades executed on the NCDEX.
SETTLEMENT
Futures contracts have two types of settlements, the MTM settlement which happens on a
continuous basis at the end of each day, and the final settlement which happens on the last
trading day of the futures contract. On the NCDEX, daily MTM settlement and final MTM
settlement in respect of admitted deal in futures contracts are cash settled by debiting/crediting
the clearing accounts of CMs with the respective clearing bank.

37

All positions of a CM, brought forward, created during the day or closed out during the day,
are marked to market at the daily settlement price or the final settlement price at the close of
trading hours on a day.
1) Daily settlement price: Daily settlement price is the consensus closing price as
arrived after closing session of the relevant futures contract for the trading day.
However, in the absence of trading for a contract during closing sessions, daily
settlement price is computed as per the methods prescribed by the exchange from
time to time.
2) Final settlement price: Final settlement price is the closest price of the underlying
commodity on the last trading day of the futures contract. All open positions in a
futures contract cease to exist after its expiration day.

SETTLEMENT MECHANISM
Settlement of commodity futures contracts is a little different from settlement of financial
futures, which are mostly cash settled. The possibility of physical settlement makes the process a
little more complicated.
`

Types of
Settlement
Daily Settlement

Final Settlement

Daily Settlement Price

Final Settlement Price

Handles daily price fluctuation

Handles final settlement of all

Open oppositions

For all trades (mark to market)

Daily process at end of day

Handles final settlement of all
DAILY
MARK TO MARKET SETTLEMENT:
Open oppositions

38

On contract expiry date

Daily mark to market settlement is done till the date of the contract expiry. This is done
to take care of daily price fluctuations for all trades. All the open positions of the members are
marked to market at the end of the day and profit/loss is determined as below:
1) On the day of entering into the contract, it is the difference between the entry value
and daily settlement price for that day.
2) On any intervening days, when the member holds an open position, it is the different
between the daily settlement price for that day and the previous days settlement
price.
FINAL SETTLEMENT
On the date of expiry, the final settlement price is the spot price on the expiry day. The
spot prices are collected from members across the country through polling. The polled bid/ask
prices are bootstrapped and the mid of the two bootstrapped prices is taken as the final settlement
price. The responsibility of settlement is on a trading cum clearing member for all trades done
on his own account and his clients trades. A professional clearing member is responsible for
settling all the participants trades, which he has confirmed to the exchange.
On the expiry date of a futures contract, members are required to submit delivery
information through delivery request window on the trader workstations provided by NCDEX
for all open positions for a commodity for all constituents individually. NCDEX on receipt of
such information matches the information and arrives at a delivery position for a member for a
commodity. A detailed report containing all matched and unmatched requests is provided to
members through the extranet.
Pursuant to regulations relating to submission of delivery information, failure to submit
delivery information for open positions attracts penal charges as stipulated by NCDEX from time
to time. NCDEX also adds all such open positions for a member, for which no delivery
information is submitted with final settlement obligations of the member concerned and settled
in cash.

39

Non-fulfillment of either the whole or part of the settlement obligations is treated as a

violation of the rules, bye-laws and regulations of NCDEX, and attracts penal charges as
stipulated by NCDE from time to time. In addition NCDEX can withdraw any or all of the
membership rights of clearing member including the withdrawal of trading facilities of all
trading members clearing through such clearing members, without any notice. Further, the
outstanding positions of such clearing member and/or trading members and/or constituents,
clearing and settling through such clearing member, may be closed out forthwith or any
thereafter by the exchange to the extent possible, by placing at the exchange, counter orders in
respect of the outstanding position of clearing member without any notice to the clearing
member and / or trading member and / or constituent.
NCDEX can also initiate such other risk containment measures, as it deems appropriate
with respect to the open positions of the clearing members. It can also take additional measures
like imposing penalties, collecting appropriate deposits, invoking bank guarantees or fixed
deposit receipts, realizing money by disposing off the securities and exercising such other risk
containment measures as it deems fit or take further disciplinary action.
SETTLEMENT METHODS
Settlement of futures contracts on the NCDEX can be done in three ways by physical
delivery of the underlying asset, by closing out open positions and by cash settlement. We shall
look at each of these in some detail. On the NCDEX all contracts settling in cash are settled on
the following day after the contract expiry date. All contracts materializing into deliveries are
settled in a period 2-7 days after expiry. The exact settlement day for each commodity is
specified by the exchange.

PHYSICAL DELIVERY OF THE UNDERLYING ASSET

For open positions on the expiry day of the contract, the buyer and the seller can
announce intentions for delivery. Deliveries take place in the electronic form. All other positions
are settled in cash. When a contract comes to settlement/the exchange provides alternatives like
delivery place, month and quality specifications.

40

Trading period, delivery date etc. are all defined as per the settlement calendar. A
member is bound to provide delivery information. If he fails to give information, it is closed out
with penalty as decided by the exchange.
A member can choose an alternative mode of settlement by providing counter party
clearing member and constituent. The exchange is however not responsible for, nor guarantees
settlement of such deals. The settlement price is calculated and notified by the exchange. The
delivery place is very important for commodities with significant transportation costs. The
exchange also specifies the precise period (date and time) during which the delivery can be
made. For many commodities, the delivery period may be an entire month. The party in the
short position (seller) gets the opportunity to make choices from these alternatives.

The

exchange collects delivery information. The price paid is normally the most recent settlement
price (with a possible adjustment for the quality of the asset and the delivery location). Then
the exchange selects a party with an outstanding long position to accept delivery.
As mentioned above, after the trading hours on the expiry date, based on the available
information, the matching for deliveries is done, firstly, on the basis of locations and then
randomly keeping in view factors such as available capacity of the vault/warehouse,
commodities already deposited and dematerialized and offered for delivery and any other factor
as may be specified by the exchange from time to time.
After completion of the matching process, clearing members are informed of the
deliverable/receivable positions and the unmatched positions. Unmatched positions have to be
settled in cash. The cash settlement is done only for the incremental gain/loss as determined on
the basis of the final settlement price.
Any buyer intending to take physicals has to put a request to his depository participant.
The DP uploads such requests to the specified depository who in turn forwards the same to the
registrar and transfer agent (R&T agent) concerned.

