Indian Exchange Supports Commodity Trading through Awareness Program

India's most liquid commodity derivatives trading venue aims to increase commodity volumes across the country through new awareness programs that

mcxListed commodity futures and options trading exchange, MCX, has collaborated with the commodity watchdog and a leading corporate to enhance the understanding of financial trading. The exchange launched a commodity awareness program in an emerging city, Nashik.

After facing a difficult two-year spree of declining volumes, the country’s largest trading venue has conducted the awareness program to increase participation in the commodity market. The trading environment was directly impacted by the government’s taxes implemented in 2013. Under the new Commodity Transaction Tax (CTT) participants will pay 0.01% of the price of the trade.

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Trading volumes have declined considerably since the new tax came intact, figures from the exchange showing that the average daily volume in 2013 was $2.6 billion. The recent dose of volatility supported activity in the latter half of 2014 with volumes rising to $3.5 billion in daily activity.

The commodity awareness events were conducted by industry professionals to educate users. During the program, the experts imparted in-depth knowledge to the participants about the commodity markets and the importance of commodity exchanges in India.

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Details in the notification state that the experts explained about the technicalities of the workings of the commodity markets with respect to the products, price discovery, transparency and risk management mechanism in trading and settlement of transactions. Additionally, they highlighted the role of FMC in regulating and monitoring the functions of commodity exchanges in building the confidence of the market participants, as well as for the growth of the Commodities Market in India.

Chittaranjan Rege, Vice President-PKMT, MCX, commented in a statement, “We are delighted with the remarkable response to the awareness program held at Nashik. MCX’s persistent efforts in organising programs across India on commodity futures trading has encouraged more and more participants from the varied industries and sectors to use the commodity futures market for price discovery and hedging their price risk exposures.

The Exchange’s rupees-denominated contracts provide risk management tools to the market participants who are unable to trade on international exchanges.”

Commodity derivatives are commonly used by participants to manage risk for future price fluctuations. For example, farmers use commodity futures to price future movements that could adversely affect their earnings.

Vivek Patil, President, Ambad Industries and Manufacturers Association, added: “The speakers briefed the market participants about the futures contracts offered by the commodity derivative exchanges to hedge their exposures against rising or falling base metals and bullion prices. This initiative will go a long way in educating the market participants on the benefits of hedging, thereby giving them the sanguinity to hedge risks.”

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