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

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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

„ 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 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

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 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

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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

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 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

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 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

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 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
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 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

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 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

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 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

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 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
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

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 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
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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

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 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

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 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.

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

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 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

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 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

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 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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