Spot exchanges for commodities soon

After reasonable success in futures, the National Commodities and Derivatives Exchange is planning to set up spot exchanges to bring about uniformity and transparency in the trade.

"The spot exchanges will start coming up around December in a phased manner. To begin with, the exchanges will be set up at the existing delivery centres for the futures' contract," chief business officer of NCDEX Narendra Gupta told Business Standard on Thursday.

Asked why spot exchanges were required, Gupta said, "This will help bring about uniformity and transparency in the trade. Sellers can get their produce graded and submitted to warehouses. They can then trade on the basis of warehouse receipts and thus, get the best possibly money for their commodities."

"It will be like an e-trading platform or an e-mandi, whichever way one wants to call it. Further, we need to have a cash market that complements the futures."

To begin with, the exchange will choose commodities like pulses, oilseeds and sugar for select delivery centres. "For pulses, we may start with Mumbai, Delhi, Jalgaon and Kolkata," Gupta said.

The exchange also plans to introduce a pricing mechanism for all grades with help from assayers in order to facilitate a better price discovery. The centres for spot trading could always be extended to the existing ones, Gupta added.

On whether this could affect futures' volumes, Gupta said, "It is unlikely as the two are different set ups."

Futures trading on the exchange is witnessing daily volumes of Rs 3,500-4,000 crore (Rs 35-40 billion). Agri contracts are doing well on the exchange and accounting for almost 80 per cent of its turnover, thereby giving it a tag of "agri exchange".

Gupta also threw light upon whether the futures exchanges had made middlemen unwanted.

He said, "That is not correct. We have offered them another mode of employment. They can attach themselves to the logistics, grading or warehousing segments of the trade. Overall, we have provided employment to around 10,000 people in the system via this route."

The exchange's market share in the April-August period of the year 2005-06 is around 60 per cent. When asked what would the exchange's overall market share be in the 2005-06, Gupta said, "A lot depends on the launch of contracts the exchange plans in the energy sector."

In the third quarter, the exchange plans to launch a crude contract, followed by contracts for natural gas and metals.

Gupta expects the exchange to grow at 100 per cent CAGR for the next two financial years. "The growth after that is bound to slow down."