SWOT ANALYSIS

CONCEPTUAL FRAME WORK

Until 1990, the Gold Control Act forbade the private holding of gold bars in India. There was
physical investment in smuggled ten tola bars, but it was limited and often amounted to
keeping a few bars ready to be made into jewellery for a family wedding. Gold investment
essentially was in 22 carat jewellery.
Reserve Bank of India

Since 1990, investment in small bars, both imported ten tolas and locally-made small bars,
which have proliferated from local refineries, has increased substantially. GFMS estimate
that investment has exceeded 100 tonnes (3.2 million oz) in some years, although it is hard to
segregate true investment from stocks held by the 16,000 or more gold dealers spread across
India. Certainly gold has been used to conceal wealth, especially during the mid-1990s, when
the local rupee price increased steadily.

It was also augmented in 1998 when over 40 tonnes (1.3 million oz) of gold from bonds
originally issued by the Reserve Bank of India were restituted to the public.

In the cities, however, gold is having to compete with the stock market, investment in internet
industries, and a wide range of consumer goods. In the rural areas 22 carat jewellery remains
the basic investment.

The Gold Deposit Scheme

The government announced a new initiative in its 1999/2000 budget to tap the hoard of
private gold in India by permitting commercial banks to take gold deposits of bars, coins or
jewellery against payment of interest. Interest levels can be set by each bank, and deposits
must be for three to seven years. Interest and any capital gains on the gold will be exempt
from tax. The banks can lend the gold to local fabricators or sell it in the Indian market or to
local banks. However, the depositor has to declare the origin of the gold, so that metal bought
illegally to hide wealth cannot be deposited. The State Bank of India was the first to accept
deposits. To date, the amount of gold collected under this scheme (less than 10 tonnes or 0.32
million oz) has fallen well short of the 100 tonnes (3.2 million oz) that was mentioned when
it was launched.
The introduction of a modern gold market in India:

1990 Abolition of the long-standing Gold Control Act, which had forbidden the holding of
'primary' or bar gold except by authorised dealers and goldsmiths and sought to limit
jewellery holdings of families.

Imports were then permitted in three stages.

1992 Non-Resident Indians (NRIs) on a visit to India were each allowed to bring in up to 5
kilos (160.7 oz) on payment of a small duty of six per cent. This allocation was raised to 10
kilos in 1997.

1994 Gold dealers could bid for a Special Import Licence (SIL) which was issued for a
variety of luxury imports.

1997 Open General Licence (OGL) was introduced, paving the way for substantial direct
imports by local banks from the international market, thus partly eliminating the regional
supplies from Dubai, Singapore and Hong Kong.

The OGL system has also largely eclipsed imports by NRIs and SILs. Additionally,
significant temporary imports are permitted under an Export Replenishment scheme for
jewellery manufacturers working for export in designated special zones.

In 2001 unofficial imports fell because of a reduction in import duties, pushing down the
local premium and making smuggling less profitable. Ten tola bars are still the preferred
form of gold in India, accounting for 95% of imports.

Precious Metal bulls will tell you to buy the dips. This means, wait for the price to
temporarily deflate, and then purchase your position. It is a way to maximize dollars for gold
and silver purchased while maintaining a steady buying program in that metal. The same
concept could be used for any fund or stock, as well.
This morning I woke to find gold and silver had tumbled. This doesn't surprise me anymore
because gold and silver have become hotter markets, and there will be more speculation in
them. As I wrote in Mr. Market Speaks: Flight to Safety, the market is slowing moving away
from long term debt, looking for safety of principal and inflation protection. Gold and silver
markets have benefited from this movement.

Gold has steadily been moving relatively sideways the last two days, as seen in the following
Kitco chart. But also notice the sharp drop off on Jan 20th at approximately 8am.

Silver looked exactly the same. The sharp downward move happened about the same time.

So I took a look at a 5 minute gold chart and found a 19 minute sharp drop, which I circled in
red.

I have written before about how sharp, quick movements in liquid markets don't signal
normal price action. Even on bad news, liquid markets take time to react and respond because
they are traded by people. And people take time to make decisions on the overall balance of
the news in a given market in a given time frame.

So I decided to take a look at what the news was in the precious metals market. CNBC didn't
have much.

On gold, Bloomberg Businessweek had a piece on everyone getting out of gold. Definitely
bearish. The Street agreed with that assessment, commenting that interest rate hikes in Brazil
and buying of US Dollars weakened gold demand domestically. But the article also notes that
China continues to buy gold in Brazil. The Wall Street Journal reports gold weakness on
improving economic conditions.

Bloomberg had a piece about silver profit taking potentially lowering silver 20%. Definitely
bearish and timely. I also found an article from FMX Connect on silver, discussing reasons
for silver contango yesterday.
The two main reasons FMX outlines for this movement in silver would either be an interest
rate move (none) or metals delivery issues. If metals delivery issues, then this is bullish for
silver (and potentially gold) as a complementary inflation-protection investment.

Ben Davies has commented before on a coming short squeeze in the gold and silver markets.
So has Ted Butler. And Robert Lenzner. Is it finally time, or is it profit taking in the silver
market that has been hovering around $30 for a while?

On the whole, it sounds like there is bearish sentiment and bullish sentiment on gold and
silver, which sounds like a perfectly normal market condition. That is why the sharp price
movements over very small time frames, as noted in the charts above, is disturbing. Even if a
large share of the market decided to take profits and sell, it is not likely to have happened
within a 19 minute window at 8am in the morning. This smells of market manipulation to me.

On balance, I remain bullish on gold and silver. I don't buy paper versions of these
investments as I think those markets are fractional reserved upon meager physical metal
backing. I recommend investing in the physical metals. And the current price action sounds
like a perfect opportunity to purchase gold and silver on the cheap.

I will continue to follow gold and silver news and vette it out in a reasonable manner. If the
markets turn bearish upon a real economic recovery, then I may change my position. And I
will write about it when I do. But for now, I am not buying the gold and silver markets top
story. I think we are firmly going the other direction, regardless of what this morning's price
activity is saying.

FINANCIAL DERIVATIVES

The term derivatives refer to a large number of financial instruments whose value is
derived from the underlying assets. Derivative instruments like the options and futures
facilitate the trading in financial contracts. The most important underlying instruments in the
market are in the form of Equity, treasury bills, and foreign exchange. The trading in the
financial derivatives has attracted the prominent players of the equity markets.
The primary purpose of a derivative contract is to transfer risk from one party to
another i.e. risk is transferred from a party that wants to get rid of it to another party i.e.
willing to take it. The major players seen in the derivatives segment are the SPECULATORS
whose sole objective is to buy and sell for a profit alone. The HEDGERS are the other breeds
of players, who aim merely to have a hedge positions. They are risk free investors whose
intention is to have a safety mechanism and wish to protect their portfolio. Nevertheless, they
are pursued as a cheap and efficient way of moving risk within the economic system. But the
world of derivatives is riddled with jargons making it more awesome.

The trading in equity through the derivatives in India was introduced in the year 2000
by the Securities and Exchange Board of India [SEBI] and this was described as the “India’s
derivative explosion”. Although this took a definite form in 2000 but the idea was initiated in
the year 1995. it was then in the year 2000 that SEBI permitted the trading the in the options
on the platforms of India’s premier exchange platforms i.e., the National Stock Exchange Of
India limited [NSE] and The Bombay Stock Exchange [BSE] in the individual securities. But
the futures contracts took 17 long months to get launched on November 09’ 2001.

The trading in options and futures in the individual stocks were permitted to trade on
the stable stocks only. The small and highly volatile stocks were an exemption from the trade
in derivatives. Futures and options are important tools that help the investors to derive profit.
The futures facilitate the investor to enter into a contract to deliver the underlying security at
a future date whereas, the options allow it to his discretion as to whether he wants to buy
(call) or sell (put) the contract.

The current trading behavior in the derivatives segment reveals that single stock
futures continues to account for a sizeable proportion. A recent report indicates that the
trading in the individual stock futures in the Indian exchanges has reached global volumes.
One possible reason for such a behavior of the trader could be that futures closely resemble
the erstwhile ‘BADLA’ system.

COMMODITY DERIVATIVES

Commodity market is an important constituent of the financial markets of any

country. It is the market where a wide range of products, viz., precious metals, base metals,
crude oil, energy and soft commodities like palm oil, coffee etc. are traded. It is important to
develop a vibrant, active and liquid commodity market. This would help investors hedge their
commodity risk, take speculative positions in commodities and exploit arbitrage opportunities
in the market.

The need for a futures market in the commodities, especially, in the primary
commodities was emphasized because such a market not only provides ample opportunities
for effective management of price risk, but also, assists inefficient discovery of prices which
can serve as a reference for the trade in the physical commodities in both the external as well
as in the internal market.

India, a commodity based economy where two-third of the one billion population
depends on agricultural commodities, surprisingly has an under developed commodity
market. Unlike the physical market, futures markets trades in commodity are largely used as
risk management (hedging) mechanism on either physical commodity itself or open positions
in commodity stock.

There was an effort to revive these markets but all went in vain due to improper
infrastructure and facilities. However, after India joined the WORLD TRADE
ORGANIZATION the need to protect the agricultural community against the price
fluctuations cropped up. The National agricultural policy 2000 was formulated and proposed
to expand the coverage of the futures market to minimize the volatility in the commodities
prices and hedging the risk arising out of the fluctuations in the prices. As a result of this
there is a standardized form of commodity futures trading in the country, today and a lot
number of people are active in the commodities exchanges, taking it to a great high.

The active players in these exchanges are Traders, Speculators and the Hedgers. It is
said that now-a days the prices of the commodities in the Physical Market (Mandis) is
derived in accordance to the spot prices in the commodity exchanges.

Clearly, in the nascent stage, the derivatives market in India is heading in the right
direction. In the terms of the number of contracts in a single commodity/stock it is probably
the largest market globally. It is no longer a market that can be ignored by any of the serious
participants. The Indian economy, now, is at the verge of greater expansion the any other
economies in the globe today. This has attracted a large number of institutional investors,
both – the Indian as well as foreign, to invest in to the Indian stocks and commodities,
thereby bringing in a lot of forex reserves. As predicted by the popular investment Gurus’
and the great Economists world wide, “India will be a major player in the global economy by
the end of this decad”. We can conclude that, with the institutional participation set to
increase and a broader product rollout inevitable, the market can only widen and deepen
further.

TRADING INSTRUMENTS

Derivatives in the recent times have become very popular because of their wide
application. Before getting into the hard talks about the commodities trade, let us know about
the trading instruments in the derivatives, as they are similarly applicable to the commodities
derivatives.

