anand rathi introdution first page

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ANAND RATHI: AN OVERVIEW

INTRODUCTION

Anand Rathi (AR) is a leading full service securities firm providing the entire gamut

of financial services. The firm, founded in 1994 by Mr. Anand Rathi, today has a pan India

presence as well as an international presence through offices in Dubai and Bangkok. AR

provides a breadth of financial and advisory services including wealth management,

investment banking, corporate advisory, brokerage & distribution of equities, commodities,

mutual funds and insurance, structured products - all of which are supported by powerful

research teams. AnandRathi has over 300+ easily accessible investment outlets spread across

country covering all the states for the convenience and the benefit of more than 100 thousand

privileged customers.

VISION STATEMENT:

AnandRathi is entirely client centric and believes in long term relationship with its

customers and employees. AnandRathi vision is;

To be a shining example to the industry as a leader in innovation, and the first choice for

clients and employees.

MISSION STATEMENT:

AnandRathi is a premier consultancy firm launched with the belief in Team Work

aimed with the following missions;

To be amongst the top 5 service providers of financial services.

Adding tangible value to clients.

Serving clients with the highest standards of excellence, ethics and professionalism.


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MILESTONES

1994

* Started activities in consulting and Institutional equity sales with staff of 15.

1995

* Set up a research desk and empanelled with major institutional investors.

1997

*Introduced investment banking businesses

* Retail brokerage services launched

1999

*Lead managed first IPO and executed first M & A deal

2001

*Initiated Wealth Management Services

2002

*Retail business expansion recommences with ownership model

2003:

* Wealth Management assets cross Rs1500 crores

* Insurance broking launched

* Launch of Wealth Management services in Dubai

* Retail Branch network exceeds 50

2004:

* Commodities brokerage and real estate services introduced

* Wealth Management assets cross Rs3000crores

* Institutional equities business relaunched and senior research team put in place

* Retail Branch network expands across 100 locations within India

2006:

* AR Middle East, WOS acquires membership of Dubai Gold & Commodity Exchange

(DGCX)


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* Ranked amongst South Asia's top 5 wealth managers for the ultra-rich by Asia Money

2006 poll

* Ranked 6th in FY2006 for All India Broker Performance in equity distribution in the

High Net worth Individuals (HNI) Category

* Ranked 9th in the Retail Category having more than 5% market share

* Completes its presence in all States across the country with offices at 300+ locations

within India.

2007

* Citigroup Venture Capital International picks up 19.9% equity stake

* Retail customer base crosses 100 thousand

* Establishes presence in over 350 locations

CORE STRENGTHS

Single-mindedly research driven.

Distinguished for transparency in execution and settlement practices

Professional to the core.

A comprehensive range of services that are aimed at building robust relationships.

INDEPTH-RESEARCH

The research expertise is at the core of the value proposition that AnandRathi offers to

the clients. Research teams across the firm continuously track various markets and products.

The aim is however common - to go far deeper than others, to deliver incisive insights and

ideas and be accountable for results.

PROFESSIONAL TO THE CORE

AR brings together a highly professional core management team that comprises of

individuals with extensive business as well as industry experience.

BREADTH OF SERVICES

In line with its client-centric philosophy, the firm offers to its clients the entire spectrum of


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financial services ranging from brokerage services in equities and commodities, distribution

of mutual funds, IPOs and insurance products, real estate, investment banking, merger and

acquisitions, corporate finance and corporate advisory. Clients deal with a relationship

manager who leverages and brings together the product specialists from across the firm to

create an optimum solution to the client needs.

MANAGEMENT:

The senior Management comprises a diverse talent pool that brings together rich experience

from across industry as well as financial services.

Mr. Anand Rathi - Group Chairman

Chartered Accountant

Past President, BSE

Held several Senior Management positions with one of India's largest industrial groups Mr.

Pradeep Gupta - Vice Chairman

Plus 17 years of experience in Financial Services

Mr. Amit Rathi - Managing Director

Chartered Accountant & MBA

Plus 11 years of experience in Financial Services

SERVICES PROVIDED:

AR provides wide array of services to match the needs of individual investors,

institutions and corporates.

1.

Individuals

Private wealth management

Brokerage and distribution

NRIs

2. Institutions

Institutional research & trading

Managed investment services


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PROCESS:

AnandRathi deeply realizes the need to simplify the complexities of the investment strategies

and aims to achieve this by offering highly customized wealth management product - LaXmi

TM (let your Assets go the Xtra Mile TM)

ARs Personalized Relationship Managers along with the expert team of analysts and

advisors assists customers in analyzing all their investment needs and gives fruitful advice on

specialized solutions created exclusively to meet the needs.

The dedicated research team of AR constantly screens the market for investment prospects.

The team provides support in fine-tuning the investment strategy & suggests how to

capitalize on these opportunities.

PRODUCTS:

Equity & Derivatives

Mutual Funds

Depository Services

Commodities

Insurance Broking

IPOs

RESEARCH:

AnandRathi research expertise is at the core of the value proposition that is offered to

the clients. Research teams across the firm continuously track various markets and products.

The aim is however common - to go far deeper than others, to deliver incisive insights and

ideas and be accountable for results. AR research processes incorporate

quantitative areas well as qualitative analyses.

This multi-pronged approach helps the firm to provide superior risk- adjusted returns

for their clients.

AR analysts provide objective and decisive research that is designed to enable clients

to make informed investment decisions.

The team covers entire spectrum of financial markets from equities, fixed income, and
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commodities to currencies. They also cover the global markets, to give clients an unparalleled

macro-view of the investment opportunities across the globe.

(B) BROKERAGE AND DISTRIBUTION

EQUITY & DERIVATIVES BROKERAGE

AnandRathi provides end-to-end equity solutions to institutional and individual

investors. Consistent delivery of high quality advice on individual stocks, sector trends and

investment strategy has established as a competent and reliable research unit across the

country. Clients can trade through online on BSE and NSE for both equities and derivatives.

