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This chapter disclosed the working system and financial performance of Multy

Commodity Exchange of India ltd.

4.1 INTRODUCTION OF MCX

Multi Commodity Exchange of India Limited (MCX) is a “new order “exchange

with permanent recognition from the Government of India for setting up a

nationwide online (electronic) multi-commodity marketplace, offering

“unparalleled efficiencies”, “unlimited growth and “infinite opportunities” to

market participants. MCX, a nationwide multi-commodity exchange, is an

independent and demutualised exchange since inception. Promoted by Financial

Technologies (India) Limited, MCX has introduced a state-of-the-art, online

digital exchange for commodities trading in the country. In line with its strong

belief of setting up a truly independent and a neutral platform, MCX is committed

in its pursuit of broad basing its ownership and inclusive. Subsequent to this, the

exchange would be accountable not only to FMC but also SEBI.

In its endeavor towards establishing India as a major hub for global trading in

commodities, MCX has taken up the initiative by entering into tie-ups with major

international exchanges and commodity trading centers, in a significant

development that would have widespread ramifications across entire commodity

trading circles. MCX, in the first week of November, 2004 signed a Memorandum

of Understanding (MOU), with the Tokyo Commodity Exchange (TOCOM),

which is one of the largest commodity futures exchange in the world, very active

in metals and energy futures contracts. The tie-up would help the two exchanges in

information sharing, market development and monitoring, surveillance methods

market operations trading practices and regulation in the commodities futures

markets, This is the first authentic step in bringing global recognition to the Indian

commodity markets and raises the authentic step in bringing global recognition to

the Indian commodity markets and raises the standard of commodity trading to

globally acceptable levels. It would opportunities for Indian producers and

consumers to get the best prices for their products and consumables.

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MCX has also forged another partnership with a major international conglomerate,

the Dubai metals and commodity Center (DMCC), in November 2004, to set up

the Dubai Gold and commodity Exchange (DGCX), Which has become

operational from 21st Novembers 2005.The exchange, situated in the free trade

zone of Dubai, Offers a transparent trading environment for dollar denominated

Gold futures contract. DGCX is also on the anvil of launching currency futures

contract. Dubai has firmly established itself as the gateway of international gold

market to India. The Setting up of this exchange would fill a very critical gap for

the international trading commodity since business from the Gulf is currently

routed to New York, London and Tokyo.

The another initiative taken by MCX to reduce the adverse impact of volatility

freight rates. It has entered into a strategic alliance with the Baltic Exchange,

London, to introduce freight futures contracts in India for the first time. The move

will have a significant impact on the Indian shipping industry as well has

commodity traders, exporters and importers since the increasing cost of freight is

increasingly impacting the transportation of cargo. This will facilitate the

establishment of very vibrant freight derivatives market in south-East Asia for

freight risk management of trade done outside the region.

In October 2005, MCX and London Metal Exchange (LME) announced the

signing of a licensing agreement that will allow the MCX to lunch futures

contracts in non-ferrous metal using LME prices as the basis of settlement. MCX

has also signed a Memorandum of understanding (MOU) to explore areas of

cooperation and business opportunities with the goal of assisting and benefiting

the underlying producers, end-users and investors in their commodity traded

products by maximizing the application of international best practices for price

risk management and exchange operation that could mutually benefit the

exchanges.

Following are the main share holders of the MCX:

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1. State Bank of India

2. National Bank for Agriculture and Rural Development (NABARD)

3. HDFC Bank

4. Bank of India

5. State Bank of Indore

6. State Bank of Hyderabad

7. SBI Life Insurance Co. Ltd.

8. Financial Technologies (India) Ltd.

9. National Stock Exchange of India Ltd. (NSE)

10. Fidelity International

11. State Bank of Saurashtra

12. Canara Bank

MCX is well poised to emerge as the “Exchange of Choice” for the Commodity

trading community in the country. MCX has formulated strategic alliances with

leading commodity trade associations in India, namely;

Bombay Bullion Association (BBA)

Bombay Metal Exchange (BME)

Solvent Extractors Association of India (SEA)

Pulses Importers Association (PIA)

MCX has a strongly established growth path with its aim to offer:

Liquidity - Introduce new Commodities/Members/Measures.

Expansion - Enroll Intuitional & Other classes of Members.

Leadership - To be a Commodities Exchange of choice.

Information - Disseminate trade & Commodities information.

Technology -Continue technological leadership for cost effective expansion.

Trade Friendliness- work with trade & Industry for growth.

Globalization- Market India’s Commodities sector globally.

Knowledge - Create & Share-pool of Commodities knowledge.

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Training-Industry and Professional on Commodities Market, Operation, Risk

Management.

Converge – Markets, Participant & Commodities.

As of January 2007, MCX has already appointed more than 1600 members with

over 10000 + Traders Work Stations (TWS).

4.2 BUSINESS OPERATIONS, RULES AND APPLICABILITY

MCX is doing trading in derivatives contract in various commodities which are

permitted by the central Govt. under the forward contract Regulation Act.1952,

subject to approval of the forward markets commission.

Business Rules of Multi commodities Exchange of India limited is subject to the

provisions of the forward contract (Regulation) Act, 1952 and Rules framed there

under, Articles of Association, Rules and Bye-Laws of Multi commodities

Exchange of India ltd (MCX), as applicable to the members of the Exchange, their

Representatives and their clients.

These Rules are enforceable on the member of the exchange, clearing bank,

Clients, Constituents and all other Participant operating on or through the

exchange in respect of their rights and obligation relating to trading on MCX.

They are subject to jurisdiction of the court of Mumbai irrespective of the place of

business of the members of the members exchange or their customers and client in

India or elsewhere.

4.3 ELIGIBILITY FOR TRADING

The member of the Exchange, who have been admitted as such by the board, are

eligible to participate in trading persons, who are not members of the Exchange,

can participate in trading only as approved users or clients through a registered

member of the Exchange.

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4.4 MEMBERSHIP AT MCX

Currently, there are three categories of membership available at MCX, depending

upon the Trading & Clearing Rights. These Membership types are explained in

detail us under.

1. TRADING-CUM-CLEARING MEMBER: A TCM is entitled to trade on his

own account as well as on account of his client and clear and settle trades

himself. A sole proprietor, partnership form, a joint Hindu Undivided family

(HUF), a corporate entity, a cooperative society, a public sector organization,

statutory, organization or any other Government or non government entity can

become a TCM.

A person desirous of being registered, as a Trading-cum-Clearing-Member is

required to submit an application as per the format prescribed under the

business rules, along with all enclosures, fee and other document specified

therein. He is required to go through an interview by the membership

admission committee and the committee is entitled to accept or reject his

application. The committee is also empowered to farm rules or criteria relating

to admission to membership, after decision relating to selection or rejection of

a member. On selection the member is required to execute and submit an

Undertaking called as “Trading-Cum-Clearing-Member” Undertaking as data

as per format prescribed under the business rules. On selection and after

complying with all the requirement above and also after payment of admission

fee, security deposit. VSAT charges, etc., the member becomes entitled to

trade on his own account as well as on account of his clients.

2. INSTITUTIONAL-TRADING-CUM-CLEARING-MEMBER: Only an

institution/corporate can be admitted by the Exchange as a member, conferring

upon them the right to trade and clear through the Clearing House of the

Exchange as an institutional Trading-Cum-Clearing-Member (ITCM).

Moreover, the member may be allowed to make deals for himself as well as on

behalf on his client and clear and settle Such deal. Further the ITCM can also

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appoint sub-brokers. Authorized person and trading members who would be

registered as trading members on MCX at the request of the ITCM. The ITCM

will clear and settle trades on behalf of the sub-brokers authorized person and

such trading member who reregister on MCX at their request, subject to the

terms and condition specified by MCX.

3. PROFESSIONAL CLEARING MEMBER: A PCM is entitled to clear and

settle trades executed by other members of the exchange. A corporate entity

and an institution only can apply for PCM. The member would be allowed to

clear and settle trades of such members of the Exchange who choose to clear

and settle their trades through such PCM.

4. ADMISSION FEE AND ANNUAL SUBSCRIPTION: The admission fee

paid by a member is non refundable. A member is required to pay annual

subscription latest by April 30 every year in advanced as required in the

business rules of the exchange.

4.5 DEPOSIT

1. Initial Security Deposit: A minimum of 50% of the Initial Security Deposit

needs to be submitted in the form of cash. The balance can be in the form of

fixed deposit or bank guarantee with approved banks.

2. Additional Deposit and Forms: In order to increase the exposure limits for

trading, the members may remit additional security deposit of which at least

25% should be in the form of cash and the balance can be in the form of bank

guarantee and/or fixed deposit with approve bank. The security deposit paid by

the member is interest free refundable deposit. It is treated as his initial

deposition which he gets an initial exposure limit in value terms. Security

deposit whether initial deposit, additional deposit and margin paid by the

member constitute a part of the settlement guarantee funding case of transfer of

membership, the initial security deposit is refundable subject to settlement of

all pending dues, claims and charges subject to lock in period of 3 years. There

is no such lock in period in respect of additional deposit. The additional deposit

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or margin can be paid either in the form of demand or money transfer through

the clearing bank or in the form of bank guarantee or fixed deposit, subject to

condition specified below. In case a member intends to get his additional

security deposit released to him during its tenure or on its maturity, he shall

inform the exchange at least one week in advance. The exchange subject to

clearance of exchange dues shall consider any request for withdrawal of the

additional security deposit.

