Trading in commodities

Need a break from stocks, mutual funds, FDs and bonds as investment options? Then why not look at commodities? Well, commodity trading is not new to India. After the 30-year ban was lifted in 2005, futures trading in commodities has caught on. Of the 25 commodities exchanges in India, Multi Commodities exchange (MCX), National Commodity and Derivatives Exchange (NCDEX), and National Multi-Commodity Exchange (NMCE) are the most popular ones.

Commodity futures and the relevant exchanges are regulated by the Centre under the Forward Contracts (Regulation) Act and the Forward Contract Regulation Rules. Forward Market Commission (FMC), regulates the futures market in commodities.

Products can be broadly classified into energy products (crude oil and natural gas) precious metals (gold, silver and platinum), base metals (aluminium, copper and zinc) and agro-based products (wheat, channa, cotton, coffee, sugar and rubber). While NMCE caters to agro-based commodities, MCX and NCDEX offer a bigger trading base.

First in India

Of the three exchanges, the first state-of-the-art demutualised multi-commodity exchange to be incorporated is NMCE. It was promoted by commodity-relevant public institutions — Central Warehousing Corporation, National Agricultural Cooperative Marketing Federation of India, Gujarat Agro-Industries Corporation, Gujarat State Agricultural Marketing Board, National Institute of Agricultural Marketing, Neptune Overseas and Punjab National Bank (PNB).

Promoters of NCEX

Headquartered in Mumbai, NCDEX is a public limited company which commenced its operations in December 2003. This is the only commodity exchange promoted by national-level institutions. Its promoter are ICICI Bank, Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Ltd (NSE). Other shareholders include Canara Bank, CRISIL, Goldman Sachs, Intercontinental Exchange (ICE), Indian Farmers Fertiliser Cooperative Limited and PNB.

MCX features

MCX (also in Mumbai) is an independent and demutualised exchange with a permanent recognition from the Government of India. Its key shareholders are Financial Technologies (India), State Bank of India and its associates, NABARD, NSE, SBI Life Insurance, Bank of India, Bank of Baroda, Union Bank of India, Corporation Bank, Canara Bank, HDFC Bank, Bennett Coleman & Company, Fid Fund (Mauritius) Ltd — an affiliate of Fidelity International — ICICI Trusteeship Service, IL&FS Trust Company, Kotak group, Citibank and Merrill Lynch

MCX started offering trade in November 2003 and has built strategic alliances with Bombay Bullion Association and Bombay Metal Exchange. Today, MCX features among the world’s top three bullion exchanges and top four energy exchanges.

Recently, Indiabulls Financial Services and the state-owned trader, Minerals and Mines Trading Corporation (MMTC), backed by steel baron, Lakshmi Mittal, have received approval for their proposal to set up a commodity exchange in Gurgaon.