The Hindu Business Line : Multi-commodity exchanges or specialised product bourses?

ARE the country's three multi-commodity futures exchanges `multi' only in name? A perusal of daily trading volumes in the three exchanges does suggest so.

While Multi-Commodity Exchange of India Ltd (MCX) seems to be primarily specialising in bullion, National Commodity and Derivatives Exchange Ltd (NCDEX) has emerged as an agri-products (particularly guar) exchange and National Multi-Commodity Exchange of India Ltd (NMCE) largely a spices-and-rubber exchange.

To give an idea, the Mumbai-based NCDEX recorded its highest single day trading volume of Rs 2,617 crore on December 8, 2004. And of that, as much as Rs 1,336.03 crore or 51.05 per cent accrued from guarseed (Rs 1,250.89 crore) and guargum (Rs 85.15 crore). If one adds to these silver (Rs 790.18 crore), gold (Rs 131.28 crore), soyabean (Rs 79.04 crore), chana (Rs 76.53 crore), refined soya oil (Rs 51.81 crore) and medium-grade sugar (Rs 17.80 crore), the combined contribution of these eight commodities to the exchange's turnover on that day stood at almost 95 per cent.

The trend has not changed much since then. On January 24, NCDEX registered a total trading of Rs 1,583 crore, of which the guar complex accounted for Rs 865.11 crore (54.65 per cent) and the other six — silver (Rs 201.75 crore), chana (Rs 137.70 crore), refined soya oil (Rs 108.69 crore), soyabean (Rs 62.21 crore), M-grade sugar (Rs 53.34 crore) and gold (Rs 12.70 crore) — another Rs 576.38 crore or 36.41 per cent.

To put it simply, while NCDEX technically trades in 35 commodities today (since its inception in December 2003), over 90 per cent of its volumes come from just eight products. And the bulk of it is in guar, a little known crop, the produce from which is annually valued at hardly Rs 1,000 crore.

The same applies to MCX, the other Mumbai-headquartered exchange that offers trading in 41 commodities today, having commenced operations only a month earlier than NCDEX.

MCX recorded its peak one-way turnover of Rs 1,889 crore on December 2, 2004, of which silver contracts constituted Rs 1,005.03 crore and gold Rs 812.53 crore. The only other significantly traded products in the exchange on that day were refined soya oil (Rs 46.66 crore), guarseed (Rs 16.65 crore), kapas (Rs 2.34 crore) and urad (Rs 2.17 crore).

In the case of NMCE, the appellation `multi-commodity' is all the more incongruous. The Ahmedabad-based exchange was the first ever `national' commodity bourse to begin trading on November 26, 2002.

While technically 59 commodities are traded on its platform, the fact is today, the daily turnover is just around Rs 100-120 crore, of which actual trading is limited to just four products — pepper, cardamom, rubber and raw jute.

While the three exchanges were originally set up with the idea of trading in the entire basket of commodities, the reality is that they have evolved as bourses specialising in specific futures segments.

But according to the Managing Director of MCX, Mr Jignesh Shah, there is nothing unusual about this phenomenon.

Even in the US, for instance, the New York Board of Trade (NYBOT) specialises mainly in agricultural commodities such as coffee, cocoa, sugar, ethanol and frozen concentrated orange juice, whereas the neighbouring New York Mercantile Exchange (NYMEX) deals in energy products and precious metals.

"While today, over 70 per cent of trading in MCX is in bullion, in three years time, I see 25 per cent each coming from precious metals, energy products (gas, electricity and crude), mass farm produce (cotton, edible oils, etc) and narrow farm produce and exotic products (freight futures, weather derivatives, etc)," Mr Shah said.

The NCDEX's Chief Business Officer, Mr Narendra Gupta, said that while agricultural commodities currently contributed over 80 per cent of the exchange's daily volumes, its share would gradually come down to 50 per cent, with precious metals and other products (energy, weather derivatives, etc.) making up the remaining 25 per cent each.

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