Ncdex

Harnessing technology for futures trading - the NCDEX approach - Mr P. H. Ravikumar July 11, 2005

Agenda „ „ „ „

Objectives of a commodity exchange NCDEX and technology Strategic plans Technology – to create a well knit world „

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Price dissemination

About NCDEX

Agenda „ „ „ „

Objectives of a commodity exchange NCDEX and technology Strategic plans Technology – to create a well knit world „

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Price dissemination

About NCDEX

Objectives of a commodity exchange „ „

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

Farmer to choose crop based on futures prices „ Farmer to sell forward his crop „ „

Risk management Robust clearing & settlement mechanism

In medium term, we see farmers sell forward (at time of sowing) their expected production by locking into a committed price 4

Agenda „ „ „ „

Objectives of a commodity exchange NCDEX and technology Strategic plans Technology – to create a well knit world „

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Price dissemination

About NCDEX

NCDEX & technology „ „ „

NCDEX – technology driven de-mutualised commodity exchange Reaches out through 6600 terminals to 490 cities NCDEX leverages technology to „

Ensure a transparent trading platform „ High data security and speed „ Take the commodity markets to the masses

The assimilation of technology by common man has been amazing

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Exchange Technology Complexity „ „ „ „ „ „ „ „

Long Trading Sessions High Uptime & Availability - Redundancy Equal Opportunity to all Participants Delay and Response Time Scale of Operation – Rapid Growth Multiple Channel of Connectivity Low Cost of Operation/Scalability Security issues

Transparency & real time price dissemination are our hall marks

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IT Achievements „ „ „ „ „ „ „

Average 5 links (25 users) enabled everyday Microsoft enlisted NCDEX in its case study Gilat Telecom showcased NCDEX as one of its success stories Largest Internet Trading Platform NCDEX website popularity has improved by 159% in the last quarter “PC Quest” listed NCDEX among top ten success stories of 2004 State-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 Hours 37 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 – Connectivity Pace „

Brokers connect to the Exchange via „ „ „ „

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VSats Leased Lines Internet Dial-up links

Mobile connectivity under way

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

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Connectivity Factor Dial-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 11

Connectivity Numbers Connectivity Type

Links Applied

Links Connected

Share in Total Volume (%)

VSAT

1352

1310

57%

Leased Lines

265

235

25%

Internet

2700

1050 +

18%

Concurrent Users

Next to NSE, the widest network among bourses in India

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Trading System Server

Continuum Stratus Server C619 VOS O/s, Appletree In-memory Database

Support

AMC support by Stratus through CMC

Spares

Off-site Spare Maintenance by Stratus (UPS) Replacement within 6 hours

Uptime

Fully fault tolerant system

New Stratus V Series (Intel Xeon Processor) with Technology Fiber Network Interface Stratus T Series (Linux) Servers We guarantee users 99.999% uptime

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Core Application - Trading Software Base Application Developed by TCAM Corporation Customisation & Support by TCS Language

Programmed in PL/1

Communication

TCP/IP based; Multicast enabled

Front-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 14

Other Applications

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Internet 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 database Completely 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 limits Sharing resources with NSCCL

Clearing & Settlement

Settlement of Daily Pay-in and Pay-Out Sharing resources with NSCCL

Other Applications

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Extranet

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

Agenda „ „ „ „

Objectives of a commodity exchange NCDEX and technology Strategic plans Technology – to create a well knit world „

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Price dissemination

About NCDEX

Future Technologies for NCDEX

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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

GPRS

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

In process

Pull based SMS queries

Price Dissemination

In process

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

Motorola

Price Dissemination

Feasibility study in progress

Agenda „ „ „ „

Objectives of a commodity exchange NCDEX and technology Strategic plans Technology – to create a well knit world „

„

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Price dissemination

About NCDEX

Enablement of Farmers

NCDEX terminals

Institutions

Banks

Warehouse

Single point front for farmers to meet all needs

Other needs 20

Fertilizers

Agri-extensions

Price Dissemination „ „ „ „ „ „

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Commodity prices broadcast through various channels Real time display of Futures & Spot prices through agencies like Moneyline Telerate, Reuters, Telequote Live Quote on National TV Doordarshan and DTH channel Vernacular Display boards at various Mandis & Commodity Warehouses Spot & 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 offices Release of Price List in leading newspapers

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 Pradesh „ Ticker boards at Abidjan, Côte D’Ivoire (Ivory Coast) – a center for cashew trade „ „ „

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

Agenda „ „ „ „

Objectives of a commodity exchange NCDEX and technology Strategic plans Technology – to create a well knit world „

