Commodity Market - Module IV

Module – IV Warehousing Trading and Settlement: Warehousing and
Warehouse Receipts, Storage, practice s in India, Risks in Storage, Structures,
Essentials of storage structures, cost of storage/carry, returns of storage cost,
warehousing, types of warehouses, Central warehousing corporation(CWC)
FCI, functioning, growth, capacity and utilization.
Trading on ‘Commodity Exchanges: the Exchange platform, Exchange
Membership, Commodity Brokerage, trading systems, participants in
Commodity Markets, Role of speculators, Trading mechanism – Margin
Trading, Mark to Market, Conflict Management; Arbitration and International
Legal provisions, Market Positions, Order Types, Access to Commodity
Exchanges, Volume and Open Interest. Clearing and Settlement on Commodity
Exchanges, Clearing House Operations and Risk Management, procedures,
Delivery related issues like delivery centers, Deliverable varieties, Issues
related to monitoring and surveillance by exchanges and regulator, Margining
Method and the settlement process.
Mr. Swaminath S, M.Com, PGDFM, PGDBA, PGDMM, NET & JRF, K-SET, (MBA), (Ph.D)
Research Scholar, Department of Commerce, Bangalore University, Bangalore - 560001

Introduction: Among the investment avenues, commodity futures
trading is a fast growing sector with huge untapped potential, along with
the financial markets. The major difference between commodity and
financial markets is that, in commodities futures physical delivery takes
place where as in the capital market it does not. In these markets, there
are farmers, industrialists, warehouses, consumers, dealers and traders,
who buy and sell commodities. There are warehouses, which stores
commodities and there are consumers, who consume them eventually. In
the Indian context, warehouses are necessary for the commodity sector
and commodity future trading especially for farmers because agricultural
commodities constitute a major segment of the Indian economy.
Warehousing forms the basic platform of delivery based trading in
commodity futures. Warehouses play an important role in commodities
futures, as most of trades are settled with delivery. That is, if the seller
chooses to handover the commodity instead of the difference in cash, the
buyer must take physical delivery of the underlying asset.

The role of a warehouse is most necessary in the spot market where a
farmer after having harvested his crop sells them to commission agents
who in turn sell them to a Mandi. The Traders in Mandi may then sell it
to a large consumer or to a trader who in turn will sell it to some other
consumer, industry, exporter or miller at the right time and right price.
The Goods during this period are stored in the warehouse. It is seen that
today 80% of the warehousing capacity is used by the Government for
storing various commodities under the Public Distribution System and
for storing fertilizers. Commodities form almost 58 percent of India's
Gross Domestic Product, out of which 22 percent is agriculture, and two
third of the population depend up on agriculture for livelihood.
One of the main differences between financial and commodity derivative
is that the need for warehousing. In case of most exchange-traded
financial derivatives, all the positions are cash settled. Cash settlement
involves paying up the difference in prices between the time the contract
was entered into and the time the contract was closed. In case of
commodity derivatives however, there is a possibility of physical
settlement.

a. Earmark separate storage areas as specified by the
Exchange for storing commodities;
b. Ensure proper grading of commodities before they are
stored;
c. Store commodities according to their grade specifications
and validity period; and
d. Ensure that necessary steps and precautions are taken to
ensure that the quantity and grade of commodity, as certified in
the warehouse receipt, are maintained during the storage period.
This receipt can also be used as collateral for financing.
In India, NCDEX has accredited over 775 delivery centers which meet
the requirements for the physical holding of goods that are to be
delivered on the platform. As future trading is delivery based, it is
necessary to create the logistics support for the same.
Functions of Warehouse

Essentials of Good Storage:
1. It should be easy to clean.
2. It should provide protection from rodents, birds and other
animals.
3. It should be waterproof and moisture proof.
4. It should protect the food grains against variations of
temperature and humidity.
5. It should have provision for periodical inspection.
6. It should have provision for application of pesticides
through spraying or fumigation.
7. It should be located far away from possible sources of
infection such as kilns, flour mills, and bone crushing mills,
garbage rumps, tanneries, slaughter houses and chemical
industries.
8. It should be located at a convenient place from where it is
easy to receive issue and transport the food gains. This
explains why most of the storage structures are located near
railway stations or on highways.