3. Bank Guarantee: The Exchange scopes bank guarantee issue by approved

banks security as per format prescribed in the business rules, the bank

guarantee instrument should be for a minimum period of one year and a

maximum period of three years. The bank guarantee must be issue by the bank

on behalf of the member himself. A third party bank guarantee instrument

issued on behalf of some person other than the member himself will not be

acceptable. A member will be required to renew the bank guarantee submitted

by him prior to its expiry in case of renewal of bank guarantee with a specific

claim period the member shall furnish the renewal document strictly in the

prescribed format at least 7 working days before the date of expiry of the bank

guarantee. The member may also opt to give fresh bank guarantee in favor of

Multi Commodity Exchange of India Ltd. instead of renewing the expired bank

guarantee. A bank guarantee deposited by a member which has expired shall

be excluded for the purpose of computing the benefit provided to such member

toward exposure.

4. Fixed Deposit Receipts: Member may be submitting fixed deposit receipt

(FDR) issue by the approved bank for the purpose of additional deposit. All

such fixed deposit shall be under lien of the exchange and bank, they must

confirm that such lien has been recorded and that the exchange has first charge

on such fixed deposit receipts by issuing a letter along with the fixed deposit

receipt as per the format prescribe in the business rules. The member shall

submit the fixed deposit certificate along with a letter issue by the member

himself as per the format prescribed in the business rules.

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5. Additional Deposit: Approved securities and warehouse Receipts:

Additional deposit can also be made in the form of security and warehouse

which is deposited as collateral. The following are the broad guidelines, which

to be adhered to for keeping securities and warehouse receipts as collateral:

a) The exchange through circulars periodically the specific securities which

can be submitted as collateral.

b) The exchange also provides information periodically the specific

commodities for which the warehouse receipts can be deposit as collateral.

c) The total additional deposit by way of approved securities and warehouse

receipt should not exceed the cash and cash and cash equivalents.

d) The maximum allowable deposit by way of approved securities is Rs. 25

corers.

e) The maximum allowable deposit by way of approved warehouse receipt is

Rs. 50 corers.

f) Warehouse receipt of each Commodity (ICIN) can be used for collateral

purpose. The maximum allowable upper limit for different commodities is

decided by the exchange.

g) The utilization of both securities and warehouse receipt for collateral is

only after considering the application “haircut”. (Haircut is a percentage is

subtracted from the market value of the assets that are being used as

collateral. The size of the haircut reflects perceived risk associated with the

assets.)

4.6 WORKING OF MCX

It covers the various aspects regarding operations of MCX.

4.6.1 Commodity Futures Trading

1. Trading Day and Hours: The Exchange operates on all days except Sundays

and Exchange specified holidays. The Exchange notifies a list of holidays for

each calendar year in advance. Trading of agriculture commodities are done

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between 10:00 a.m. to 5:00 p.m. and other than agriculture commodity are

done between 10:00 a.m. to 11:30 p.m. from Monday to Friday. On Saturday

all commodities are traded between 10:00 a.m. to 2:00 p.m. Holidays are

notified in advance. The Exchange may extend, advance or reduce trading

hours by notifying the Members as and when it deems fit and necessary.

2. Electronic Marketplace: Very Small Aperture Terminal (VSAT) system is a

sophisticated satellite-based communication network, offered by MCX for the

efficient automated trading for its member. Trading can be done also with the

help of internet.

3. Using a satellite network to link users to the exchange, System &

Networking: The costs are relatively low & the equipment is relatively simple.

These systems can also work in difficult environments. For smaller users,

access to the exchange can be channeled through a broker in a nearby town or

village, such as a rural branch. This dispersal of points of trading terminals

helps people from all over the country to access their exchange for hedging

their price risk. These technology-driven solutions facilitate the establishment

of business models specifically designed to bring previously marginalized

commodity producers into the market. MCX has the backing of Financial

Technologies, which provides leading edge technology solutions for financial

services providers. This enables MCX to offer state-of-the-art system and

networking infrastructure for ensuring a smooth trading environment. This

would not be possible without the help of the well-equipped systems and

networking personnel at its disposal.

4.6.2 Trading Parameters

1. Base Price: The exchange decides the “Base Price” of contract available for

trading on the system , which is a notional price based on the spot market price

of that commodity on the previous day (as the case may be for the particular

commodity) and a notional carrying cost. However, this is done only on the

first day of commencement of trading in a contract. For all subsequent days,

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the base price is taken as the official closing price is taken as the contract

during the previous trading day. In case, after the launch of the contract and

fixing of the base price, if no trade takes place on that day, the exchange can

change the base price for the next trading session if the spot price is volatile

and fluctuates during the previous trading day when no trade takes place in the

commodity futures contract.

2. Closing Price: The system calculates the closing price of every contract traded

on the system at the end of trading period. The logic for the calculation of a

closing price is as follows:

a) Closing price is equal to weighted average price of all trades done during

the day.

b) If the number of trades during the last 30 minutes is less than 10, then it is

based on the weighted average price of the last 10 trades executed during

the day.

c) If the number of trades done during the day is less than 10, then it is taken

as the weighted average of all trades executed during the day.

d) If no trades have been executed in a contract on a day, then the official

closing price of the last (previous) trading session is taken as the official

closing price for that day. Provided that in such cases the Exchange will

have the right to modify the closing price. For risk management purpose,

the Exchange, if it so desires, can consider more trades for calculating the

closing price than the mandatory minimum of 10 trades.

3. Dissemination of Open, High, Low and Last Traded Prices: The Exchange

continuously disseminates open, high, low and last traded prices through its

trading system on real time bases, during a trading session.

4. Life of a Future Contract and Expiry Date: The life of a contract means the

period when the contract will be available for future trading i.e. the period

between the start of trading and the day it expires. This period is also known

as the “trading cycle” of the contract. The expiry date of each commodity

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futures contract is mentioned in the contract specification of the particular

futures contract. If the particular expiry date happens to be a holiday, contract

will expiry on the particular delivery month. If the preceding day is suddenly

declared a holiday, then the contract shall expire on the succeeding working

day.

5. Due Date Rate: Due date rate is the rate at which the contract is settled on the

expiry date. It is usually the average of the last 1 or 3 or 5 days prices in the

spot market (of the market place which is the basis of that contract), or as

prescribed by the exchange in the contract specification. The exchange shall

have the power to alter or modify such due date rate on the basis of upcountry

prices, if it is expedient to do so.

6. Trader Work Station: Registered members / brokers of MCX can be trade

online using the automated screen based trading system called the Traders

Work Station (TWS). The exchange through the TWS interface provides

automated trading facility for all contract permitted by FMC on Nationwide

basis. The MCX trading system supports an order-driven trading system,

which is transparent, objective and fair for automatic order matching with

tremendous flexibility. The trading system provides complete market

information online on a real-time basis.

4.6.3 Types of Orders

The best buy order is matched with best sell order on price-time priority basis, in

the MCX-TWS. Quality and price for any type of order is entered into the system

as per the trading unit and base value unit of the commodity respectively.

Exchange members can submit the following types of order based on price related

conditions and time related condition.

A) Price related condition orders

1. Limit Order: Specifies the price at which the trade should be executed. Limit

orders are placed to either enter into a new trade or to exit from an existing

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trade. For a buy order, the limit is placed below the existing market price and

for a sell order, the placed above the existing market price.

2. Market Order: It will be executed at whatever is the prevailing price on or

after submission of such an order. If there are no trades at that point of time,

the system takes the last trade’s price as the market order and the order remains

in the system unexecuted. For example, if you want your broken to buy two

SEP Silver futures contract at the prevailing market price, a market order can

be placed for the same. The order will be executed at the prevailing best sell

price.

3. Stop Loss Order: They are usually placed to minimize losses. Stop loss order

are usually placed to close out existing position. Stop loss buy order are placed

above the current market price, and stop loss sell order are placed below the

current market price. A trigger price is also specified to allow the system to

activate the stop loss order once the last traded price breaches the trigger price.

Stop loss order are kept by the system in suspended or abeyance mode and are

activated only on the member. The advantage of a stop order is that, any

sudden adverse movement in the market can limit losses to a great extent.

Stop-loss orders do not cost anything to the client. The regular member/brokers

commission is charged only once the stop-loss price has been reached and the

order is executed. Hence, it functions like an insurance policy. Secondly, but

most importantly, a stop-loss allows decision making to be free from any

emotional influences. People tend to believe that the market may bounce back

from an adverse movement. This causes the trader to procrastinate and delay

the action to cut losses. This ensures discipline in trading.

B) Time related condition orders

1. Day Orders (or End of Session Order) are available for execution during the

current trading session. They remain in the system until executed or cancelled.

All day orders will get cancelled at the end of the trading session during which

such orders were submitted.

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2. Good Till Date (GTD) is available for execution till the end of the date

indicated in the order.

3. Good Till Cancelled (GTC) is an order to buy or sell a commodity futures

contract at a specific limit price that last unit the order is completed or

cancelled. A GTC order will not be executed until the limit price is reached,

regardless of how many days or weeks it might take. Investors often use GTC

orders to set a limits price that is far away from the current market price. Some

brokerage first may limit the time a GTC order can remain in effect and may

charged more for executing this type of order. GTC is available for execution

till maturity of the contract, whichever is earlier.

4. Immediate or Cancel (IOC) is an order requiring all or part of the order to be

executed immediately after it has been placed. Any portion not executed

immediately is automatically cancelled. This is used for large orders where

filling quickly can be difficult. Such orders will not remain in the order book.