They are supported by dedicated sales & trading teams through trading desks across the

country. Research and investment ideas can be accessed by clients either through their

designated dealers, email, web or SMS

MUTUAL FUNDS

AR is one of India's top mutual fund distribution houses. AnandRathis success lies in

the philosophy of providing consistently superior, independent and unbiased advice to the

clients backed by in-depth research. AR firmly believes in the importance of selecting

appropriate asset allocations based on the client's risk profile.

AR has a dedicated mutual fund research cell for mutual funds that consistently churns

out superior investment ideas, picking best performing funds across asset classes and

providing insights into performances of select funds.

DEPOSITORY SERVICES:

AR Depository Services provides clients with a secure and a convenient way for

holding their securities on both CDSL and NSDL.

The depository services include settlement, clearing and custody of securities, registration of

shares and dematerialization. The firm also offers daily updated Internet access to the holding

statement and transaction summary.

COMMODITIES

Commodities broking - a whole new opportunity to hedge business risk and an


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attractive investment opportunity to deliver superior returns for investors.

Anand Rathis commodities broking services include online futures trading through

NCDEX and MCX and depository services through CDSL. Commodities broking is

supported by a dedicated research cell that provides both technical as well as fundamental

research.

Our research covers a broad range of traded commodities including precious and base

metals, Oils and Oilseeds, agri-commodities such as wheat, chana, guar, guar gum and spices

such as sugar, jeera and cotton.

In addition to transaction execution, we provide our clients customized advice on

hedging strategies, investment ideas and arbitrage opportunities.

We lay strong emphasis on timely claim settlement and post sales services.

AR services:

Risk Management

Due diligence and research on policies available

Recommendation on a comprehensive insurance cover based on clients needs

Maintain proper records of client policies

Assist client in paying premiums

Continuous monitoring of client account

Assist client in claim negotiation and settlement

IPOS:

AnandRathi is the leading primary market distributor across the country. Its strong

performance in IPOs has been a result of vast experience in the Primary Market, a wide

network of branches across India, strong distribution capabilities and a dedicated research

team.

AR has been consistently ranked among the top 10 distributors of IPOs on all major

offerings. The IPO research team provides clients with in-depth overviews of forthcoming

IPOs as well as investment recommendations.Online filling of forms is also available.

Why choose AR?

Superior understanding of the Indian economy & markets

Ability to structure and manage tax and regulatory compliances


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Dedicated relationship team

Unparalleled product range - Indian and Global

astructure sectors.As part of the structural reforms to further boost India's economic growth, the government

has recognized the need for institutional finance in the real estate sector.

In early 2005, the government has relaxed the FDI guidelines in real estate and also

allowed the setting up of real estate investment funds under

SEBI guidelines.

These developments are expected to provide much needed capital to provide for the

increasing demand for quality real estate in major urban centers across the country.

To capture this opportunity, AR has brought together a team of specialists and advisors to

guide the fund's investments who bring together expertise in the areas of real estate

consulting, development, legal and financial structuring.

COMPETITORS

Kotak Securities

Indiabulls Sherkhan Share Brokers

Karvy securities

JRG

Motilal Oswal

ICICI Direct.com

HDFC Investments

Jeerac

Religare

Versatile

Altos

IL & FS

Geojit


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SECTION 3

RELEVANT STUDIES

INTRODUCTION

India, a commodity based economy where two-third of the one billion population

depends on agricultural commodities, surprisingly has an under developed commodity

market. Unlike the physical market, futures markets trades in commodity are largely used as

risk management (hedging) mechanism on either physical commodity itself or open positions

in commodity stock.

For instance, a jeweler can hedge his inventory against perceived short-term downturn

in gold prices by going short in the future markets.

Commodity market was one of the most vibrant markets till early 70s. Its

development and growth was shunted due to numerous restrictions earlier. Now, with most of

these restrictions being removed, there is tremendous potential for growth of this market in

the country

Investment in India has traditionally meant property, gold and bank deposits. The

more risk-taking investors choose equity trading. But commodity trading forms a part of


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conventional investment instruments. As a matter of fact, future trading in commodities was

banned in India in mid-1960 due to excessive speculation. In February 2003, the government

revoked the ban and threw open futures trading in 54 commodities in bullion and agriculture.

It gave the go-ahead to four exchanges (The National Commodity and Derivative Exchange

(NCDEX), The Multi Commodity Exchange of India (MCX), The National Multi

Commodity Exchange of India (NMCE) and The National Board of Trading in Derivatives

(NBOT)) to offer online trading in commodity derivatives products.

STRUCTURE OF COMMODITY MARKET


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COMMODITIES MARKET

Commodity derivatives market is trade contracts for which the underlying asset is

commodity. It can be an agricultural commodity like wheat, soybeans, chilli, chana etc or

precious metals like gold, silver, copper etc

EVOLUTION OF THE COMMODITY MARKET IN INDIA

Bombay Cotton Trade Association Ltd., set up in 1875, was the first organized futures

market. Bombay Cotton Exchange Ltd. was established in 1893 following the widespread

discontent

Amongst leading cotton mill owners and merchants over functioning of Bombay

Cotton Trade Association. The Futures trading in oilseeds started in 1900 with the

establishment of the Gujarati Vyapari Mandali, which carried on futures trading in groundnut,

castor seed and cotton. Futures trading in wheat

was existent at several places in Punjab and Uttar Pradesh. But the most notable

futures exchange for wheat was chamber of commerce at Hapur set up in 1913. Futures

trading in bullion began in Mumbai in 1920. Calcutta Hessian Exchange Ltd. was established

in 1919 for futures trading in raw jute and jute goods.