Warehouse and Storage Facilities in India: Three public sector agencies
are involved in building large-scale storage and warehousing capacities in
the country. These are the Food Corporation of India (FCI) - External
website that opens in a new window, Central Warehousing Corporation
(CWC) - External website that opens in a new window and 17 State
Warehousing Corporations (SWCs). While the FCI uses its warehouses
mainly for storing food grains, the storage capacities with CWC and SWCs
are used for the storage of food grains as well as other items.
Uses of Warehouses:
• Scientific storage of produce from the vagaries of weather, rodents,
insects and pests. They prevent quality and quantity losses.
• Meeting the financial needs of people who store the produce by
providing value for the goods stored.
• Regulating price levels by regulating the supply of goods in the
markets. More goods from the buffer are released when supplies are less
and less is released when supplies are more in the markets.
• Offering market intelligence in the form of price, supply and demand
information so that market users may develop selling and buying strategies.

The FCI has the largest agricultural warehousing systems with over 24.33
million tonnes of storage capacity in over 1451 godowns located all over
India. This includes owned as well as hired warehouses.
The CWC was founded in 1957 to provide logistics support to the
agricultural sector. Currently, it operates around 514 warehouses across the
country with a storage capacity of 10.27 million tonnes. Other than storage
and handling, CWC also offers services such as disinfestations, pest control,
fumigation, clearing and forwarding, handling and transportation,
procurement and distribution.
State Warehousing Corporations exist in 17 States to provide storage
facilities and pest control services for various agricultural commodities
belonging to farmers of that State. These warehouses work under different
Warehousing Acts enacted by the respective State Governments. Here are
links to warehousing corporations in some States:
• Madhya Pradesh, Kerala, Punjab, Maharashtra and Rajasthan.

Key Risk Areas – Storage at Warehouse
A. Protecting Ownership Rights in goods: Prudent owners must enquire
correctly.
B. Co-Mingling: In case of insolvency by one trader to another to save cost and
space.
C. Insurance: Failure to disclose a material fact may entitle the insurer to
terminate the policy and avoid payment in the event of a claim.
D. Financing: Loan on Goods stored or goods will be kept as a security.
E. Pledge Security: Retaining ownership and pledging with certain conditions.
F. Warehouse Documents: If documents are wrong and misrepresentations.
G. Legal risk management: Laws, Terms and Conditions, Rules & Regulations.
Significant Growth Drivers:
o Growth in GDP and changing demographics
o Demand for high-end services and infrastructure
o Growing external trade
o Rising share of organized retail
o GST implementation
Key players: DHL, Safexpress, Continental Warehousing, Indo Arya, MJ
Logistics, Allcargo, Nippon Express, etc. are the major players in industrial
warehousing.

WAREHOUSE STRUCTURE
India’s Warehousing Industry: Liquid Storage, Cold Storage, Agri
Storage, Container Handling and Storage, etc.

The warehouse structure in warehouse management is divided
hierarchically and consists of the following elements:
● Warehouse number: In EWM, you can manage an entire physical
warehouse complex using a single warehouse number.
● Storage type: You can define the individual warehouse facilities or
warehouses that make up the warehouse complex, using their technical,
spatial, and organizational characteristics as storage types.
● Storage section: Each storage type is divided into storage sections. All
storage bins with specific common attributes belong to one storage section,
for example, storage bins for fast-moving items that are close to the goods
issue zone.
● Storage bin: Each storage type and storage section consists of a selection
of storage compartments that are called storage bins in EWM. The
coordinates of the storage bin tell you the exact position in the warehouse,
where you can store products.
● Quant: The quant is used for inventory management of a product in a
storage bin.