41

After due verification of the authenticity, the R&T agent forwards delivery details to the
warehouse which in turn arranges to release the commodities after due verification of the identity
of recipient. On a specified day, the buyer would go to the warehouse and pick up the physicals.
The seller intending to make delivery has to take the commodities to the designated
warehouse. These commodities have to be assayed by the exchange specified assayer. The
commodities have to meet the contract specifications with allowed variances.
If the commodities meet the specifications, the warehouse accepts them. Warehouses
then ensure that the receipts get updated in the depository system giving a credit in the
depositors electronic account.
NCDEX contracts provide a standardized description for each commodity.

The

description is provided in terms of quality parameters specific to the commodities. At the same
time, it is realized that with commodities, there could be some amount of variances in
quality/weight etc., due to natural causes, which are beyond the control of any person. Hence/
NCDEX contracts also provide tolerance limits for variances. A delivery is treated as good
delivery and accepted if the delivery lies within the tolerance limits. However, to allow for the
difference, the concept of premium and discount has been introduced. Goods that come to the
authorized warehouse for delivery are tested and graded as per the prescribed parameters. The
premium and discount rates apply depending on the level of variation.
The price payable by the party taking delivery is then adjusted as per the
premium/discount rates fixed by the exchange. This ensures that some amount of leeway is
provided for delivery, but at the same time, the buyer taking delivery does not face windfall
loss/gain due to the quantity/quality variation at the time of taking delivery. This, to some extent,
mitigates the difficulty in delivering and receiving exact quality/quantity of commodity.

42

CLOSING OUT BY OFFSETTING POSITIONS

Most of the contracts are settled by closing out open positions. In closing out, the
opposite transaction is effected to close out the original futures position. A buy contract is closed
out by a sale and a sale contract is closed out by a buy. For example, an investor who took a long
position in two gold futures contracts on the January 30, 2004 at 6090 can close his position by
selling two gold futures contracts on February 27, 2004 at Rs.5928.
In this case, over the period of holding the position he has suffered a loss of Rs.162 per
unit. This loss would have been debited from his margin account over the holding period by way
of MTM at the end of each day, and finally at the price that he closes his position, that is Rs.
5928 in this case.
CASH SETTLEMENT
Contracts held till the last day of trading can be cash settled. When a contract is settled in
cash, it is marked to the market at the end of the last trading day and all positions are declared
closed.
The settlement prince on the last trading day is set equal to the closing spot price of the
underlying asset ensuring the convergence of future prices and the spot prices. For example an
investor took a short position in five long staple cotton futures contracts on December 15 at Rs.
6950. On 20th February, the last trading day of the contract, the spot price of long staple cotton is
Rs. 6725. This is the settlement price for his contract. As a holder of a short position on cotton,
he does not have to actual deliver the underlying cotton but simply takes away the profit of Rs.
225 per trading unit of cotton in the form of cash entities involved in physical settlement.
ENTITLES INVOLVED IN PHYSICAL SETTLEMENT
Physical settlement of commodities involves the following three entities an accredited
warehouse, registrar & transfer agent and an assayer. We will briefly look at the functions of
each accredited warehouse.

43

ACCREDITED WAREHOUSE
NCDEX specified accredited warehouses through which delivery of a specific
commodity can be affected and which will facilitate for storage of commodities. For the services
provided by them, warehouses charge a fee that constitutes storage and other charges such as
insurance, assaying and handling charges or any other incidental charges following are the
functions of an accredited warehouse.
FOLLOWING ARE THE FUNCTIONS OF AN ACCREDITED WAREHOUSE
1) Earmark separate storage area as specified for the
be delivered against

purpose of storing commodities to

deals made on the exchange. The warehouses are required to

meet the specifications prescribed by the

exchange for storage of commodities.

Ensure and coordinate the grading of the commodities received at the warehouse before
they are stored.
2) Store commodities in line with their grade specifications and validity period and facilitate
maintenance of identity.

On expiry of such validity period of the grade for such

commodities, the warehouse has to segregate such commodities and store them in a
separate area so that the same are not mixed with commodities which are within the
validity period as per the grade certificate issued by the approved assayers. Approved
registrar and transfer agents (R&T agents).
The exchange specifies approved R&T agents through whom commodities can be
dematerialized and who facilitate for dematerialization/re-materialization of commodities in the
manner prescribed by the exchange from time to time. The R&T agent performs the following
functions.
1) Establishes connectivity with approved warehouses and supports them with physical
infrastructure.
2) Verifies the information regarding the commodities accepted by the accredited warehouse
and assigns the identification number (ISIN) allotted by the depository in line with the
grade/validity period.

44

3) Further processes the information, and ensures the credit of commodity holding to the
Demat account of the constituent.
4) Ensures that the credit of commodities - only to the demat account of c5 the constituents
held with the exchange empanelled DPs.
5) On receiving a request for re-materialization (physical delivery) through the depository,
arranges for issuance of authorization to the relevant warehouse for the

delivery

of

commodities.
R&T agents also maintain proper records of beneficiary position of constituents holding
dematerialized commodities in warehouses and in the depository for a period and also as on a
particular date. They are required to furnish the same to the exchange as and when demanded by
the exchange, R&T agents also do the job of co-coordinating with DPs and warehouses for
billing of charges for services rendered on periodic intervals.
They also reconcile dematerialized commodities in the depository and physical
commodities at the warehouses on periodic basis and co-ordinate with all parties concerned for
the same settlement entity interaction approved assayer.
Client

Broker

Exchange

BANK

Clearing Corporation

Depository
Participant

NSDL

Ware
House

R&T
Agent

APPROVED ASSAYER

45

The exchange specifies approved assayers through whom grading of commodities

(received at approved warehouses for delivery against deals made on the exchange), can, be
availed by the constituents of clearing members. Assayers perform the following functions.
Inspect the warehouses identified by the exchange on periodic basis to verify the
compliance of technical/safety parameters detailed in the warehousing accreditation norms of the
exchange. Make available grading facilities to the constituents in respect of the specific
commodities traded on the exchange at specified warehouse.
The assayer ensures that the grading to be done (in a certificate format prescribed by the
exchange) in respect of specific commodity is as per the norms specified by the exchange in the
respective contract specifications.
Grading certificate so issued by the assayer specifies the grade as well as the validity
period up to which the commodities would retain the original grade, and the time up to which the
commodities are fit for trading subject to environment changes at the warehouses.