C) Modification and Cancellation of Orders

A member is permitted to modify or cancel his orders. The order can be modified

by effecting changes in the order input parameters. Time priority for an order

modification will not change due to decrease in its quantity or decrease in

discloses quantity. In other circumstances, the time priority of the client of the

member, if the wrong client code has been entered by the member, the client code

of the trade executed can be changed. This is permissible only up to 15 mins after

the end of the day’s trading session.

4.6.4 Risk Management by Price Limit-Circuit Filter and Types of Margin

Requirement

The Exchange notifies a daily circuit filter limit for commodities in terms of

percentage of variation allowed in a day with respect to the base price for that day.

Circuit filter provides the maximum range within which a contract can be traded in

a session. Such circuit filter can be different for different commodities. The orders,

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which are in violation of such circuit filters, are rejected by the system. The initial

security deposit paid by a member is considered as his initial margin for the

purpose of allowable exposure limits. Initially, every member is allowed to take

exposure up to the level permissible on the basis of such an initial deposit.

However, if a member wishes to create more exposure, he has to deposit

additional margins. If there is surplus deposit lying with the Exchange towards

margins, it is not refunded to the member unless a written request is received from

the member for refund. However, the member receives additional exposure limit

on account of such additional / surplus deposit.

4.6.5 Delivery Default Risk Management

Following are the various aspects of such risk management.

A) Penalty for non-performance: In order to enforce strict discipline in respect

of performance of a contract, the Exchange follows the procedures mentioned

below:

1. All the members having outstanding positions in the expiring contract will be

required to submit in writing to the Exchange in the specified format about

their intention for tendering or lifting delivery along with details of quality,

quantity, delivery center, etc. only on designated tender days.

2. Any member who does not submit such intention will not be allowed to tender

delivery in that contract. However, even if a buyer submits his intention to lift

delivery, it may be possible that he does not receive delivery either fully or

partially or that he would receive delivery but at different delivery center

compared to the center desired by him.

3. If a member does not submit his intention to give or lift delivery, he will have

only two options:

To square off his positions anytime before the contract expiry; or

To settle his positions as per the due date rate in case he fails to square off

his positions before the contract maturity. However, in case the position is

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settled as per due date rate, the member may have to pay penalty at the rate

of such percentage(as mentioned in circulars of the contract) of the due date

for unsettled quantity

4. If a member submits his intention to give his delivery, but subsequently fails to

do so, his positions will be closed out at the due date rate and he shall also be

required to pay a penalty of such %(as mentioned in the circulars of the

contract) of the due date rate for the unsettled quantity. Out of such penalty

collected by the Exchange, 90% of the amount will go to the buyer to

compensate him for making the funds available and not receiving delivery.

5. If a member submits his intention to give delivery and there are no buyers

interested to lift delivery, then the positions of both the buyers sellers will be

closed out as per the due date rate (DDR) and in addition to such DDR, the

buyers may be required to pay a penalty of such %(as mentioned in the

circulars of the contract) of the due date rate, which will be in turn be paid to

the seller.

6. If the buyer has submitted his intention to lift the delivery, but subsequently

when delivery is allocated to him he fails to make payments for the same, then

the buyer will be declared a defaulter and the positions will be closed out as

per the official closing price of that day, while the delivery will vest with the

seller. In such cases, the Exchange imposes such percentage (as mentioned in

the circulars of contract) of the DDR a penalty to the buyer.

B) Settlement Guarantee Fund: The Exchange guarantees the settlement of the

net settlement liability of clearing members for all trades done on the Exchange

in accordance with the byelaws of the Exchange. The settlement guarantee

fund of the Exchange is confined only to the extent of the settlement liability in

terms of daily pay-in and payout as well as the final settlement as per the due

date rate. The settlement guarantee fund is made up of the initial deposits and

additional deposits of the members to the exchange.

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4.6.6 Surveillance: In order to ensure market integrity and club price rigging,

price manipulation, cornering the market, circular trading and defaults in

the market, the Exchange uses various on-line and off-line surveillance

tools, such as:

1. Mark to Market Loss Monitoring: During the trading session, the system

keeps track of losses, both national and booked, incurred by every member up

to the last executed trade. This is calculated by the system on real time basis by

way of computing the difference between the actual trade price of a member

and the last trade price of the market. Such calculation happens for every

member after execution of each and every trade. The maximum loss limit,

which the system allows a member to sustain on a real-time basis, is 75% of

the total deposit. Every time such loss amounts goes beyond the levels of 60%,

75% or 90% of the prior mentioned loss limit, the member gets a warning

signal. Thereafter, when the loss crosses the 75% of the total deposit limit, the

member is suspended by the system. In such calculations, there is no allowance

given in respect of profits made by such members in a different contract. This

is monitored by the system to curb any default in the process of day trading.

2. Maximum allowable open position: In order to avoid building up of huge

open positions in any commodity, the Exchange has specified the maximum

allowable open position limit across all members of the Exchange. There is a

restriction at the client level to the effect that any client cannot hold more than

the specified quantity of the commodity as an open position as per contract

specifications notwithstanding any deposit or margin paid by such client. There

is a further restriction at the member level to the effect any member cannot

hold more than the specified limit of such market wide open position limit,

notwithstanding any deposit or margins paid by such a member. This is

monitored after every 30 minutes on daily basis. Any member, who either in

his own account or in the account of his client violates any such limit in respect

of any contract, will be subjected to the following:

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To reduce the position in the immediate session so as to bring the total open

positions in the contract below the threshold limit fixed by the Exchange.

If he fails to do the above, the Exchange reduces his open positions.

Besides, the member will also be required to pay a penalty.

3. Circuit filter: The Exchange notifies a daily circuit filter limit for

commodities in term of percentage of volatility allowed in a day with respect

to the base price of the day. Circuit filter provides the maximum range within

which a contract can be traded in a session. Such circuit filters can be different

for different commodities. The orders, which are in violation of such circuit

filters, will be rejected by the system. However, before opening the circuit

filter, the Exchange will impose such margin terms, as it may desire.

4.7 TRANSACTION FEE AND QUALITY CERTIFICATION

Transaction Fee (Per Rs.1 lakh of turnover value) is required to be paid by the

member based on their average daily turnover in all future contracts in all the

commodities traded at the exchange as tabulated below:

Average Daily Turnover Transaction Fee Rates

(Rs. Per Lakh of Turnover)

Upto Rs. 50 Crores Rs. 4

On incremental turnover above Rs. 50 Crores to

Rs. 150 Crores

Rs. 3

On incremental turnover above Rs. 150 Crores

to Rs. 250 Crores

Rs. 2

On incremental turnover above Rs. 250 Crores

to Rs. 350 Crores

Rs. 1

On incremental turnover above Rs.350 Crores to

Rs.500 Crores

Rs. 0.50

On incremental turnover above Rs.500 Crores Rs. 0.25

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Average Daily Turnover in all future contracts, in all commodities will be

calculated at the end of every month by way of dividing the total turnover of the

member of the exchange (including Saturdays) by the total number of trading days

(including Saturdays).

The transaction fee will be debited on a monthly basis to the settlement account of

the members in the first week of the succeeding month. The above mentioned

slabs of transaction charges are valid till further notice and the Exchange reserves

the right to modify/alter/revise/withdraw the same, either in full or in part at any

time after giving notice to members. The above said transaction fee is effective

from April 2, 2007.

For the purpose of quality certification of commodities to be delivered, there are

many surveyors for different commodities, some of whom are:

a. SGS India Private Limited

b. B. Geo Chem Laboratories Private Limited

c. Dr. Amin Suprintendents & Surveyors Private Limited

d. Caleb Brett India Private Limited

e. Atlas Surveyors

f. Rubber Boards

g. Spices Boards

NBHC with its deep domain knowledge of commodity management has also

commenced providing an extensive range of technical services and solutions in the

field of quality testing, grading, certification and pest management services under

the brand names ProComm and CommGuard.

NBHC ProComm and CommGuard: Quality testing, Certification, and Pest

Management Services for Commodities offered by NBHC.

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PROCOMM and COMMGUARD

NBHC ProComm offers an extensive range of technical services and solutions in

the field of quality testing, grading, certification and pest management.

Service Package

1. Grading and Certification

a) Agro. Commodity Testing

b) Animal feed Testing

c) Other related tests

2. Product development

3. Warehouse Inspection &Audit

4. Assaying Services for Collateral Management

5. Sanitation Inspections & Consultations

Some of the tests conducted by NHBC include physical, chemical and biological

tests for identifying the following parameters:

1. Moisture

2. Extraneous matters

3. Microbial testing

4. Pesticide residue testing

5. Other tests to assess and grade the quality of commodities

NHBC CommGuard Pest Management Services provides services for all pest

related problems.

Service Package

1. Pest Prevention and Pest Management Services

2. Stored Product Protection and Fumigation

3. Disinfection Services

Benefits of ProComm and CommGuard are as follows:

The services are offered at competitive rates

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Excellence response time

Environment-friendly solutions

Employing Integrated Pest Management (IPM) Techniques

Extensive list of pest covered to minimize risk of storage

Special schemes for corporate and other group of customers

4.8 CLEARING, SETTLEMENT AND DELIVERY PROCEDURE

The Exchange has specified the processes, procedures and operations that every

clearing member shall be required to follow for participation in the clearing and

settlement activities and operating their bank accounts with the clearing Banks

appointed by the Exchange.

