Business Week writes about the success of two commodities exchanges in India.
Two years ago government deregulation allowed two competing Indian exchanges, the National Commodity & Derivatives Exchange (NCDEX), which deals mostly with agricultural products, and the Multi Commodity Exchange (MCX), which mostly handles energy and metals, to open for business. The fully electronic exchanges now do a daily volume of $1.5 billion in futures contracts.
Commodities traders say this is just the beginning. Trading volume could rise to $15 billion a day by 2012 as more companies sign up, estimates CLSA Asia-Pacific Markets. Volumes today are still just a fraction of those on major exchanges such as the New York Mercantile Exchange, or NYMEX, and the Tokyo Commodities Exchange, or TOCOM. But MCX has overtaken TOCOM as the No. 2 trader of silver after NYMEX. And analysts say it may not take long for India — already the top producer, importer, and consumer of some 35 commodities — to become a global hub. “Indian exchanges could become the largest in the world for some commodities,” says Aniruddha Dange, head of research for CLSA in Bombay.
That would mark a big change from the situation just a couple of years ago, when archaic laws from India’s socialist era controlled commodity prices. What’s more, those prices were completely out of sync with global markets, making it nearly impossible to gauge domestic demand and supply efficiently. Farmers routinely overplanted and sold into gluts or underplanted and missed price spikes. The lack of certainty contributed to exploitation of farmers by layers of intermediaries, who kept up to 70% of the retail price of crops. And companies such as ITC were forced to hedge overseas — even though foreign exchanges don’t trade many popular Indian commodities such as cluster beans and gram.
This is a great example of financial engineering and modernization benefiting everyone concerned — farmers, agribusinesses and ultimately, consumers. By the way, both exchanges are privately owned. There’s lots more that could be done for agriculture (better transport and storage facilities , including refrigeration among other steps) but this is definitely good news.
Q) Does anyone have input on succesful commodity exchanges in other emerging markets?
Update: Also, if anyone’s actually traded on this exchange, would love to hear your experiences.