View of COMPARATIVE STUDY OF COMMODITY MARKET V/S MULTI COMMODITY EXCHANGE

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Vol. 01, Issue 01, May 2016, ISSN -2456-1037 (INTERNATIONAL JOURNAL)

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COMPARATIVE STUDY OF COMMODITY MARKET V/S MULTI COMMODITY EXCHANGE

Dr. Ashutosh Chandra Dwivedi

Assistant Professor, Department of Commerce Shri Jai Narain PG College Lucknow Abstract:- The commodity market in India helps multi commodity change inside and outdoor the us of a based on necessities. The Multi Commodity alternate of India limited (MCX), is located in Mumbai the economic capital of India. Multi Commodity trade of India constrained India‟s No. 1 commodity alternate has been given the green platform for price discovery and risk management across a huge variety of segments in India‟s commodity futures marketplace. It was the primary ever IPO via an Indian change and made MCX India‟s only publicly indexed exchange. Earlier MCX was regulated by means of the forward Markets commission (FMC), which got merged with the SEBI on September 28, 2015. MCX has been imparting services and products with specifications that completely meet the needs of its numerous consumer base in a cost powerful manner. The improvements in MCX‟s products and services facilitate customers to hedge fee dangers in global commodities inside the united states of america; thereby permitting they reap efficiency and competitiveness without having to use a foreign exchange platform.

Keywords: Commodity market, Commodity Exchanges 1. INTRODUCTION

Buying and selling in commodity derivatives/futures on trade systems is an instrument to reap price discovery and better charge-chance control besides assisting the macro financial system with better useful resource allocation. The Multi Commodity change of India limited (MCX) in Mumbai is likewise an impartial and de-metalized alternate identified by the authorities of India. MCX commodity alternate which started out operations in November 2003 has above 40 commodities on its platform and has a marketplace share of round 80% inside the Indian commodity market. The MCX commodity trade operates below the regulatory framework of Securities and change Board of India (SEBI). MCX commodity exchange helps on-line buying and selling, clearing and settlement operations for commodity futures marketplace across the U.S. MCX gives trading in varied commodity futures contracts across segments inclusive of bullion, ferrous and non-ferrous metals, energy and agricultural commodities.

The exchange‟s flagship index, the MCXCOMDEX, is a actual-time composite commodity futures price index which gives records on marketplace moves in key commodities. Other indices developed by means of the change encompass MCXAgri, MCXEnergy, MCXMetal and Rainfall Indices. With an aim to seamlessly integrate with the worldwide commodities environment, MCX has cast

strategic alliances with leading worldwide exchanges along with CME organization, London metal trade (LME), Dalian Commodity trade (DCE) and Taiwan Futures trade (TAIFEX). The exchange has additionally tied-up with numerous alternate bodies, corporate, educational institutions and R&D centers throughout the U. S. A. Those alliances permit the alternate in improving change practices, increasing awareness, and facilitating usual development of the commodity marketplace. The MCX alternate has an extensive country wide attain, with 709 registered contributors, working through extra than 6, 07,331 trading terminals (inclusive of CTCL), spanning over 1800 towns and towns throughout India as at the quit of 2015. MCX is India‟s main commodity derivatives exchange with a marketplace proportion of 84.3% in terms of the value of commodity futures contracts traded in 2015.

1.1 Objectives of the Study

 To study the Development of Multi Commodity Exchange of India Limited.

 To analyses the Performance of Multi Commodity Exchange of India Limited.

2. REVIEW OF LITERATURE

Joseph Anto, K.G Suresh and Sisodia Garima (2015) in his work “Is the Causal Nexus between Agricultural Commodity Futures and Spot Prices

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2 Asymmetric? Evidence from India”

Tested the rural commodity futures exchange gives a centralized marketplace in which the farmers and other market individuals can find out the prices of agricultural commodities for futures delivery and where danger-averse people can shift commodity rate risk to others, who're willing to endure it. In agricultural commodity markets, charges are decided via fundamental deliver and demand forces that are present process structural change because of the growing demand from the emerging economies, opportunity makes use of agricultural commodities for strength production, and supply facet constraints. They observed that during this observe critical implication for marketplace members and coverage makers. Checking out of uneven causality after decomposing the information into wonderful and negative components might help marketplace participants to are expecting the charge inside the respective markets in keeping with the nature of records additives.