1. Functions of the Clearing Bank: The Exchange has appointed 12 Clearing

Banks viz. SBI, HDFC Bank, Induslnd Bank, UTI Bank, Kotak Mahindra

Bank, Citibank, Union Bank of India, Corporation Bank, DCB, Yes Bank and

ICICI Bank for transfer of funds between clearing members and the Exchange.

2. Members to have accounts with the Clearing Bank: Every member of the

Exchange shall have designated Clearing Bank, which has electronic funds

transfer facility. Members shall operate the settlement account only for the

purpose of settlement of deals entered through the Exchange for the payment

of margin money and for any other purpose as may be specified by the

exchange. Every member of the Exchange is required to open the following

accounts with any of the clearing banks stated above:

Settlement Account or Clearing account in which the member will not have

cheque book facility for issuing cheques to any outsiders. He can only issue

cheques from this account for transfer of money from this account to his

Client Account. Apart from any such transfer, only the Exchange will have

the power to withdraw money from this account by way of direct debit

instructions. In respect of all pay in, margins, charges and other dues

payable to the Exchange, the Exchange will send direct debit instructions to

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the bank advising them to debit the settlement account of the respective

member by such payable account.

Client Account- in which the member can deposit all cheques, cash, etc.

received from clients and from members can issue cheques to their clients

towards their receivables. The member has cheque book facility for this

account and he will also be entitled to issue transfer instructions to the bank

for transferring money from this account to Settlement account to meet his

pay in or margin obligations.

Clearing Banks act as per the instructions of the Exchange

The Exchange shall instruct the Clearing Banks as to the debits and credits to be

carried out for settlement of funds between members. For this purpose, members

of the Exchange will be required to submit a letter to the bank, as per format given

in the rules for authorizing to the Exchange to issue such debit and credit

instructions. The Clearing Bank shall act as to the debits and credits to a member’s

account shall be deemed to be irrevocable, confirmed and binding. In order to

enable the Exchange to issue such instructions for debiting their account and also

to authorize the Exchange in respect of freezing the account or to hold further

debits, every member will be required to submit a written undertaking addressed

to the bank to such effect. This undertaking will also authorize the bank to sweep

the client account of the respective member for any shortfall in the settlement

account. Besides, the Exchange will also the power to freeze various accounts of

the member maintained with the clearing bank, in case of any default or shortfall

in pay in or margin account.

If there is any funds default arising out of the instructions received from the

Exchange, the Clearing Bank shall inform the Exchange immediately.

3. Clearing Account (s) of Exchange in the Clearing Bank and Operational

procedure: The Exchange maintains its settlement account with the clearing

bank and all money received from the members towards pay in or margin, shall

be used appropriately for settlement.

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The operational procedure related to the settlement account, pay in and pay out

activities and the exact time schedule in order to maintain financial discipline

shall be adhered to by members of the Exchange. The operational procedure,

for the time being, will be as follows:

After the end of the trading session every day, a files/reports will be

downloaded by members through FTP (File Transfer Protocol), which will

contain details of all transactions executed by the member on that day,

positions carried forward from the previous day, closing position of the day

including net obligation of the member.

The net obligation report will further provide the amount of margin deposit,

margin utilized available deposit/margin required, pay in/pay out amount

transaction fee payable/receivable, etc. The net obligation report is

available and can be downloaded terminal wise. It is also consolidated at

the member’s level in terms of net obligation payable/receivable.

On the basis of this file, the Exchange will generate an automated statement

for debit and credit of settlement accounts of the respective members by the

amount payable/receivable by them. This file will be sent electronically to

the bank the next day in the morning at 9.00 a.m.

The process of the files being processed by the bank as follows:

The pay-in files are processed

Then the pay-out files are processed

The margin deficit files are then processed

Throughout the day, shortage files (information containing details of deficit

payment) are processed

The member must have sufficient clear balance in his settlement account so

as to affect such debits. In case the amount of margin is payable, the

member is not allowed to trade until he deposits the required margin along

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with additional deposits the required margin amount, the bank will run the

margin file at 10 am and report to the Exchange electronically the

successful debits. However, to pay an additional amount towards additional

deposit/margin. On the basis of this written request, the Exchange will

forward individual debit instructions to the bank for debiting the respective

settlement account and crediting the Exchange settlement account. As soon

as the Exchange gets such confirmation, the limits are accordingly

increased.

Thereafter, at 10.30 am, the bank will run the debit files in respect of pay-

in. The member must have sufficient balance in his account to meet his pay

in obligation. By 10.45 am, the Exchange will receive confirmation about

the successful and failed instructions. Member deposits shall be available to

the member for trading.

In this process, trading permission is allowed to only those members who

settle their margin as well as pay in obligation before 11 am. In case a

member fails to meet the pay in obligation by 11 am on T+1, the Exchange

may commence the process of squaring off his positions after 11 am,

depending on the magnitude of the problem.

4.9 CLEARING HOUSE

Regulation and functions of the clearing house:

1. The Exchange Clearing House monitors and performs all activities related to

delivery, funds settlement, margining, managing the settlement guarantee

fund etc.

2. The Clearing House will collect margins from the members, effect pay in and

pay out and delivery and settlement process. For carrying out such activities,

it may appoint various agencies as its agents and may delegate such activities

and responsibilities to such agencies, as it may desire.

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3. The Clearing House will allocate deliveries, which it has received from the

selling member to the buyer and the same shall be binding on the buyer.

4. Lien on member’s deposits and deliveries: When a member is declared a

defaulter, all deposits, margins, delivery documents and other assets of the

defaulting member lying with the Exchange shall be under lien and first

charge of the Exchange, irrespective of the fact whether such assets or

deposits belong to the member or his clients. No client or any other person

can claim any charge or right on any such deposit, margin or delivery

documents under any circumstances.

5. Clearing Assistants for the clearing house: In respect of delivery of precious

metals (gold and silver), a Clearing Member may nominate Clearing

Assignments (not more than two for each delivery center), who shall be

competent to sign on behalf of such a member all clearing forms, vouchers,

claim notes, receipts and other documents and transacted in all matters

connected with the operations of the Clearing House. A clearing member

who has to give or take delivery of precious metals or any other

tender/delivery documents shall either be present personally in the Clearing

House or be represented by his Clearing Assignment at the appropriate time.

6. Clearing Code and Clearing Forms: A member shall be allotted a Clearing

Code, which must appear on all forms used by the member connected with

the operations of the Clearing House. The member or his Clearing

Assignment shall sign all Clearing forms.

7. Specimen Signature: A member shall file with the Clearing House specimens

of his own signature and of the signatures of his Clearing Assistants.

8. Delivery and payment through Custodians and Clearing Members: The

Clearing House maintains a register of Custodians, Banks, Trust Companies

and other firms approved by the Executive Committee which may act for

members and their constituents in giving and taking delivery of precious

metals.

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9. Notices and Directions: All Clearing Members shall comply with the

instructions, resolutions, orders, notices, directions and decisions of the

Executive Committee in all matters connected with the operations of the

Clearing House.

10. Liability of the Clearing House: The Clearing House shall not be deemed to

guarantee the title, ownership, genuineness, regularity or validity of any

delivery passing through the Clearing House and the only obligation of the

Clearing House in this matter shall be to facilitate the delivery and payment

in respect of delivery.

11. Liability of the Exchange: No liability shall attach either to the Exchange, its

officials, or to the Executive Committee or any member of the Executive

Committee by reason of anything done or omitted to be done by the Clearing

House in the course of its operations, nor shall the Exchange, its officials, or

the Executive Committee or any member of the Executive Committee be

liable to answer in any way for the title, ownership, genuineness, quality,

quantity or validity of any delivery or any other documents passing through

the Clearing House, nor shall any liability be attached to the Exchange, its

officials, the Executive Committee or any member of the Executive

Committee in any way in respect of such delivery and any other documents.

12. False or Misleading statements: The Exchange may fine, suspend or expel a

clearing member who makes any false or misleading statement in the

Clearing Forms required to be submitted in conformity with these

Regulations or any resolutions, orders, notices, directions and decisions of

the Clearing House.

13. Class of contracts covered: The Clearing House is responsible in the manner

stated above only in respect of contracts executed on the trading system of

the Exchange and Byelaws of the Exchange. It shall not deal with, monitor or

guarantee settlement of negotiated deals, off the floor transactions; bilateral

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contracts, loan transactions or other transactions not covered under the Bye

laws of the Exchange.

14. In the event of disruption in the office or administrative services of the

Exchange or the designated Clearing Bank due to technical reasons including

computer system break-down or absence, non-attendance and/or strike by the

employees or due to any unforeseen circumstances or due to natural or other

calamities such as earthquake, out-break of war, general strike or any such

circumstances of a force majeure nature, the daily clearing shall be

suspended for such days and periods till normalcy and resumption of daily

clearing settlement as also about the restoration or return of normalcy and

resumption of daily clearing and settlement work. If the circumstances so

demand, the Managing Director or any other relevant authority of the

Exchange may order closure of the market in terms of relevant Bye-laws and

call an emergency meeting of the Board of Exchange to deal with the

abnormal situation.

4.10 DELIVERY PROCEDURE

1. Delivery Period: Each futures contract for specified delivery month shall be

deemed to have entered the delivery period from such date of its expiry

month, as specification. The futures contract can result in delivery of the

underlying commodity within this period on designated tender days fixed by

the Exchange will have the right to fix, after, extend or postpone such

delivery period, if it is expedient to do so.

2. Designated Tender Days: The tendering of deliveries shall be permitted

only on specific tender days during the delivery period. The Exchange

notifies such tender days in advance.