PRICING COMMODITY FUTURES

The process of arriving at a figure at which a person buys and another sells a futures
contract for a specific expiration date is called price discovery. In an active futures market, the
process of price discovery continues from the markets opening until its close. The prices are
freely and competitively derived. Future prices are therefore considered to be superior to be
administered prices or the prices that are determined privately. Further, the low transaction costs
and frequent trading encourages wide participation in futures markets lessening the opportunity
for control by a few buyers and sellers.
We try to understand the pricing of commodity futures contracts and look at how the
futures price is related to the spot price of the underlying asset. We study the cost-of-carry model
to understand the dynamics of pricing that constitute the estimation of fair value of futures the
cost of carry model.

REGULATORY FRAMEWORK FOR COMMODITY TRADING IN INDIA:

46

At present there are three tiers of regulations of forward/futures trading system in India,
namely, government of India, Forward Markets Commission (FMC) and commodity exchanges.
The need for regulation arises on account of the fact that the benefits of futures markets accrue in
competitive conditions.
Proper regulation is needed to create competitive conditions.

In the absence of

regulation, unscrupulous participants could use these leveraged contracts for manipulating prices.
This could have undesirable influence on the spot prices, thereby affecting interests of society at
large. Regulation is also needed to ensure that the market has appropriate risk management
system. In the absence of such a system, a major default could create a chain reaction.
The resultant financial crisis in a futures market could create systematic risk. Regulation
is also needed to ensure fairness and transparency in trading, clearing, settlement and
management of the exchange so as to protect and promote the interest of various stakeholders,
particularly non-member users of the market.

RULES GOVERNING COMMODITY DERIVATIVES EXCHANGES

The trading of commodity derivatives on the NCDEX is regulated by Forward Markets
Commission (FMC). Under the Forward Contracts (Regulation) Act, 1952, forward trading in
commodities notified under section 15 of the Act can be conducted only on the exchanges, which
are granted recognition by the central government (Department of Consumer Affairs, Ministry of
Consumer Affairs, Food and Public Distribution). All the exchanges, which deal with forward
contracts, are required to obtain certificate of registration.
Forward Markets Commission provides regulatory oversight in order to ensure financial
integrity (i.e. to prevent systematic risk of default by one major operator or group of operators),
market integrity (i.e. to ensure that futures prices are truly aligned with the prospective demand
and supply conditions) and to protect and promote interest of customers / nonmembers. It
prescribes the following regulatory measures:

47

1) Limit on net open position as on close of the trading houses. Sometimes limit is also
imposed on intra-day net open position. The limit is imposed operator-wise/ and in some
cases, also member wise.
2) Circuit filters or limit on price fluctuations to allow cooling of market in the event of
abrupt upswing or downswing in prices.
3) Special margin deposit to be collected on outstanding purchases or sales when price
moves up or down sharply above or below the previous day closing price. By making
further purchases/sales relatively costly, the price rise or fall is sobered down. This
measure is imposed only on the request of the exchange.
4) Circuit breakers or minimum/maximum prices. These are prescribed to prevent
prices from falling below as rising above not warranted by prospective

futures

supply

and

demand factors. This measure is also imposed on the request of the exchange.
5) Skipping trading in certain derivatives of the contract closing the market for a specified
period and even closing out the contract. These extreme are taken only in emergency
situations. Besides these regulatory measures, the F.C) R) Act provides that a clients
position cannot be appropriated by the member of the exchange, excepted.
Consent is taken The FMC is persuading increasing number of exchanges to switch over
to electronic trading, clearing and settlement which is more customer/friendly. The FMC has
also prescribed simultaneous reporting system for the exchanges following open outcry system.
These steps facilitate audit trail and make it difficult for the members to indulge in malpractice
like trading ahead of clients, etc.
The FMC has also mandated all the exchanges following open outcry system to display at
a prominent place in exchange premises, the name, address, telephone number of the officer of
the commission who can be contacted for any grievance. The website of the commission also
has a provision for the customers to make complaint and send comments and suggestions to the
FMC. Officers of the FMC have been instructed to meet the members and clients on a random
basis, whenever they visit exchanges, to ascertain the situation on the ground, instead of merely
attending meetings of the board of directors and holding discussions with the office bearers.
RULES GOVERNING INTERMEDIARIES

48

In addition to the provisions of the Forward Contracts (Regulation) Act 1952 and rules
framed there under, exchanges are governed by its own rules and bye laws (approved by the
FMC). In this section we have brief look at the important regulations that govern NCDEX. For
the sake of convenience/these have been divided into two main divisions pertaining to trading
and clearing.

The NCDEX provides an automated trading facility in all the commodities

admitted for dealings on the spot market and derivative market. Trading on the exchange is
allowed only through approved workstation(s) located at locations for the office(s) of a trading
member as approved by the exchange. If LAN or any other way to other workstations at any
place connects an approved workstation of a trading Member it shall require an approval of the
exchange.
Each trading member is required to have a unique identification number which is
provided by the exchange and which will be used to log on (sign on) to the trading system. A
trading member has a non-exclusive permission to use the trading system as provided by the
exchange in the ordinary course of business as trading member. He does not have any title rights
or interest whatsoever with respect to trading system/its facilities/ software and the information
provided by the trading system. For the purpose of accessing the trading system/the member will
install and use equipment and software as specified by the exchange at his own cost.
The exchange has the right to inspect equipment and software used for the purposes of
accessing the trading system at any time. The cost of the equipment and software supplied by
the exchange/installation and maintenance of the equipment is borne by the trading member and
users Trading members are entitled to appoint, (subject to such terms and conditions/as may be
specified by the relevant authority) from time to time Authorized persons and Approved users.
Trading members have to pass a petrifaction program/which has been prescribed by the
exchange. In case of trading members/other than individuals or sole proprietorships/such
certification

program

has

to

be

passed

by

at

least

one

of

their

directors/employees/partners/members of governing body. Each trading member is permitted to

appoint a certain number of approved users as notified from time to time by the exchange.