There are 4 types of Derivatives instrument:

 Forward contract

 Future contract

 Options contract

 Swap

Futures and Options are actively used in many exchanges whereas; Forwards and
Swaps are mostly trade Over the Counter (OTC).

FORWARDS CONTRACT

A spot or cash market is the most commonly used for trading. A majority of our day-
to-day transactions are in the cash market. In addition to the cash purchase, another way
trading is by entering into a Forward contract. A Forward contract is an agreement to buy or
sell an asset on a specified date of a specified price. These contracts are usually entered
between a financial institution and its corporate clients or two financial institutions
themselves. In the context to the Commodity trading, prior to the standardization, the trade
was carried out as a forwards contract between the Associations, Producers and Traders.
Where the Association used to act as counter for the trade.
A forward contract has been in existence in the organized commodities exchanges for
quite sometimes. The first forward contract probably started in Japan in the early 18th century,
while the establishment of the CHICAGO BOARD OF TRADE (CBOT) in 1848 led to the
start of a formal commodities exchange in the USA.
Forward contracts are very useful in HEDGING and SPECULATION. The essential
idea of entering into the forward contract is to Hedge the price thereto avoid the price risk. By
entering into a forward contract one is assured of the price at which the goods/assets are
bought and sold. The classic Hedging example would be that of an exporter who expects to
receive payment in foreign currency after three months. As he is exposed to greater amount
of risk in the fluctuations in the exchange rates, he can, with the use of forwards, lock-in the
rate today and reduce the uncertainty. Similarly, if a speculator has the information of an
upswing in the prices of the asset, he can go long on the forward market instead of the cash
market and book the profit when the target price is achieved.
The forward contract is settled at the maturity date. The holder of the short position
delivers the assets to the holder of the long position on the maturity against a cash payment
that equals to the delivery price by the buyer. The price agreed in the forwards contract is the
DILIVERY PRICE. Since the delivery price is chosen at the time of entering into the
contract, the value of the contract becomes zero to both the parties and costs nothing to either
the holder of the long position or to the holder of the short position.

The salient features of a forwards contract are:

 It is a bilateral contract and hence is exposed to counter-party risk.

 Every contract is unique and is custom designed in the terms of: expiration date and
the asset type and quality.

 The contract price is not available in the public domain.

On the expiration, the contract is to be settled by the delivery of the asset.
Of the party wishes to reverse the contract, he has to go to the same counter-party, which may
result o attract some charges.

FUTURES CONTRACT

“Financial futures represent the most significant financial innovations of the last
twenty years.” - As quoted by MERTON MILLER, a noble lauret’ 1999.

The father of financial derivatives is Leo Me lamed. The first exchange that traded in
the financial derivatives was INTERNATIONAL MONETARY MARKET, wing of the
Chicago Mercantile Exchange, Chicago, in the year 1972.

The futures market was designed to solve the problems, existing in the forwards
market. A financial future is an agreement between two parties to buy or sell a standard
quantity of a specified good/asset on a future date at an agreed price. Accordingly, future
contracts are promises: the person who initially sells the contract promises to deliver a
specified underlying asset to a designated delivery point during a certain month, called
delivery month. The underlying asset could, well be, a commodity, stock market index,
individual stock, currency, interest rates etc.. The party to the contract who determines to pay
a price for the goods is assumed to take a long position, while the other who agrees to sell is
assumed to be taking a short position.
The futures contracts are standardized in the terms of:

 Quantity of the underlying assets.

 Quality of the underlying assets.

 Date and month of the delivery.

 Units of the price quotations and minimum price change, and

  Location of the settlement.

 It is due to the standardization that the futures contract has an edge with the forward
contract, in the terms of: Liquidity, safety and the security to honoring the contract
which is otherwise not secured in an OTC trading forwards contract.

In short, futures contract is an exchange-traded version of the usual forward contract.

There are however, significant differences between the two and the same can be appreciated
from the above discussion.

Benefits to Industry from Futures trading:

 Hedging the price risk associated with futures contractual commitments.

 Spaced out purchases possible rather than large cash purchases and its storage.

 Efficient price discovery prevents seasonal price volatility.

 Greater flexibility, certainty and transparency in procuring commodities would aid

bank lending.

 Facilitate informed lending.

 Hedged positions of producers and processors would reduce the risk of default faced
by banks.

 Lending for agricultural sector would go up with greater transparency in pricing and
storage.

 Commodity Exchanges to act as distribution network to retail agri-finance from

Banks to rural households.

 Provide trading limit finance to Traders in commodities Exchanges.

OPTIONS CONTRACT
 Options have existed over a long period but were traded over the counter (OTC) only.
These contracts are fundamentally different from that of futures and forwards. In the recent
years options have become fundamental to the working of global capital markets. They are
traded on a wide variety of underlying assets on both, the exchanges and OTC. Options like
the futures are also available on many traditional products such as equities, stock indices,
commodities and foreign exchange interest rates etc., options are used as a derivate
instrument only in financial capital market in India and not in commodity derivatives. It is in
the process in introduction.

Options, like futures, also speculative in nature. Options is a legal contract which,
facilitate the holder of the contract, the right but not the obligations to buy or sell the
underlying asset at the fixed rate on a future date. It should be highlighted that, unlike that the
futures and forward contract the options gives the buyer of the contract, the right to enter into
a contract and he doesn’t have to necessarily exercise the right to give, take the delivery.
When a contract is made the buyer has to pay some money as a ‘Premium’ to the seller to
acquire such a right.

Options are basically of two types.

 Call options

 Put options

Call options: A call options gives the buyer the right to buy the underlying asset at a
strike price specified in the option. The profit/loss depends on the expiration date of the
contract if the spot price exceeds the strike price the holder of the contract books a profit and
vice-versa. Higher the spot price more is the profit.

Put options: A put option give the buyer the right to sell the underlying asset at the
strike price specified in the option. The profit/loss that the buyer makes on the option depends
on the spot price of the underlying asset. If the spot price is below the strike price he makes
profit and vice-versa. If the spot price is higher than the strike price he will wait up to the
expiry or else book the profit early.
SWAPS:

Swaps were developed as a long-term price risk management instrument available on

the over-the-counter market. Swaps are private agreements between two parties to exchange
cash flows in the future according to a pre-arranged formula. These agreements are used to
manage risk in the financial markets and exploit the available opportunity for arbitrage in the
capital market.

A swap, generically, is an exchange. In the financial parlance it refers to an exchange

of a series of cash flows against another series of cash flows. Swaps are also used in the
asset/liability management to obtain cost-effective financing and to generate higher risk-
adjusted returns. With swaps, producers can effectively fix, i.e. lock in, the prices they
receive over the medium to long-term, and consumers can fix the prices they have to pay. No
delivery of the asset is involved; the mechanism of swaps is purely financial.

The swaps market originated in the late 1970’s, when simultaneous loans were
arrange between British and the US entities to bypass regulatory barriers on the movement of
foreign currency .the land mark transaction

Between the World Bank and the IBM in august 1981, paved the way for the
development of a market that has grown from a nominal volume in the early 1980’s to an
outstanding turnover of US $ 46.380tn in 1999.

The swaps market offers several advantages like:

 These agreements are undertaken privately while transactions using exchange traded
derivatives are public.

 Since the swaps products are not standardized, counter parties can customize cash-
flow streams to suit their requirements
  The swaps can be regarded as portfolios of forward contracts. The two commonly
used swaps are:

Interest rate swaps: These entail swapping only the interest related cash flows between the
parties in the same currency.

Currency swaps: These entail swapping both principal and interest between the parties, with
the cash flows in one direction being in a different currency than those in the opposite
direction.

PARTICIPANTS IN THE DERIVATIVE MARKET

There are three major participants in the derivatives market. They are:

 Hedgers
 Speculators

 Arbitragers

HEDGERS

He is the person who enters the derivatives market to lock-in their prices to avoid
exposure to adverse movements in the price of an asset. While such locking may not be
extremely profitable the extent of loss is known and can be minimized. They are in the
position where they face risk associated with the price of an asset. They use derivatives to
reduce or eliminate risk.

For example, a farmer may use futures or options to establish the price for his crop
long before he harvests it. Various factors affect the supply and demand for that crop, causing
prices to rise and fall over the growing season. The farmer can watch the prices discovered in
trading at the CBOT and, when they reflect the price he wants, will sell futures contracts to
assure him of a fixed price for his crop.

A perfect hedge is almost impossible. While hedging Basis risk could arise. Basis =
Spot price of asset to be hedged – Futures price of the contract used. Basis risk arises as a
result of the following uncertainties: 

The exact date when the asset will be bought or sold may not be known.
The hedge may require that the Futures contract be closed before expiration.

  
PRICE
FUTURES PRICE

BASIS
 
 
SPOT PRICE

EXPIRY DATE TIME

 
SPECULATORS:

A speculator is a one who accepts the risk that hedgers wish to transfer. A speculator
takes positions on expectations of futures price movements and in order to make a profit. In
general a speculator buy futures contracts when he expect futures prices to rise and sell
futures contract when he expects futures prices to fall, but has no desire to actually own the
physical commodity.

Speculators wish to bet on the future movement in the price of an asset. They use
derivatives to get extra leverage. They take positions in the market and assume risk to profit
from fluctuations in the prices. Infact, the speculators consume the information, make
forecast about the prices and put their money in these forecast. By taking positions, they are
betting that the price would go up or they are betting it would go down. Depending on their
perception, they may long or short positions on the futures or /and options, or may hold
spread positions.

ARBITRAGEURS

“Simultaneous purchase of securities in one market where the prices thereof are low and sale
thereof in another market, where the price thereof is comparatively higher. These are done
when the same securities are been quoted at different prices in the two markets, with a view
to make a profit and carried on with the conceived intention to derive advantage from
difference in prices of securities prevailing in the two markets”. -As defined by The Institute
of Chartered Accountants of India.

Arbitrageurs thrive on the market imperfections. They profit by trading on given

commodities, or items, that are in the business to take advantage of a discrepancy between
prices in two different markets. If, for example, they see the future prices of an asset getting
out of line with the cash price, they will take offsetting positions in the two markets to lock in
a profit.

Thus, the arbitrage involves making risk-less profit by simultaneously entering into
transactions in two or more markets. With the introduction of derivate trading the scope of
arbitrageurs’ activities extends to arbitrage over time i.e., he can buy securities in an index
today and sell the futures, maturing in the month or two.

TRADING OF COMMODITY DERIVATIVES IN INDIA

Trading of all the derivatives in India is carried over:

 Exchanges

 Over the counter

EXCHANGE TRADING

An asset (commodity/stock), when is traded over an organized exchange is it is

termed, to be traded on the Exchange. This type of trading is the general trading which we
see on the major exchanges world over. The settlement in the exchange trading is highly
standardized.

