Sen Report, Online Spot Exchanges May Put Commexes On Fast Track In 2008

MUMBAI: The commodity market is expect to get a boost in ‘08 with the submission of the Abhijit Sen Committee report. The coming year could also prove to be its watershed year as new initiatives like the commodities and power online spot exchanges would bear fruits.

The Union government earlier this year banned futures trading in some agri commodities and set up a committee headed by planning commission member Abhijit Sen to look into the impact of futures trading on price of essential commodities and also suggest ways to reduce the impact and increase the association of farmers with the futures market.

The coming year would see the online spot exchanges both in commodities and power taking off. The first power exchange in the country — the Indian Energy Exchange, promoted by Financial Technologies and MCX — is likely to become operational next year while the second one, proposed by NTPC-NCDEX led consortium is yet to take off.

Both the exchanges have actively been mooting the development of spot exchanges. NCDEX commenced spot trading through its wholly-owned subsidiary, NCDEX Spot Exchange. The spot exchange launched the country’s first trade in sugar (S30) on pilot basis in Maharashtra and will add other commodities soon. MCX also formed Safal National Exchange in partnership with FTIL and the National Dairy Development Board (NDDB) for perishable commodities in this year.

This year the two prominent Mumbai-based exchanges MCX and NCDEX saw a turn of fortunes .While MCX showed a modest growth of around 27% in turnover till November this year at Rs 23.6 lakh crore as against last year, NCDEX volumes dipped by almost 42 % to Rs 6.74 lakh crores.

There have been other policy delays in terms of the long-standing FCRA amendment bill and permission for MF and banks participation. Also, guidelines in relation to the shareholding pattern in the exchanges are awaited. “But year 2008 is expected to be a year of events,” according to Religare Commodities head Jayant Manglik.

Amid all the rigmarole that the markets have been facing, the regulator of the commodities market, the Forward Markets Commission (FMC), has a new chairman B C Khatua. After taking office in May, he has been very active and seeks a greater participation from the farmers.

At regular intervals, he has been convening meetings with the stakeholders in the markets — members, exchanges, hedgers, brokers as well as farmers. He plans to continue awareness programmes that have started since the last two years and is strongly in favour of mobilising aggregators to enable farmers to collectively hedge their produce.

While some people are positive, other market participants are somewhat cautious. According to Anand Rathi Commodities’ Kishore Narne, the year has neither been bad nor too good. “While volumes have decreased quantitatively, the rise in prices have ensured reasonable value growth. This phase is not unexpected and I foresee that the next year could also see a similar run,” he said.

As far as developments in the individual multi-commodity exchange levels go, we saw Intercontinental Exchange expressing strong interest in picking up stake in NCDEX. It has been reported that the New York Stock Exchange (NYSE) and the New York Mercantile Exchange (Nymex) may pick minority stake in MCX and they are waiting policy guidelines on foreign direct investment (FDI) in commodity exchanges.

Both the exchanges diversified their area of operations. While NCDEX launched some non-agri commodities on its platform like plastics and light sweet crude oil, MCX set the benchmark and defining contracts for agri contracts like potato, jute, mentha oil and cardamom refined soya oil inviting wider participation from exporters and corporate.

NBHC, a group company of Financial Technologies and also the warehousing partner of MCX has grown its business exponentially this year. It handles storage capacity of over 1.15 mt with over 1 mt under collateral management. NBHC has facilitated warehouse receipt financing of over Rs 2,200 crore. The warehousing capacity of NCDEX on the other hand reached one million tonnes and they extended deliveries in 30 commodities.