[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...

MORE MARKETS, LESS GOVERNMENT
where farmers have a choice — many options
of selling their commodities such
as spot markets and futures markets.
Also, as futures trading is done at the
national level in an electronic format,
integration of banks and institutional
traders on the commodities marketplace
creates several institutional options for
farmers. Thus, with the introduction of
national online commodity exchanges,
the seed for democratic reforms in market
in its process and its infrastructure
has been sown and only time and appropriate
nurturing by supporting policies
can tell us how far these could go.
The Global Impact Of Domestic
Commexes
The establishment of national commodity
exchanges in India is creating a nearperfect
market situation, with a much
wider participation from the market
ecosystem during local and global market
timings. Feeling the necessity for
aligning themselves with the international
markets in globally traded commodities
where there are international
linkages, the domestic commodity exchanges
make use of maximum possible
hours of operation unlike their equity
counterparts in the country by bridging
the time zones of Tokyo and New York
while passing on the price signals to the
European markets. In fact, given the
country’s potential share in global supply
and demand, India has the potential
to become the price-setter in about seventeen
commodities and thus, emerge as
a dominant player in the global markets.
Of late, with the constant strengthening
of the futures market, India has started
emitting price signals to linked global
markets in those commodities having
international linkages. In commodities
such as gold, of which India is the world’s
largest importer and consumer, and
chana, of which the country is the largest
producer/consumer,India, with the
emergence of futures markets, is slowly
gaining the rightful place in the world
markets by setting the prices. The prices
disseminated by Indian exchanges have
become increasingly acceptable to the
business and farmer communities as
they are discovered after assimilating
the information available to
the participants.
The Global Commodity Arena
And MCX’s Role
MCX has made its mark in the global
commodities exchange industry by becoming
the largest silver exchange (in
terms of the number of contracts traded),
the second largest in natural gas,
the third largest bullion exchange after
NYMEX & TOCOM, and also the third
largest exchange in crude oil among the
top 10 commodity derivatives exchanges
in the world in 2007 with only retail, and
corporate participation and without
products other than futures on its platform.
The Exchange believes that as India
becomes a truly global economy, it
would offer greater potential in commodities,
as regulatory and market impediments
that prevent building up of
volumes in the exchanges would get dissolved
and the exchanges would be left
to their own to prove their mettle. The
price correlation in the globally traded
commodities indicates that the prices
discovered in the MCX had more than
90 percent correlation with their international
benchmarks suggesting that the
prices moved in tandem with the international
markets, following a right combination
of domestic and international
Given India's potential share in global supply and demand,
India has the potential to become the price-setter in about
seventeen commodities and thus, emerge as a dominant
player in the global markets
fundamentals. This makes the domestic
online exchanges a cost-effective better
alternative to the domestic participants
particularly for the SME companies,
with enough liquidity as found in the International
benchmark exchanges. However,
the potential in other commodities
and for reaching out to the end-users is
yet to be harnessed, pending various
regulatory reforms.
The Road Ahead
The proposed amendments to the Forward
Contracts Regulation Act is likely
to originate a slew of changes in the
THE INDIA ECONOMY REVIEW
105