In the Implementation Guide (IMG) for EWM, choose Extended
Warehouse Management → Master Data →
1. Define Warehouse Numbers
2. Define Storage Type
3. Define Storage Section
4. Storage Bins → Define Storage Bin Types
5. Activity Areas → Define Activity Area
6. Activity Areas → Assign Storage Bins to Activity Areas
Warehouse Costs and other Expenses: Supervisory Salaries, Clerical
Salaries, Purchased Labor, Office Equipment (major & minor), Office
Maintenance, Telephone/Facsimile, Postage, Printing, Office supplies,
Legal and Professional, Taxes and Licenses, Losses Due to Damage,
Shortages, and Errors, Other expenses, etc.

Types of Warehouses:
1. Private Warehouse:
2. Public Warehouse:
3. Automated Warehouse:
4. Climate-Controlled Warehouse: freezers, humidity-controlled
environments
5. Distribution Center:
6. Bonded Warehouses: licensed by the government to accept
imported goods for storage until the payment of custom duty. They
are located near the ports.
7. Special Commodity Warehouse: e.g., tobacco, cotton, wheat etc.
8. Cold Storage or Refrigerated Warehouses:
9. Institutional Warehouses: For example, Banks, Railways, Food
Corporation of India etc. has their own warehouses for conducting
their activities.

Functions of Warehousing:
1. Storage:
2. Price Stabilization:
3. Risk bearing:
4. Financing:
5. Grading and Packing
General Benefits from Warehouses
1. Regular Production:
2. Time Utility: between production and consumption of goods.
3. Store of Surplus Goods:
4. Price Stabilization:
5. Minimization of Risk:
6. Packing and Grading:
7. Financing:

Central Warehousing Corporation (CWC): A premier Warehousing
Agency in India, established during 1957 providing logistics support to
the agricultural sector, is one of the biggest public warehouse operators
in the country offering logistics services to a diverse group of clients.
CWC is operating 448 Warehouses across the country with a storage
capacity of 11.17 million tonnes providing warehousing services for a
wide range of products ranging from agricultural produce to
sophisticated industrial products. Warehousing activities of CWC include
food grain warehouses, industrial warehousing, custom bonded
warehouses, container freight stations, inland clearance depots and air
cargo complexes. Apart from storage and handling, CWC also offers
services in the area of clearing & forwarding, handling & transportation,
procurement & distribution, disinfestation services, fumigation services
and other ancillary activities. CWC also offers consultancy services/
training for the construction of warehousing infrastructure to different
agencies.

Storage: Scientific storage and handling services for more than 400
commodities include Agricultural produce, Industrial raw-materials,
finished goods and variety of hygroscopic and perishable items.
• Scientific Storage Facilities for more than 200 commodities including
hygroscopic and perishable items through network of 464 warehouses in India
with its 4,156 trained personnel.
• Import and Export Warehousing facilities at its 30 Container Freight
Stations in ports and inland stations.
• Bonded Warehousing facilities, Disinfestation services & Handling,
Transportation & Storage of ISO Containers.

Bonding Facility: CWC operates 66 Custom Bonded Warehouses with a
total operated capacity of nearly 0.42 million Mts. The concept of
custom Bonded Warehousing has been promoted with a view to facilitate
deferred payment of custom duty to encourage entrepreneurs and export
oriented units to carry out their operations with least investment. These
bonded Warehouses are located all over the country at places well -
connected with the port towns for smooth movement of goods to and
from the discharge points.

Air Cargo & Train Cargo Complex: Ambitious expansion of CWC
over the years has also brought CWC in the operation of Air cargo
Complexes which is a major step towards providing complete services as
a multi-modal transport operator. Presently, CWC is operating 3 Air
cargo Complexes at the International Airports of Amritsar, Goa,
Singanallur and Virugambakkam besides managing the
accompanied/mishandled cargo warehouse at Indira Gandhi International
Airport at New Delhi.

Integrated Check Post Terminal:
CWC is operating an integrated truck
terminal for providing support services
to the import/export trade with
Bangladesh through land route at
Petrapole (West Bengal) on the Indo-
Bangladesh border. The terminal,
spread over an area of 17.08 acre, has
facility for truck parking, storage,
customs examination, etc.
Disinfestation and Pest Control Services:
Govt. of India, vide Notification dated 23rd
March 1968, entrusted additional responsibility
to CWC to undertake Disinfestation/Pest
Control Services beyond its warehouses in
respect of Agricultural produce or other
notified commodities. Over the years, CWC
has developed the expertise in Pest
Management in the following areas.