49

The appointment of approved users is subject to the terms and conditions prescribed by
the exchange. Each approved user is given a unique identification number through which he will
have access to the trading system. An approved user can access the trading system through a
password and can change the password from time to time.
The trading member or its approved users are required to maintain complete secrecy of its
password. Any trade or transaction done by use of password of any approved user of the trading
member, will be binding on such trading member. Approved user shall be required to change his
password at the end of the password expiry period.
TRADING DAYS
The exchange operates on all days except Saturday and Sunday and on holidays that it
declares from time to time. Other than the regular trading hours, trading members are provided a
facility to place orders offline i.e. outside trading hours. These are stored by the system but get
traded only once the market opens for trading on the following working day.
The types of order books, trade books, price a limit, matching rules and other parameters
pertaining to each or all of these sessions are specified by the exchange to the members via its
circulars or notices issued from time to time.
Members can place orders on the trading system during these sessions, within the
regulations prescribed by the exchange as per these bye laws, rules and regulations, from time to
time.
TRADING HOURS AND TRADING CYCLE
The exchange announces the normal trading hours/open period in advance from time to
time. In case necessary, the exchange can extend or reduce the trading hours by notifying the
members. Trading cycle for each commodity/derivative contract has a standard period, during
which it will be available for trading.

50

CONTRACT EXPIRATION
Derivatives contracts expire on a pre-determined date and time up to which the contract is
available for trading. This is notified by the exchange in advance. The contract expiration
period will not exceed twelve months or as the exchange may specify from time to time.

TRADING PARAMETERS
The exchange from time to time specifies various trading parameters relating to the
trading system. Every trading member is required to specify the buy or sell orders as either an
open order or a close order for derivatives contracts. The exchange also prescribes different order
books that shall be maintained on the trading system and also specifies various conditions on the
order that will make it eligible to place it in those books. The exchange specifies the minimum
disclosed quantity for orders that will be allowed for each commodity/derivatives contract. It
also prescribed the number of days after which Good Till Cancelled orders will be cancelled by
the system.
It specifies parameters like lot size in which orders can be placed, price steps in which
shall be entered on the trading system, position limits in respect of each commodity etc.
FAILURE OF TRADING MEMBER TERMINAL
In the event of failure of trading members workstation and/ or the loss of access to the
trading system, the exchange can at its discretion undertake to carry out on behalf of the trading
member the necessary functions which the trading member is eligible for. Only requests made in
writing in a clear and precise manner by the trading member would be considered. The trading
member is accountable for the functions executed by the exchange on its behalf and has to
indemnity the exchange against any losses or costs incurred by the exchange.
TRADE OPERATIONS
Trading members have to ensure that appropriate confirmed order instructions are
obtained from the constituents before placement of an order on the system. They have to keep
relevant records or documents concerning the order and trading system order number and copies
of the order confirmation slip/modification slip must be made available to the constituents.

51

The trading member has to disclose to the exchange at the time of order entry whether the
order is on his own account or on behalf of constituents and also specify orders for buy or sell as
open or close orders. Trading members are solely responsible for the accuracy of details of orders
entered into the trading system including orders entered on behalf of their constituents. Traders
generated on the system are irrevocable and blocked in one.
The exchange specifies from time to time the market types and the manner if any, in
which trade cancellation can be effected. Where a trade cancellation is permitted and trading
member wishes to cancel a trade, it can be done only with the approval of the exchange.
MARGIN REQUIREMENTS
Subject to the provisions as contained in the exchange bye-laws and such other
regulations as may be in force, every clearing member/in respect of the trades in which he is
party to, has to deposit a margin with exchange authorities.
The exchange prescribes from time to time the commodities/derivatives contracts, the
settlement periods and trade types for which margin would be attracted.
The exchange levies initial margin on derivatives contracts using the concept of Value at
Risk or any other concept as the exchange may decide from time to time. The margin is charged
so as to cover one-day loss that can be countered on the position on 99% of the days. Additional
margins may be levied for deliverable positions, on the basis of from the expiry of the contract
till the actual settlement date plus a mark-up for default.
The margin has to be deposited with the exchange within the time notified by the
exchange. The exchange also prescribes categories of securities that would be eligible for a
margin deposit, as well as the method of valuation and amount of securities that would be
required to be deposited against the margin amount.

52

The procedure for refund/adjustment of margins is also specified by the exchange from
time to time. The exchange can impose upon any particular trading member or category of
trading member any special or other margin requirement.
On failure to deposit margin/s as required under this clause, the exchange/clearing house
can withdraw the trading facility of the trading member. After the pay-out, the clearing house
releases all margins.
CLEARING
As mentioned earlier, National Securities Clearing Corporation Limited (NSCCL)
undertakes clearing of trades executed on the NCDEX, All deals executed on the Exchange are
cleared and settled by the trading members on the settlement date by the trading members
themselves as clearing members or through other professional clearing members in accordance
with these regulations/bye laws and rules of the exchange.
LAST DAY OF TRADING
Last trading day for a derivative contract in any commodity is the date as specified in the
respective commodity contract. If the last trading day as specified in the respective commodity
contract is a holiday, the last trading day is taken to be the previous working day of exchange.
On the expiry date of contracts, the trading members/ clearing members have to give delivery
information as prescribed by the exchange from time to time.
If a trading member/clearing member fails to submit such information during the trading
hours on the expiry date for the contract/the deals have to be settled as per the settlement
calendar applicable for such deals, in cash-together with penalty as stipulated by the exchange
deals entered into through the exchange. The clearing member cannot operate the clearing
account for any other purpose.

