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
Price dissemination
About NCDEX
2
Agenda
Objectives of a commodity exchange
NCDEX and technology
Strategic plans
Technology – to create a well knit world
Price dissemination
About NCDEX
3
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
Price dissemination
About NCDEX
5
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
6
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
7
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
8
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
9
Networking – Connectivity Pace
Brokers connect to the Exchange via
VSats
Leased Lines
Internet
Dial-up links
Mobile connectivity under way
Challenge is to provide low cost & easy access & credible prices
10
Connectivity Factor
Dial-Up VSAT Internet Mobile
Technology
Institution Leased Ku, Ext-C, Dial-up, GSM,
Lines & DTH ADSL CDMA,
ISDN GPRS
Commodity Leased Ku, Ext-C Dial-up, GSM,
Traders Lines ADSL CDMA,
GPRS
Remote Dial-up GSM, CDMA
Clients
Rural Dial-up CDMA,
Population corDECT
Goal is to reach the panchayat level
11
Connectivity Numbers
Connectivity Type Links Links Share in Total
Applied Connected 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
12
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
13
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
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
15
Other Applications
Extranet Repository of Exchange common documents &
member specific data for both upload and
download access (24x7 through ISP)
Finance & Management of member’s financial transactions
Accounts 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 Spot & Future commodity prices made available
Dissemination through various channels and media
Polling Spot Price Polling (120 centers)
Linkages to Trading Module
16
Agenda
Objectives of a commodity exchange
NCDEX and technology
Strategic plans
Technology – to create a well knit world
Price dissemination
About NCDEX
17
Future Technologies for NCDEX
Technology Application Status
Dial-up VPN Allowing NCDEX member to connect and access Initiated Discussions
NCDEX server from anywhere in Airtel Telecom
circles without needing to go through Internet.
GPRS Information about the commodity market status on In process
Mobile with always-on GPRS connection.
Pull based SMS Price Dissemination In process
queries
GSM Based Call Ease of calling NCDEX helpdesk/call center from Initiated Discussions
Center solution any where in the country at much lower rates.
Cordect Price Dissemination Under pilot implementation
Motorola Price Dissemination Feasibility study in progress
18
Agenda
Objectives of a commodity exchange
NCDEX and technology
Strategic plans
Technology – to create a well knit world
Price dissemination
About NCDEX
19
Enablement of Farmers
Institutions Banks Warehouse
NCDEX terminals
Single point front for
farmers to meet all needs
Other needs Agri-extensions
Fertilizers
20
Price Dissemination
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
21
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
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
22
Agenda
Objectives of a commodity exchange
NCDEX and technology
Strategic plans
Technology – to create a well knit world
Price dissemination
About NCDEX
23
NCDEX – Current shareholders
NABARD NSE IFFCO CRISIL
15% 15% 12% 12%
ICICI Bank LIC Canara Bank PNB
15% 15% 8% 8%
Only institutions are our shareholders
24
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
25
Product Calendar
Apr-Dec Jan – May
Dec 2003 2004 2005 In pipeline
Gold,
Gold, Silver,
Silver, Guar
Guar seed,
seed, Gur,
Gur, Rice,
Rice, Other
Other base
base
Crude
Crude Palm
Palm Jute
Jute Maize,
Maize, Raw
Raw Metals,
Metals,
oil,
oil, RBD
RBD sacking,
sacking, silk,
silk, Energy
Energy
Palmolein,
Palmolein, Chana,
Chana, Cocoon,
Cocoon, Products,
Products,
Cotton,
Cotton, Rubber,
Rubber, Jeera,
Jeera, More
More
Mustard
Mustard Pepper,
Pepper, Chilli,
Chilli, Steel,
Steel, Agricultural
Agricultural
seed,
seed, Wheat,
Wheat, Cashew,
Cashew, products
products
Mustard
Mustard oil
oil Castor
Castor Cottonseed
Cottonseed
Soybean,
Soybean, seed,
seed, Guar
Guar oilcake,
oilcake,
Refined
Refined soy
soy gum,
gum, Raw
Raw Sesame
Sesame
oil
oil jute,
jute, Urad,
Urad, seed,
seed, Tur,
Tur,
Yellow
Yellow Arabica
Arabica & &
peas,
peas, Robusta
Robusta
Sugar,
Sugar, Coffee,
Coffee,
Turmeric,
Turmeric, Copper
Copper
Soymeal
Soymeal Cathode
Cathode
Each product is selected after an in-depth research & market feedback
26
Average daily volumes Rs cr
3000
2575
2500
2231
2095
Peak Volume for a single day 2015
2000
Rs. 4271 cr on Mar 30 ‘05
1619
1444
1500
1231 1229
1000
691
500
21 55
0
Q 1 - Q 2 - Q 3 - O ct- 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
2 0 0 4 2 0 0 4 2 0 0 4 N o v 0 4 '0 5
Impressive growth of NCDEX with 85% volume contribution from agriculture
Volumes in Steel & Copper picking up- daily average steel trade- 10,000
27
tonnes
Deliveries to Open Interest – June 2005
Deliveries to
June deliverables Open
COMMODITY in Metric tonnes Open Interest 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
Price dissemination: Choose your crop
Radio
TV Channels E-chaupals
N-logue
News agencies
PCOs
Newspapers &
Kisan call
journals
centres
IFFCO, HAFED
AGMARKNET Bank branches
Warehouses
29
Impact of NCDEX on Prices
Guar Seed Price (Rs/qtl) Raw Jute Price (Rs qtl)
FY 02 FY 03 FY 04 FY 05
FY 02 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.
31
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
Can be single produce centers or deal with multiple products
Mandis not networked
Function under the state administration and guided by
respective APMC Act
32
The present system: Agmark
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
33
The ideal mandi system : the enablers
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
34
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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