COMMODITY DERIVATIVES

On September 1994 the Kabra committee recommended that -

The Forward Markets Commission (FMC) and the Forward Contracts (Regulation) Act,

1952, would need to be strengthened. Due to the inadequate infrastructural facilities such as

space and telecommunication facilities the commodities exchanges were not able to function

effectively. Enlisting more members, ensuring capital adequacy norms and encouraging

computerization would enable these exchanges to place themselves on a better footing. In-

built devices in commodity exchanges such as the vigilance committee and the panels of

surveyors and arbitrators are strengthened further. The FMC which regulates forward/ futures

trading in the country should continue to act a watchdog and continue to monitor the

activities and operations of the commodity exchanges. Amendments to the rules, regulations

and bye-laws of the commodity exchanges should require the approval of the FMC only. In

the context of globalization, commodity markets in India could not function effectively in an

isolated manner. Therefore, some of the commodity exchanges, particularly the ones dealing i


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pepper and castor seed, are upgraded to the level of international futures

market. The majority of the committee recommended that futures trading be introduced in the

following commodities:

1. Basmati rice

2.

Cotton and kapas

3. Raw jute and jute goods

4. Groundnut, rapeseed/mustard seed, cottonseed, sesame seed, sunflower seed, copra

and soybean, and oils and oilcakes of all of them.

5. Rice bran oil

6. Castor oil and its oilcake

7.

Linseed

8. Silver

9. Onions

Forward Market

Sale purchase transaction takes place as of a future date after eleven days of contract, Sale

purchase transactions in a forward market are governed by Forward Contracts Regulation

Act,1952 of Central Government. Such transactions help sellers and buyers to avoid uncertain

future demand and supply of commodities and consequent price fluctuations due to seasons,

natural

calamities etc.

Farmers, producers, manufacturers, processors, exporters, importers, traders, consumers all

want protection against price fluctuation forward contracts help them. Forward contract

between seller and buyer is one way of price protection. Here seller and buyer decide on

quality (grade), quantity,

price of the commodity to be bought and sold ,place and date of delivery.

If anyone of them defaults, the other party to contract suffers a loss.

Futures trading

Futures Market A Perspective


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Put simplya futures market is a market where, a seller & buyer enter into a transaction but

it is settled a predefined future date & price. Hence future trading is all about planning.

Depending on the price agreed upon, the seller can plan about production without worrying

about the fluctuation in prices. This is not possible in spot market thanks to the design of this

market prices of commodities can be rigged by a handful of persons like middlemen.

Futures is a trade agreement or a contract of sale and purchase of an underlying standardized

commodity after an interval of time. Unlike in a Forward contract, quality ( grade), quantity,

price of the commodity to be bought and sold , place and date of delivery are decided or

predetermined by the commodity Exchange ,Seller and buyer decide on only price. Here

Contract is between seller and Exchange and Buyer and Exchange. If terms of contract are

fulfilled by both parties, Exchange guarantees trade transaction at agreed price. What isbought and sold on the Exchange platform is an agreement or a contract. Value of the

contract is based on the value of underlying standardized commodity.

There are some 21 commodity exchanges in India. However most of them are regional, off-

line (non-screen-based) and commodity specific; hence these are almost inoperative.

Benefits of trading in futures commodity market

Commodity futures are beneficial to a large section of the society, be it farmer, businessmen,

industrialist, importer, exporter, consumer etc.

For an Investor-

Commodities futures represent a good form of investment because of the following reasons.

Diversification The returns from commodities market are free from the direct

influence of the equity and debt market, which means that they are capable of being

used as effective hedging instruments providing better diversification.

Less Manipulations - Commodities markets, as they are governed by international

price movements are less prone to rigging or price

manipulations by individuals.

High Leverage The margins in the commodity futures market are less than the

F&O section of the equity market.


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Commodity Exchanges

Brief descriptions of commodity exchanges are those which trade in particular commodities,

neglecting the trade of securities, stock index futures and options etc.

In the middle of 19th century in the United States, businessmen began organizing market

forums to make the buying and selling of commodities easier. These central marketplaces

provided a place for buyers and sellers to meet, set quality and quantity standards, and

establish rules of business.

In 1933, during the Great Depression, the Commodity Exchange, Inc., was

established in New York through the merger of four small exchanges the National Metal

Exchange, the Rubber Exchange of New York, the National Raw Silk Exchange, and the new

York Hide Exchange.

The three exchanges are:

National Commodity & Derivatives Exchange Limited (NCDEX)

Multi Commodity Exchange of India Limited (MCX)

National Multi-Commodity Exchange of India Limited (NMCEIL)

All the exchanges have been set up under overall control of Forward Market Commission

(FMC) of Government of India.

THE NEED FOR THE EXCHANGE-TRADED COMMODITY DERIVATIVES

MARKET

The biggest advantage of having an exchange-based platform is reach. A wider reach ensures

greater participation, which results into a more efficient price discovery mechanism. In fact it

comes to a stage where the derivative market guides the spot market in terms of pricing. This

can be well understood by looking at the following examples:

Imagine a soya wholesaler in Madhya Pradesh who, having bought the crop from the farmer,

wishes to sell it to the oil refiners. To sell his crop he has to go to the local market at Indore.

The price that he will get for his crop would be solely dependent upon the demand supply

condition prevailing at that point of time at that market place.

Price Polling & Price Dissemination.


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Exchange ascertains the spot price of commodities traded on it from various mundies at

basis centre and after filtering the highs and lows, arrives at the mean price. This spot price

for the commodity at real time is broadcasts the same through Television channels like

D.D.News, CNBC, NDTV, ZeeBusiness, Bloomberg etc. exchanges own website (

ncdex.com),price tickers at various markets in local vernaculars etc Similarly the future price

for commodities determined by trading public is also broadcast.

Risk Management.