OVER THE COUNTER TRADING

An asset (commodity/stock) is traded over the counter usually because the company is
small and unable to meet listing requirements of the exchanges and facilitates the trading in
those areas where the exchanges are not located. Also known as unlisted the assets are traded
by brokers/dealers who negotiate directly with one another over computer networks and by
phone.

Instruments such as bonds do not trade on a formal exchange and are thus considered
over-the- counter securities. Investment banks making markets for specific issues trade most
debt instruments. If someone wants to buy or sell a bond, they call the bank that makes the
market in that asset.

Exchange Vs OTC Trading

The OTC derivatives markets have witnessed rather sharp growth over the last few
years, which have accompanied the modernization of commercial and investment banking
and globalization of financial activities. The recent developments in information technology
have contributed to a great extent to these developments. While both exchange-traded and
OTC derivative contracts offer many benefits, the former have rigid structures compared to
the latter. It has been widely discussed that the highly leveraged institutions and their OTC
derivative positions were the main cause of turbulence in financial markets in 1998. These
episodes of turbulence revealed the risks posed to market stability originating in features of
OTC derivative instruments and markets.
The OTC derivatives markets have the following features compared to exchange-traded
derivatives:

 The management of counter-party (credit) risk is decentralized and located within

individual institutions.

 There are no formal centralized limits on individual positions, leverage, or margining.

 There are no formal rules for risk and burden-sharing,

 There are no formal rules or mechanisms for ensuring market stability and integrity,
and for safeguarding the collective interests of market participants,

 The OTC contracts are generally, not regulated by a regulatory authority and the
exchange’s self-regulatory organization, although they are affected indirectly by
national legal systems, banking supervision and market surveillance.

COMMODITIES MARKET…..

Global Perspective

Oil accounts for 40 per cent of the world's total energy demand.
The world consumes about 76 million bbl/day of oil.
United States (20 million bbl/d), followed by China (5.6 million bbl/d) and Japan (5.4 million
bbl/d) are the top oil consuming countries. 
Balance recoverable reserve was estimated at about 182.7 billion tons (in 2002), of which
OPEC was 112 billion tons
The major commodities trading exchanges globally are:

 Chicago Board Of Trade (COBOT). U.S.A.

 New York Mercantile Exchange (NYMEX). U.S.A.

 London Metal Exchange (LME). United Kingdom.

 Tokyo Commodity Exchange (TOCOM). Japan

 International Petroleum Exchange (IPE).

 London Metal Exchange (LME). United Kingdom

 Sydney Futures Exchange (SFE). Australia

 Brazilian Futures Exchange (BBF). Brazil

 Winnipeg Commodity Exchange (WCE). Canada

 Marche a Terme International de France (MATIF). France

 Hong Kong Futures Exchange (HKFE). Hong Kong

 New Zealand Futures & Options Exchange (NZFOE). New Zealand

 Russian Commodity and Raw Materials Exchange. Russia

 Singapore International Monetary Exchange (SIMEX). Singapore

 South African Futures Exchange (SAFEX). South Africa

 Dalian Commodity Exchange. China

 Shanghai Metal Exchange (SME). China

Chicago Board Of Trade (CBOT)

The Chicago Board of Trade (CBOT), established in 1848, is a leading futures and options on
futures exchange. More than 3,600 CBOT members trade 50 different futures and options
products at the exchange through open auction and/or electronically. Volume at the exchange
in 2003 was a record breaking 454 million contracts.

In its early history, the CBOT traded only agricultural commodities such as corn,
wheat, oats and soybeans. Futures contracts at the exchange evolved over the years to include
non-storable agricultural commodities and non-agricultural products like gold and silver. The
CBOT's first financial futures contract, launched in October 1975, was based on Government
National Mortgage Association mortgage-backed certificates. Since that introduction, futures
trading has been initiated in many financial instruments, including U.S. Treasury bonds and
notes, stock indexes, and swaps, to name but a few. Another market innovation, options on
futures, was introduced in 1982.

For more than 190 years, the primary method of trading at the CBOT was open
auction, which involved traders meeting face-to-face in trading pits to buy and sell futures
contracts. But to better meet the needs of a growing global economy, the CBOT successfully
launched its first electronic trading system in 1994. During the last decade, as the use of
electronic trading has become more prevalent, the exchange has upgraded its electronic
trading system several times. Most recently, on January 1, 2004, the CBOT debuted its new
electronic platform powered by the cutting-edge trading technology. As of 1st January 2004,
the Chicago Mercantile Exchange is providing clearing and related services for all CBOT
products
New York Mercantile Exchange (NYMEX)

The NYMEX in its current form was created in 1994 by the merger of the former
New York Mercantile Exchange and the Commodity Exchange of New York (COMEX).
Together the represent one of the world's largest markets in commodities trading.

It deals in futures (and options) in oil products, such as crude oil, heating oil, leaded
regular gasoline, natural gas, propane and in rare metals, such as platinum and palladium. It
also deals in gold and silver, aluminum and copper, sharing with the London Metal Exchange
a dominant role in the world metal trading.

London Metals Exchange

The London Metal Exchange is the world's premier non-ferrous metals market with
highly liquid contracts and a worldwide reputation. It is innovative while maintaining its
traditional strengths and remains close to its core users by ensuring its contracts continue to
meet the high expectations of industry. As a result, it is highly successful with a turnover in
excess of US$3,000 billion per annum. It also contributes to the UK’s invisible earnings to
the sum of more than £250 million in overseas earnings each year.
The origins of the London Metal Exchange can be traced as far back as the opening
of the Royal Exchange in 1971. This is where metal traders first began to meet on a regular
basis. However, it was in 1877 that the London Metal Market and Exchange Company were
formed as a direct result of Britain's industrial revolution of the 19th century. This led to a
massive increase in the UK’s consumption of metal, which required the import of enormous
tonnages from abroad. Merchant venture’s were investing large sums of money in this
activity and were exposed to great risk, not only because the voyages were hazardous but also
because the cargoes could lose value if there was a fall in price during the time it took for the
metal to reach Britain.
INDIAN PERSPECTIVE

There are three major exchanges for the commodity trading in India. They are:

 The National Commodities and Derivatives Exchange Ltd. (NCDEX)

 Multi Commodities Exchange of India Ltd. (MCX)

 National Multi-Commodity Exchange Ltd. (NMCE)

National Commodity & Derivatives Exchange Limited (NCDEX)

The National Commodities and Derivatives Exchange Ltd is a professionally managed online
multi commodity exchange promoted by ICICI Bank Limited (ICICI Bank), Life Insurance
Corporation of India (LIC), National Bank for Agriculture and Rural Development
(NABARD) and National Stock Exchange of India Limited (NSE). Punjab National Bank
(PNB), CRISIL Limited (formerly the Credit Rating Information Services of India Limited),
Indian Farmers Fertilizer Cooperative Limited (IFFCO) and Canara Bank    by subscribing to
the equity shares have joined the initial promoters as shareholders of the Exchange. NCDEX
is the only commodity exchange in the country promoted by national level institutions. This
unique parentage enables it to offer a bouquet of benefits, which are currently in short supply
in the commodity markets. The institutional promoters of NCDEX are prominent players in
their respective fields and bring with them institutional building experience, trust, nationwide
reach, technology and risk management skills.

NCDEX is a public limited company incorporated on April 23, 2003 under the
Companies Act, 1956. It obtained its Certificate for Commencement of Business on May 9,
2003. It has commenced its operations on December 19,2003

NCDEX is a nation-level, technology driven de-mutuali zed on-line commodity

exchange with an independent Board of Directors and professionals not having any vested
interest in commodity markets. It is committed to provide a world-class commodity exchange
platform for market participants to trade in a wide spectrum of commodity derivatives driven
by best global practices, professionalism and transparency.

Forward Market Commission regulates NCDEX in respect of futures trading in

commodities. Besides, NCDEX is subjected to various laws of the land like the Companies
Act, Stamp Act, Contracts Act, Forward Commission (Regulation) Act and various other
legislations, which impinge on its working.

NCDEX is located in Mumbai and offers facilities to its members in more than 390
centers throughout India. The reach will gradually be expanded to more centers. NCDEX
currently facilitates trading of thirty six commodities - Cashew, Castor Seed, Chana, Chilli,
Coffee, Cotton, Cotton Seed Oilcake, Crude Palm Oil, Expeller Mustard Oil, Gold, Guar
gum, Guar Seeds, Gur, Jeera, Jute sacking bags, Mild Steel Ingot, Mulberry Green Cocoons,
Pepper, Rapeseed - Mustard Seed, Raw Jute, RBD Palmolein, Refined Soy Oil, Rice, Rubber,
Sesame Seeds, Silk, Silver, Soy Bean, Sugar, Tur, Turmeric, Urad (Black Matpe), Wheat,
Yellow Peas, Yellow Red Maize & Yellow Soybean Meal.  At subsequent phases trading in
more commodities would be facilitated.

Multi Commodities Exchange of India Ltd (MCX)

MCX an independent and de-mutulised multi commodity

exchange has permanent recognition from Government of India for
facilitating online trading, clearing and settlement operations for
commodity futures markets across the country. Key shareholders of MCX are Financial
Technologies (India) Ltd., State Bank of India, NABARD, NSE, HDFC Bank, State Bank of
Indore, State Bank of Hyderabad, State Bank of Saurashtra, SBI Life Insurance Co. Ltd.,
Union Bank of India, Bank Of India, Bank Of Baroda, Canara Bank, Corporation Bank.

Head quartered in Mumbai, an expert management team with deep domain knowledge
of the commodity futures markets leads MCX. Through the integration of dedicated
resources, robust technology and scalable infrastructure, since inception MCX has recorded
many first to its credit.
 Inaugurated in November 2003 by Mr. Mukesh Ambani, Chairman & Managing
Director, Reliance Industries Ltd, MCX offers futures trading in the following commodity
categories:
Agri Commodities,
Bullion, Metals- Ferrous & Non-ferrous,
Pulses,
Oils & Oilseeds,
Energy, Plantations,
Spices
MCX has built strategic alliances with some of the largest players in commodities
eco-system, namely, Bombay Bullion Association, Bombay Metal Exchange, Solvent
Extractors' Association of India, Pulses Importers Association, Shetkari Sanghatana, United
Planters Association of India and India Pepper and Spice Trade Association.

