ncdex

Harnessing technology for futures trading - the NCDEX approach

- Mr P. H. RavikumarJuly 11, 2005

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AgendaAgenda

Objectives of a commodity exchangeNCDEX and technologyStrategic plansTechnology – to create a well knit world

Price disseminationAbout NCDEX

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AgendaAgenda



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Objectives of a commodity exchangeObjectives of a commodity exchange

Platform for trading for end users (farmers, corporates etc), speculators, investorsPrice discovery & price dissemination

Farmer to choose crop based on futures pricesFarmer to sell forward his crop

Risk managementRobust clearing & settlement mechanism

In medium term, we see farmers sell forward (at time of sowing) their expected production by locking into a committed price

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AgendaAgenda



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NCDEX & technologyNCDEX & technology

NCDEX – technology driven de-mutualisedcommodity exchangeReaches out through 6600 terminals to 490 citiesNCDEX leverages technology to

Ensure a transparent trading platform High data security and speedTake the commodity markets to the masses

The assimilation of technology by common man has been amazing

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Exchange Technology ComplexityExchange Technology Complexity

Long Trading Sessions High Uptime & Availability - RedundancyEqual Opportunity to all ParticipantsDelay and Response TimeScale of Operation – Rapid GrowthMultiple Channel of ConnectivityLow Cost of Operation/ScalabilitySecurity issues

Transparency & real time price dissemination are our hall marks

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IT AchievementsIT AchievementsAverage 5 links (25 users) enabled everydayMicrosoft enlisted NCDEX in its case studyGilat Telecom showcased NCDEX as one of its success stories Largest Internet Trading PlatformNCDEX website popularity has improved by 159% in the last quarter“PC Quest” listed NCDEX among top ten success stories of 2004State-of-the-art data center

Leveraging technology to reach out to grass root level participants

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IT Architecture

Parameter Achievement

Trading System Morning and Evening Sessions – 14 Hours37 Commodity Contracts 85% trades come from agri commodities

Spread 490 plus locations in the country(80% from rural and semi-urban centers)

Commodity Traders Apprx. 6,700 users(Terrestrial- 900, VSAT-3200 and Internet-2600)

We may have to move to round-the-clock availability for users

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Networking Networking –– Connectivity PaceConnectivity Pace

Brokers connect to the Exchange viaVSatsLeased LinesInternetDial-up links

Mobile connectivity under way

Challenge is to provide low cost & easy access & credible prices

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Connectivity FactorConnectivity FactorDial-Up VSAT Internet Mobile

Technology

Institution Leased Lines & ISDN

Ku, Ext-C, DTH

Dial-up, ADSL

GSM, CDMA, GPRS

Commodity Traders

Leased Lines

Ku, Ext-C Dial-up, ADSL

GSM, CDMA, GPRS

Remote Clients

Dial-up GSM, CDMA

Rural Population

Dial-up CDMA, corDECT

Goal is to reach the panchayat level

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Connectivity NumbersConnectivity Numbers

Connectivity Type Links Applied

Links Connected

1352VSAT 1310

235

1050 + Concurrent Users

265

2700

Share in Total Volume (%)

57%

Leased Lines 25%

Internet 18%

Next to NSE, the widest network among bourses in India

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Trading SystemTrading System

Server Continuum Stratus Server C619VOS O/s, Appletree In-memory Database

Support AMC support by Stratus through CMCSpares Off-site Spare Maintenance by Stratus (UPS)

Replacement within 6 hoursUptime Fully fault tolerant system

New Technology

Stratus V Series (Intel Xeon Processor) with Fiber Network InterfaceStratus T Series (Linux) Servers

We guarantee users 99.999% uptime

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Core Application Core Application -- Trading SoftwareTrading Software

Base Application Developed by TCAM Corporation Customisation & Support by TCS

Language Programmed in PL/1Communication TCP/IP based; Multicast enabledFront-End Developed by TCS – Windows SDK & VB

Benchmark 70 Trades per Second

New Technology Split Architecture for Multiple Vertical Markets – Agro, Energy, Metals etc

Interface Risk Management, Surveillance, Clearing & Settlement, Spot price polling

We currently handle over 7 lakh messages per second

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Other ApplicationsOther ApplicationsInternet Proxy Proxy Gateway Server on Red Hat Linux

Average 1,000 concurrent users

Surveillance Real-time Monitoring and Alert Generation Red Hat Linux and Oracle databaseCompletely developed in-house with Market Replay and Extensive Reporting features

Risk Management Online checking of member’s margin limits and generation of alerts to members in case of exceeding limitsSharing resources with NSCCL

Clearing & Settlement Settlement of Daily Pay-in and Pay-OutSharing resources with NSCCL

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Other ApplicationsOther ApplicationsExtranet Repository of Exchange common documents &

member specific data for both upload and download access (24x7 through ISP)

Finance & Accounts

Management of member’s financial transactions and updates from various transacting banks, Office Accounting

Membership Member and Client Database Connectivity Details

Talisma (CRM) Systematic logging of customer calls Escalation, Follow-up and Analysis of calls

Price Dissemination

Spot & Future commodity prices made available through various channels and media

Polling Spot Price Polling (120 centers) Linkages to Trading Module

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AgendaAgenda



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Future Technologies for NCDEXFuture Technologies for NCDEX

Technology Application Status

Dial-up VPN Allowing NCDEX member to connect and access NCDEX server from anywhere in Airtel Telecom circles without needing to go through Internet.

