NMCE India, Trading Agricultural Commodities

The National Multi Commodity Exchange of India Limited (NMCE) was set up in 2002 as the first countrywide electronic commodity exchange in India.

It was promoted by a number of major commodity organisations including Gujarat State Agricultural Marketing Board and National Agricultural Co-operative Marketing Federation of India.

It has a number of major strategic equity holders three of which are Neptune Overseas Limited, Punjab National Bank and Central Warehousing corporation.

Given that NMCE is the only Indian commodity exchange without foreign investment partners, it is actively looking at bringing on board some strategic investors from the USA, UK and Japan, who could build a presence in Indian commodity markets.

The exchange has strengthened its credentials as a quality commodities marketplace after being awarded the ISO 001:2000 quality accreditation from BSI. NMCE India has around 300 members and is looking to expand this further.

Among the metals, there are futures contracts for copper, lead, nickel, tin, zinc, silver, aluminium and gold (1kg and 100g contracts for the yellow metal).

NMCE India also has a very large portfolio of agricutlural commodities available for electronic trading, including rice, Arabica coffee, rubber, menthol and guar gum.

Within the agricultural sector there are also pulses such as Charma, Moong and Masoor, along with spices such as turmeric, cumin seed, cardamon and pepper.

Various oils are also traded here, such as castor, coconut, groundnut, cotton seed, linseed, palm and sesame, and most of these oils are also traded as seed and in cake form.

Trading System and Risk Management

For commodity traders looking to trade on this electronic trading platform, you will want to know that the system is robust and well tested.

The platform used is a Derivative Trading Settlement System (DTSS) provided by CMC Markets. The exchange makes use of the best international risk management systems with the ability to manage surges in volatility such as intra-day clearing and settlement.

In any market, traders need to have confidence in the clearing and settlement system, and NMCE India are very confident in the robustness and efficiency of their system.

Warehouse System

According to NMCE, traders who take delivery can have full confidence in the effective processing of their trades through the Warehouse Receipt System.

Warehouses are situated strategically in major centres across the various states, including Ahmadebad in Gujarat, Bangalore (Karnataka), Chennai (Tamilnadu) and Delhi (uttar Pradesh).

What types of markets are available at NMCE India?

The futures market is used as a vehicle for hedging by primary producers and end-consumers as well as for speculation, where in most cases the participant does not take delivery but settles in cash. In the event that a contract is due for delivery but hasn't been closed out, it should settle through the warehouse receipt system.

Apart from the futures trading there is also a cash market which lasts for one hour each day and is settled on the same day. A spot trading market also exists, which is open for 2 hours a day, where settlement is on the third day after the transaction.

There is also a weekly market which settles on the fifth day from the day of trade, while markets where delivery is more than 11 days after transaction (but not the futures markets) have specific terms regarding pricing, quality and delivery date.

Another key difference here is that while in futures contracts there is anonymity, with these specific agreements the contracting parties are known to each other.

Looking Forward

With the changing dynamics in global commodity markets, specifically in agriculturals, it is likely that NMCE India will see further expansion and strategic partnerships going forward, as with a rising population world demand for commodities looks set to continue rising over the long term.