53

Date

Prev Close
Price
9-Jun-15
4533
10-Jun4564
15
11-Jun4407
15
12-Jun4440
15
15-Jun4475
15
16-Jun4455
15
17-Jun4318
15
18-Jun4343
15
19-Jun4198
15
22-Jun4288
15
23-Jun4214
15
24-Jun4229
15
25-Jun4248
15
26-Jun4165
15
29-Jun4205
15
30-Jun4177
15
1-Jul-15
4162
2-Jul-15
4174
3-Jul-15
4117
6-Jul-15
4190
7-Jul-15
4237
8-Jul-15
4381
9-Jul-15
4502
10-Jul4504
15
13-Jul4484
15
14-Jul4637
15
15-Jul4638
15
16-Jul4674
15
17-Jul4713
15
20-Jul4685
15

Open
Price
4540
4582

High Price

Low Price

Close Price

4608
4593

4540
4520

4570
4533

4432

4578

4400

4564

4437

4445

4397

4407

4457

4481

4435

4440

4430

4492

4430

4475

4400

4490

4398

4455

4349

4378

4301

4318

4203

4360

4203

4343

4275

4285

4192

4198

4238

4332

4238

4288

4221

4244

4159

4214

4265

4271

4211

4229

4184

4273

4184

4284

4200

4200

4103

4165

4136

4225

4136

4205

4162
4177
4100
4165
4268
4361
4501
4515

4198
4227
4191
4165
4302
4370
4526
4558

4133
4144
4095
4025
4114
4216
4356
4491

4177
4162
4174
4117
4190
4237
4381
4502

4490

4527

4490

4504

4600

4600

4460

4488

4630

4651

4583

4637

4663

4670

4612

4638

4711

4725

4662

4674

4703

4721
54

4680

4713

DATA ANALYSIS AND INTERPRETATION

Chana

55

1520
1510
1500
1490
1480

Prev Close Price

1470

Open Price

1460

High Price

1450

Low Price

1440

Close Price

1430
1420

Interpretation:
From the above table it is interpreted that the opening price of the chana on 9 th
june-15 the value is Rs 4540, The closing price of the during the period the value is Rs 4713 on
20th july-2015. During the period the chana value is increased by Rs 173 (4713-4540), value of
chana is increased by 3.81% during the period. The overall period highest value of the chanaRs
4725 on 17thJuly 2015, lowest value of chana is Rs 4025 6thJuly.

56

Date
9-Jun-15
10-Jun-15
11-Jun-15
12-Jun-15
15-Jun-15
16-Jun-15
17-Jun-15
18-Jun-15
19-Jun-15
22-Jun-15
23-Jun-15
24-Jun-15
25-Jun-15
26-Jun-15
29-Jun-15
30-Jun-15
1-Jul-15
2-Jul-15
3-Jul-15
6-Jul-15
7-Jul-15
8-Jul-15
9-Jul-15
10-Jul-15
13-Jul-15
14-Jul-15
15-Jul-15
16-Jul-15
17-Jul-15
20-Jul-15

Prev Close
Price
24753
24919
24697
24749
24686
24935
25040
25498
25741
25808
25965
25994
26050
26057
26201
26031
26285
26296
26195
26404
26475
26678
26506
26478
26545
26725
26911
27094
27148
26870

Open Price
Submit
24758
24797
24837
24558
24750
24691
24945
25002
25715
25801
25950
26005
26088
26087
26071
26007
26219
26353
26235
26356
26513
26609
26749
26523
26589
26626
26791
27026
27123
26938

Gold

57

High Price

Low Price

Close Price

24835
24829
25002
24742
24926
24720
25004
25157
25731
25801
25953
26010
26088
26107
26220
26229
26263
26353
26338
26356
26521
26616
26844
26574
26593
26654
26800
27033
27186
27239

24650
24706
24801
24465
24710
24571
24872
24900
25469
25695
25755
25920
25950
26015
26040
25863
25827
26191
26220
26113
26383
26378
26611
26400
26450
26476
26588
26685
27044
26915

24795
24753
24919
24697
24749
24686
24935
25040
25498
25741
25808
25965
25994
26050
26057
26201
26031
26285
26296
26195
26404
26475
26678
26506
26478
26545
26725
26911
27094
27148

27500
27000
26500
26000

Prev Close Price

25500

Open Price Submit

25000

High Price

24500

Low Price

24000

Close Price

23500
23000

Interpretation:
From the above table it is interpreted that the opening price of the gold on 9 th june-15 the
value is Rs 24758, The closing price of the during the period the value is Rs 27148 on 20 th july2015. During the period the gold value is increased by Rs 2390 (24758-27148), value of gold is
increased by 3.81% during the period. The overall period highest value of the gold Rs 27239 on
20thJuly 2015, lowest value of gold is Rs 24465 on 12thJune.

58

Barley
Date

Open Price

High Price

Low Price

Close Price

9-Jun-15

Prev Close
Price
1177.5

1170.5

1172

1170

1171

10-Jun-15

1165

1155

1184

1155

1177.5

11-Jun-15

1168.5

1165

1165

1165

1165

12-Jun-15

1172.5

1166

1175.5

1162.5

1168.5

15-Jun-15

1169

1162

1176

1162

1172.5

16-Jun-15

1195

1191

1201

1150

1169

17-Jun-15

1207.5

1209

1214

1190

1195

18-Jun-15

1187.5

1184

1209

1184

120705

19-Jun-15

1191.5

1189

1192

1178.5

1187.5

22-Jun-15

1207.5

1203

1203

1187.5

1191.5

23-Jun-15

1209

1208.5

1212

1201

1207.5

24-Jun-15

1218.5

1217

1217.5

1206

1209

25-Jun-15

1220.5

1214

1223

1214

1218.5

26-Jun-15

1219

1220

1224.5

1215

1220.5

29-Jun-15

1226

1225

1225.5

1215

1219

30-Jun-15

1235.5

1239

1239

1223

1226

1-Jul-15

1242

1242

1244

1231.5

1235.5

2-Jul-15

1232.5

1234

1244

1232.5

1242

3-Jul-15

1230

1227.5

1236

1225.5

1232.5

6-Jul-15

1227

1224

1240

1224

1230

7-Jul-15

1236.5

1239.5

1240.5

1222

1227

8-Jul-15

1255.5

1253

1259

1234

1236.5

9-Jul-15

1267

1274.5

1274.5

1251.5

1255.5

10-Jul-15

1270

1271

1278

1265

1267

13-Jul-15

1263

1268.5

1274

1264

1270

14-Jul-15

1284

1276

1277

1257

1263

15-Jul-15

1293.5

1292

1295.5

1282

1284

16-Jul-15

1273

1274

1297

1268

1293.5

17-Jul-15

1276

1276

1279

1268

1273

20-Jul-15

1248.5

1251.5

1279

1250.5

1276

59

1520
1510
1500
1490
1480

Prev Close Price

1470

Open Price

1460

High Price

1450

Low Price

1440

Close Price

1430
1420

Interpretation:
From the above table it is interpreted that the opening price of the Barley on 9 th june-15
the value is Rs 1170.5, The closing price of the during the period the value is Rs1276 on 20 th
july-2015. During the period the Barley value is increased by Rs-105 (1170.5-1276), value of
Barley is increased by -9.01% during the period. The overall period highest value of the Barley
Rs 1297 on 16thJuly 2015, lowest value of Barley is Rs1150on 16thJune.