Farmers Extension Service Scheme: In order to educate the farmers on
scientific storage of food grains and post-harvest loss minimization,
CWC introduced its Farmers Extension Service Scheme in 1978-79
wherein the technical staff posted at its warehouses visit the adjoining
villages and train the farmers on Post-Harvest Technology. The scheme is
presently in operation through 304 rural based warehouses. Further, to
encourage the farmers and motivate them to avail public warehousing
facilities, CWC offers a rebate of 30% on its storage charges for the
farmers’ stocks. A Warehouse Receipt, which is a negotiable instrument,
is issued to the farmers, who can obtain institutional credit on pledge of
the Warehouse Receipt and thus avoid distress sale.

Food Corporation of India: Food Corporation of India (Hindi: भारतीय खाद्य
निगम) was set up on 14 January 1965 having its first District Office at
Thanjavur - rice bowl of Tamil Nadu - and headquarters at Chennai
under the Food Corporations Act 1964 to implement the following
objectives of the National Food Policy :
1. Effective price support operations for safeguarding the interests
of the farmers
2. Distribution of food grains throughout the country for Public
Distribution System
3. Maintaining satisfactory level of operational and buffer stocks of
food grains to ensure National Food Security
4. Regulate market price to provide food grains to consumers at a
reliable price
5. To provide farmers remunerative prices
6. To make food grains available at reasonable prices, particularly to
vulnerable section of the society
7. To maintain buffer stocks as measure of Food Security
8. To intervene in market for price stabilization

It is one of the largest corporations in India and probably the largest
supply chain management in Asia (Second in world) it operates through
5 Zonal offices and 24 Regional offices. Each year, the Food Corporation
of India purchases roughly 15 to 20 per cent of India's wheat output and
12 to 15 per cent of its rice output. The purchases are made from the
farmers at the rates declared by the Govt. of India. This rate is called as
MSP (Minimum Support Price). There is no limit for procurement in
terms of volume; any quantity can be procured by FCI (Food
Corporation of India) provided the stock satisfies FAQ (Fair Average
Quality) specifications with respect to FCI.
The Government policy of procurement of Food grains has broad
objectives of ensuring MSP to the farmers and availability of food grains
to the weaker sections at affordable prices. It also ensures effective
market intervention thereby keeping the prices under check and also
adding to the overall food security of the country.

Growth, Capacity and Utilization of FCI: The storage function assumes
paramount importance in organization such as Food Corporation of India
because of its requirement to hold huge inventory of food grains over a
significant period of time. Storage plan of FCI is primarily to meet the
storage requirement for holding stocks to meet the requirements of Public
Distribution System and Other Welfare Schemes undertaken by the
Government of India. Also, buffer stock is to be maintained for ensuring
food security of the nation. Adequate scientific storage is pre-requisite to
fulfill the policy objectives assigned to the Food Corporation of India for
which FCI has a network of strategically located storage depots including
silos all over India. Besides having own storage capacity, FCI has hired
storage capacities from Central Warehousing Corporation, State
Warehousing Corporations, State Agencies and Private Parties for short
term as well as for guaranteed period under Private Entrepreneurs
Guarantee Scheme. New Godowns are being constructed by FCI mainly
through Private Participation under Private Entrepreneurs Guarantee
Scheme. FCI is also augmenting and modernizing its storage capacity in
the form of silos through Public Private Partnership.