Today MCX is offering spectacular growth opportunities and advantages to a large

cross section of the participants including Producers / Processors, Traders, Corporate,
Regional Trading Centers, Importers, Exporters, Cooperatives, Industry Associations,
amongst others MCX being nation-wide commodity exchange, offering multiple
commodities for trading with wide reach and penetration and robust infrastructure, is well
placed to tap this vast potential.
Vision and Mission of the Multi Commodities exchange of India.
The vision of MCX is to revolutionize the Indian commodity markets by empowering
the market participants through innovative product offerings and business rules so that the
benefits of futures markets can be fully realized. Offering 'unparalleled efficiencies',
'unlimited growth' and 'infinite opportunities' to all the market participants.

At MCX we believe that performance excellence and affordability would be the key
drivers in promoting and popularizing Commodities Futures trading in the country.
Exchanges in the new economy will be driven by strong service availability backed by
superior technology and MCX is well poised to emerge as the "Exchange of Choice" for the
commodity futures trading community.
 COMMODITIES
SYMBOLS
Gold, Gold HNI, Gold M, I-Gold, Silver,
Silver HNI, Silver M

Castor Oil, Castor Seeds,

Castor Seeds (Disa), Cottonseed,
Crude Palm Oil, Groundnut Oil,
Kapasia Khalli (Cottonseed Oilcake),
Mustard Seed
(Hapur),
Mustard Seed (Jaipur),
Mustard /Rapeseed Oil,
Mustard Seed (Sirsa), RBD Palmolein,
Refined Soy
Oil, Sesame Seed, Soyameal Soya Seed
Cardamom, Jeera, Pepper, Red Chilli,
Turmeric
Aluminium, Copper, Nickel, Sponge Iron,
SteelFlat,
Steel Long (Bhavnagar),
Steel Long (Gobindgarh), Tin
Cotton Long Staple ,
Cotton Medium Staple,
Cotton Short Staple, Kapas
Chana, Masur, Tur, Urad, Yellow Peas,

Basmati Rice, Maize, Rice, Sarbati Rice,   

Wheat
Brent Crude Oil, Crude Oil,  Furnace Oil

Cashew Kernel, Rubber

High Density Polyethylene (HDPE),

Polypropylene
 (PP), 
Guar Seed, Guargum, Gur, Mentha Oil,
Sugar M-30, Sugar S-30,  

Multi-Commodity Exchange, MCX

UNIT OF YIELD/TIC
UNIT OF YIELD/Re. TRADING
COMMODITY PRICE or TIC
TRADING MOVEMENT SESSION 
QUOTATION VALUE
PRECIOUS METALS
GOLD-M 10gm 100gm 10.00 1.00 10.00 10:00AM-11:30PM
GOLD 10gm 1000gm 100.00 1.00 100.00 10:00AM-11:30PM
SILVER-M 1KG 5KG 5.00 1.00 5.00 10:00AM-11:30PM
SILVER 1KG 30KG 30.00 1.00 30.00 10:00AM-11:30PM
AGRICULTURAL PRODUCTS
10:00AM-5:00PM
SOYA 1QT  10QT  10.00 0.05 0.50
&
10:00AM-5:00PM
SOYA OIL 10KG 1000KG 100.00 0.05 5.00
&
PALMOLEIN 10:00AM-5:00PM
10KG 1000KG 100.00 0.05 5.00
OIL CRUDE &
PALMOLEIN 10:00AM-5:00PM
10KG 1000KG 100.00 0.05 5.00
OIL RBD &
10:00AM-5:00PM
CASTOR 100KG 1MT  10.00 0.25 2.50
&
10:00AM-5:00PM
CASTOR OIL 10KG 1MT  100.00 0.10 10.00
&
GROUND NUT 10:00AM-5:00PM
10KG 1MT  100.00 0.10 10.00
OIL &
10:00AM-5:00PM
GAUR SEED 100KG 5MT  50.00 1.00 50.00
&
BLACK 10:00AM-5:00PM
100KG 1MT  10.00 1.00 10.00
PEPPER &
10:00AM-5:00PM
KAPAS 20KG 4MT  200.00 0.10 20.00
&
INDUSTRIAL METALS
10:00AM-5:00PM
STEEL LONG 1MT  25MT  25.00 0.50 12.50
&
10:00AM-5:00PM
STEEL FLAT 1MT  25MT  25.00 0.50 12.50
&
COPPER 1KG 1MT  1000.00 0.05 50.00 10:00AM-11:30PM
10:00AM-5:00PM
NICKEL 1KG 250KG 250.00 0.50 125.00
&
TIN 1KG 500KG 500.00 0.25 125.00 10:00AM-5:00PM

The National Multi Commodity Exchange of India ltd.

 The first state-of-the-art de-mutualized multi-commodity Exchange, NMCE commenced
futures trading in 24 commodities on 26th November, 2002 on a national scale and the basket
of commodities has grown substantially since then to include cash crops, food grains,
plantations, spices, oil seeds, metals & bullion among others. NMCE was the first Exchange
to take up the issue of differential treatment of speculative loss. It was also the first Exchange
to enroll participation of high net-worth corporate securities brokers in commodity
derivatives market. NMCE has also made immense contribution in raising awareness about
and catalyzing implementation of policy reforms in the commodity sector.. It was the
Exchange, which showed a way to introduce warehouse receipt system within existing legal
and regulatory framework. It was the first Exchange to complete the contractual groundwork
for dematerialization of the warehouse receipts. Innovation is the way of life at NMCE.

National Multi Commodity Exchange of India Ltd. (NMCE), promoted by

commodity-relevant public institutions, viz., Central Warehousing Corporation (CWC),
National Agricultural Cooperative Marketing Federation of India (NAFED), Gujarat Agro-
Industries Corporation Limited (GAICL), Gujarat State Agricultural Marketing Board
(GSAMB), National Institute of Agricultural Marketing (NIAM), and Neptune Overseas
Limited (NOL). The Punjab National Bank (PNB) took equity of the Exchange to establish
that linkage. Even today, NMCE is the only Exchange in India to have such investment and
technical support from the commodity relevant institutions. These institutions are represented
on the Board of Directors of the Exchange and also on various committees set up by the
Exchange. The experienced and qualified professionals with impeccable integrity and
expertise manage the day-to-day operations of the Exchange. None of them have any trading
interest.
Vision
National Multi-Commodity Exchange of India Limited is committed to provide world
class services of on-line screen based Futures Trading of permitted commodities and efficient
Clearing and guaranteed settlement, while complying with Statutory / Regulatory
requirements. We shall strive to ensure continual improvement of customer services and
remain quality leader amongst all commodity exchanges.

Mission

Continuous improvement in Customer Satisfaction.

Improving efficiency of marketing through on-line trading in Dematerialization form.
Minimizing of settlement risks.
Improving efficiency of operations by providing best infrastructure.
Rationalizing the transaction fees to optimum level.
Implementing best quality standards and testing in tune with trade practices.
Improving facilities for structured finance.
Improving quality of services rendered by suppliers.
Promoting awareness about on-line features trading services of NMCE across the length and
breadth of the country.

Turn over of the Indian commodity futures’ market

Turnover on Commodity Futures Markets

    (Rs. In Crores)
Exchange 2010-11 2011-12
NCDEX 1890 54011
NBOT 53018 51038
MCX 2456 30695
NMCE 23842 7943
ALL EXCHANGES 129364 170720

NCDEX TRADING SYSTEM

A trading system is a system of rules and guidelines of the whole trading process.
The system includes:
First in the system, the TICKER for each commodity is shown on the trading
terminal. Generally it is standardized for all the exchanges in a country, but nevertheless, it
may differ between the exchanges in same country.

Firstly, the Format for Tickers is like this:

CCCGGGLLL

CCC – three letters for the commodity.

GGG – three letters for the grade.
Wherever there is no particular grade, either STD (standard) or GR1 (grade 1) has been used.
LLL – three letters for the delivery location.
Eg. SYOREFIND -- SYO: Soy Oil, REF: Refined, IND: Indore

Now let’s have a look at the format of the tickers for all the commodities that
are traded in NCDEX:

GLD100MUM : “Gold”+“100% pure”+“Mumbai”

SLV100DEL : “Silver”+“100% pure”+“Delhi”
SYBGR1IND : “Soy Bean”+“GR1”+“Indore”
SYOREFIND : “Soy Oil”+“Refined”+“Indore”
RMSGR1JPR : “Rape/Mustard”+“GR1”+“Jaipur”
RMOEXPJPR : “Rape/Mustard Oil”+“Expeller”+“Jaipur”
RBDPLNKAK : “RBD”+“Palm Olein”+“Kakinada”
CPOSTDKDL : “Crude Palm Oil”+“STD”+“Kandla”
CTMJ34BTD : “Cotton Medium Staple Length”+“J-34”+“Bhatinda”

CTLS06ABD : “Cotton Long Staple Length”+“S-06”+“Ahmedabad”

“INSTRUMENT TYPE” in NCDEX is to denote whether the ticker is a futures contract or a
spot price being disseminated or an options contract
COMDTY – used for commodity spot price dissemination
FUTCOM – used for futures on commodity
OPTCOM – used for options on futures on commodity

CONTRACT EXPIRY:

Contract Expiry for the Futures & Options contract will be written as 20mmmYYYY.
20 -- 20th of every month a contract expires.
mmm – used to denote the month, e.g. DEC, JAN etc
YYYY – used to denote the year e.g. 2003, 2004 etc

For the spot price, no expiry date will be displayed or required as the positions in spot market
are for perpetuity (Spot market not yet started).

WHAT TO QUOTE FOR BUY/SELL

Gold – for buying futures of say 500 gm, you will need to enter “Quantity” as 500, and price
in “Rs/10gm”

Silver – for buying futures of say 25 Kg, you will need to enter “Quantity” as 25 and the price
in “Rs/Kg”

All oils and oilseeds – for buying futures of say 5 MT, you will need to enter “Quantity” as 5
and
The price for Soy Bean in “Rs/Quintal”
The price for Rapeseed/Mustard Seed in “Rs/20 Kg”
The price for all edible oils in “Rs/10 Kg”

Cotton – for buying futures of say 44 bales, you will need to enter “Quantity” as 44 and the
price in “Rs/Quintal”

ORDER TYPES:
There are major, two types of orders, regular lot orders and qualifiers.

Regular lot order

Market Order: It is a type of order where in both the buyer and seller agrees for a
transaction at current market price (CMP).

Limit Order: An order that can be executed only at a specified price or one
favorable for the investor. Hence for a seller a limit price is above Current Market Price
(CMP) and for a buyer it is below the Current Market Price (CMP)

Qualifier

Stop Loss: An order that is put to curb excess loss to the customer. Hence for a seller (who
already has a buy) a stop-loss order is below CMP and for buyer (who already holds a sell) a
stop-loss order is above CMP.