60

Castro seeds
Date

Prev Close
Price

Open Price

High Price

Low Price

Close Price

9-Jun-15
10-Jun-15
11-Jun-15
12-Jun-15
15-Jun-15
16-Jun-15
17-Jun-15
18-Jun-15
19-Jun-15
22-Jun-15
23-Jun-15
24-Jun-15
25-Jun-15
26-Jun-15
29-Jun-15
30-Jun-15
1-Jul-15
2-Jul-15
3-Jul-15
6-Jul-15
7-Jul-15
8-Jul-15
9-Jul-15
10-Jul-15
13-Jul-15
14-Jul-15
15-Jul-15
16-Jul-15
17-Jul-15
20-Jul-15

3996
4053
4073
4068
4049
4161
4155
4088
4075
4014
3984
3998
4014
3992
4058
4025
4021
3986
3986
3993
3925
3944
3917
3945
3889
3910
3943
3930
3931
3928

3996
4049
4055
4070
4015
4142
4156
4076
4079
4015
3994
4015
4010
4000
4057
4021
4028
3978
3975
3969
4003
3946
3910
3929
3900
318
3953
3935
3915
3916

4009
4090
4072
4107
4089
4145
4195
4167
4109
4083
4004
4015
4035
4030
4057
4070
4055
4055
3995
4021
4003
3946
3948
3950
3955
3933
3955
3998
3954
3949

3923
3893
4010
4060
4015
4035
4136
4047
4066
3999
3880
3956
3984
3995
3975
4017
4011
3971
3920
3957
3890
3916
3910
3910
3899
3877
3901
3932
3901
3874

3993
3996
4053
4073
4068
4049
4161
4155
4080
4075
3928
3984
3998
4014
3992
4058
4025
4021
3986
3986
3902
3925
3944
3917
3945
3889
3910
3943
3930
3931

61

1520
1510
1500
1490
1480

Prev Close Price

1470

Open Price

1460

High Price

1450

Low Price

1440

Close Price

1430
1420

Interpretation:
From the above table it is interpreted that the opening price of the castro seeds on 9 th
june-15 the value is Rs3996, The closing price of the during the period the value is Rs3931 on
20th july-2015. During the period the castro seeds value is increased by Rs 65 (3996-3931), value
of castro seeds is increased by 1.62% during the period. The overall period highest value of the
castro seeds Rs 4195 on 17thJuly 2015, lowest value of castro seeds is Rs 3880 on 23thJune.

Musted seeds

62

Date
9-Jun-15
10-Jun-15
11-Jun-15
12-Jun-15
15-Jun-15
16-Jun-15
17-Jun-15
18-Jun-15
19-Jun-15
22-Jun-15
23-Jun-15
24-Jun-15
25-Jun-15
26-Jun-15
29-Jun-15
30-Jun-15
1-Jul-15
2-Jul-15
3-Jul-15
6-Jul-15
7-Jul-15
8-Jul-15
9-Jul-15
10-Jul-15
13-Jul-15
14-Jul-15
15-Jul-15
16-Jul-15
17-Jul-15
20-Jul-15

Prev Close
Price
4169
4231
4253
4207
4234
4152
4129
4090
4066
4032
4213
4232
4214
4252
4248
4163
4143
4135
4156
4177
4213
4232
4214
4252
4248
4163
4143
4135
4156
4177

Open Price
4185
4237
4230
4238
4218
4145
4143
4097
4070
4044
4177
4231
4215
4240
4264
4167
4161
4141
4126
4173
4177
4231
4215
4240
4264
4167
4161
4141
4126
4173

63

High Price
4188
4250
4262
4278
4239
4264
4171
4136
4097
4087
4222
4232
4262
4242
4298
4265
4188
4178
4140
4184
4222
4232
4262
4242
4298
4265
4188
4178
4140
4184

Low Price
4123
4151
4220
4238
4187
4142
4126
4088
4025
4000
4177
4201
4198
4200
4222
4167
4144
4135
4097
4140
4177
4201
4198
4200
4222
4167
4144
4135
4097
4140

Close Price
4177
4169
4231
4253
4207
4234
4152
4129
4090
4066
4207
4213
4232
4214
4252
4248
4163
4143
4135
4156
4207
4213
4232
4214
4252
4248
4163
4143
4135
4156

1520
1510
1500
1490
1480

Prev Close Price

1470

Open Price

1460

High Price

1450

Low Price

1440

Close Price

1430
1420

Interpretation:
From the above table it is interpreted that the opening price of the musted seeds on 9 th
june-15 the value is Rs 4185, The closing price of the during the period the value is Rs4156 on
20th july-2015. During the period the musted seeds value is increased by Rs29 (4185-4156),
value of musted seeds is increased by 0.69% during the period. The overall period highest value
of the musted seeds Rs 4298 on 29th June& 13th July 2015, lowest value of musted seeds is Rs
4000 on 22thJune.