The role of Food Corporation of India (FCI) becomes even more
important in the backdrop of National Food Security Act, 2013.
Performance of any institution should be judged against the objectives it
was supposed to perform. As elucidated in the last chapter, The Food
Corporation of India came into existence in 1965 under the Food
Corporation’s Act of 1964 to fulfill the following objectives of the food
policy:
1. Provide effective price support operations to safeguard the
interests of the farmers;
2. To distribute food grains through-out the country for
public distribution system(PDS);
3. To maintain satisfactory level of operational and buffer
stocks of food grains to ensure National Food Security.
As on Capacity with FCI Storage Capacity Other Agencies Total
01-04-2011 512268 385182 897450
01-04-2012 512268 476440 988708
01-04-2013 512268 465594 977862
01-04-2014 512268 328646 840914
01-04-2015 512268 332409 844677
(Fig in Lakh MT)

Warehousing Development and Regulatory Authority – Department
of Food and Public Distribution, Government of India: Warehousing
plays a very vital role in promoting rural banking and financing. With a
view for overall growth and development of warehousing sector and to
promote efficiency in conduct of warehousing business, the Government
of India has introduced a negotiable warehouse receipt system in the
country. Parliament has enacted the Warehousing (Development and
Regulation) Act, 2007 (37 of 2007). The Government of India had notified
the Warehousing (Development and Regulation) Act, 2007 in the Gazette
of India, Extraordinary, Part – II- Section 1 dated 20thSeptember, 2007.
The Provisions of the Act have also become effective from 25thOctober,
2010. As per the provisions of the Act, a Warehousing Development and
Regulatory Authority (WDRA) comprising of one Chairman and two full
time members has been setup by the Government of India from 26th
October, 2010 for implementing the provisions of the Act. The negotiable
warehouse receipt system has been formally launched by Prof. K. V.
Thomas, Hon’ble Minister (Independent Charge), Consumer Affairs, Food
and Public Distribution on 26.04.2011.

The main objectives of the Warehousing (Development and Regulation)
Act, 2007 are to make provisions for the development and regulation of
warehouses, to promote professional organisations connected with the
warehousing business, negotiability of warehouse receipts, establishment of
a Warehousing Development and Regulatory Authority (WDRA) and
related matters. The Negotiable Warehouse Receipts (NWRs) issued by the
warehouses registered under this Act would help farmers to seek loans from
banks against NWR to avoid distress sale of their agricultural produce. It
will also be beneficial for a number of other stakeholders such as banks,
financial institutions, insurance companies, trade, commodities exchanges
as well as the consumers.
Powers and Functions of Authority:
(1) Subject to the provisions of this Act and any other law for the time being
in force, the Authority shall have the duty to regulate and ensure
implementation of the provisions of this Act and promote orderly growth of
the warehousing business.
(2) Without prejudice to the generality of the foregoing provisions, the
powers and functions of the Authority shall include the following, namely: -

(a) To issue to the applicants fulfilling the requirements for warehousemen a
certificate of registration in respect of warehouses, or renew, modify,
withdraw, suspend or cancel such registration;
(b) To regulate the registration and functioning of accreditation agency,
renew, modify, withdraw, suspend or cancel such registration, and specify
the code of conduct for officials of accreditation agencies for accreditation
of the warehouses;
(c) To specify the qualifications, code of conduct and practical training for
warehousemen and staff engaged in warehousing business;
(d) To regulate the process of pledge, creation of charges and enforcement
thereof in respect of goods deposited with the warehouse;
(e) To promote efficiency in conduct of warehouse business;
(f) To make regulations laying down the standards for approval of certifying
agencies for grading of goods;
(g) To promote professional organizations connected with the warehousing
business;
(h) To call for information from, undertaking inspection of, conducting
enquiries and investigation including audit of the warehouses, accreditation
agencies and other organizations connected with the warehousing business;

(i) To determine the rate of, and levy, the fees and other charges for
carrying out the provisions of this Act;
(j) To regulate the rates, advantages, terms and conditions that may be
offered by warehousemen in respect of warehousing business;
(k) To specify, by regulations, the form and manner in which books of
account shall be maintained and statement of accounts shall be rendered
by warehousemen;
(l) To maintain a panel of arbitrators and to nominate arbitrators from
such panel in disputes between warehouses and warehouse receipt
holders;
(m) To regulate and develop electronic system of holding and transfer of
credit balances of fungible goods deposited in the warehouses;
(n) To determine the minimum percentage of space to be kept reserved
for storage of agricultural commodities in a registered warehouse;
(o) To specify the duties and responsibilities of the warehouseman;
(p) To exercise such other powers and perform such other functions as
may be prescribed.