3. Delivery Logic: Delivery logic refers to the type of choice available to the

buyers and seller having open position during tender/delivery period, for

delivery of the commodity. The different delivery options are “seller’s

option”, “both option”, and “compulsory delivery”.

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4. Seller Option: In the “seller’s option”, the seller having an open position of

a contract during the tender/delivery period will have the option to give

delivery. In this case it obligatory for the buyer who has been marked, to

accept delivery or pay penalty.

In a “seller’s option”, the short position holders who communicate their

intention for giving delivery are matched with the corresponding intentions

of the long position holders for taking delivery. Any short position holder

having an “open position” on the tender/delivery date shall have the position

to tender for delivery of his short position and the long position holder will

be obligated to accept delivery. If there are no sufficient long position holders

who have given their intention, then the delivery will be marked on a basis to

open long position holders (buys of the contract) and it is obligatory for them

to take delivery. In case the long position holders fails to lift the delivery,

penalty will be imposed for failure and the open position of the seller and the

buyer will be closed out at the due date rate.

5. Compulsory Delivery: In case of “compulsory delivery” both buyers and

sellers with open position upon the expiry of the contract, are obligated to

take/give delivery of the commodity.

6. Both Options: In case of “both option” the delivery will be executed only

when both buyers sellers agree to take/give delivery. If they do not give

intention for delivery, such open position are cash settled at the due date rate.

7. Delivery Orders and Delivery Lot: All deliveries tendered by Members on

designated tender days shall be in the form of “Delivery Orders” issued in

favor of the buyers, as per instructions of the MCX. The Delivery Orders

shall be filled up in the prescribed form and shall clearly state the contract

particulars including quantity, quality and the delivery center, along with full

postal address of the place where goods are stored. The delivery orders must

be received by MCX by 3 pm (or the time specified in the contract

specification) on the specified delivery days; otherwise it is treated as valid

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only for the subsequent delivery day.

Each delivery order issued shall be in multiples of minimum deliverable lots

and shall be designated for only one delivery center and one location in such

center. The tendered of delivery order shall also clearly disclose the identity

of the member/registered non-member, if any, who shall be performing the

delivery. The seller shall not issue delivery order at a place by any person or

Government Authority or local authority at the time of issuing such delivery

order. The seller shall, at his cost, give permit to the buyer, it will be treated

as no delivery and he shall be liable to pay such penalty as may be applicable

for failure to tender delivery.

Delivery order once submitted cannot be withdrawn or cancelled or changed,

unless so agreed by MCX in writing.

The contracts traded at MCX are deliverable in such lots as may be specified

for respective commodities. Members with short open positions opting to

tender deliveries shall be permitted to issue delivery orders only in such lots.

Any member with an open position of such number of contracts that is not

convertible into multiple of deliverable lots shall be required to square-up

such outstanding “odd lots” before expiry of the contract so as to make the

total deliverable quantity a deliverable lot. In case any member fails to

square-up the outstanding odd lots before the contract expires resulting in

odd lot positions at the end of the contract expiry day, delivery up to the

nearest completed delivery lot will take place in the usual manner, while the

residual odd lot will be settled as specified in the contract specification.

Above shall be permitted at the delivery centers approved by the exchange

for that commodity.

8. Permissible Limits for the Delivered Commodity: The delivery shall be

deemed to have been provisionally completed for each delivery order

whenever the seller has delivered the quantity for the delivery order within

the tolerance limits as may be specified from time to time. The delivery is

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considered as fully complete only after the buyer lifts delivery and confirms

receipt from the buyer within such time, as may be notified by the Exchange

for a specific commodity, delivery is considered as complete without any

further recourse available to the buyer.

9. Delivery Grades and Delivery Centers: Members tendering delivery will

have the option of delivering such grades of commodities as permitted by

MCX. The buyer will not have any option to select a particular grade and the

delivery offered by the seller and allocated by the exchange shall be binding

on him. The member tendering delivery will clearly specify the grade to be

delivered in the delivery order. On the delivery grade is specified, it cannot

be changed for the same delivery order. Such delivery grade shall be in

conformity with surveyor’s certificate accompanied by the tender document.

Delivery centers shall be such centers as may be notified by the exchange for

respective commodities. Members are obliged to tender delivery orders only

at such centers as may be required by the exchange.

10. Freight Adjustment Factor / Discount / Premium on Up County

Delivery: The exchange notifies the discount/premium for delivery of

specified commodities at various delivery centers.

11. Evidence of Stocks in Possession: At the time of issuing the delivery order,

the member must satisfy. MCX that he holds stocks of the quantity and

quality specified in the delivery order at the declared delivery center.

Each delivery order shall be accompanied by a certificate, from an approved

surveyor as to the physical verification and certification of stocks in

possession of tendered at the designated delivery center and quality

specification in conformity with the specifications of the grade being

tendered. Such certification shall be dated and issued on the basis of

inspection carried out not more than fifteen days preceding the date of the

delivery order.

In case of delivery of vegetable oil against his position in a vegetable oil

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contract, if the seller tenders delivery from his own or private storage tank,

that particular tank shall be sealed at both the Intel and outlet valves by the

approved surveyor, certifying quality and weight. However if the seller opts

to give delivery from an approved tank terminal, then the warehouse receipts

duly issued and certified by the approved tank terminal and surveyors

respectively shall accompany along with delivery order certifying quality and

weighty.

The procedures followed for drawing samples and carrying out analytical

tests are as per the booklet issued by bureau of Indian standards. The cost of

survey and issuance of certification by an approved surveyor shall be borne

by the member submitting the delivery order.

12. Pricing of Delivery Orders: The basis price for delivery order shall be the

settlement price of the concerned contract on the day (which shall be a

designated tender day) on which the delivery is tendered. The basis price

arrived at as above will have to be adjusted by applying Freight adjustment

factor / discount / premium on up country delivery and the discount /

premium in respect of quality.

13. Taxes, Duties, Cess and Other Levies: All taxes, duties, cess, or other

levies shall be on account of the member taking delivery as a buyer. All

sellers tendering goods shall have the necessary sales tax registration and

obtain other licenses, if any, required by them. In case the selling member

does not have a sales tax registration number then he can appoint an

Agent/Nominee who has the required sales tax registration and deliver the

goods through him. The member giving delivery and the member taking

delivery will exchange appropriate tax forms as provided in law and as

customary, and neither of the parties will unreasonably refuse to do so. In

case any of the members or their clients fail to provide necessary forms in

respect of sales tax resulting into pecuniary loss to either of the party, the

Exchange will impose a charge on the party in default and after collection

thereof, will pass on the same to the member, who or whose client has

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suffered such loss. In addition to the above, the Exchange can impose

additional penalty on the party in default.

14. Allocation of Delivery Orders: MCX shall allocate all delivery orders

received on tender days / expiry day from Members holding short open

positions to members holding long open positions, when the tender document

is received. The allocation of delivery orders shall be done in a fair and

equitable manner by MCX. The decision of MCX shall be final and binding.

15. Publication of Delivery Orders Issued and Allocated: MCX shall display

on its system, within reasonable time, full details of delivery orders received

on each designated tender day and the allocation made against the same.

16. Acceptance of Allocated Delivery Orders: The allocation of delivery orders

to members with net buy or long positions shall be final and binding on all

members to whom it has been allocated and under no circumstances a

member shall have any right to refuse if challenge the delivery allocation in

his favor.

17. Payment by Member with Net “Buy” Position: The payment shall be made

through creating adequate credit balance in the designated clearing account

of the member maintained with the designated clearing bank.

18. Endorsement of Delivery Orders: The delivery orders allocated to the

member with net long positions shall be endorsable by him to his clients who

may be either a member of client. Such allocation can also be made by the

buying member in favor of a third party, but such allocation can be made

only once and subject to the full disclosure of details of the third party to be

given to MCX. However in case of dispute or default involving the endorsee,

the responsibility for contractual performance remains vested with the

original assignee of the delivery order (the buying number).

19. Procedure: The member or his client or final endorsee in possession of a

delivery order shall be obliged to take delivery within such period, as may be

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specified by the exchange for a specific commodity. He is also entitled to lift

delivery on various days during such defined period, provided that on each

day he has to lift at least 1/10th

of his total allocated delivery. In the event that

the member of his client in possession of delivery order is unable to lift the

material within the prescribed days after the receipt of the delivery order, the

seller shall claim and receive compensation at such rate, as may be decided

by the exchange for that specific commodity in respect of warehouse

changes, insurance charges, insurance charges, etc. in the same manner if the

seller fails to give delivery on the scheduled date or if the seller’s

preventatives are not available to effect delivery, the buyer shall claim and

receive compensation at such rate, as may be specified by the exchange for

that specific commodity. The buyer has to intimate to the seller the schedule

for taking delivery of the tendered goods in advance, with a copy to the

exchange. The seller has to confirm and intimate in writing to the buyer with

a copy to MCX in advance about his confirmation to deliver as scheduled or

change in the delivery schedule.

Weighment at the time of delivery: The goods tendered shall be weighed at the

buyer’s option, at the seller’s weighbridge or at an mutually agreed independent

weighbridge, and the weights determined in this manner shall be treated as final

and fully binding on both parties. The buyer’s representative shall present himself

at the seller’s storage tank/warehouse installation at the time of delivery failing

which are the seller reserves the right to proceed with sampling and weighment of

the oil tendered for delivery even in absence of the buyer’s representative.