64

Jeera
Date
9-Jun-15
10-Jun-15
11-Jun-15
12-Jun-15
15-Jun-15
16-Jun-15
17-Jun-15
18-Jun-15
19-Jun-15
22-Jun-15
23-Jun-15
24-Jun-15
25-Jun-15
26-Jun-15
29-Jun-15
30-Jun-15
1-Jul-15
2-Jul-15
3-Jul-15
6-Jul-15
7-Jul-15
8-Jul-15
9-Jul-15
10-Jul-15
13-Jul-15
14-Jul-15
15-Jul-15
16-Jul-15
17-Jul-15
20-Jul-15

Prev Close
Price
15830
16190
15905
15935
16475
16475
16035
16115
15905
15810
15930
16295
16355
16475
16240
16825
16985
16760
16850
16690
15860
16030
16180
16205
16270
16160
16170
16125
16020
16075

Open Price
15950
16150
15980
15880
16400
16400
16000
16080
15920
15890
15980
16250
16400
16395
16220
16710
17075
16800
16800
16705
15720
16005
16025
16150
16300
16275
16210
16170
16000
16010

65

High Price
16160
16245
16290
16135
16470
16595
16675
16290
16180
16050
15980
16345
16490
16645
16600
16725
17075
17085
17025
16925
16150
16050
16095
16270
16370
16375
16380
16315
16325
16160

Low Price
15460
15725
15635
15615
15890
16325
16000
15830
15600
15720
15510
15820
16065
16275
16200
16205
16750
16655
16415
16620
15650
15800
15940
16105
16415
16200
16110
16120
15885
15920

Close Price
16075
15830
16190
15905
15935
16475
16475
16035
16115
15905
15810
15930
16295
16355
16475
16240
16825
16985
16760
16850
16040
15860
16030
16180
16250
16270
16160
16170
16125
16020

1520
1510
1500
1490
1480

Prev Close Price

1470

Open Price

1460

High Price

1450

Low Price

1440

Close Price

1430
1420

Interpretation:
From the above table it is interpreted that the opening price of the Jeera on 9 th june-15 the
value is Rs 15950, The closing price of the during the period the value is Rs16020 on 20 th july2015. During the period the Jeera value is increased by Rs -70 (15950-16020), value of Jeera is
increased by -0.43% during the period. The overall period highest value of the Jeera Rs 17085 on
15thJuly 2015, lowest value of Jeera is Rs 15460 on 9thJune.

66

Chilli
Date
9-Jun-15
10-Jun-15
11-Jun-15
12-Jun-15
15-Jun-15
16-Jun-15
17-Jun-15
18-Jun-15
19-Jun-15
22-Jun-15
23-Jun-15
24-Jun-15
25-Jun-15
26-Jun-15
29-Jun-15
30-Jun-15
1-Jul-15
2-Jul-15
3-Jul-15
6-Jul-15
7-Jul-15
8-Jul-15
9-Jul-15
10-Jul-15
13-Jul-15
14-Jul-15
15-Jul-15
16-Jul-15
17-Jul-15
20-Jul-15

Prev Close
Price
9306
9340
9400
9148
9148
9140
9222
9198
9182
9174
9142
9180
9030
8914
8856
9006
9000
8990
9036
8980
8980
9058
9152
9156
968
9252
9302
9228
9486
9880

Open Price
0
9306
9300
9400
0
9200
9130
9248
9160
9064
8936
9146
8814
8950
8872
8882
8862
994
8936
8998
8980
9070
9138
9156
9126
9398
9392
8954
9128
9668

67

High Price
0
9306
9380
9400
0
9200
9258
9280
9250
9240
9220
9196
9148
9050
8958
8910
9010
9094
9050
9070
9058
9070
9160
9160
9196
9398
9392
9400
9396
9668

Low Price
0
9300
9300
9400
0
9140
9120
9104
9160
9064
8936
9102
8814
8924
8872
8796
8862
8950
8936
8998
8958
8886
8936
9106
9102
9100
9204
8954
9128
9486

Close Price
9306
9306
9340
9400
9148
9148
9140
9222
9198
9182
9174
9142
9108
9030
8914
8856
9006
9000
8990
9036
8980
8990
9058
9152
9156
9168
9252
9302
9228
9486

1520
1510
1500
1490
1480

Prev Close Price

1470

Open Price

1460

High Price

1450

Low Price

1440

Close Price

1430
1420

Interpretation:
From the above table it is interpreted that the opening price of the Chilli on 9 th june-15
the value is Rs 9306, The closing price of the during the period the value is Rs9486 on 20 th july2015. During the period the Chilli value is increased by Rs -180 (9306-9486), value of Chilli is
increased by -1.93% during the period. The overall period highest value of the Chilli Rs 9668 on
20thJuly 2015, lowest value of Chilli is Rs 8796 on 30thJune.

68

Wheat
Date
9-Jun-15
10-Jun-15
11-Jun-15
12-Jun-15
15-Jun-15
16-Jun-15
17-Jun-15
18-Jun-15
19-Jun-15
22-Jun-15
23-Jun-15
24-Jun-15
25-Jun-15
26-Jun-15
29-Jun-15
30-Jun-15
1-Jul-15
2-Jul-15
3-Jul-15
6-Jul-15
7-Jul-15
8-Jul-15
9-Jul-15
10-Jul-15
13-Jul-15
14-Jul-15
15-Jul-15
16-Jul-15
17-Jul-15
20-Jul-15

Prev Close
Price
1500
1503
1496
1490
1487
1490
1498
1496
1502
1502
1514
1495
1486
1472
1468
1469
1470
1470
1472
1465
1475
1481
1487
1486
1486
1487
1478
1484
1482
1485

Open Price
1500
1500
1505
1499
1490
1491
1495
1496
1499
1504
1511
1496
1485
1474
1470
1476
1475
1473
1473
1478
1475
1481
1485
1488
1485
1487
1472
1480
1481
1484

69

High Price
1500
1500
1505
1499
1490
1499
1508
1505
1499
1507
1511
1515
1496
1490
1473
1476
1475
1473
1473
1478
1477
1481
1486
1496
1490
1496
1488
1489
1494
1484

Low Price
1480
1500
1500
1494
1490
1480
1485
1491
1488
1500
1499
1489
1479
1473
1465
1464
1468
1468
1466
1465
1458
1471
1478
1485
1484
1480
1472
1473
1478
1475

Close Price
1484
1500
1503
1496
1490
1487
1490
1498
1496
1502
1502
1514
1495
1486
1472
1468
1469
1470
1470
1472
1465
1475
1481
1487
1486
1486
1487
1478
1484
1482

1520
1510
1500
1490
1480

Prev Close Price

1470

Open Price

1460

High Price

1450

Low Price

1440

Close Price

1430
1420

Interpretation:
From the above table it is interpreted that the opening price of the Wheat on 9 th june-15
the value is Rs 1500, The closing price of the during the period the value is Rs1482 on 20 th july2015. During the period the Wheat value is increased by Rs 18 (1500-1482), value of Wheat is
increased by 1.2% during the period. The overall period highest value of the Wheat Rs 1515on
24th June 2015, lowest value of Wheat is Rs 1458 on 7th July.