Futures Spread (SB) – specified difference between two different calendar months in same
commodity. It also called just ‘Spreads betting’.

Immediate or Cancel (IOC)

2L Order (2L) – Opposite positions taken in two different months (arbitraging) e.g. buying
March contract and selling April contract.

3L Order (3L) – Opposite positions taken in two different months and either buy/sell position
taken in other month. E.g. buying March contract and selling April contract and buying in
May contract. Hence in this case one position in either of the contracts is not arbitraged.

TIME VALIDITY OF TRADES

Day-Valid only for that day.

Good Till Date (GTD) – Valid to the date specified (for specified no. of days), Max 7 days.
Good Till Canceled (GTC) – Valid till cancelled, Max 7 days.

SETTLEMENT PROCESS IN COMMODITIES FUTURES

In this Education Series, we shall have a look into how settlement is done in case of
commodities futures. The settlement procedure is more or less same as in case of stock
futures, nevertheless, there are some key differences in the procedure by the virtue of the
underlying asset, which is a commodity.

Now, we will look into key two key issues which affect the settlement process. First
being whether the underlying asset of the future is deliverable (this depends on exchange) and
the other whether the underlying asset is in a physical form or only in electronic form.
Table.1: Comparison between stock futures and commodity futures.

Instrument Deliverable Electronic Form Physical From

Stock Futures No* Yes No
Commodity Futures Yes Yes Yes

In many developed financial markets like Japan, US, UK, Euro land, stock futures can
account to delivery.

From Table.1 it is clear that the stock futures in India do not end up in delivery,
implying a person who has taken long position cannot ask for delivery of real stock after the
expiry of the contract even if he is willing for taking delivery.

Again since, the delivery is not possible, an investor cannot settle his short position
with the real stock; neither can he take delivery of stocks if he has taken long position. He has
to mark-to-market at the end of future contract settlement.

But in case of commodity futures, delivery of underlying commodity is possible. The

delivery can be taken both in the electronic form and physical form.
 In case of electronic form the delivery quantity is transferred to/from the investor’s
DP account.
In case of physical form, the delivery quantity is transferred to/from the stocking
point.

Now, we arrive at an important point, when and how are settlements done?

Daily Settlements are done on mark-to-market basis.

And at the expiry of the contract Final Settlement is done.

Daily Mark to Market (MTM) Settlement is done for each Client:

At the end of every trading day, for all the trades, this is done till the date of the Contract
expiry.

A daily settlement is done to take care of DAILY PRICE FLUCTUATION for all trades.

Final Settlement will be done for each Client:

This on expiry of the Contract will handle the FINAL obligation of the Member for all trades
in that contract.

How is Daily MTM done?

Calculating the daily profits and losses for the client/investor does the Daily Settlement.
Profits and Losses are determined on the positions for client/investor, for each client and for
each contract
All trades are marked to the market at the Daily Settlement Price which is equal to Closing
price for the day.
A total Mark to Market Profit or Loss is calculated for the every client/investor.

Table.2 Example of Daily MTM

Branch 1 Branch 2
 Client 1 Client 2 Client 3
Contract A Contract B Contract A Contract A Contract B
Buy 400@50 Sell 200@190 Sell 700@48 Buy 200@63 Buy 190@160
Sell 200@55 Sell 190@190 Buy 500@40 ---- Sell 190@170
Closing rate 400 X 8 = 200 X 30 = 700 X 10 = 190 X 20 =
A – 58 3200 (6000) (7000) 200 X 5 = 3000
B – 180 200 X 3 = 190 X 10 = 500 X 18= (1000) 190 X 10 =
(600) 1900 9000 (1900)
PROFIT PROFIT LOSS PROFIT LOSS PROFIT
/(LOSS) 2600 (4500) 2000 (1000) 1900
TOTAL
LOSS (1900) PROFIT 2500
MTM

Settlements Procedure - Daily MTM Settlement

Exchange Clearinghouse
(NCDEX/MCX)

Download of Margin and MTM files at EOD (End Of the Day)

TWS*

Margins Daily MTM

settlement (Collection/Refund ))))on T+1)&

Initial Margin Call

Daily Profit/Loss for
Any special Positions closed out KARVY
Margin MTM of Open Commodities
positions Broking Pvt. Ltd.
at Closing Price
“Clearing
Bank A/c”
 Funds transaction flow

Client 1 BRANCH 1 Makes arrangement for funds

With the Head Office Exchange
Clearing
KCBPL BANK
House
(NCDEX/
MCX)
Banks credits the funds
Client 1, 2 into KCBPL bank a/c

BRANCH 2

*TWS – Trading Work Station

Chart 1: Procedure for Daily MTM

When is Daily MTM Settlement done?

The information on MTM amount (paid or received) by the Broking Member
(KCBPL) is given thru the Extranet at the end of the day, same information is passed on to
the Broking Member (KCBPL) branches.
Actual payment and receipt of funds will be made by the Client on the next trading
day i.e. T+1. (‘T’ being the trade date)

How does the Transfer of funds happen?

Payment will be done through a designated Clearing bank of the Exchange.
The Broking Member (KCBPL) makes arrangement for funds in his Settlement A/c with the
bank.
The Clearing Corporation (NSCCL) will send instruction to the Bank for
debiting/crediting the Broking Member (KCBPL) account.
What are the other payments to be made?
Besides the MTM, the Broking Member (KCBPL) will make Daily Margin payments.
Margin files will be downloaded on the Extranet
Broking Member (KCBPL) arranges for funds in the Settlement A/c
The Clearing Corporation debits the funds on the next day after the trading date.

What happens in case of failure?

If the Broking Member (KCBPL) fails to make the payment of MTM or Margin
amount, trading terminal is disabled immediately.
Trading will commence on deposit of funds by the Broking Member (KCBPL).

Where is the information on Daily Settlement available?

All information pertaining to Settlements is available on the Broking Member
(KCBPL) Extranet.
This is available in specific folders for the Broking Member (KCBPL).

How do I access the Extranet?

Thru the VSAT / Leased Lines connectivity using FTP protocol
Login using Trading member Id and password during non-trading hours. (Here Trading
Member is KCBPL)

Now let’s have a brief look at the sequence of Events.

 Opening new positions and Closing of
open positions by Member During the period of contract till date of
expiry.

Daily
MTM Settlement and Margins Calculated at the end of every Trading
Day, Payments on T+1.

Determination of positions for each

Member On the Date of expiry after the trading
hours.

Final Settlement of all open positions

As per settlement calendar for each
contract.

Chart.2 Settlements - Sequence of events

From Chart.2 the last event in the sequence of events is the “Final Settlement” of all
the open positions.
“The Settlement done for Open Buy and Sell positions on the Contract Expiry Date is
called Final Settlement.”
By the virtue of commodities futures being deliverable, both in electronic form (DP
A/c) and in physical form, the final settlement in case of commodities futures varies from
stock futures.
The futures settlement in case of commodities futures is done in the following ways:
Cash settlement: Most of the open positions end up in cash settlement at the
end/expiry of a contract. In fact about 99% of the positions end up in cash settlement.
Electronic Form: Some positions end up in delivery, the amount /volume of a
commodity that a client marks for delivery is transferred into the clients DP A/c.
Physical Form: Very less, almost negligible delivery happens in the physical form.
(About 0.1-0.5% of total open positions)
How final positions are determined?

Broking Member A Broking Member B

Client 1 Client 2 Client 3
Contract X Contract Y Contract X Contract Y
Day 1 400 S 700 B 400 S 200 B 500 S

Day 2 - 400 S 400 B 200 B

Date of Expiry 400 S 300 B - 400 B 500 S

Contract X 400 S
Contract Y 300 B Contract Y
500- 400 = 100S

Can actual delivery of the commodity be done on Expiry?

A Broking Member (KCBPL) can give and take delivery of commodities for an
investor/client or on proprietary trades done, by completing the Delivery formalities and
giving delivery information to the Exchange

What are procedures required before Delivery?

Opening a Clearing Member (KCBPL) Pool account for the purpose of settlements.
Beneficiary Demat account for own transactions.
Opening of Client’s Demat account with the empanelled DP.

How is the delivery information processed?

The information submitted by the Members is matched at NCDEX at the end of the day
All trades, which are matched, are locked for delivery
A Delivery Request number is generated for all delivery information submitted

Settlements – Deliveries
Exchange
Clearinghouse
Workflow
Download of KCBPL net positions on expiry

KCBPL

Delivery
Information

Submission of
Counter party Delivery information
Information and matching of

Information
Matched Information
Matching of
Information

Direct delivery Delivery thru

Between Depository
Buyers and Sellers

How does the matching of delivery information take place?

Validation of delivery information

On Client’s Net Open Position
On Delivery lot for commodity
Excess quantity is rejected and is cash settled.
Matching limited to the total capacity at the Warehouse
Matching is done for the deliveries based on
Commodity
Location
SETTLEMENT CALENDAR

Commodity Physical Settlement schedule for

Pay-in/Pay-outs
Soya bean T+7
Refined Soya bean oil T +7
Rapeseed Mustard Seed T +7
Rapeseed Mustard Seed Oil T +7
RBD Palmolein T +7
PLATINUM T +7
Medium Staple Cotton T +10
Long Staple Cotton T +10
Gold T +2
Silver T +4

Settlement Pay-in
Pay-in will take place on date as specified in Settlement Calendar.
Commodities:
Seller ensures Demat of commodities prior to pay-in.
Instruction to DP by seller to move commodities to KCBPL Pool A/c.
Pay-in of commodities on Settlement Date thru KCBPL pool A/c.
Funds:
Pay-in of funds – Thru the Clearing bank of the Member on the Pay-in day.

Settlement Pay-out

Pay-out will take place on date as specified in Settlement Calendar.

Commodities
Credit given into the Buyer member KCBPL Pool A/c.
Instruction by KCBPL to transfer from pool A/c to buyer client’s Demat account.
Subsequent Remat of commodities and physical movement handled by buyer.
Fun

ADVANTAGES OF TRADING/INVESTING IN COMMODITIES

Benefits to the Industry, Exporters and Importers:

1. Hedging the price risk associated with future contractual commitments. For instance,
let’s take a case of a Soy Bean exporter whose export commitment is one month now
(present market price is Rs.1700 per quintal). As per his analyst’s recommendations,
the prices are expected to rise (to an extant of Rs.1800 per quintal) after one month,
when he has committed for export. Now let’s assume that his export commitment is
10000 quintals.

Time Export Market Price

Commitment
Today Nil 1700
After one month 10000 1800

Instance 1: With no hedging.

Sale Price: Rs. 1850.

Cost Price: Rs. 1800.

So, net profit/ quintal = Rs.50.