Exchange guarantees contracted price to both seller and buyer, to ensure neither party suffers

cash loss due to fluctuation in price of the commodity in spot market. It collects margins from

both seller and buyer, from the date of contract

till either of them exit the contract or expiry of contract whichever is earlier. This is called

risk management.

National Commodity & Derivatives Exchange Limited (NCDEX)

National Commodity & Derivatives Exchange Limited (NCDEX) located in Mumbai is a

public limited company incorporated on April 23, 2003 under the Companies Act, 1956

and had commenced its operations on December 15, 2003.This is the only commodity

exchange in the country promoted by national level institutions. It is promoted by ICICI

Bank Limited, Life Insurance Corporation of India (LIC), National Bank for Agriculture

and Rural Development (NABARD) and National Stock Exchange of India Limited

(NSE). It is a professionally managed online multi commodity exchange. NCDEX is

regulated by Forward Market Commission and is subjected to various laws of the land

like the Companies Act, Stamp Act, Contracts Act, Forward Commission (Regulation)

Act and various other legislations.

Most active commodities: Urad, Chana, chilli, Pepper, Wheat, Mentha Oil, Steel etc

Multi Commodity Exchange of India Limited (MCX)

Headquartered in Mumbai Multi Commodity Exchange of India Limited (MCX), is an

independent and de-mutulised exchange with a permanent recognition from Government of

India. Key shareholders of MCX are Financial Technologies (India) Ltd., State Bank of India,

Union Bank of India, Corporation Bank, Bank of India and Canara Bank. MCX facilitates


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online trading, clearing and settlement operations for commodity futures markets across the

country.

COMMODITI ES TRADED IN MCX

Gold, Gold M,Gold HNI, Silver,Silver M,Silver HNI

Castor Seeds, Soy Seeds, Castor Oil, Refined Soy Oil, Soymeal, RBD

Palmolein, Crude Palm Oil,Groundnut Oil, Mustard Seed,Mustard Seed

Oil,Cottonseed Oilcake, Cottonseed

Pepper,Red Chilli,Jeera, Turmeric

Steel Long, Steel Flat,Copper, Nickel,Tin

Kapas, Long Staple Cotton,Medium Staple Cotton

Chana, Urad,Yellow Peas, Tur

Rice, Basmati Rice,Wheat,Maize,Sarbati Rice
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Crude Oil

National Multi-Commodity Exchange of India Limited (NMCEIL)

National Multi Commodity Exchange of India Limited (NMCEIL) is the first de-

mutualized, Electronic Multi-Commodity Exchange in India. On 25th July, 2001, it was

granted approval by the Government to organise trading in the edible oil complex. It has

operationalised from November 26, 2002. It is being supported by Central Warehousing

Corporation Ltd., Gujarat State Agricultural Marketing Board and Neptune Overseas

Lmiited. It got its recognition in October 2002.

Commodity exchange in india plays an important role where the prices of any commodity

are not fixed, in an organised way. Earlier only the buyer of produce and its seller in the

market judged upon the prices. Others never had a say. Today, commodity exchanges are

purely speculative in nature. Before discovering the price, they reach to the producers, end-

users, and even the retail investors, at a grassroots level. It brings a price transparency and

risk management in the vital market.

Some of the most popular Commodity Exchanges of the World

EXCHANGE MAJOR COMMODITIES TRADED

New York Mercantile Exchange (NYMEX) Crude Oil, Heating Oil

Chicago Board of Trade Soy Oil, Soy Beans, Corn

London Metals Exchange Aluminium, Copper, Tin, Lead

Chicago Board Option Exchange Options on Energy, Interest rate

Tokyo Commodity Exchange Silver, Gold, Crude oil, Rubber

Malaysian Derivatives Exchange Rubber, Soy Oil, Palm Oil
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Commodity Spot Vs Forward

Spot Market Forward Market

What is sold and bought

is commodity

What is sold and bought

is contract

Price decided by local

demand and supply

Price decided by National

demand and supply

Physical delivery essential Physical delivery not essential

Governed by State Laws Governed by Central Laws

Purpose: Transfer of goods

From seller to buyer

Purpose: Price discovery and

Price Protection to seller and buyer

Commodity Future Vs Spot

Particulars Spot Future

Delivery Immediate Upon Expiry

Investment Full value Margin

Risk Less High

Return Potential Less High

Transportation/

Warehousing

Needed NA (only in case

of delivery)


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Trading through Mandis, Physical

market place

Electronic systems

BASIC TERMS

SPECULATORS

Speculators are individuals and firms who seek to profit from anticipated increases or

decreases or decreases in futures prices.

Were you to speculate in futures contracts, the person taking the opposite side of your

trade on any given occasion could be a hedger or it might well be another speculatorsomeone

whose opinion about the probable direction of prices differs from your own.

Someone who expects a futures price to increase would purchase futures contracts in

the hope of later bring able to sell him or her at a higher price,

This is known as going long. Conversely, someone who expects a futures price to decline

would sell futures contracts in the hope of later being able to buy back identical and offsetting

contracts at a lower price. The practice of selling futures contracts in anticipation of lower prices

is known as goingshort.One of the attractive features of futures trading is that it is equally

easy to profit from declining prices (by selling) as it is to profit from rising prices (by buying).

MARGIN

Margin is a small amount of money, which is required to buy or sell a future contract on a

particular day. Commodity futures require an initial margin between 5-10% of the contract value.

The exchanges levy higher additional margin in case of excess volatility. The margin amount

varies between exchanges and commodities. Therefore they provide great benefits of leverage in

comparison to the stock and index futures trade on the stock exchanges. The exchange also

requires the daily profits and losses to be paid in/out on open positions (Mark to Market or

MTM) so that the buyers and sellers do not carry a risk of not more than one day. NCDEX

MAINTENANCE MARGIN

If and when the funds remaining available in your margin account are reduced by losses to


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below a certain level-known as the maintenance margin requirementyour broker will

require that you deposit additional funds to bring the account back to the level of the initial

margin. Or, you may also be asked for additional margin if the exchange or your brokerage

firm raises its margin requirements for additional margin are known as margin calls.