PROCEDURE FOR REGISTRATION OF WAREHOUSES:
i. The warehouse has to first get an accreditation certificate from an
approved Accreditation Agency of the WDRA. The list of approved
Accreditation Agencies is available on the website of the WDRA.
Application form for grant of accreditation certificate from an
Accreditation Agency and the checklist for the accreditation of
warehouses are available in the Warehouse Manual. The Manual is also
available on the website.
ii. The accreditation fee for the warehouses is as follows:
For warehouses of Primary Agricultural Cooperative Credit Societies (PACS),
the accreditation fee is Rs. 5,000/-.
iii. The warehouseman may make an application to the authority for
registration of his warehouse in Form A1 available on the website of the
WDRA.
iv. A person desirous of carrying on the business of warehousing in more than
one warehouse shall submit a separate application for registration in respect
of each warehouse.

Registration Fee and Security Deposit are as Follows:
Fee – Application fee for registration of warehouse or renewal thereof is
as follows and payable by way of bank draft or bankers cheque or
through ECS of any scheduled commercial bank in favour of the
Warehousing Development and Regulatory Authority payable at New
Delhi:
(i) State Capital cities ----------------Rs. 2.50 per ton
(ii) District Headquarters ------------Rs. 1.50 per ton
(iii) For rural and other areas--------Rs. 1.00 per ton
The fee is subject to a minimum amount of Rs. 7500 for each warehouse.
However, in case of Primary Cooperative Societies, there is no such
minimum fee.

Security Deposit - Security deposit for registration of warehouse is as
follows and payable by way of bank draft or banker’s cheque or ECS of
any scheduled commercial bank in favour of the Warehousing
Development and Regulatory Authority payable at New Delhi:
(i) State Capital cities -------------Rs .2.50 per ton
(ii) District Headquarters ----------Rs.1.50 per ton
(iii) For rural and other areas ------Rs.1.00 per ton
The security deposit is subject to a minimum amount of Rs.7500 for each
warehouse. However, in case of Primary Cooperative Societies, there is
no such minimum security deposit.
The WDRA has notified 123 agricultural commodities and 26
horticultural commodities for issuance of NWRs. The list is available on
the website of the WDRA. An applicant should specify the names of
commodities to be stored in the warehouse. Immediately upon receipt of
its registration certificate, the warehouseman shall display the same and
keep it pasted until suspended or revoked, in a conspicuous place in the
principal place of its business.

LIST OF NOTIFIED AGRICULTURAL COMMODITIES FOR ISSUANCE OF NWRS:

LIST OF NOTIFIED HORTICULTURAL COMMODITIES FOR ISSUANCE OF NWRS:

NATIONAL COLLATERAL MANAGEMENT SERVICES LIMITED
NCML offers modern, scientific and IT enabled storage and preservation
services for the entire range of agri and non - agri commodities. Our
warehouses are spread across the country in 12 states and over 50 locations, and
deal with as many as 42 agricultural commodities. Our warehouses strictly
adhere to scientific norms, and are accredited by the National Commodity and
Derivatives Exchange (NCDEX) for accepting physical deliveries of
commodities traded in the commodity futures market.
Following are the scope of services we can provide with last mile delivery
anywhere in India:
• Order management, Warehouse management, Transportation
management, Replenishment management
• Inventory management, Buyer Consolidation management, Retail
supply chain management
• System Integration services, Distribution management, Shelf life
management
• Information management, kitting/ Re-packaging/ labeling services,
Return and re-work services
• Packaging and Preservation, Replenishment management, Billing and
Account receivables