Net Profit of deal=Rs.50x10000=Rs.5, 00,000.

Instance 2: With Hedging:

Sale Price: Rs.1850.

Cost Price: Rs.1700. (where in the exporter goes long (buys) today)
 So, net profit/ quintal=Rs.190.

Net Profit of deal=Rs.190x10000=19, 00,000.

An increase of 200% net profit.

2. Efficient price discovery:

With the starting of national wide commodities markets, regional price differences in
commodities prices are controlled. Hence, now the cost of a commodity is almost same
throughout the country. Prior to this there was lot of price differences of commodities at
various places. Example, the price of Gold in Hyderabad was different from price of Gold in
Mumbai, but now this disparity is curbed to an extant, though some price still exists between
the exchanges.

3. Benefits to the Banks:

Now the producer and consumer of the commodity can go for ‘Hedging’ their
positions hence, the loaner of funds (Bank) is clear of the receivables. Thus, ‘Hedged’
positions of producers and consumers would reduce the risk of default faced by the banks.
Lending for agricultural sector would go up with greater transparency in pricing and
storage.

4. Benefits to the clients:

The commodity prices move with strong broad based fundamentals. Hence, the commodity
prices do not move in an erratic fashion.
The price movements are also due to Global price movements of a particular commodity
hence, things like insider trading, and price manipulations do not exist in commodities
markets.
A commodity is always tradable. And also never a commodity price can be ‘zero’. In case of
stocks, a company may be de-listed, hence, it may go non tradable or the virtual price being
‘zero’
FACTORS EFFECTING COMMODITIES MARKET

Before starting this section let’s divide commodities into different classes:

Precious Metals: Gold, Silver.

Base Metals: Steel, Aluminum*, High Grade Copper, Nickel, Zinc, Tin.
Agricultural:
Grains: Soy, Soy Oil, Rice, and Rice Oil*.
Softs: Cotton, Coffee*, Sugar.
Energy: Crude Oil, Natural Gas. **

Factors affecting the prices of commodities:

The factors affecting the prices of various commodities can be divided into two:

Generic Factors:

 These are the factors affecting all the commodity prices in general.
 Demand and Supply.
 Indian Rupee Vs other currencies.
 Export/Import parity.
 Political environment.
Specific Factors:

These are the factors affecting a particular commodity or a class of commodities.

Precious Metals:

 Stock market dynamics.

 Geo-political tensions.
 US dollar Vs other major currencies.
 Global macroeconomics.
 Miner’s reports.
Agricultural:

 Climatic conditions.
 Crop production.
 Government regulations.
 Export rejection/orders.
Softs:

 Climatic conditions.
 Crop production.
 Import duty.

Industrial Metals:

 Industrial demand.
 Substitute metals supply.
 Government regulations.
 Infrastructure projects.

Energy:

 Production.
 New excavations.
 Geo-political tensions.
 New projects.
 CHAPTER-II

INDUSTRY PROFILE

&

COMPANY PROFILE
For the Indian investors, the year belonged to stock markets, which have been shining bright
when it comes to generating wealth, while the glitter of gold and silver faded for the second
straight year in 2015.
Measured by BSE Sensex, stock market has generated a positive return of about 9 per cent
for investors in 2015, while gold prices fell by about three per cent and its poorer cousin
silver plummeted close to 24 per cent.
After outperforming stock market for more than a decade, gold has been on back foot for two
consecutive years now vis-a-vis equities, shows an analysis of their price movements.
"Gold's under-performance was mainly due to prices falling in dollar terms amid anticipated
tapering over last several months combined with FII investment in Indian stocks.
"This movement has been equally true for global markets as 2015 saw gold losing its shine
and markets coming back with a bang," said Jayant Manglik, President Retail Distribution,
Religare Securities.
"As always, gold and stock prices follow opposite trends and this year was no different
except that both changed direction," he said.
Improvement in the world economy has brought the risk appetite back amongst retail
investors and this has drenched the liquidity from safe havens such as gold leading to its
under-performance, an expert said.
In 2014, the Sensex had gained over 25 per cent, which was nearly double the gain of about
14.95 per cent in gold. The appreciation in silver was at about 14.84 per last year.
According to Hiren Dhakan, Associate Fund Manager, Bonanza Portfolio, "Markets have
particularly shown great strength post July-August 2015 when RBI took some strong
measures to control the steeply depreciating rupee."
"When the US Fed gave indications that it might taper its stimulus programme given the
economy shows improvement, a knee-jerk correction was seen in most risky assets, including
stocks in Indian markets. However, assurance by the Fed about planned and staggered
tapering in stimulus once again proved to be a catalyst for the markets."

"External factors affecting Indian stocks seem to be negative for the first half of 2016 due to
continued strength of the US dollar and benign in the second half. By that time, elections too
would have taken place. A combination of domestic and international factors point to a
bumper closing of Indian markets in 2016 with double-digit percentage growth," he said.
Stock market segment mid-cap and small-cap indices have fallen by about 10 per cent and 18
per cent, respectively, in 2015.
Foreign Institutional Investors have bought shares worth over Rs 1.1 lakh crore (nearly USD
20 billion) till December 19. In 2014, they had pumped in Rs 1.28 lakh crore (USD 24.37
billion).

Evolution

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years
ago. The earliest records of security dealings in India are meager and obscure. The East India
Company was the dominant institution in those days and business in its loan securities used
to be transacted towards the close of the eighteenth century.

By 1930's business on corporate stocks and shares in and Cotton presses took place in
Bombay. Though the trading list was broader in 1939, there were only half a dozen brokers
recognized by s and merchants during 1940 and 1950.

The 1950's witnessed a rapid development of commercial enterprise and brokerage business
attracted many men into the field and by 1960 the number of brokers increased into 60.

In 1960-61 the American Civil War broke out and cotton supply from United States of
Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased
to about 200 to 250. However, at the end of the American Civil War, in 1965, a disastrous
slump began (for example, of Bombay Share which had touched Rs 2850 could only be sold
at Rs. 87).

At the end of the American Civil War, the brokers who thrived out of Civil War in 1974,
found a place in a street (now appropriately called as Dalal Street) where they would
conveniently assemble and transact business. In 1987, they formally established in Bombay,
the "Native Share and Stock Brokers' Association" (which is alternatively known as " The
Stock Exchange "). In 1995, the Stock Exchange acquired a premise in the same street and it
was inaugurated in 1999. Thus, the Stock Exchange at Bombay was consolidated.

Other leading cities in stock market operations

Ahmadabad gained importance next to Bombay with respect to cotton textile industry. After
1980, many mills originated from Ahmadabad and rapidly forged ahead. As new mills were
floated, the need for a Stock Exchange at Ahmadabad was realized and in 1994 the brokers
formed "The Ahmadabad Share and Stock Brokers' Association".

What the cotton textile industry was to Bombay and Ahmadabad, the jute industry was to
Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta.
After the Share Mania in 1961-65, in the 1970's there was a sharp boom in jute shares, which
was followed by a boom in tea shares in the 1980's and 1990's; and a coal boom between
1904 and 1908. On June 1908, some leading brokers formed "The Calcutta Stock Exchange
Association".

In the beginning of the twentieth century, the industrial revolution was on the way in India
with the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel Company
Limited in 1907, an important stage in industrial advancement under Indian enterprise was
reached.

Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies generally
enjoyed phenomenal prosperity, due to the First World War.

In 1920, the then demure city of Madras had the maiden thrill of a stock exchange
functioning in its midst, under the name and style of "The Madras Stock Exchange" with 100
members. However, when boom faded, the number of members stood reduced from 100 to 3,
by 1923, and so it went out of existence.

In 1935, the stock market activity improved, especially in South India where there was a
rapid increase in the number of textile mills and many plantation companies were floated. In
1937, a stock exchange was once again organized in Madras - Madras Stock Exchange
Association (Pvt) Limited. (In 1957 the name was changed to Madras Stock Exchange
Limited).

Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with the
Punjab Stock Exchange Limited, which was incorporated in 1936.

Indian Stock Exchanges - An Umbrella Growth

The Second World War broke out in 1939. It gave a sharp boom which was followed by a
slump. But, in 1943, the situation changed radically, when India was fully mobilized as a
supply base.

On account of the restrictive controls on cotton, bullion, seeds and other commodities, those
dealing in them found in the stock market as the only outlet for their activities. They were
anxious to join the trade and their number was swelled by numerous others. Many new
associations were constituted for the purpose and Stock Exchanges in all parts of the country
were floated.

The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited (1940)
and Hyderabad Stock Exchange Limited (1944) were incorporated.

In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and the
Delhi Stocks and Shares Exchange Limited - were floated and later in June 1947,
amalgamated into the Delhi Stock Exchnage Association Limited.

Post-independence Scenario

Most of the exchanges suffered almost a total eclipse during depression. Lahore Exchange
was closed during partition of the country and later migrated to Delhi and merged with Delhi
Stock Exchange.

Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963.

Most of the other exchanges languished till 1957 when they applied to the Central
Government for recognition under the Securities Contracts (Regulation) Act, 1956. Only
Bombay, Calcutta, Madras, Ahmadabad, Delhi, Hyderabad and Indore, the well established
exchanges, were recognized under the Act. Some of the members of the other Associations
were required to be admitted by the recognized stock exchanges on a concessional basis, but
acting on the principle of unitary control, all these pseudo stock exchanges were refused
recognition by the Government of India and they thereupon ceased to function.

Thus, during early sixties there were eight recognized stock exchanges in India (mentioned
above). The number virtually remained unchanged, for nearly two decades. During eighties,
however, many stock exchanges were established: Cochin Stock Exchange (1980), Uttar
Pradesh Stock Exchange Association Limited (at Kanpur, 1982), and Pune Stock Exchange
Limited (1982), Ludhiana Stock Exchange Association Limited (1983), Gauhati Stock
Exchange Limited (1984), Kanara Stock Exchange Limited (at Mangalore, 1985), Magadh
Stock Exchange Association (at Patna, 1986), Jaipur Stock Exchange Limited (1989),
Bhubaneswar Stock Exchange Association Limited (1989), Saurashtra Kutch Stock Exchange
Limited (at Rajkot, 1989), Vadodara Stock Exchange Limited (at Baroda, 1990) and recently
established exchanges - Coimbatore and Meerut. Thus, at present, there are totally twenty one
recognized stock exchanges in India excluding the Over The Counter Exchange of India
Limited (OTCEI) and the National Stock Exchange of India Limited (NSEIL).

The Table given below portrays the overall growth pattern of Indian stock markets since
independence. It is quite evident from the Table that Indian stock markets have not only
grown just in number of exchanges, but also in number of listed companies and in capital of
listed companies. The remarkable growth after 1985 can be clearly seen from the Table, and
this was due to the favouring government policies towards security market industry.