INITIAL MARGIN

Initial margin (sometimes called original margin) is the sum of money that the

customer deposits with the brokerage firm for each futures contract to be bought or sold. On

any day that profit accrues on your open positions, the profits will be added to the balance in

your margin account. On any day losses accrue; the losses will be deducted from the balance

in your margin account.

STOP LOSS

A stop order is an order, placed with your broker, to buy or sell a particular futures

contract at the market price if and when the price reaches a specified level. Futures traders

often use stop losses in an effort to limit the amount they might lose if the future price moves

against their positions.

Physical Delivery

In order to maintain the futures prices in line with the spot market, the commodity future

exchanges have made available provisions of settlement of contracts by physical delivery.

They also make sure that the price of futures and spot prices coincide during the settlement so

that the arbitrage opportunities do not exist.

Expiry of the Contracts

At NCDEX the contracts expire on 20 th day of each month. If 20 th happens to be a

holiday the expiry day will be the previous working day.

At MCX the expiry day is 15 th of every month. If 15 th happens to be a holiday the expiry

day will be the previous working day. The expiry day also differs for different commodities

in both the exchanges.


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WORKING HOURS OF COMMODITY EXCHANGE

Commodity Exchanges (MCX and NCDEX) function from 10.00 Am to 11.55 PM with a

break of 30 minutes between 5.00 PM and 5.30 PM. However some specific commodities

with strong international price linkages (such as Gold, Silver, Soy oil, Crude Oil etc) are

allowed to be traded after 8.00 PM.

COMMODITY FUTURES-TRADING CYCLE

NCDEX trades commodity futures contracts having one month, two month and three

month expiry cycles. All contracts expire on the 20th of the expiry month. Thus a January

expiration contract would expire on the 20th of January and a February expiry contract would

cease trading on the 20th of February. If the 20thof the expiry month is a trading holiday, the

contracts shall expire on the previous trading day. New contracts will be introduced on the

trading day following the expiry of the near month contract. Shows the contract cycle for

futures contraction NCDEX.

ORDER TYPES AND TRADING PARAMETERS

An electronic trading system allows the trading members to enter orders with various

conditions attached to them as per their requirements. These conditions are broadly divided

into the

following categories:

_ Time conditions

_ Price conditions

_ Other conditions

Several combinations of the above are possible thereby providing enormous flexibility to

users. The order types and conditions are summarized below. Of these, the order types

available on the NCDEX system are regular lot order, stop loss order, immediate or cancel

order, good till day order, good till cancelled order, good till date order and spread order.

PRICE CONDITION

LIMI T ORDER: An order to buy or sell a stated amount of a commodity at a specified price,


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or at a better price, if obtainable at the time of execution. The

disadvantage is that the order may not get filled at all if the price for that day does not reach

the specified price.

STOP LOSS:A stop loss order is an order, placed with the broker, to buy or sell a particular

futures contract at the market price if and when the price reaches a specified level. Futures

traders often use stop orders in an effort to limit the amount they might lose if the futures

price moves against their position. Stop orders are not executed until the price reaches the

specified point. When the price reaches that point the stop order becomes a market order.

Most of the time, stop orders are used to exit a trade. But, stop orders can be executed for

buying/ selling positions too.

OTHER CONDITIONS

Market price: Market orders are orders for which no price is specified at the time the order is

entered (i.e. price is market price). For such orders, the system determines the price. Only the

position to be taken long/ short is stated. When this kind of order is placed, it gets executed

irrespective of the current market price of that particular asset.

Market on open: The order will be executed on the market open within the opening range.

This trade is used to enter a new trade, or exit an open trade.

Market on close:The order will be executed on the market close. The fill price will be within

the closing range, which may, in some markets, be substantially different from the settlement

price. This trade is also used to enter a new trade, or exit an open trade.

Tr igger price:Price at which an order gets triggered from the stop loss book.

L imit pri ce:Price of the orders after triggering from stop loss book.

Spread order: A simple spread order involves two positions, one long and one short. Theyare taken in the same commodity with different months (calendar spread) or in closely related

commodities.

REGULATORY FRAME WORK

Forward Markets Commission (FMC)

Just as SEBI regulates the stock exchanges, Forwards Market Commission (FMC), FMC

works under the purview of the Ministry of Food, Agriculture and Public Distribution,


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regulates commodity exchanges.

Forward Markets Commission (FMC) headquartered at Mumbai is a regulatory

authority which is overseen by the Ministry of Consumer Affairs and Public Distribution,

Govt. of India. It is a statutory body set up in 1953 under the Forward Contracts (Regulation)

Act, 1952.

The functions of the Forward Markets Commission are as follows:

1. Limit on net open position as on the close of the trading hours. Some times limit is also

imposed on intra- day net open position. The limit is imposed operator-wise, and in some

cases, also member. wise.

2. Circuit-filters or limit on price fluctuations to allow cooling of market in the event of

abrupt upswing or downswing in prices.

3. Special margin deposit to be collected on outstanding purchases or sales when price moves

up or down sharply above or below the previous day closing price. By making further

purchases/sales relatively costly, the price rise or fall is sobered down. This measure is

imposed only on the request of the exchange.

Clearing and settlement

Most futures contracts do not lead to the actual physical delivery of the underlying

asset. The settlement is done by closing out open positions, physical delivery or cash

settlement. All these settlement functions are taken care of by an entity called clearinghouse

or Clearing Corporation. National Securities Clearing Corporation Limited (NSCCL)

undertakes clearing of trades executed on the NCDEX. The settlement guarantee fund is

maintained and managed by NCDEX.

Clearing

Clearing of trades that take place on an exchange happens through the exchange-

clearing house.