Delivery shall be treated as complete if the seller supplies a quantity that is within

the minimum and the maximum prescribed quantity. When a certain quantity is

supplied and if it fails short of minimum permissible quantity then the shortage

will be calculated in relation to the mean of minimum and the maximum quantity.

Likewise when quantity supplied is more than maximum quantity then the balance

shall be treated as excess quantity. For calculating such shortage or excess

delivery, the total quantity delivered by a seller is to be considers collectively as

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well as the minimum truckload permissible in the each instance.

In case of a shortage, the buyer shall be entitled to claim the between the price

payable as per the delivery and the market price on the date of delivery from the

seller if the ready market price is higher, whereas in case of excess delivery the

buyer is required to pay for the excess quantity at the price which is lower of the

delivery order price or the ready market price on the date of delivery.

Sampling and Analysis at the time of delivery: In case the buyer does not agree

to the surveyor’s report as to quality of the commodity, he shall go for second

sampling. The system for drawing sample tendered for delivery will be as

prescribed in the bureau of India standards procedure. The sample shall be taken

from the seller’s warehouse/ strong tank directly. Four samples shall be drawn as

under:

One for the long position holder (buyer) taking delivery of commodity-first

sample.

One for quality certification agency.

One for final reference by the warehouse, if it becomes necessary-third

sample.

If the first sample collected by the buyer and analyzed by the surveyor appointed

by him, conforms to the specifications, then the good tendered for delivery shall

be accepted and no subsequent claims from the buyer regarding quantum of rebate

or any other indemnification shall be admissible nor sellers shall be obliged to

pass any sealed to the buyer if requested subsequently.

If the first sample as examined by the buyers surveyor fails to conform to the

quality standards specified, the buyer shall seller within 72 hours of the sealed

align with a copy of the analyst’s report. The seller shall immediately send the

second sealed sample to an approved laboratory, which is also agreed by the

buyer. The result of the same shall be binding on birth parties. In the event the

buyer and seller do not mutually reach agreement as to the laboratory to be used

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for analysis, then MCX shall direct the seller to send the third sealed sample to any

one of the approved laboratories / surveyor, as decided by the Exchange.

The analysts report of the approved and agreed independent laboratory shall be

forwarded by the seller to MCX and intimation to the buyer within 72 hours after

the submission of the second sealed sample for analysis. MCX shall direct the

party in whose favor the result has been decided to collect the cost of tests and

detention charges from the other party. In case the commodity stands rejected then

the seller shall be given 48 hours from the day of rejection to re – tender the

goods. If the re- tendered goods do not conform to the quality standards, then it

will tentative amount to failure on the part of the seller to give delivery, which

shall be closed out as per the due date rate treating the same as shortage.

In order to ensure that tests are exactly comparable and results are consistent, the

independent analyst shall determine the particular analytical test by applying the

methods specified in the relevant ISI. The analyst shall be required to append to

append a certificate to that effect to the analysis report issued by him.

Cost of Transportation and Insurance – The member taking deliver shall bear

transportation and insurance cost from the sellers godown / storage tank to his

destination, except provided otherwise. The member or his client issuing the

delivery order and giving delivery shall maintain adequate insurance cover for

commodity held in stock prior to delivery will be responsible for any losses prior

to delivery being completed.

Payment by MCX to the Tendered – MCX shall pay the invoiced amount to the

member tendering delivery on completion of delivery and receipt of confirmation

from the buyer to this effect. However, if the buyer fails to confirm or raise

objection within such time, as may be specified by the Exchange for the respective

commodity, the Exchange will pass on the proceeds to the seller.

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4.11 RULES GOVERNING DEALING WITH CLIENTS

1. Every member of the Exchange shall enter into an agreement with each of

their clients before accepting or placing or placing orders on the client’s

behalf. Such agreement shall include before accepting or placing orders on

placing orders on the client’s behalf. Such agreement shall Inc provision as

specified by the Exchange in the business rules. The Exchange may

categorize client into such types as may be necessary for the above purpose

and specify clauses to be included in agreement to be entered into by the

member of Exchange depending on the category of such client. The member

will be free to ass more clauses in the specified agreement; however no

additional clauses should in any way dilute the content or purpose of the

clause stated in the specified agreement by the Exchange. The responsibility

of the member shall not be reduced in any way due to the non-execution of

agreement with their client.

2. When establishing a relationship with a new client. Member of the Exchange

must take reasonable steps to assess the background, beneficial identity,

financial soundness of such person and his trading objective by registering

the client with them in the format prescribed as CLIENT REGISTRATION

FORM, as per the format under the business rules to the member of the

Exchange resolution to permit trading in commodities futures contracts.

3. Member of the Exchange shall make their client aware of particular of

Member’s registration number allocated by the Exchange, employee

primarily responsible for client affairs, the precise nature of business to be

conducted, risk associated with the business of trading incommodity

contracts listed in the Exchange including any limitation on liability and the

capacity in which the member of the Exchange acts and the client’s liability

thereon by issuing rules. Member of the Exchange shall furnish a copy of risk

disclosure document to all their client and receive and maintain their

acknowledgement on the second copy of the same document.

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4. The member of the Exchange shall provide extracts of the relevant provisions

governing the right and obligations of clients as clients of member of the

Exchange, relevant manuals, notifications, circular any additions or

amendment thereto of the Exchange or of any regulatory authority, to the

extent it governs the relationship between member of the Exchange and

clients, to the clients at no extra cost.

5. Member of the Exchange shall also bring to the notice of their clients, any

indictments, strictures or disciplinary action taken against him by the

Exchange or any other regulatory authority.

6. A member of Exchange shall make adequate disclosures of relevant material

information in the dealings with their clients.

7. No member of the Exchange or person associated with the member of the

Exchange shall guarantee a client against losses in any transaction effected

by the member of the Exchange for such clients.

8. The Exchange member shall not recommend to the constituents a sale or

purchase of contracts available on the Exchange, unless he has reasonable

ground to believe that such recommendation is suitable for the constituent on

the basis of fact, if any, disclosed by the constituent, whether in writing or

orally, regarding the objective; constituent’s holding of contracts and

underlying commodities, financial soundness and investment.

9. The Exchange member shall make adequate disclosures of relevant material

information in his dealing with his constituent including the current best price

of order and trade or order quantities on the trading system any relevant

announcement from the Exchange relating to margin, trading restrictions as

to price, quantity or whether the Exchange member is the counter party to

trades executed on the exchange with the constituent.

10. The exchange member shall not furnish any false or misleading information

or advice with a view to including the constituent to do business in a

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particular contract or contracts, which shall enable the Exchange member to

profit thereby.

11. The Exchange member shall explain the trading system and order matching

process to the constituent before accepting any orders from him.

12. Where the constituent requires an order to be placed or any of his orders to be

modified after the order has entered the system but has not been traded, the

Exchange Member shall ensure that he obtains order placement /

modification details in writing from the constituent. The Exchange member

shall accordingly provide the constituent with the relevant order confirmation

/ modification slip or copy there of forthwith.

13. Where the constituent requires any of his orders to be cancelled after the

order has been entered in the system but has not been executed, the Exchange

member shall obtain the order cancellation details in writing from the

constituent. The Exchange member shall accordingly provide the constituent

with the relevant order cancellation details, forthwith.

14. The Exchange member shall not accumulate or withhold a constituent’s order

/ unexecuted balances for contracts listed in the Exchange, if he has adequate

client margin with him. The Exchange member shall place all orders

forthwith.

15. The Exchange member shall act promptly in accordance with the instructions

provided by the constituent unless he has discretion as to the timing of

entering and/or execution of the order, in which case he must exercise

prudently his judgment as to the best moment for entering that order in the

system.

16. The Exchange Member shall provide the Constituent with a copy of the trade

confirmation slip as generated on the Trading System, forthwith on execution

of the trade and with a contract note for the trade executed in the specified

format, as per the business rules.

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17. Exchange member shall at all times keep the money of the constituent in the

member’s client account maintained with the clearing bank. He shall not use

this money for his own transactions or for transactions of such other client or

for any purpose other than margin and pay in relating to transactions entered

into by such client’s paying margins.

18. The member shall collect adequate margin from his client before entertaining

any order from him.

4.12 BROKERAGE

The Exchange may specify the maximum and minimum brokerage rates, which

shall be adhered to by members of the Exchange while dealing with their clients.

Such brokerage rates may be in terms of commodity specific absolute figure or in

terms of percentage on the value of a contract irrespective of the class of a

commodity. Such brokerage amount must be shown separately in the contract

notes to be issued by the members to their clients. The maximum brokerage rate

for the time being is 1% in case of non-delivery transactions and 2% (plus

expenses incurred for delivery, etc.) in case of transactions resulting into delivery.

4.13 INSPECTION AND DISCIPLINARY ACTION

MCX will conduct inspection of “Books of accounts” of the members periodically.

The scope of such Inspection will in normal circumstances be limited to the

operation of the member at MCX and his market deals. But in special

circumstances the exchange may decide for extending the scope of such

inspection. All member of the exchange shall be required to maintain books of

accounts, documents, counterfoil of contract notes and other detail for such period,

as may be directed by the exchange. They shall produce such records before the

inspection team as per direction issue by the inspection team and extends their full

co- operation in terms of providing information so as to carry out inspection

smoothly. In addition to the article, byelaws, rules, regulation, circular and

notification issue by MCX from time to time. The exchange may take suitable

action based on the inspection report, if it deems proper.