70

FINDINGS
1) Commodity market is still in the nascent stages in India as it is an emerging market.
2) Commodity market not totally based on the Demand & Supply forces prevailing in the
market and day traders still have the power to manipulate the daily trading somewhat..
3) The player (Speculators) creates the bull and bear situation in the commodity market
based on money power and profit booking motives. If there is no speculation in the
market then nobody is interested to participate in the trading, as the real motive still is the
speculation. Although I personally feel that the maturity to the market will come only of
the market is used by large number of players to hedge.
4) The commodity market is currently only concerned with the future contracts of 1 month
and 3 month maturity and this should further be expanded.
5) The business in the commodity market is a very risky in nature mainly due to above
stated reason of real motive being the speculation.
6) Generally the role of hedgers is done by farmers. Farmers settle down their profits by
doing trading in MCX markets. Although it may not be happening to that extent.
7) Generally the people who do not have money to take the delivery they do the role of
arbitersury to gain the profit by trading in two markets.
8) These markets are also very useful to jewelry traders. They trade on both side i.e. on their
shop and in MCX markets to settle down their profits or loss.

71

SUGGESTIONS
1) Familiarize yourself with all the provisions of Forward Contracts (Regulations) Act, 1952
dealing with futures trading in commodities and amendments thereof from time to time
2) Understand the provisions and rates relating to the sales tax, value added tax, APMC Tax,
Mandi Cess and Tax, Octroi, excise duty, stamp duty, etc., as applicable on the underlying
commodity of any contracts offered for trading by MCX.
3) Read, understand and be updated about the guidelines and circulars of the Exchange and
of the Forward Markets Commission issued from time to time and kept on the respective
websites.
4) Read the commodity contracts circulars issued & kept on MCX website and carefully
note the contract specifications of the commodity in which you wish to trade. The
contract specifications are subject to change from time to time.
5) Before entering into buy and sell transactions please be aware of all the factors that go
into the mechanism of pricing, trading, clearing and settlement.
6) Read the product note of the commodity in which you wish to deal to understand the
commodity and parameters that impact on the trading and settlement of the commodity.
7) Understand the Delivery & Settlement Procedures given in the Exchange Circular of the
commodity kept on the Exchange website that you wish to deal in the futures market.
8) Study historical and seasonal price movements of the commodity that you wish to deal in
the futures market.
9) Keep track of Governments' Policy announcements from time to time of the commodity
that you wish to deal in the futures market.
10) Apply your own prudent judgment for investments in commodity futures and take
informed decisions.

72

11) Comply with Taxation and other Central Government/State Governments regulatory
issues.
12) Go through all Rules, Bye Laws, Regulations, Circulars and directives issued by MCX.
13) Since futures trading attract various types of margins, be aware of the risks associated
with your positions in the market and margin calls made from time to time.
14) Collect/Pay Mark-to-Market margins Cheque on your futures positions on a daily basis
from/to your Member.
15) Be aware of your risk taking ability and fix stop-loss limits. Liquidate your positions at
such levels to reduce further losses, if any.
16) In case of any doubt/problems, contact Exchange's Help Desk or email at
customersupport@mcxindia.com
17) Do not fall prey to market rumors
18) Do not go by any explicit/ implicit promise made by analysts/ advisors/ experts/ market
intermediary until convinced
19) Do not take trading decisions based on reports/ predictions made in various print and
electronic mediums without proper evaluation.
20) Do not deal based on Bull/Bear run of commodity markets sentiments.
21) Do not trade on any product without knowing the risks associated with it.

73

CONCLUSION
India is one of the top producers of a large number of commodities and also has a long
history of trading in commodity and related derivatives. The market has made enormous progress
in terms of technology, Transparency and trading activity. Interestingly this have happen only
after the govt protection was removed from the number of commodity and market forces were
allowed to play their role. This should act as a major lesson for the policy makers in developing
countries that pricing and price risk management should be left to the market forces rather than
try to achieve these through administered price mechanisms. The management of price risk is
going to assume even greater importance in future with the promotion of free trade. In short I
want to say that, today the commodity market not only limited to the particular country but it
also spread across the world.
India is the second largest market in the world after the China.

74

 In commodity market, there is no delivery based market activity. Only the contracts are
taking place.
Large traders (e.g. MNCs) maintain large stock of the quantity and play speculation in
the market.
The Holding Capacity of participating traders is very strong.
General people and framers are not that much aware about the commodity market, so the
speculators and the gamblers are taking the advantage of commodity market.

BIBLIOGRAPHY
Journals &Articles
(1) Jangaih Paladi and c.Anitha raman,commodity market_ A relook ,in
icfai reader.
Newspapers
Economic times
Business line
Text Books
1) M.Y.KHAN & P.K.JAIN. Financial Management. Tata McGraw Hill. New
Delhi.

75

2) RAMACHANDRAN & SRINIVASAN Management Accounting. S.CHAND &

COMPANY LTD. New Delhi.
3) Financial Markets and Services by Gordon and Natarajan, Himalaya Publications.
4) Financial Management by Shashi K Gupta and R. K Sharma, Kalyani
Publications.
5) RAMACHANDRAN & SRINIVASAN Management Accounting. S.CHAND &
COMPANY LTD.New Delhi.
6) Financial Markets and Services by Gordon and Natarajan, Himalaya Publications.
7) Financial Management by Shashi K Gupta and R. K Sharma, Kalyani
Publications.
8) Financial Claims & Derivatives -by David N King.
9) Futures & Options -by Franklin R Edward.
10) M.Y.KHAN & P.K.JAIN. Financial Management. Tata McGraw Hill.
Delhi.
Websites:
1) Market data is available from the URL
http://www.mcxindia.com/market/date wise
2)

http://www.ise.com/webform/view page

76

New