A clearinghouse is a system by which exchanges guarantee the faithful compliance of all

trade commitments undertaken on the trading floor or electronically over the electronic

trading systems. The main task of the clearinghouse is to keep track of all the transactions


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that take place during a day so that the net position of each of its members can be calculated.

It guarantees the performance of the parties to each transaction. Typically it is responsible for

the following:

1. Effecting timely settlement.

2. Trade registration and follow up.

3. Control of the evolution of open interest.

4. Financial clearing of the payment flow.

5. Physical settlement (by delivery) or financial settlement (by price difference) of contracts.

clearing house members only the original margin is required (and not maintenance margin).

Everyday the account balance for each contract must be maintained at an amount equal to the

original margin times the number of contracts outstanding. Thus depending on a day's

transactions and price movement, the members either need to add funds or can withdraw

funds from their margin accounts at the end of the day. The brokers who are not the clearing

members need to maintain a margin account with the clearinghouse member through whom

they trade in the clearinghouse.

Settlement

Futures contracts have two types of settlements, the MTM settlement,

which happens on a continuous basis at the end of each day, and the final settlement, which

happens on the last trading day of the futures contract. On the NCDEX, daily MTM

settlement and final MTM settlement in respect of admitted deals in futures contracts are cash

settled by debiting/ crediting the clearing accounts of CMs with the respective clearing bank.

All positions of a CM, brought forward, created during the day or closed out during the day,

are marked to market at the daily settlement price or the final settlement price at the close of

trading hours on a day.

TRADING PROCEDURE

1 ACCOUNT OPENING

The client has to open an account with Broking Firm

For efficient clearing, settlement and guarantee system, they have an automated clearing and

settlement system with any Bank as its Settlement & Clearing Bank for maintenance of


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Clients Margin

2 MARGIN REQUIREMENT:

Margin requirement is as per exchange norms

Additional Variation Margin will be imposed by the exchange/member based on the

volatility of the market

3 COMMODITIES TRADED

All commodities are traded on the exchange. The client will be

provided with a daily trading statement via e-mail to apprise him of the status of his accounts

after the previousdays trading. Broking House send original copies of the account

statements by courier to the clients every week. Any position entered by the trader can be

intimated to the respective client as and when the clients requires him to do so, according to

the client's own convenience through the telephone/fax..

DELIVERY

Every contract opens and expires on the dates as per the circulars issued by the exchange. No

fresh positions building will be allowed during the delivery period of the current contract

month. The buyer or seller gives delivery intention and pays delivery margin. The exchange

after matching the buyers and sellers notifies

them about the delivery details. The seller can tender warehouse receipt for settlement and

warehouse receipt will be accepted for settlement at the closing price of the previous day. The

warehouse receipt will be collected from the seller by the exchange and passed on to the

buyer. The buyer then issues the warehouse receipt to the warehouse and takes delivery of thegoods.

CHARGES APPLICABLE

Warehouse Charges / Storage Charges

Insurance charges

Delivery charges

Sales tax


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Penalty charges (upon failure to deliver)

METHODOLOGY

RESEARCH DESIGN:

Research design was the basic framework that provided guidelines for the research

process. It was a map or blueprint according to which the research was conducted.

TYPES OF RESEARCH DESIGN:

In this study both exploratory and descriptive types of research design were used.

Exploratory research design was used in preliminary phase for obtaining a proper

definition of the problem, and in this research design data was collected from secondary

sources.

Descriptive research design was adopted to obtain the information about demographic

characteristics and behavior, opinion of the clients ready to invest.

RESEARCH OBJECTIVES

MAIN OBJECTIVES-

A detail study of Commodity market & its functioning

To find out the feasibility of setting up ANAND RATHIS Commodity branch at

APMC.

To elicit the level of awareness of futures commodity market in APMC.

To know the level of traders & Investors perception of Risks & returns involved in

Futures commodity market.

To understand the various factors restricting the traders from trading online in

futures commodity market.

To study the clearing & settlement procedure of commodity market.

To know the guiding factors influencing the investors while making investments.


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GEOGRAPHICAL AREA:

11th Floor, Times Tower

Kamala City

Senapati Bapat Marg

Lower Parel

Mumbai - 400013, India.

Tel: +91-22-4047 7000

Fax: +91-22-4047 7070

ABOUT THE COMPANY CHOSEN FOR THE STUDY:

Anand Rathi (AR) is a leading full service securities firm providing the entire gamut

of financial services. The firm, founded in 1994 by Mr. Anand Rathi, today has a pan India

presence as well as an international presence through offices in Dubai and Bangkok. AR

provides a breadth of financial and advisory services including wealth management,

investment banking, corporate advisory, brokerage & distribution of equities, commodities,

mutual funds and insurance, structured products - all of which are supported by powerful

research teams. AnandRathi has over 300+ easily accessible investment outlets spread across

Country covering all the states for the convenience and the benefit of more than 100

thousand privileged customers.

The firm's philosophy is entirely client centric, with a clear focus on providing long

term value addition to clients, while maintaining the highest standards of excellence, ethics

and professionalism. The entire firm activities are divided across distinct client groups:

Individuals & Private Clients, Corporatesand Institutions and was recently ranked by Asia

Money 2006 poll amongst South Asia's top 5 wealth managers for the ultra-rich.

SAMPLING POPULATION:


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Population : Traders & Investors of AR Sangli.

Extent : AR Sangli.

Duration : 2 months.

SAMPLING DESIGN:

SAMPLING UNIT AND AREA:

For this study 100 respondents were selected as sample. The respondents were

selected from Hubli comprising traders & Investors from APMC yard & merchants. There

where some existing clients from various broking houses.

SAMPLING METHOD:

Area sampling method was collected in the survey. In this method sample units were

chosen primarily from APMC yard Hubli.