87

4.13.1 Generally the inspection may cover the following aspects

a) Failure to follow the norms as prescribed by MCX for client accounts, know-

your-client accounts, know-your-client scheme, improper / non-execution of

the client and member agreement, etc.

b) Unauthorized use / misuse of the TWS, software and other facilities provided

by MCX.

c) Improper maintenance of books and records.

d) Violations in the issue of contract notes not having pre-printed serial nos.,

signatory not authorized, contract notes not in proper format, (e.g. contract

price and brokerage not appearing on the contract notes separately, proper rates

not given or any other information on the contract note tampered with in

comparison to the data available with MCX, Unauthorized change of client

codes against the trade nos., printing of order numbers on the contract note,

etc.)

e) Failure to abide by / respond to the circulars, communications, notices issued

by MCX.

f) Unfair trade practices.

g) Detection of circular trading, etc.

h) Detection of insider trading

i) Attempt to forge / indulged in forging of signatures / authorization of officials

(MCX or any other regulatory body).

j) Suppression of material facts and not taking prior approval of the Exchange

regarding change in shareholding pattern, nature of organization, activities,

change in Memorandum and Articles of Association, change in address,

change of telephone / fax numbers, or any such things which are likely to

affect his operations on MCX, including information about himself being

convicted, declared insolvent, etc.

k) Coercing / attempting / indulging in influencing another member.

l) Dealing with black listed client / persons.

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4.13.2 Disciplinary Actions (Fines and Penalties)

The following fines, penalties and other disciplinary actions will be initiated for

the violations enumerated below:

Sr. No. Violation Fines and Penalties

1. Failure to pay margins on T+1 (till

end of banking hours), in case

margin is demanded as per end of

day obligation generated on a day.

Margin amount x 0.50% (subject

to a minimum of Rs.500 and

maximum of Rs. 10,000)

2. Penalty for failure to complete

money pay in till end of day

(banking hour).

0.50% of the pay amount per day

till the id declares a defaulter or

the money is realized, subject to

a minimum of Rs. 500 per day

and maximum Rs. 10,000.

3. Violation of maximum allowable

open position limit or not reducing

the position in spite of warning by

the Exchange.

As per circular no.300/2006

dated 1st august 2006.

4. Failure to pay subscription and

other dues to the exchange.

If a member fails to pay dues,

other charge and fees to MCX

within the stipulated time, the

executive committee or the

managing director may suspend

him from doing business for

such period as it may deem fit.

5. Wrong declaration by the member. As may be decided b the

disciplinary action committee.

6. Non-submission of information/

document.

As may be decided by the

disciplinary action committee.

7. Violation of any clause of the

memorandum and article of

As may be decided by the

disciplinary action committee.

89

associate, rules, bye-laws,

regulation, circular, notification or

orders issue under the authority of

MCX.

8. Violation of any clause of FCRA

or direction issued by FMC.

As per the norms prescribed by

FMC.

9. Price manipulation cornering price

rigging other market abuses.

The case will be reported by the

surveillance department and the

executive committee will have

the authority to decide fines,

penalties withdrawal of trading

and clearing right, etc, as it may

think fit.

10. Appointment of a user without

prior permission of MCX.

Fine: as may be decide by the

executive committee, subject to a

minimum of Rs. 5000.

11. Other violation relating to

deliveries settlements or other

matter pertaining to the exchange.

As may be decided by the board

of MCX.

4.14 ARBITRATION

(a) A member or constituent can file reference to arbitration in accordance with

the provision of the byelaws in the prescribed format along with a Fee as

decided by the Exchange.

(b) The total cost of arbitration cost of conducting proceeding sitting fee,

documentation cost of obtaining legal or expert opinion cost of litigation cost

of hiring professionals for proceeding pending final adjustment and for that

matter, the exchange will demand adequate deposits from the concerned

member/client periodically for meeting such cost on ad-hoc basis. On

declaration of award, the entire cost of the proceedings will be borne by the

parties in the manner as may be decide by the arbitrators and document in the

90

award and the exchange shall ensure final adjustment of account between the

parties.

(c) Any dispute involving claim up to Rs. 1, 00,000 will be decided by the

exchange administration and claims involving more than Rs. 1, 00,000 shall

only be filed with the arbitration panel.

4.15 FINANCIAL PERFORMANCE

It is necessary to measure the financial health of an undertaking from the

investor’s point of view is concern because they are looking for the financially

sound organization for the investment purpose. This study attempts to analyze the

financial strength of the selected units and to measure the economic condition

during the period of study. This study gives insight in economical development of

MCX. This study gives insight to the investors as well as major players of

commodity market pertaining to the financial growth of MCX.

Ratio Analysis

In simple words the term accounting ratio means proportion between two related

items of financial statement. The financial statement alone cannot give true idea

about the correct financial position of the business. For getting true picture, the

financial statement has to be analyzed, compare and evaluated. Ratio analysis is

one of the techniques for such analysis and interpretation of financial statement.

To evaluate the financial condition and performance of a firm, the financial

analyst yields certain yardstick frequently used as a ratio, or index, relating two

prices of financial data to each other. Analysis and interpretation of various ratios

should give experienced, skilled analyst a better understanding of the financial

condition and performance of the company than they would obtain from analysis

of financial data alone. Therefore, ratio analysis is a powerful tool of financial

analysis.

In financial analysis a ratio is used as benchmark for evaluating the financial

position and performance of undertaking. Ratio helps to summarize large

91

quantities of financial data and to make qualitative judgment about the company’s

financial performance.

The financial statements are prepared and presented annually are of little use for

guidance of prospective investors, creditors, and even management. If the

relationships between various related items in the financial statement are

established, they can provide useful clues to gauge accurately the financial health

and ability of business to make profit.

The easiest way to evaluate the performance of a unit is to compare its current

ratios with the past ratios. Such analysis is known as time series analysis or trend

analysis. It gives an indication of direction of change and reflects whether the

company’s financial performance has improved, deteriorated, or remain constant

over time.

Profitability Ratios

It is an indicator of the efficiency with which the operations of business are carried

on. Poor operational performance may indicate poor receipts and hence poor

profit. A lower profitability may arise due to the lack of control over expenditure.

Bankers, financial institutions, and other creditors look at the profitability ratios as

an indicator whether or not the company’s earns sub stability more than it pays

interest for the use of borrowed funds and whether the ultimate repayment of their

debt appears reasonably certain. Owners are interested to know the profitability as

it indicates the return which they can get on their investment.

Profit is the difference between revenue and expense over a period of time. Profit

is the ultimate output of a company. Therefore, the financial manager should

continuously evaluate the efficiency of company in terms of profit. The

profitability ratios are calculated to measure the operating efficiency of the

company.

92

Table 4.1: Working result of financial condition

(In millions)

Particulars 2008 2009 2010 2011 2012

Operating Profit 1736.58 2124.48 2873.82 3688.92 5262.01

Total Income 2741.51 3658.44 4937.64 4472.87 6289.07

Expenditure 1373.54 1555.71 1707.77 2018.1 2187.06

PBT 1367.96 2102.73 3229.87 2454.77 3959.73

PAT 1052.71 1580.26 2206.22 1728.24 2861.88

Source: Annual Reports of MCX.

The above table reveals the working result of financial condition of MCX during

five years i.e. from 2008 to 2012. The profit is commonly measured by profit after

tax which is the result of the impact of all factors on the company’s earnings.

Taxes are not controllable by management. To separate the influence of taxes,

profit before tax may be computed. If the company’s profit has to be examined

from the point of view of all investors, the appropriate measure of profit is

operating profit. This measure of earning shows earning arising directly from the

commercial operation of business. From the above table, it is observed that the

operating income and expenditure are continuously increasing over a period of

time from 2008 and other components of financial condition are increasing from

2008 to 2010 but there were slight declines in 2011 and then it went up in 2012.

The following financial ratios have been calculated to measure the financial

condition of Multy Commodity Exchange:

1. Net Profit Ratio

2. Operating Profit Ratio

3. Return on Capital Employed

4. Return on Share Holders Fund

5. Current Ratio

6. Earnings Per Share

93

Table 4.2: Financial performance indicators of MCX over the years

Financial performance

Indicators 2008 2009 2010 2011 2012

Net Profit Ratio In 38% 43% 45% 39% 46%

Operating Profit Ratio 63% 58% 58% 82% 84%

Return on Capital Employed 29% 30% 31% 19% 28%

Return on Share Holders Fund 29% 31% 32% 20% 28%

Current Ratio (CA/CL) 0.37 0.77 0.80 0.75 1.59

EPS 13.47 19.65 27.4 33.89 56.12

Source: Computed.

The above table of various ratios reveals the financial performance of MCX. The

various ratios can be divided in view point of investors and in view point of

management. EPS, return on share holders fund etc. are important ratios for

investors and other than those are important for management of MCX to measure

the overall efficiency of MCX. The interpretation regarding above financial

indicators are as under:

1. Net Profit Ratio: The net profit ratio determines the relationship between

earning after tax and total receipts. It is arrived by dividing profit after tax with

total income. It is indicative of management’s ability to operate the business

with sufficient success not only to recover from revenue of the period, the cost

of service, the expense of operating the business, the cost of borrowed fund but

also to leave a margin of reasonable compensation to the owners for providing

their capital at risk. Here, the net profit ratio reveals that net profit was

continuously increasing from 2008 to 2010 but it went down in 2011 due to

decrease in total income but it achieved growth in 2012 which was highest

during the period of study i.e. 46% so the overall performance of net

profitability was improved which can be understood by time series analysis of

net profit ratio of MCX.

