Instruments available for trading and Electronic Spot Exchanges

Trading instruments are all the different types of assets and contracts that can be traded. Trading instruments are classified into various categories, some more popular than others. They range from equities and forward contracts to indices, currencies, and more.

Commodity Futures is an agreements to buy or sell the commodity at a set time and price in the future. Commodity Futures are available to trade in stock exchanges for participation by retail investors, corporates, and hedgers. On the other hand, Options, by nature, can be classified as calls and puts.

Calls give the buyer the right but not the obligation to buy a pre-fixed quantity of the underlying asset at a given price on or before a given future date. Puts give the buyer the right but not obligation to sell a pre-fixed quantity of the underlying asset at a given price on or before a given date.

The exchanges that offer commodity trading in India are:

Multi Commodity Exchange – MCX

National Commodity and Derivatives Exchange – NCDEX

National Multi Commodity Exchange – NMCE

Indian Commodity Exchange – ICEX

Ace Derivatives Exchange – ACE

The Universal Commodity Exchange – UCX

Apart from The NSE and BSE which offer stocks, bonds, and currency derivatives trading, the above-listed exchanges primarily offer commodity segments. Further, there are many types of commodity derivatives available for trading through these exchanges. They include:

Bullions – Gold & Silver

Base metals – Copper, Zinc & Aluminum

Energy – Crude Oil & Natural Gas

Pulses – Barley & Maize

Oilseeds – Castor Seed & Soybean

Spices – Jeera, Turmeric & Coriander

Electronic Spot Exchanges

The National Spot Exchange Limited (NSEL) is India’s first spot exchange under the ownership of Ministry of Finance, Government of India. It was established in view of the then Prime Minister’s vision to create a “single market” across the country for both manufactured and agricultural produce. The Economic Survey of 2002-03 of the Government of India also recommended setting up a national-level, integrated market for agricultural products, as did the Planning Commission. This was followed by the Rangarajan Committee, which too sought a national spot market. It is under the ownership of Ministry of Finance, Government of India.

The Government of India granted permission to NSEL along with two other spot exchanges to start operations. The Government of India issued a Gazette Notification dated 5 June 2007 granted general exemption under Section 27 of the Forward Contracts Regulation Act (FCRA.)

NSEL commenced operations providing an electronic trading platform in October 2008 and simultaneously, as many as six state governments issued licenses under the model Agricultural Produce Market Committees (APMC) Act to NSEL. In August 2011, the Forward Markets Commission (FMC) was appointed as the ‘designated agency’ to regulate these spot exchanges.

It is a structured marketplace, set-up to transform the commodity market by way of reducing the cost of intermediation, and thereby improving marketing efficiency. Its state-of-the-art technology facilitates risk-free and hassle-free purchase and sale of various commodities. NSEL provides customized solutions to farmers, traders, processors, exporters, importers, arbitrageurs, investors, and other stakeholders pertaining to commodity procurement, storage, marketing, warehouse receipt financing, etc. This market segment functions like the equity segment in the main stock exchanges. Alternatively, this can be considered as guaranteed direct marketing by sellers of the commodities. Spot Exchanges leverage on the latest technology available in the stock exchange framework for the trading of goods. This is an innovative Indian experiment in the trading of goods and is distinct from what is commonly known as “commodity exchanges” which trade in futures contracts in commodities.