Trading System at Commodity Exchanges: Members can access real time
market depth quotes, charts, positions and contract related information
through the Trading System. It also has variety of user friendly features such
as message logs, profit/loss calculations and watch lists for top gainers and
losers. Market depth window is available in trader workstation based on
price-time priority logic. The Order types are based on time and price
condition.
Day Order - Any order to buy or sell, which automatically expires if not
executed on the day the order is placed.
GTC (Good Till Cancelled) - Any order to buy or sell, which lasts until the
order is completed or cancelled by the user. The order automatically gets
expired on the expiry day of the contract.
GTD (Good Till Date) - GTD orders are cancelled at the close of the market
on the specified day (expiration day).
IOC (Immediate or Cancel) - An order requiring that all or part of the order
be executed immediately after it has been brought to the market. Any portions
not executed immediately are cancelled.
AON (All or None) - The AON order works to safeguard your purchase by
providing the guarantee that you either receive full quantity that you requested
or none at all. If full quantity is not available, the order gets expired.

Order types based on Price Conditions:
• Market Order - Buy or sell immediately at the best available
counter price
• Limit order - An order to buy or sell at a specific price
• Stop Order - A stop order is a market order that will remain
unelected (without entering the order book) until the stop price is
reached. Once elected, it will be treated similar to a regular
market order
• Stop Limit Order - A stop limit order is a limit order that will
remain unelected (without entering the order book) until the stop
price is reached. Once elected, a stop limit order will be treated
similar to a regular limit order
Trade Timings: Trading on
exchange platform takes place on
all days of the week (except
Saturdays, Sundays and
holidays declared by the
Exchange) Market timings are as
follows:
Particulars Trading Timings
WEEK-DAYS
Agri Commodities
10:00 a.m. to 5:00
p.m.
Bullion, Metals, Crude Oil and
Internationally linked Agri
Commodities
10:00 a.m. to 11:30
p.m.

Commodity Brokerage: A Commodity Broker is a firm or individual
who executes orders to buy or sell commodity contracts on behalf of
clients and charges them a commission. A firm or individual who trades
for his own account is called a trader. Commodity contracts include
futures, options, and similar financial derivatives. Clients who trade
commodity contracts are either hedger using the derivatives markets to
manage risk, or speculators who are willing to assume that risk from
hedgers in hopes of a profit.
Types of Intermediaries / Brokers / Membership in Commodity
Exchange
Floor Broker/Trader: an individual who trades commodity contracts on
the floor of a commodities exchange. When executing trades on behalf of a
client in exchange for a commission he is acting in the role of a broker.
When trading on behalf of his own account, or for the account of his
employer, he is acting in the role of a trader. Floor trading is conducted in
the pits of a commodity exchange via open outcry.

Futures Commission Merchant (FCM): A firm or individual that solicits
or accepts orders for commodity contracts traded on an exchange and holds
client funds to margin, similar to a securities broker-dealer. Most individual
traders do not work directly with a FCM, but rather through an IB or CTA.
Introducing Broker (IB): A firm or individual that solicits or accepts
orders for commodity contracts traded on an exchange. IBs do not actually
hold customer funds to margin. Client funds to margin are held by a FCM
associated with the IB.
Commodity Pool Operator (CPO): A firm or individual that operates
commodity pools advised by a CTA. A commodity pool is essentially the
commodity equivalent to a mutual fund.
Registered Commodity Representative (RCR)/Associated Person (AP):
an employee, partner or officer of a FCM, IB, CTA, or CPO, duly registered
and licensed to conduct the activities of a FCM, IB, CTA, or CPO. This is
the commodity equivalent to a registered representative.

Commodity Trading Advisor (CTA): A firm or individual that, for
compensation or profit, advises others, on the trading of commodity
contracts. They advise commodity pools and offer managed futures
accounts. Like an IB, a CTA does not hold customer funds to margin;
they are held at a FCM. CTAs exercise discretion over their clients'
accounts, meaning that they have power of attorney to trade the clients
account on his behalf according to the client's trading objectives.
Competitive Brokerage Charges:
Competitive Brokerage Slab for Derivative Segment
Avg. Monthly volumes
(Assuming 22 working days)
Intraday
brokerage
(Each Side)
Settlement
(Each Side)
Account Type
<2 cr 0.07 0.09 Gateway A/C
2-5.5 cr 0.045 0.073
5.5 – 10 cr 0.036 0.046
10 – 25 cr 0.027 0.046
Privilege
Circle A/C
25 cr and above 0.023 0.032