Initiated Discussions

GSM Based Call Center solution

Ease of calling NCDEX helpdesk/call center from any where in the country at much lower rates.

Initiated Discussions

Cordect Price Dissemination Under pilot implementation

GPRS Information about the commodity market status on Mobile with always-on GPRS connection.

In process

Pull based SMS queries

Price Dissemination In process

Motorola Price Dissemination Feasibility study in progress

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AgendaAgenda



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Enablement of Farmers

Banks WarehouseInstitutionsNCDEX terminals

Single point front for farmers to meet all needs

Other needs Agri-extensionsFertilizers

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Price DisseminationPrice DisseminationCommodity prices broadcast through various channelsReal time display of Futures & Spot prices through agencies like Moneyline Telerate, Reuters, TelequoteLive Quote on National TV Doordarshan and DTH channelVernacular Display boards at various Mandis & Commodity WarehousesSpot & Future Prices Availability on our Website Price Dissemination for the benefit of farmers and producers through ticker boards installed Co-operative societies, Local Banks & Post officesRelease of Price List in leading newspapers

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Price Dissemination Price Dissemination Installed multilingual and unilingual price tickers at New Delhi, Abohar, Ujjain, Bangalore, Kottyam, Indore & Hyderabad

Ticker board in Adilabad - a drought prone tribal district in Andhra PradeshTicker boards at Abidjan, Côte D’Ivoire (Ivory Coast) – a center for cashew trade

Disseminating prices through SMS and flash on mobile phonesCNBC Awaaz, Free Press Journal carrying daily price quotesDifferent websites/ portals carrying the price quotes

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AgendaAgenda

Objectives of a commodity exchange NCDEX and technologyStrategic plansTechnology – to create a well knit world


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NCDEX NCDEX –– Current shareholdersCurrent shareholders

NABARD15%

NSE15%

IFFCO12%

CRISIL12%

Canara Bank8%

ICICI Bank 15%

LIC15%

PNB8%

Only institutions are our shareholders

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Name Organisation Expertise in

Shri U. S. Awasthi MD, IFFCO Agriculture

Shri R.N. Bharadwaj Chairman, LIC Insurance

Shri B.V. Bhargava Chairman, CRISIL Credit rating/finance

Shri H.N. Sinor CEO & Secretary, IBA Banking & Finance

Shri P. H. Ravikumar MD, NCDEX Banking & Finance

Shri S.H. Bhojani Partner, Amarchand Mangaldas & Co. Legal

Shri Dileep Choksi Sr. Partner, C.C Choksi & Co. Accounting

Shri D. S. Kolamkar Director, FMC Market Regulation

Smt Ranjana Kumar Chairperson, NABARD Rural finance/Banking

Shri Ravi Narain MD & CEO, NSE Exchange operation

Shri Lamon Rutten Chief - Finance & Energy, UNCTAD Finance & Energy

Shri Ravi Mohan MD, CRISIL Credit rating

Dr. Ajay Shah Consultant, Ministry of Finance Economics & Finance

Independent Board of DirectorsIndependent Board of Directors

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Gold, Silver, Crude Palm oil, RBD Palmolein, Cotton, Mustard seed, Mustard oil Soybean, Refined soy oil

Gold, Silver, Gold, Silver, Crude Palm Crude Palm oil, RBD oil, RBD Palmolein, Palmolein, Cotton, Cotton, Mustard Mustard seed, seed, Mustard oil Mustard oil Soybean, Soybean, Refined soy Refined soy oil oil

Guar seed, Jute sacking, Chana, Rubber, Pepper, Wheat, Castor seed, Guar gum, Raw jute, Urad, Yellow peas, Sugar, Turmeric, Soymeal

Guar seed, Guar seed, Jute Jute sacking, sacking, Chana, Chana, Rubber, Rubber, Pepper, Pepper, Wheat, Wheat, Castor Castor seed, Guar seed, Guar gum, Raw gum, Raw jute, Urad, jute, Urad, Yellow Yellow peas, peas, Sugar, Sugar, Turmeric, Turmeric, SoymealSoymeal

Gur, Rice, Maize, Raw silk, Cocoon, Jeera, Chilli, Steel, Cashew, Cottonseed oilcake, Sesame seed, Tur, Arabica & Robusta Coffee, Copper Cathode