Trading Pattern of the Indian Stock Market

Trading in Indian stock exchanges are limited to listed securities of public limited companies.
They are broadly divided into two categories, namely, specified securities (forward list) and
non-specified securities (cash list). Equity shares of dividend paying, growth-oriented
companies with a paid-up capital of atleast Rs.50 million and a market capitalization of
atleast Rs.100 million and having more than 20,000 shareholders are, normally, put in the
specified group and the balance in non-specified group.

Two types of transactions can be carried out on the Indian stock exchanges: (a) spot delivery
transactions "for delivery and payment within the time or on the date stipulated when
entering into the contract which shall not be more than 16 days following the date of the
contract" : and (b) forward transactions "delivery and payment can be extended by further
period of 16 days each so that the overall period does not exceed 90 days from the date of the
contract". The latter is permitted only in the case of specified shares. The brokers who carry
over the outstandings pay carry over charges (cantango or backwardation) which are usually
determined by the rates of interest prevailing.
A member broker in an Indian stock exchange can act as an agent, buy and sell securities for
his clients on a commission basis and also can act as a trader or dealer as a principal, buy and
sell securities on his own account and risk, in contrast with the practice prevailing on New
York and London Stock Exchanges, where a member can act as a jobber or a broker only.

The nature of trading on Indian Stock Exchanges are that of age old conventional style of
face-to-face trading with bids and offers being made by open outcry. However, there is a
great amount of effort to modernize the Indian stock exchanges in the very recent times.

Over The Counter Exchange of India (OTCEI)

The traditional trading mechanism prevailed in the Indian stock markets gave way to many
functional inefficiencies, such as, absence of liquidity, lack of transparency, unduly long
settlement periods and benami transactions, which affected the small investors to a great
extent. To provide improved services to investors, the country's first ringless, scripless,
electronic stock exchange - OTCEI - was created in 1992 by country's premier financial
institutions - Unit Trust of India, Industrial Credit and Investment Corporation of India,
Industrial Development of India, SBI Capital Markets, Industrial Finance Corporation of
India, General Insurance Corporation and its subsidiaries and Can Financial Services.

Trading at OTCEI is done over the centres spread across the country. Securities traded on the
OTCEI are classified into:

 Listed Securities - The shares and debentures of the companies listed on the OTC can
be bought or sold at any OTC counter all over the country and they should not be
listed anywhere else

 Permitted Securities - Certain shares and debentures listed on other exchanges and
units of mutual funds are allowed to be traded

 Initiated debentures - Any equity holding atleast one lakh debentures of a particular
scrip can offer them for trading on the OTC.

OTC has a unique feature of trading compared to other traditional exchanges. That is,
certificates of listed securities and initiated debentures are not traded at OTC. The original
certificate will be safely with the custodian. But, a counter receipt is generated out at the
counter which substitutes the share certificate and is used for all transactions.

In the case of permitted securities, the system is similar to a traditional stock exchange. The
difference is that the delivery and payment procedure will be completed within 16 days.

Compared to the traditional Exchanges, OTC Exchange network has the following
advantages:

 OTCEI has widely dispersed trading mechanism across the country which provides
greater liquidity and lesser risk of intermediary charges.

 Greater transparency and accuracy of prices is obtained due to the screen-based

scripless trading.

 Since the exact price of the transaction is shown on the computer screen, the investor
gets to know the exact price at which s/he is trading.

 Faster settlement and transfer process compared to other exchanges.

 In the case of an OTC issue (new issue), the allotment procedure is completed in a
month and trading commences after a month of the issue closure, whereas it takes a
longer period for the same with respect to other exchanges.

Thus, with the superior trading mechanism coupled with information transparency investors
are gradually becoming aware of the manifold advantages of the OTCEI.

National Stock Exchange (NSE)

With the liberalization of the Indian economy, it was found inevitable to lift the Indian stock
market trading system on par with the international standards. On the basis of the
recommendations of high powered Pherwani Committee, the National Stock Exchange was
incorporated in 1992 by Industrial Development of India, Industrial Credit and Investment
Corporation of India, Industrial Finance Corporation of India, all Insurance Corporations,
selected commercial s and others.

Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and

(b) Capital market.

Wholesale debt market operations are similar to money market operations - institutions and
corporate bodies enter into high value transactions in financial instruments such as
government securities, treasury bills, public sector unit bonds, commercial paper, certificate
of deposit, etc.

There are two kinds of players in NSE:

(a) trading members and

(b) participants.

Recognized members of NSE are called trading members who trade on behalf of themselves
and their clients. Participants include trading members and large players like s who take
direct settlement responsibility.

Trading at NSE takes place through a fully automated screen-based trading mechanism which
adopts the principle of an order-driven market. Trading members can stay at their offices and
execute the trading, since they are linked through a communication network. The prices at
which the buyer and seller are willing to transact will appear on the screen. When the prices
match the transaction will be completed and a confirmation slip will be printed at the office
of the trading member.

NSE has several advantages over the traditional trading exchanges. They are as follows:

 NSE brings an integrated stock market trading network across the nation.

 Investors can trade at the same price from anywhere in the country since inter-market
operations are streamlined coupled with the countrywide access to the securities.

 Delays in communication, late payments and the malpractice’s prevailing in the

traditional trading mechanism can be done away with greater operational efficiency
and informational transparency in the stock market operations, with the support of
total computerized network.
Unless stock markets provide professionalized service, small investors and foreign investors
will not be interested in capital market operations. And capital market being one of the major
source of long-term finance for industrial projects, India cannot afford to damage the capital
market path. In this regard NSE gains vital importance in the Indian capital market system.

Preamble

Often, in the economic literature we find the terms ‘development’ and ‘growth’ are used
interchangeably. However, there is a difference. Economic growth refers to the sustained
increase in per capita or total income, while the term economic development implies
sustained structural change, including all the complex effects of economic growth. In other
words, growth is associated with free enterprise, where as development requires some sort of
control and regulation of the forces affecting development. Thus, economic development is a
process and growth is a phenomenon.

Economic planning is very critical for a nation, especially a developing country like India to
take the country in the path of economic development to attain economic growth.

Why Economic Planning for India?

One of the major objective of planning in India is to increase the rate of economic
development, implying that increasing the rate of capital formation by raising the levels of
income, saving and investment. However, increasing the rate of capital formation in India is
beset with a number of difficulties. People are poverty ridden. Their capacity to save is
extremely low due to low levels of income and high propensity to consume. Therefor, the rate
of investment is low which leads to capital deficiency and low productivity. Low productivity
means low income and the vicious circle continues. Thus, to break this vicious economic
circle, planning is inevitable for India.

The market mechanism works imperfectly in developing nations due to the ignorance and
unfamiliarity with it. Therefore, to improve and strengthen market mechanism planning is
very vital. In India, a large portion of the economy is non-monitised; the product, factors of
production, money and capital markets is not organized properly. Thus the prevailing price
mechanism fails to bring about adjustments between aggregate demand and supply of goods
and services. Thus, to improve the economy, market imperfections has to be removed;
available resources has to be mobilized and utilized efficiently; and structural rigidities has to
be overcome. These can be attained only through planning.

In India, capital is scarce; and unemployment and disguised unemployment is prevalent.

Thus, where capital was being scarce and labour being abundant, providing useful
employment opportunities to an increasing labour force is a difficult exercise. Only a
centralized planning model can solve this macro problem of India.

Further, in a country like India where agricultural dependence is very high, one cannot ignore
this segment in the process of economic development. Therefore, an economic development
model has to consider a balanced approach to link both agriculture and industry and lead for a
paralleled growth. Not to mention, both agriculture and industry cannot develop without
adequate infrastructural facilities which only the state can provide and this is possible only
through a well carved out planning strategy. The government’s role in providing
infrastructure is unavoidable due to the fact that the role of private sector in infrastructural
development of India is very minimal since these infrastructure projects are considered as
unprofitable by the private sector.

Further, India is a clear case of income disparity. Thus, it is the duty of the state to reduce the
prevailing income inequalities. This is possible only through planning.

Planning History of India

The development of planning in India began prior to the first Five Year Plan of independent
India, long before independence even. The idea of central directions of resources to overcome
persistent poverty gradually, because one of the main policies advocated by nationalists early
in the century. The Congress Party worked out a program for economic advancement during
the 1920’s, and 1930’s and by the 1938 they formed a National Planning Committee under
the chairmanship of future Prime Minister Nehru. The Committee had little time to do
anything but prepare programs and reports before the Second World War which put an end to
it. But it was already more than an academic exercise remote from administration.
Provisional government had been elected in 1938, and the Congress Party leaders held
positions of responsibility. After the war, the Interim government of the pre-independence
years appointed an Advisory Planning Board. The Board produced a number of somewhat
disconnected Plans itself. But, more important in the long run, it recommended the
appointment of a Planning Commission.

The Planning Commission did not start work properly until 1950. During the first three years
of independent India, the state and economy scarcely had a stable structure at all, while
millions of refugees crossed the newly established borders of India and Pakistan, and while
ex-princely states (over 500 of them) were being merged into India or Pakistan. The Planning
Commission as it now exists, was not set up until the new India had adopted its Constitution
in January 1950.

Objectives of Indian Planning

The Planning Commission was set up the following Directive principles :

 To make an assessment of the material, capital and human resources of the country,
including technical personnel, and investigate the possibilities of augmenting such of
these resources as are found to be deficient in relation to the nation’s requirement.

 To formulate a plan for the most effective and balanced use of the country’s
resources.

 Having determined the priorities, to define the stages in which the plan should be
carried out, and propose the allocation of resources for the completion of each stage.

 To indicate the factors which are tending to retard economic development, and
determine the conditions which, in view of the current social and political situation,
should be established for the successful execution of the Plan.

 To determine the nature of the machinery this will be necessary for securing the
successful implementation of each stage of Plan in all its aspects.

 To appraise from time to time the progress achieved in the execution of each stage of
the Plan and recommend the adjustments of policy and measures that such appraisals
may show to be necessary.

 To make such interim or auxiliary recommendations as appear to it to be appropriate

either for facilitating the discharge of the duties assigned to it or on a consideration of
 the prevailing economic conditions, current policies, measures and development
programs; or on an examination of such specific problems as may be referred to it for
advice by Central or State Governments.

The long-term general objectives of Indian Planning are as follows:

 Increasing National Income

 Reducing inequalities in the distribution of income and wealth

 Elimination of poverty

 Providing additional employment; and

 Alleviating bottlenecks in the areas of : agricultural production, manufacturing

capacity for producer’s goods and balance of payments.