MODE OF DATA COLLECTION

SOURCES OF DATA COLLECTION

Observed the

Market

Questionnaire

Administration

Discussion with

Investors &

Traders

Pooling the

responses


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SOURCES OF DATA:

The Primary Datado not exist already in records and publications. The data has to be

collected by the researcher for a specific research project at hand. In this study the primary

data was collected through Questionnaires and face-to-face discussion with the consumers.

The Secondary Datarefers to those data, which were gathered for some other

purpose and were already existence in records. Relating to this study the sources were

previous projects, websites, magazines, newspapers, articles & textbooks.

LIMITATIONS OF THE STUDY:

The sample size was limited to only 100 respondents.

Lack of co-operation and time constraint was one of the limitations to the study.

Consumers may not be constant as they may change in opinion due to changing times

and environment.

Investors where not willing & entertaining properly to fill the questionnaire.

GRAPHICAL REPRESENTATION OF ANALYSIS

Income of the respondents


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I nterpretation-

The investors who have income of Rs 1lakh to 3lakhs are 28% & the investors who have

income between 3lakhs & 5 lakhs are 26% & the investors who have income more than 5

lakhs are 46% in APMC yard. As the investors above Rs3 lakhs constitutes 72% & they

stands as our potential customers which is a healthy sign for the Company.

Average amount invested in different Investment avenues

46.00%

26.00%

28.00%

Above RS.5 Lakhs

Rs.3 Lakh - Rs.5 Lakhs

Rs.1 Lakh - Rs.3 Lakhs

Income of the Respondent


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Invested in Real est

Invested in commodit

Invested in Mutual F

Invested in Life Ins

Invested in bank dep

Invested in Equity

Sum

100

80

60

40

20

0 67

29

88

7070

Interpretation

88% of the investors & traders have their investments in life insurance, 70 % of the investors

have their investments in equity as well as bank deposits, 29% have invested in mutual funds.

8% in commodities & 5%in Real estate.

As investors of equity & mutual funds are our potential customers there is a huge scope to

diversify them to invest in commodities.

Time horizon for investment


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50.00

42.00

8.00

Both

Long term

Short term

Interpretation

42% of the investors invest for long term & 50% of the investors prefer both short term as

well as long term & only 8% of the investors invest for short term. As the investors who

prefer both short term as well as long term are considered as potential commodity investors

as they have capacity to hold and invest for longer period based on the trends & returns, its a

good sign for the company to explore this market.

Awareness of futures commodity market


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Interpretation

98 % of the traders in APMC are aware of futures commodity market which shows a very

healthy prospect & the extent of level of awareness in APMC is very high compared to other

market.

INVESTED IN FUTURES COMMODITY MARKET

no

yes

Awareness of trading in futures commodity market

Pies show counts


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Interpretation - 92% of the traders in APMC have not invested in futures commodity

market but almost all are aware of futures market so there is very huge scope for the company

to tap & explore this market through providing & conducting some sought of seminars

&programs to induce them in trading in futures market & 8% are active investors..

Reasons for trading online

8

92

yes

no

Invested in Futures commodity market


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3.00

4.00

1.00

margin money

Speculation

hedging

Interpretation

50% of the investors who have invested in Futures commodity market want to take advantage

of speculation & speculative market & they are risk takers. 37% of the investors have

invested due to margin money & 13% of the investors want to invest in commodities for

hedging themselves from risk.

Perceive about commodity market


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percieve abt commodity market

not riskyrisky

120

100

80

60

40

20

0

96

percieve abt commodity market

non prof itableprofitable

70

60

50

40

30

60

40

Interpretation96% of the investors & traders perceives commodity market as risky & only

4% of them perceives it as not risky. And 60% of them perceives futures market as non

profitable & 40% as profitable.


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Dependency on brokers for investing in futures commodity market?

9

36 53

independent

dependent highly dependent

Interpretation- 53% of the traders & investors are highly dependent on brokers before

investing, 36% are independent & only 9% are independent for investing.

Interested in Seminar


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Interpretation- 77% of the investors & traders are interested in attending the seminar, this

shows the level of interest among the traders in trading in futures market .

Interested in Investing

no

yes

interested in seminar

Pies show counts23.00%

77.00%


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Interpretation- 53% of the traders are interested in investing in futures commodity market

which is a very healthy & prospective sign for the company to tap these potential investors &

try to induce them to invest in futures commodity.

In which of the following commodities you prefer to trade the most online?

no

yes

interested in investing

Pies sh ow counts

47.00%53.00%


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Gold

Cottan

copper

Channa

18

23

27

32


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FINDINGS


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FINDINGS

72% of the traders & investors are in the income level between Rs.3lakh Rs.5lakhs

88% of the investors & traders have their investments in life insurance

70 % of the investors & traders have their investments in equity

29% of the investors & traders have their investments in mutual funds.

8% of the investors & traders have their investments in commodities

50% of the traders prefer to invest short term as well as long term (both)

42% prefers long term investments.

21% of the traders are high risk takers in their trading business.

18% are average risk holders in their trading business

98 % of the traders in APMC are aware of futures commodity market.

92% of the traders in APMC have not invested in futures commodity market.

8% are active investors in Futures commodity market at APMC.

Only 6% of traders have ranked Distance as the 1st factor restricting them from

trading.

79% of the investors & traders have rated Unfair practice as the last factor restricting

them from trading.

53% of the traders & investors are highly dependent on brokers before investing, 36%

are independent & only 9% are independent for investing.

69% of the traders & investors ranks advice from the brokers as the most important

service that they expects from the broking firm & 27% of them have considered this as

the 2ndimportant factor.

85% have ranked less brokerage as the last factor that they expect from broking firm.

22% have rated providing good tips as the most sought out service from broking firm.

67% of the traders & investors have rated tips as the 2ndmost sought out factor

Good service & advice from the brokers stands at top as regards services expected

from any stock broking firm, Tips has been rated as the second most sought out

factor& brokerage stands at the bottom of the list of services expected.