94

2. Operating Profit Ratio: It is the ratio between operating income and total

receipts. Operating profit is the net profit earned from the business for which

the concerned is started. The operating profit ratio also indicates the operating

efficiency or inefficiency of business. The standard operation profit ratio is

10%, so on operating profit ratio of 10% or more is an indication of the

operating efficiency of the business. And operating profit ratio of less than

10% is an indication of the operating inefficiency of the business. Here the

operating ratio indicated the increasing trend from 2009 over the years under

analysis, which revealed that the operating efficiency was continuously

increasing during the period of study. The highest operating efficiency of

Multy Commodity Exchange was 84% in 2012.

3. Return on Capital Employed: The fund employed in the net assets is known

as capital employed. Rate of return on capital employed is one of the mean

which provides a basis for testing of profitability related to the sources of long

term funds. There are number of sources through which organization can

acquire its total assets. Thus, the capital employed is the tool of measuring the

profitability of the examined unit. This ratio is yardstick for measuring the

profitability of company. It has been observed in this ratio of Multy

Commodity Exchange that, return was continuously increasing from 2008 to

2010 but it was declined in 2011 because of the reduction in earnings after tax.

However, it achieved growth in 2012, therefore we can conclude that the

overall performance regarding return on capital employed was improving

which indicates the good efficiency of Multy Commodity Exchange.

4. Return on Shareholders’ Fund: This ratio expresses the net profit in terms of

equity shareholders’ fund. This ratio is an important yardstick of performance

for equity shareholders since it indicates the return on the fund employed by

them. The factor which motivates shareholders to invest in a company is the

expectation of an adequate rate of return on their fund and periodically they

will want to assess the rate of return earned in order to continue with their

investment. Here, the share holder is getting good return and the return was

95

increasing from 2008 to 2010 but it declined due to the reduction of net

earnings in 2011. However, it was increased in 2012 with the increase in net

earning so the overall performance regarding return on equity shareholders

fund was good in case of MCX.

5. Current Ratio: It is the ratio which indicates the relationship between current

assets and current liability. Current assets refers to all those assets which

change their form and substance and which are ultimately converted in to cash

during the normally operating cycle of business i.e. the normal course of

business, which is normally 12 months. Here in this study the overall

performance of current ratio was improving over a period of time under

analysis which indicates favorable liquid condition.

6. Earnings Per Share: This ratio expresses the relationship between net profit

and number of equity shares. Earnings per share indicates the per share

earnings available to equity shareholders. It is also one of the factors which

highly influence the investors for the investment. If earning per share is

increasing the investors will automatically motivated for the investment in

concern and vice-a-versa. Here in case of MCX the EPS was continuously

increasing which was observed from the annual reports of MCX during the

period under analysis which indicated the efficient performance of MCX.

Statistical Analysis and Interpretation of Financial Performance

Here, the researcher has taken three variables to analyze the financial growth of

MCX, i.e. Income, Expenditure and Profit. The researcher had converted the result

of selected financial components in to average result for the purpose of analysis

which is expressed in the following table.

96

Table 4.3: Average result of financial components’ of MCX

(In millions)

Particulars Time Group

1 2 3 4 5

Income 2402.42 3199.98 4298.04 4705.26 5380.97

Expenditure 1077.79 1464.63 1631.74 1862.94 2102.58

PBT 1324.62 1735.35 2666.3 2842.32 3207.25

PAT 992.54 1316.49 1893.24 1967.23 2295.06

Source: Computed.

The figures of above table indicates the average result of various financial

components selected for the purpose of analysis, which was worked out by

computing average of two years viz. 2006-07 and 2007-08, 2007-08 and 2008-09,

2008-09 and 2009-10, 2009-10 and 2010-11, 2010-11 and 2011-12. ANOVA test

was applied to test the significant difference in the growth of various financial

variables selected for the study, which has been presented here below.

INCOME: It refers to the income of commodity exchange through trading and

clearing system of MCX. Here, the presentation covers the growth of income

during six years of MCX. The company’s income consists of transaction fees,

admission fees, and application processing fees, subscription fees, terminal

charges, deposit appropriation, interest income, dividends from investments, and

other miscellaneous incomes.

H0 - The average income of five groups does not differ significantly.

ANOVA Test for Income

SUMMARY

Groups Count Sum Average Variance

5 10050 2010 2.5

Income 5 19986.67 3997.334 1421389

97

ANOVA

Source of

Variation SS Df MS F P-value F crit

Between Groups 9873741 1 9873741 13.89306 0.00581 5.317655

Within Groups 5685566 8 710695.7

Total 15559307 9

Graph 4.1: Income from 2007-08 to 2011-12 of MCX

The above ANOVA table represents that the calculated p-value is less than 0.05.

So null hypothesis (H0) is rejected. It indicates that there is a significant difference

in average income of five groups, meaning thereby the income is significantly

increasing under analysis. The highest income share for all years was of the 2012

and lowest income of 2008. The above graph reveals that the income is

continuously increasing over a period of years from 2008.

EXPENDITURE: It refers to the overall expenses for the operations and running

of the commodity exchange. The company’s expenditure consists of operating and

other expenses, interest and depreciation/amortization charges. Operating and

other expenses principally comprises employee cost, advertisement cost, business

0

1000

2000

3000

4000

5000

6000

2008 2009 2010 2011 2012

Income

98

promotion expenses, sponsorship and seminar cost, travelling and conveyance,

software support charge, communication cost, professional and legal charges, and

the like.

H0 - The average expenditure of five groups does not differ significantly.

ANOVA Test for Expenditure

SUMMARY

Groups Count Sum Average Variance

5 10050 2010 2.5

Expenditure 5 8139.68 1627.936 152464.4

ANOVA

Source of

Variation SS Df MS F P-value F crit

Between Groups 364932.3 1 364932.3 4.787035 0.060115 5.317655

Within Groups 609867.7 8 76233.47

Total 974800 9

Graph 4.2: Expenditure from 2007-08 to 2011-12 of MCX

0

500

1000

1500

2000

2500

2008 2009 2010 2011 2012

Expenditure

99

The above ANOVA table represents the calculated p- value is more than 0.05. So

null hypothesis (H0) is not rejected. It indicates that there is no significant

difference in average expenditure of five groups. But the expenditure is

continuously increasing. The highest expenditure share for all years was of the

2012 and lowest income of the 2008. From the above chart it can be revealed that

the expenditure was continuously increasing which is the result of growth in

operations of MCX.

PROFIT: It can be divided into two categories such as profit before tax and profit

after tax. Both of it are analyzed separately here below.

PBT: It refers to the combination of gross income from trading of various

commodities and clearing system. It indicates the profit before tax of Multy

Commodity Exchange.

H0 - The average profit before tax of three groups does not differ significantly.

ANOVA Test for PBT

SUMMARY

Groups Count Sum Average Variance

5 10050 2010 2.5

PBT 5 11775.84 2355.168 626591.9

ANOVA

Source of

Variation SS Df MS F P-value F crit

Between Groups 297852.4 1 297852.4 0.950702 0.358098 5.317655

Within Groups 2506377 8 313297.2

Total 2804230 9

100

Graph 4.3: Profit before tax from 2007-08 to 2011-12 of MCX

The above ANOVA table represents the calculated p- value is more than 0.05. So

null hypothesis (H0) is not rejected. It indicates that there is no significant

difference in average of profit before tax of five groups. But the profit before tax

indicates continuously increasing trend. The highest profit share for all years was

of the 2012 and lowest income of the 2008, which was graphically presented as

above.

PAT: it indicates the profit after tax of Multy Commodity Exchange during last

five years. It is the net profit which indicates the profitability of MCX during 2008

to 2012.

H0 - The average profit after tax of three groups does not differ significantly.

ANOVA Test for PBT

SUMMARY

Groups Count Sum Average Variance

5 10050 2010 2.5

PAT 5 8464.56 1692.912 277544.6

0

500

1000

1500

2000

2500

3000

3500

2008 2009 2010 2011 2012

PBT

101

ANOVA

Source of

Variation SS Df MS F P-value F crit

Between Groups 251362 1 251362 1.811311 0.215245 5.317655

Within Groups 1110188 8 138773.5

Total 1361550 9

Graph 4.4: Profit after tax from 2007-08 to 2011-12 of MCX

The above ANOVA table represents the calculated p- value is more than 0.05. So

null hypothesis (H0) is not rejected. It indicates that there is no significant

difference in average of profit after tax of five groups. But the profit after tax

indicates continuously increasing trend. The highest profit share for all years was

of the 2012 and lowest income of the 2008, which was graphically presented as

above.

From the above analysis and interpretation, it was observed that the income of last

five years was significantly increasing but the expenditure was not significantly

0

500

1000

1500

2000

2500

2008 2009 2010 2011 2012

PAT

102

increasing therefore the overall financial condition was improving because there

was growth in income, expenditure and profit of MCX which was the result of

growth in operation of MCX which indicated the improvement in efficiency of

Multy Commodity Exchange during the period under the study.

Conclusion

From the above analysis we can conclude that currently the Multy Commodity

Exchange in India, which started its operations in 2003, have done well in terms of

financial performance and thereby generating appreciable volumes in their

operations. The financial health of Multy Commodity Exchange of India limited is

growing because there is improvement in the financial strength during the period

of study.

Existence of a vibrant, active and liquid commodity market is normally considered

as a healthy sign of development of any economy and commodity market can be

operated through the commodity exchange. Therefore, we can also interpret that

the commodity market as well as the Indian economy is also growing.