Commodity exchanges

Commodity exchanges are trading in futures contract on those commodities, which have some regional relevance. It is not going to be as easy as a share of a company to get listed in a different exchange.

Delivery of commodity is a physical activity; delivery of shares is an electronic activity

Commodity exchange members are stakeholders in those commodities where in stock exchange members were never the owners of the stock to control where the stock should get traded.

Importance of commodity exchanges are linked to the stakeholders of that particular commodity wherein the success of a stock exchange is more on transparency and low transaction cost.

Understanding the regulatory frame work, FMC faces the highest challenge with the onset of national exchange & electronic trading. A national exchange in commodities would give rise to commercial pressures from participants in terms of trade practices followed by exchanges, regulatory measures by the regulator and exchange and arbitrational aspects pertinent to difference in governing laws among the states. FMC and the exchange are required to be well equipped with such challenges in the shortest possible time.

India’s & the WTO: India being a signatory of the WTO & a major consumption market could extend an invitation to the rest of the world to explore the Indian market; this in turn will simultaneously create an opportunity for the Indian producers & traders to explore the global market. What could be underlined for India would be price risk management & quality consciousness - which will act as the determinant for success.

India could witness an increased international participation in trading activities and investments once the national exchanges become fully operational. A greater convergence of markets – equity, commodities, forex, and debt could enhance the businesses with diversified portfolios. Such integration would create specialized treasuries and fund houses that would offer a gamut of services to provide comprehensive risk management solutions to India’s corporate & trade community.

Price fluctuations in commodities futures markets have been observed to be less volatile when compared to the equities or bond markets thus providing an efficient portfolio diversification option.