‘Going where no other exchange has gone before’ seems to be the new-found mantra of Indian commodity exchanges as they aggressively vie with each other to introduce trading in commodities that had never been traded anywhere else.
While Indian Commodity Exchange Ltd. (ICEX) set the ball rolling last year by offering futures contract in diamonds, Multi Commodity Exchange of India (MCX), which is the country's largest commodity bourse in terms of market share, will soon start offering brass contracts.
Both these commodities have been brought to the regulated exchange space only in India as there is no other exchange globally that offers derivatives contracts in these commodities.
If commodity market participants are to be believed then this is just the start as there are at least half a dozen more such commodities in the pipeline that are awaiting regulatory approval before trading can be commenced.
“Commodities like coal, iron ore, petrol and diesel are some that are awaiting approval from the Securities and Exchange Board of India,” said a person familiar with the matter.
“While some of these commodities are traded in the OTC or over-the-counter market, there is no formal exchange platform offering such commodities,” he added.
Unlike a regulated exchange, an OTC market does not typically offer transparency, trade guarantee, quality assurance and zero counter-party default risk.
“Launching and designing a delivery-based contract in a completely new commodity is a very difficult task since there is no reference point or benchmark,” said Sanjit Prasad, managing director and chief executive officer, ICEX which has, till date, seen physical delivery of almost 400 carats of the stone valued at approximately ₹15 crore.
“Quality parameters and specifications need to be intertwined with the ecosystem. Then one needs to get genuine hedgers and speculators to gain that volume push,” he added.
Meanwhile, trading in brass futures will commence for the first time ever on any exchange from Monday (March 26) when MCX starts offering such contracts with compulsory delivery option. Incidentally, the delivery will be available at Jamnagar where almost 3,000 of a total of 5,000 small and medium units producing brass in India and accounting for 80% of the brass produced in the country, are located.
Unique to India
“Quite a lot of bandwidth is required to engage with industry and the market for a completely new commodity with no trading history anywhere.
“Some commodities are unique to India and hence exchanges are launching such products,” said Mrugank Paranjape, MD and CEO, MCX.
“In the case of brass, most of the deals are negotiated bilaterally and there is no international or domestic benchmark for brass prices that the industry can use. Which is why we thought that MCX could step in and provide a price discovery platform as well as a hedging tool to the brass industry by launching a futures contract,” added Mr Paranjape.
According to Tulsibhai Gajera, president, Jamnagar Factory Owners Association and Jamnagar Chamber of Commerce & Industry, the brass contracts will provide a price discovery platform to the physical market participants and the brass value chain would get a single price to benchmark and hedge their risk exposure.
Almost the entire scrap for making brass gets imported into India, but the importers are not sure on the price until the brass shipments lands in the country,” he said.