Parasuraman N. R. and Rao Ullas (2014) in his study “An Empirical Examination of the Efficiency of Commodity Markets in India”

investigate the postulate surrounding market performance surrounding commodity markets the usage of an empirical model represented via the value-of-deliver. With the intention to assist the veracity of the phenomena, we also apply the cost-of-convey version to the equity markets. Both single hypothesis and joint speculation tests reject the price-of-convey model implying that within the absence of marketplace efficiency, arbitrageurs ought to be in a function to take advantage of the rate differentials present throughout futures and see charges in each commodity in addition to equity markets which will earn ordinary returns. While arbitrageurs dealing in equities might be required to strictly function in the rules enshrined via the capital markets regulator (SEBI), the scope of scrutiny is through-a ways restrained to extra degree in commodities.

Even while the commodity markets like Multi Commodity change Ltd. (MCX) are ruled through ahead Markets commission (FMC), in the absence of enactment of long pending ahead contract regulation Act (FCRA) modification invoice, the regulator lacks the considered necessary

powers to workout effective supervision over the operations surrounding commodity markets.

Vala Yuvrajsinh (2013) in his study “Is there any Link between Commodity Price and Monetary Policy?

Evidence from India” examine that the role of commodity indices in predicting Gross Domestic Product (GDP), Inflation, Interest Rate and Money Supply in India, on the basis of quarterly data from March 1997 to September 2012. Nine types of the commodity price indices (ARMCI, BPCI, COM, FCI, FPCI, IIPCI, MPCI, NFCI, COPI) are used under this study to examine whether any specific index is useful in predicting the variables under consideration. Econometric analysis indicates that commodity price indices are helpful to predict GDP and Inflation. The results of the study support Furlong (1989), Awokuse & Yang (2002), Ocran &

Biekepe (2007)), Hasan and Salim (2011) while it is also contadict with Polley &

Lombra (1999). The findings of the study can be helpful in important implication for monetary authority. Empirical evidence provides that non-monetary information variables can be useful in predicting some monetary variables.

R.A. Prasad (2013) in his study

“An Empirical Study on the Dynamics of Commodity Derivative Market’s Impact on Indian Investment”

Investigated the many human beings have turn out to be rich in the Commodity Markets, it's far one in all some funding areas in which people with constrained capital could make more-ordinary earnings in a distinctly quick period of time and most people lose cash, Commodity marketplace has a bad popularity as being too volatile for the average people. The truth is that Commodity buying and selling is only as you want to make it. Traders are consider the Commodity Derivatives marketplace as simplest a threat hedging tool, and additionally it's miles handiest a elective for investment get away from capital market losses , by means of this purpose Commodity Derivatives market are not evolved as examine to Capital market.

Investor point of view it's miles opportunity for minimizing the losses as a substitute buy the coverage scheme.

Buyers are not understood about Commodity market, it's also one of the

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3 limitations for improvement of Commodity Derivatives market in India.

Babu M. and Srinivasan S. (2012) in his paper “Testing the weak form Efficiency in Indian Commodities Market” the study showed that the Weak Form Efficiency and to find the relationship between Spot and Futures Prices in Indian Commodity Markets. The daily data consisted of closing spot and futures prices which were collected from mcxindia.com. The commodities, namely, Gold, Silver, Copper, Zinc, Crude Oil, Natural Gas, Mentha Oil and Cardamom were used as samples. Descriptive Statistics, Augmented Dickey Fuller Test, Runs Test and Johansen Co Integration Test were the primary test for examining the Weak form Efficiency. The Unit Root Test revealed that all the sample commodities returns attained stationary in the level. Runs Test show that the futures price movements cannot be predicted using past prices for majority of commodities. Further, Johansen Trace Statistic and Max-Eigen Value indicate that there was no long term relationship between the spot and futures prices returns in the Multi Commodity Exchange India Ltd., (MCX).