Particulars RKSV Securities Zerodha Trade Smart Online
Brokerage
0.01% or Rs.
20/Trade whichever
is lower
0.01% or Rs
20/Trade
whichever is lower
Rs 15/Trade
STT
0.01% only on the
sell side
No STT No STT
Transaction/Turnov
er Charges
260/crore
Non-Agri:
310/crore
Agri: 175/crore
250/crore
Service Tax
14% on
Brokerage+Transacti
on Charge
14% on Brokerage
+ Transaction
Charge
14% on Brokerage +
Transaction Charge
SEBI Charges No SEBI Charges No SEBI Charges No SEBI Charges
Stamp Duty
Charges
100/Crore
0.01% subject to a
maximum of Rs 50
0.001% (Rs 100/crore)

Commodity Market Participants:
A. Hedgers
B. Speculators
a. Speculation: Bullish commodity, buy futures
b. Speculation: Bearish commodity, sell futures
C. Arbitragers
D. Investors
E. Intermediaries
Margins for Trading in Futures:
1. Additional Margin
2. Daily / Initial Margin
3. Maintenance Margin
4. Mark to Market Margin
5. Clearing Margin
6. Customer Margin
7. Special Margin
8. Exposure Margin

Conflict Management: Conflict management refers to the long-term
management of intractable conflicts. It is the label for the variety by
which people handle grievances – standing up for what they consider to
be right and against what they consider to be wrong. Those ways include
such diverse phenomena as gossip, terrorism, warfare, law, mediation
and avoidance. Which forms of conflict management will be used in any
given situation can be somewhat predicted and explained by the social
structure – or social geometry – of the case. Conflict management is
often considered to be distinct from conflict resolution. The latter refers
to resolving the dispute to the approval of one or both parties, whereas
the former concerns an ongoing process that may never have a
resolution. Neither is it considered the same as conflict transformation,
which seeks to reframe the positions of the conflict parties.
Conflict is more than an argument, or a mild disagreement. In the
1950’s, conflict became a focus of study, and the process oriented
communication theory began to accelerate in the year 1970. Conflict is
generally associated with negative encounters; conflict itself is neither
inherently good nor inherently bad.

Benefits of Conflict Management:
Conflict fosters an awareness that problem exist.
Discussing conflicting views can lead to better solutions.
Managing conflict is quicker and more efficient.
Conflict requires creativity to find the best outcomes.
Challenging old assumptions can lead to changes in outdated
practices and processes.
Conflict raises awareness of what is important to
individuals.
Managing conflicts appropriately helps build self-esteem
and also managing conflicts is a sign of maturity.
Conflicts are challenging, exciting, encourage people to
grow, and also creates an opportunity.
Conflict energizes work to be done on the most appropriate
issues and it helps to raise and address the problems quickly.
Conflict motivates people to participate on issues.

Committee on Commodity Problems: The role of CCP is to review
commodity problems of an international nature, to survey the world
commodity situation, and to develop appropriate policy
recommendations for the FAO council. The CCP is the only truly global
platform for the discussion of problems facing commodity producers,
exporters and importers and for identifying appropriate solution to them.
Following are the important general conflicts which can be
observed:-
Sharp fall in prices of commodities across the countries.
Weather conditions especially for agricultural products.
Import & Export / Internal & External policies.
Recent market trends and factors lying behind them.
Increasing market concentration, new technologies, and
consumer concerns over food safety and environmental and
social impacts of agricultural production systems.
Trade policy developments.

CLEARING & SETTLEMENT
1. Effecting timely settlement, Trade registration and follow up.
2. Control of the evolution of open interest, Financial clearing of the
payment flow.
3. Physical settlement (by deliver) or financial settlement (by price
difference) of contracts.
4. Administration of financial guarantees demanded by the participants.

Commodity Market - Module IV

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Commodity Market - Module IV