Economic growth, as the primary objective has remained in focus in all Five Year Plans.
Approximately, economic growth has been targeted at a rate of five per cent per annum. High
priority to economic growth in Indian Plans looks very much justified in view of long period
of stagnation during the British rule
COMPANY PROFILE
Background:

Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice, flows freely
towards attaining diverse goals of the customer through varied services. Creating a plethora
of opportunities for the customer by opening up investment vistas backed by research-based
advisory services. Here, growth knows no limits and success recognizes no boundaries.
Helping the customer create waves in his portfolio and empowering the investor completely
is-the-ultimate-goal.
Stock-Broking-Services
It is an undisputed fact that the stock market is unpredictable and yet enjoys a high success
rate as a wealth management and wealth accumulation option. The difference between
unpredictability and a safety anchor in the market is provided by in-depth knowledge of
market functioning and changing trends, planning with foresight and choosing one's options
with care. This is what we provide in our Stock Broking services.

We offer services that are beyond just a medium for buying and selling stocks and shares.
Instead we provide services which are multi dimensional and multi-focused in their scope.
There are several advantages in utilizing our Stock Broking services, which are the reasons
why it is one of the best in the country.

We offer trading on a vast platform National Stock Exchange and Bombay Stock Exchange.
More importantly, we make trading safe to the maximum possible extent, by accounting for
several risk factors and planning accordingly. We are assisted in this task by our in-depth
research, constant feedback and sound advisory facilities. Our highly skilled research team,
comprising of technical analysts as well as fundamental specialists, secure result-oriented
information on market trends, market analysis and market predictions. This crucial
information is given as a constant feedback to our customers, through daily reports delivered
thrice daily ; The Pre-session Report, where market scenario for the day is predicted, The
Mid-session Report, timed to arrive during lunch break , where the market forecast for the
rest of the day is given and The Post-session Report, the final report for the day, where the
market and the report itself is reviewed. To add to this repository of information, we publish a
monthly magazine "Karvy The Finapolis", which analyzes the latest stock market trends and
takes a close look at the various investment options, and products available in the market,
while a weekly report, called "Karvy Bazaar Baatein", keeps you more informed on the
immediate trends in the stock market. In addition, our specific industry reports give
comprehensive information on various industries. Besides this, we also offer special portfolio
analysis packages that provide daily technical advice on scrips for successful portfolio
management and provide customized advisory services to help you make the right financial
moves that are specifically suited to your portfolio.

Our Stock Broking services are widely networked across India, with the number of our
trading terminals providing retail stock broking facilities. Our services have increasingly
offered customer oriented convenience, which we provide to a spectrum of investors, high-
networth or otherwise, with equal dedication and competence.

But true to our spirit, this success is not our final destination, but just a platform to launch
further enhanced quality services to provide you the latest in convenient, customer-friendly
stock management.

Over the years we have ensured that the trust of our customers is our biggest returns. Factors
such as our success in the Electronic custody business has helped build on our tradition of
trust even more. Consequentially our retail client base expanded very fast.

To empower the investor further we have made serious efforts to ensure that our research
calls are disseminated systematically to all our stock broking clients through various delivery
channels like email, chat, SMS, phone calls etc.

Our foray into commodities broking has been path breaking and we are in the process of
converting existing traders in commodities into the more organized mainstream of trading in
commodity futures, both as a trading and risk hedging mechanism.

In the future, our focus will be on the emerging businesses and to meet this objective, we
have enhanced our manpower and revitalized our knowledge base with enhances focus on
Futures and Options as well as the commodities business.

Depository-Participants

The onset of the technology revolution in financial services Industry saw the emergence of
Karvy as an electronic custodian registered with National Securities Depository (NSDL)
and Central Securities Depository (CSDL) in 1998. Karvy set standards enabling further
comfort to the investor by promoting paperless trading across the country and emerged as the
top 3 Depository Participants in the country in terms of customer serviced.

Offering a wide trading platform with a dual membership at both NSDL and CDSL, we are a
powerful medium for trading and settlement of dematerialized shares. We have established
live DPMs, Internet access to accounts and an easier transaction process in order to offer
more convenience to individual and corporate investors. A team of professional and the latest
technological expertise allocated exclusively to our demat division including technological
enhancements like SPEED-e, make our response time quick and our delivery impeccable. A
wide national network makes our efficiencies accessible to all.

Karvy Consultants Limited was started in the year 1981, with the vision and enterprise of a
small group of practicing Chartered Accountants. Initially it was started with consulting and
financial accounting automation, and carved inroads into the field of registry and share
accounting by 1985. Since then, it has utilized its experience and superlative expertise to go
from strength to strength…to better its services, to provide new ones, to innovate, diversify
and in the process, evolved as one of India’s premier integrated financial service enterprise.
Today, Karvy has access to millions of Indian shareholders, besides companies, s,
financial institutions and regulatory agencies. Over the past one and half decades, Karvy has
evolved as a veritable link between industry, finance and people. In January 1998, Karvy
became the first Depository Participant in Andhra Pradesh. An ISO 9002 company, Karvy's
commitment to quality and retail reach has made it an integrated financial services company.

An-Overview:
KARVY, is a premier integrated financial services provider, and ranked among the top five in
the country in all its business segments, services over 18 million individual investors in
various capacities, and provides investor services to over 300 corporates, comprising the who
is who of Corporate India. KARVY covers the entire spectrum of financial services such as
Stock broking, Depository Participants, Distribution of financial products - mutual funds,
bonds, fixed deposit, equities, Insurance Broking, Commodities Broking, Personal Finance
Advisory Services, Merchant ing & Corporate Finance, placement of equity, IPOs, among
others. Karvy has a professional management team and ranks among the best in technology,
operations and research of various industrial segments.

Today, Karvy service over 6.5 lakhs customer accounts spread across over 250 cities/towns
in India and serves more than 85 million shareholders across 7500 corporate clients and
makes its presence felt in over 17 countries across 5 continents. All of Karvy services are also
backed by strong quality aspects, which have helped Karvy to be certified as an ISO 9002
company by DNV.

ACHIEVEMENTS:

 Among the top 5 stock brokers in India (4% of NSE volumes)

 India's No. 1 Registrar & Securities Transfer Agents
 Among the top 3 Depository Participants
 Largest Network of Branches & Business Associates
 ISO 9001:2000 certified operations by DNV
 Among top 10 Investment ers
 Largest Distributor of Financial Products
 Adjudged as one of the top 50 IT uses in India by MIS Asia
 Full Fledged IT driven operations
 First ISO-9002 Certified Registrars in India
 Ranked as “The Most Admired Registrar” by MARG
 Largest mobilize of funds as per PRIME DATABASE
 First depository participant from Andhra Pradesh.
 Handled over 500 public issues as Registrars.
 Handling the Reliance account, which accounts for nearly 10 million account holders?

Range of services:

 Stock broking services

 Distribution of Financial Products (investments & loan products)
 Depository Participant services
 IT enabled services
 Personal finance Advisory Services
  Private Client Group
 Debt market services
 Insurance & merchant ing
 Mutual Fund Services
 Corporate Shareholder Services
 Other global services

Besides these, they also offer special portfolio analysis packages that provide daily technical
advice on scrips for successful portfolio management and provide customized advisory
services to help customers make the right financial moves that are specifically suited to their
portfolio. They are continually engaged in designing the right investment portfolio for each
customer according to individual needs and budget considerations.

Karvy Consultants limited deals in Registrar and Investment Services. Karvy is one of the
early entrants registered as Depository Participant with NSDL (National Securities
Depository Limited), the first Depository in the country and then with CDSL (Central
Depository Services Limited).

Karvy stock broking is a member of National Stock Exchange (NSE), The Bombay Stock
Exchange (BSE), and The Hyderabad Stock Exchange (HSE). The services provided are
multi dimensional and multi-focused in their scope: to analyze the latest stock market trends
and to take a close looks at the various investment options and products available in the
market. Besides this, they also offer special portfolio analysis packages.
 The paradigm shift from pure selling to knowledge based selling drives the business
today. The monthly magazine, Finapolis, provides up-dated market information on market
trends, investment options, opinions etc. Thus empowering the investor to base every
financial move on rational thought and prudent analysis and embark on the path to wealth
creation.

Karvy is recognized as a leading merchant er in the country, Karvy is registered with SEBI as
a Category I merchant er. This reputation was built by capitalizing on opportunities in
corporate consolidations, mergers and acquisitions and corporate restructuring.

Karvy has a tie up with the world’s largest transfer agent, the leading Australian
company, Computer share Limited. It has attained a position of immense strength as a
provider of across-the-board transfer agency services to AMCs, Distributors and Investors.
Besides providing the entire back office processing, it also provides the link between various
Mutual Funds and the investor.

Karvy global services limited covers ing, Financial and Insurance Services (BFIS), Retail
and Merchandising, Leisure and Entertainment, Energy and Utility and Healthcare sectors.

Karvy comtrade limited trades in all goods and products of agricultural and mineral origin
that include lucrative commodities like gold and silver and popular items like oil, pulses and
cotton through a well-systematized trading platform.

Karvy Insurance Broking Pvt. . provides both life and non-life insurance products to retail
individuals, high net-worth clients and corporates. With Indian markets seeing a sea change,
both in terms of investment pattern and attitude of investors, insurance is no more seen as
only a tax saving product but also as an investment product.

Karvy Inc. is located in New York to provide various financial products and information
on Indian equities to potential foreign institutional investors (FIIs) in the region. This entity
would extensively facilitate various businesses of Karvy viz., stock broking (Indian equities),
research and investment by QIBs in Indian markets for both secondary and primary offerings.

.Quality Policy:
To achieve and retain leadership, Karvy shall aim for complete customer satisfaction, by
combining its human and technological resources, to provide superior quality financial
services. In the process, Karvy will strive to exceed Customer's expectations.
Quality Objectives

As per the Quality Policy, Karvy will:

 Build in-house processes that will ensure transparent and harmonious relationships
with its clients and investors to provide high quality of services.
 Establish a partner relationship with its investor service agents and vendors that will
help in keeping up its commitments to the customers.
 Provide high quality of work life for all its employees and equip them with adequate
knowledge & skills so as to respond to customer's needs.
 Continue to uphold the values of honesty & integrity and strive to establish
unparalleled standards in business ethics.
 Use state-of-the art information technology in developing new and innovative
financial products and services to meet the changing needs of investors and clients.
  Strive to be a reliable source of value-added financial products and services and
constantly guide the individuals and institutions in making a judicious choice of same.

Strive to keep all stake-holders (shareholders, clients, investors, employees, suppliers and
regulatory authorities) proud and satisfied