Verma Ashutosh and C. V. R. S.

Vijaya Kumar (2010) in his study “An Examination of the Maturity Effect in the Indian Commodities Futures Market” examined the maturity effect for wheat and pepper being traded at NCDEX. They found that the maturity effect is present in nearly half of the contracts. The negative covariance between the net carry cost and spot price for pepper contracts is comparatively less as compared to what is generally observed in the agricultural commodities. The study findings indicate that the BCSS hypothesis is supported in these two commodities, more strongly for wheat than for pepper. There is further scope for research in this area in relation to other agricultural commodities and also metals.

Further studies can also be undertaken to find the informational efficiency and the reaction of informational flow to identify the reasons for the presence or absence of maturity effect.

Dummu Tata Rao (2009) in his study “Commodity Futures Markets in India: It’s Impact on Production and Prices” Performed a look at on

commodity futures market. Commodity futures marketplace has a constrained presence in growing nations.

Traditionally, governments in a lot of these international locations have discouraged futures markets. In the event that they have been now not banned, their operations have been constructed via law. In the latest past, however, international locations have all started to liberalize commodity market. And in a reversal of earlier traits, the improvement of commodity destiny markets is being pursued actively with assist from governments. They found that the soya oil imports exercising a big impact on the basis and the effect varies with the extent of resources that come from domestic manufacturing. Consequently, through those usually used criteria, the soya oil agreement has attracted hedging hobby from industrial corporations. The one anticipate which the NBOT falls quick of evolved country exchanges is that the NBOT contracts are open for trading for a shorter length of 3 months or less. The observe makes a specialty of working device and need of commodity by-product as well as condition of modern-day commodity exchanges and unresolved problems and future possibilities.

3. RESEARCH METHODOLOGY

The present examine is performed commodity marketplace in India with special connection with Multi Commodity alternate (MCX). The examiner is primarily based on secondary statistics, which has been accrued from commodity market and their publications, books associated subjects, magazines, reputed journals, studies paper, information paper, and internet sources like www.Mcxindia.Com, www.Sebi.Gov.In, commodity marketplace announcements, annual reviews of ahead Markets commission (FMC), Securities and exchange Board of India (SEBI), and other publications. The diverse reviews and information troubles and maintained through the government of India are also used within the look at.

3.1 History of Multi Commodity Exchange of India Limited (MCX) The records of commodities buying and selling in India are pretty strong. The derivatives and the futures market for the commodity buying and selling in India

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4 has opened up brilliant avenues for retail investors additionally. Commodity Futures trading in India started with the setting up of nation-extensive multi commodity exchanges, a brand new road has been thrown open for Indian buyers.

The exchanges have electronic trading and agreement structures making it easy to exchange in commodity futures. The Multi Commodity change of India restricted (MCX), India‟s first indexed commodity trade, is a latest, commodity derivatives exchange that facilitates on line buying and selling, and clearing and settlement of commodity futures transactions, thereby imparting a platform for risk management.

The change, which commenced on line enterprise operations in November 2003, operates beneath the regulatory framework of Securities and trade Board of India (SEBI). MCX has been certified with 3 ISO requirements, ISO 9001:2008 nice control machine, ISO 27001:2013 information security management preferred and ISO 14001:2004 environment management fashionable.

MCX offers buying and selling in numerous commodity futures contracts across segments along with bullion, ferrous and non-ferrous metals, strength and agricultural commodities. The exchange makes a specialty of imparting commodity value chain individuals with neutral, comfortable and transparent trade mechanisms, and formulates great parameters and change policies, in conformity with the regulatory framework.