77% of the investors & traders are interested in attending the seminar .

37% of the traders who are high risk takers in their trading business are interested in

Investing & 33% of the traders Interested in investing are Average risk takers

95% of the investors who have not invested in futures market perceives that trading in


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futures market is very risky & only 5% of the investors who

have not invested think its not risky whereas all the investors who have invested

perceives this market as very risky

63% of the traders who have not invested thinks that futures market is non profitable &

33% thinks its profitable. And 75% of the investors who have invested in futures

market perceive it as profitable & only 25% perceives otherwise.


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CONCLUSION

Attitude plays vital role in trading of commodities. It becomes very important for the

brokers to know about his clients feeling, perception and behaviors towards their

commodities.

A company can build favorable attitude towards a commodity through frequent

advertisement and public relation activities like orientation programs & seminars.

People follow the trend of investing mostly in bank deposits and other avenues, which

are, non-risky in nature and do not want to learn about new modes of investments.

It is found from the survey that most of the people do not possess complete

knowledgeregarding online trading. They fail to understand the procedure and the

system of trading. Therefore they fear to invest.

As the required amount for trading is high and it also involves the risk factor.

Therefore people dont think of investing in futures market.

There is less advertisement done by the ANAND RATHI comtrade which if increased

can increase the number of clients. The quality of service is also to be improved to increase

number of clients and company shall look after the ethical pattern and try to follow guidelines

made by regulatory authorities.

Hubli market is wide open for the opportunities & particularly APMC market of Hubli, as

it is fabricated with potential customers. APMC market is having huge potential investors,

who are involved in stock trading. As more & more investors in APMC yard are well

educated & have a very good exposure of commodity

market they lack knowledge about trading in Futures commodity market. Though many

of the traders & investors are aware of commodity market they have lot of misconceptions

attached to it. ANAND RATHI have good potential market to trace & build their business.

Therefore, finally to conclude my project I can say that:


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I have gained lot of practical knowledge through the interaction with the investors &

the experience what I am gaining with some of the experienced investors is truly a

tremendous achievement for me, that will definitely help me in building my future &

future works & I am sure which will also help me in achieving my goals.

As the commodities market stands complimentary to Equity & Future & options

market .I have gained hands on experience.

To conclude its a very interesting & dynamic field wherein daily we understand one

or the other value additions in the market thus imparting a great value addition to my

knowledge.


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SECTION 8

RECOMMEND TIONS


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RECOMMENDATION

53% of the Investors are interested in investing in futures market but factors like lack

of knowledge, no proper guidance & distance have restricted them. So the company

should conduct more orientation programs in order to increase the knowledge &

inducing them to invest.

89% of the investors are dependent on brokers advice , as future market is very

volatile the company should be able to render more professionalized services to its

clients.

92% of the traders are aware of futures commodity market & even they know about

conditions of the agri-commodity products so the company should implement more

promotional strategies like awareness program & seminar that will induce them in

investing.

70% of the investors have invested in equity market & they stands as potential

customers through proper orientation program they can be induced in investing in

futures market.

As distance has played a major role in restricting them of trading it is feasible to open

a commodity branch in APMC, as this also will lead active investors to come & trade

more frequently.

Considering all the above findings it is very much important to conduct a seminar or

an orientation program for the traders & investors of APMC market.


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QUESTIONNAIRE

1) Personal Information

a) Name : _____________________________________________________

b) Address : ______________________________________________________

c) Contact No: Mobile: Office:

d) Income P.A :

Rs. 1 Lakh-3 Lakh Rs. 3 Lakh -Rs 5 Lakh Above Rs. 5 Lakhs

e) Age (in Years) 20-35 35-45

45-55 55 & Above

SECTION 9

ANNEXURES


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1. Average amount (in Rs) invested in a year in the above Investment avenues?

Less than 1lakh

1-5 lakhs

5-10 lakhs

2. In which of the following Instruments do you make your Investments?

Equity

Bank deposits

Life Insurance

Mutual Funds

Commodities

Real Estate

10 lakhs & above.

3. What is the time horizon for your investment?

Short term (i.e. upto 1year)

Long Term (above 1year)

4. Are you aware of trading in futures commodity market?

Yes

No

Both

5. Have you invested in futures Commodity market?

Yes

No

6. Reasons for trading in commodities online?

Hedging

Speculation

Arbitrage

Margin Money

7.What do you perceive about commodity market?

a) Risky

Not Risky

b)

Profitable

8.Dependency on brokers for investing in futures commodity market?


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Independent

Dependent

Highly Dependant

9. Are you interested if any seminar is been conducted on awareness about Commodity

trading ?

Yes

No

Non Profitable

10. Provided the facilities & sources of information, do you intent to invest in

commodities online?

Yes

No

11. In which of the following commodities you prefer to trade the most online?

Gold

Chana

Copper

Cotton

Thank you for your valuable time


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SECTION 9BIBLIOGR PHY


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Options , Futures & Other Derivatives : John C.Hull

Security Analysis & Portfolio Management : Punitavati Padyan

NCFM modules

Anand Rathis Wealth n Wisdom Newsletter.

WEBSITES

www.mcx.com

www.ncdex.com

www.indiainfoline.com

www.myiris.com

www.anandrathi.com

www.icicidirect.com
http://www.mcx.com/http://www.mcx.com/http://www.ncdex.com/http://www.ncdex.com/http://www.indiainfoline.com/http://www.indiainfoline.com/http://www.myiris.com/http://www.myiris.com/http://www.anandrathi.com/http://www.anandrathi.com/http://www.icicidirect.com/http://www.icicidirect.com/http://www.icicidirect.com/http://www.anandrathi.com/http://www.myiris.com/http://www.indiainfoline.com/http://www.ncdex.com/http://www.mcx.com/