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Price dissemination

About NCDEX

NCDEX – Current shareholders

NABARD 15%

NSE 15%

ICICI Bank 15%

LIC 15%

Only institutions are our shareholders 24

IFFCO 12%

Canara Bank 8%

CRISIL 12%

PNB 8%

Independent Board of Directors 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 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

Shri H.N. Sinor

CEO & Secretary, IBA

Banking & Finance

Shri P. H. Ravikumar

MD, NCDEX

Banking & Finance

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Product Calendar Dec 2003 Gold, Gold, Silver, Silver, Crude Crude Palm Palm oil, oil, RBD RBD Palmolein, Palmolein, Cotton, Cotton, Mustard Mustard seed, seed, Mustard Mustard oil oil Soybean, Soybean, Refined Refined soy soy oil oil

Apr-Dec 2004 Guar Guar seed, seed, Jute Jute sacking, sacking, Chana, Chana, Rubber, Rubber, Pepper, Pepper, Wheat, Wheat, Castor Castor seed, seed, Guar Guar gum, gum, Raw Raw jute, jute, Urad, Urad, Yellow Yellow peas, peas, Sugar, Sugar, Turmeric, Turmeric, Soymeal Soymeal

Jan – May 2005 Gur, Gur, Rice, Rice, Maize, Maize, Raw Raw silk, silk, Cocoon, Cocoon, Jeera, Jeera, Chilli, Chilli, Steel, Steel, Cashew, Cashew, Cottonseed Cottonseed oilcake, oilcake, Sesame Sesame seed, seed, Tur, Tur, Arabica Arabica & & Robusta Robusta Coffee, Coffee, Copper Copper Cathode Cathode

In pipeline Other Other base base Metals, Metals, Energy Energy Products, Products, More More Agricultural Agricultural products products

Each product is selected after an in-depth research & market feedback 26

Average daily volumes

Rs cr

3000 2575 2500 2231 Peak Volume for a single day

2000

2095

2015

Rs. 4271 cr on Mar 30 ‘05

1619 1444

1500 1231

1229

1000 691 500 21

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Q 1 2 0 0 4

Q 2 2 0 0 4

0 Q 3 2 0 0 4

O ctN 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

Ju n e '0 5

Impressive growth of NCDEX with 85% volume contribution from agriculture

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

Deliveries to Open Interest – June 2005 June deliverables in Metric tonnes

COMMODITY

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 28

Deliveries to Open Interest

Price dissemination: Choose your crop Radio TV Channels

E-chaupals N-logue

News agencies PCOs

Newspapers & Kisan call

journals

centres AGMARKNET

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IFFCO, HAFED Warehouses

Bank branches

Impact of NCDEX on Prices Raw Jute Price (Rs qtl)

Guar Seed Price (Rs/qtl) FY 02

FY 03

FY 04

FY 02

FY 05

FY 03

FY 04

FY 05

1st Qtr

823

840

1217

1082

1st Qtr

1146

1008

842

1056

2nd Qtr

821

1575

847

1625

2nd Qtr

1042

857

823

1405

3rd Qtr

698

1434

978

1669

3rd Qtr

1042

827

784

1557

4th Qtr

758

1439

958

1534

4th Qtr

1167

804

794

1303

Castor Seed price (Rs/20 kgs) FY 02

FY 03

FY 04

FY 05

1st Qtr

197

247

375

304

2nd Qtr

224

263

287

357

3rd Qtr

211

297

292

348

4th Qtr

211

363

300

305

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 in red pertain to Prices after trading was enabled on NCDEX. 30

Thank You.

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Overview of mandis „ „

Operating since 1920’s Around 11000 mandis in the country „ 7400 are approved market yards under APMC Act „ 1500 contribute to about 70% volumes „ Function throughout the year „ Some are seasonal „ Auctions at different periods of time throughout the

day „ „ „

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Can be single produce centers or deal with multiple products Mandis not networked Function under the state administration and guided by respective APMC Act

The present system: Agmark „ „ „ „ „ „

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Major progress in past five years Covers over 300 commodities in 739 markets Disseminates prices free Prices are not provided in real time Limited variation by grades / quality Limited scope for user-feedback into work

The ideal mandi system : the enablers „ „ „ „ „ „ „

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Widest geographical participation Prior access to information on prices and other related matters to participants, esp. farmers Extensive use of technology Low cost easily accessible robust grading facility Efficient physical exchange with excellent infrastructure Seamless funding and payment mechanisms with presence of banks No impediment to free movement of commodities

Electronically connecting Mandis to 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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