Key shareholders of MCX are financial technology India restricted, SBI and its associations, NABARD, NSE, Fid Fund (Mauritius) Ltd., an affiliate of fidelity worldwide-company financial institution, Union financial institution of India, Canara financial institution, financial institution of India, financial institution of Baroda, HDFC financial institution, SBI lifestyles coverage Co. Ltd., ICICI Ventures, IL&FS and Merrill Lynch. MCX is the largest and maximum numerous commodity change in India supplying more than 55 commodities across diverse segments. MCX is the maximum green and price-powerful platform for charge discovery and rate-threat control in commodity marketplace of India. The exchange lets in humans to shift risks within the maximum financial way viable.

The MCX is an unbiased commodity

market which has a whole lot of commodities.

3.2 Key Milestones of Multi Commodity Exchange of India Limited (MCX)

1.2002-05

 Incorporated in April 2002 under the name Multi Commodity Exchange of India private Limited.

 MCX Company received permanent recognition from the Ministry of Consumer Affairs, Food and Public Distribution, Government of India in 2003.

 Online futures trading operations commenced in November 2003.

 MoU entered into between FTIL and NAFED to create a national level agricultural spot exchange in 2004.

2. 2005-07

 In June 2006, forged an alliance with the India Post to extend benefits of the exchange to farmers through Gramin Suvidha Kendra, its social inclusion programme.

 In June 2006, became India‟s largest commodity exchange.

 MCX Company signed a license agreement with NYMEX in 2006.

 In 2006, MCX Company signed an agreement with Euro next LIFFE.

3. 2007-09

 Euro next, NV., Alexandra GLG, Passport Capital, Merrill Lynch holdings, ICICI, Kotak Mahindra, New Vermon, ILFS and Citigroup acquired stakes in MCX.

 Launch of the Gujarati and Hindi version of website mcxindia.com by MCX in 2007.

 MCX Company obtained ISO/IEC 27001: 2005 certification in 2008

 In 2008, granted membership of the International Organization of Securities Commissions (IOSCO).

4. 2009-14

 Kotak Mahindra Bank Ltd.

acquired 15% equity stake in company.

 MCX Company released India„s first Yearbook on Indian Commodity Ecosystem in

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5 collaboration with Price water house Coopers in 2009.

 MCX Company launched?

Exchange of Futures for Physicals? (EFP) transactions in 2009.

 In 2010, MCX Company was recertified to ISO 9001:2008 Quality Management System standard by Bureau Veritas Certification (India).

 MCX Company signed a MoU with Shanghai Futures Exchange in 2010.

5. 2015

 MCX has been honoured with

„Exchange of the Year for Investor Education and Awareness Award‟

by the Commodity Participants Association of India - May 2015.

 MCX and CME Group sign Memorandum of Understanding- July 2015

 Joint viability study of International Finance Service Center in India to be conducted

 Existing licensing agreement on energy futures settlement prices renewed

 MCX Signs MoU to establish an international exchange with India‟s first International Financial Services Center (IFSC) at GIFT City - August 2015.

4. CONCLUSION

The India Commodity marketplace has undergone lots of modifications due to the changing global monetary scenario; for that reason throwing up many possibilities inside the system. Multi Commodity. Alternate of India confined (MCX) is an India-based totally preserving agency. The MCX enterprise operates an digital commodity futures change. The MCX is a demutualized exchange and is engaged in online buying and selling, clearing and agreement operations of commodity futures transactions. MCX gives futures buying and selling throughout segments, together with bullion, ferrous and non-ferrous metals, energy and agricultural commodities (mentha oil, cardamom, crude palm oil, cotton and others). The MCX flagship index, the MCX COMDEX, is a real-time composite commodity futures price index, which gives statistics on market moves in

key commodities. Different commodity indices advanced by using the agency encompass MCXAgri, MCXEnergy and MCXMetal.

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