Gur, Rice, Gur, Rice, Maize, Raw Maize, Raw silk, silk, Cocoon, Cocoon, Jeera, Jeera, Chilli, Steel, Chilli, Steel, Cashew, Cashew, Cottonseed Cottonseed oilcake, oilcake, Sesame Sesame seed, Tur, seed, Tur, Arabica & Arabica & Robusta Robusta Coffee, Coffee, Copper Copper CathodeCathode

Dec 2003Apr-Dec

2004Jan – May

2005

Other base Metals, Energy Products, More Agricultural products

Other base Other base Metals, Metals, Energy Energy Products, Products, More More Agricultural Agricultural productsproducts

In pipeline

Product CalendarProduct Calendar

Each product is selected after an in-depth research & market feedback

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Average daily volumesAverage daily volumes

2 1 5 5

6 9 1

1 2 3 1

1 6 1 9

1 2 2 9

1 4 4 4

2 0 1 5

2 2 3 12 0 9 5

2 5 7 5

0

5 0 0

1 0 0 0

1 5 0 0

2 0 0 0

2 5 0 0

3 0 0 0

Q 1 -2 0 0 4

Q 2 -2 0 0 4

Q 3 -2 0 0 4

O c t -N o v 0 4

D e c - '0 4 J a n '0 5 F e b '0 5 M a r '0 5 A p r '0 5 M a y '0 5 J u n e'0 5

Rs cr

Peak Volume for a single dayPeak Volume for a single day

Rs. 4271 cr on Mar 30 ‘05Rs. 4271 cr on Mar 30 ‘05

Impressive growth of NCDEX with 85% volume contribution from agriculture

Volumes in Steel & Copper picking up- daily average steel trade- 10,000 tonnes

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Deliveries to Open Interest Deliveries to Open Interest –– June 2005June 2005

COMMODITYJune deliverables

in Metric tonnes Open Interest

Deliveries to Open Interest

1 JEERA 2697 2721 99%

2 URAD 7990 8160 98%

3 CASTOR SEED 1270 1450 88%

4 GUARGUM 940 1085 87%

5 SUGAR S 110 130 85%

6 SUGAR M 12810 15260 84%

7 PEPPER 756 910 83%

Others 9779

Total quantity for delivery 36352

Deliveries in over 18 commodities

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Price dissemination: Choose your cropPrice dissemination: Choose your crop

Radio

Newspapers &

journals

AGMARKNET

Kisan call

centres

PCOs

News agencies

TV Channels E-chaupals

N-logue

Bank branchesIFFCO, HAFED

Warehouses

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Impact of NCDEX on PricesImpact of NCDEX on PricesGuar Seed Price (Rs/qtl)

FY 02 FY 03 FY 04 FY 051st Qtr 823 840 1217 1082

2nd Qtr 821 1575 847 16253rd Qtr 698 1434 978 1669

4th Qtr 758 1439 958 1534

Castor Seed price (Rs/20 kgs)

3053003632114th Qtr3482922972113rd Qtr3572872632242nd Qtr3043752471971st Qtr

FY 05FY 04FY 03FY 02

Raw Jute Price (Rs qtl)

130379480411674th Qtr

155778482710423rd Qtr

140582385710422nd Qtr

1056842100811461st Qtr

FY 05FY 04FY 03FY 02

Prices are those received by the farmers after adjusting for the taxes and other incidentals. The Prices are from the following mandis: Bikaner, Calcutta and Ahmedabad. Numbers marked inred pertain to Prices after trading was enabled on NCDEX.

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Thank You.

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Overview of Overview of mandismandis

Operating since 1920’sAround 11000 mandis in the country

7400 are approved market yards under APMC Act1500 contribute to about 70% volumes

Function throughout the yearSome are seasonalAuctions at different periods of time throughout the day

Can be single produce centers or deal with multiple productsMandis not networkedFunction under the state administration and guided by respective APMC Act

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The present system: The present system: AgmarkAgmark

Major progress in past five yearsCovers over 300 commodities in 739 marketsDisseminates prices freePrices are not provided in real timeLimited variation by grades / qualityLimited scope for user-feedback into work

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The ideal The ideal mandimandi system : the enablerssystem : the enablers

Widest geographical participationPrior access to information on prices and other related matters to participants, esp. farmersExtensive use of technologyLow cost easily accessible robust grading facilityEfficient physical exchange with excellent infrastructureSeamless funding and payment mechanisms with presence of banksNo impediment to free movement of commodities

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Electronically connecting Electronically connecting MandisMandis to NCDEXto NCDEX

A mammoth task and responsibility involving substantial costs and infrastructural development

The process would involve two steps:Putting up terminals & electronic boards in the selected mandis.Connecting all the mandi terminals with central hub of the Exchange through the Internet so that live data gets transmitted to these terminals on a real time basis.

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