Brief History of Commodity Trading and Commodity Exchanges

Trading in commodities futures has a long history. Though the modern trade in commodity futures could trace its origins back to the 17th century in Osaka, Japan, there is evidence to suggest that a form of futures trading in commodities existed in China 6000 years earlier. Organized trading on an exchange started in 1848 with the establishment of the Chicago Board of Trade (CBOT).

The first milestone in the 125 years rich history of organized trading in commodities in India was the constitution of the Bombay Cotton Trade Association in the year 1875. India had a vibrant futures market in commodities till it was discontinued in the mid 1960's, due to war, natural calamities and the consequent shortages.

Recent Developments in India

The advent of economic liberalization helped the cause of laying emphasis on the importance of commodity trading. By the beginning of 2002, there were about 20 commodity exchanges in India, trading in 42 commodities, with a few commodities being traded internationally.

Commodities futures contracts and the exchanges they trade in are governed by the Forward Contracts (Regulation) Act, 1952. The regulator is the Forward Markets Commission (FMC), a division of the Ministry of Consumer Affairs, Food and Public Distribution.

In 2002, the Government of India allowed the re-introduction of commodity futures in India. Together with this, three screen based,nation-wide multi-commodity exchanges were also permitted to be set up with the approval of the Forward Markets Commission. These are:

1. National Commodity & Derivative Exchange

(www.ncdex.com)

This exchange was originally promoted by ICICI Bank, National Stock Exchange (NSE), National Bank for Agriculture and Rural Development (NABARD) and Life Insurance Corporation of India (LIC). Subsequently other institutional shareholders have been added on. NCDEX is popular for trading in agricultural commodities.

2. Multi Commodity Exchange

(www.mcxindia.com)

This exchange was originally promoted by Financial Technologies Limited, a software company in the capital markets space. Subsequently other institutional shareholders have been added on. MCX is popular for trading in metals and energy contracts.

3. National Multi Commodity Exchange of India

(www.nmce.com)

This exchange was originally promoted by Kailash Gupta, an Ahmedabad based trader, and Central Warehousing Corporation (CWC). Subsequently other institutional shareholders have been added on. NMCE is popular for trading in spices and plantation crops, especially from Kerala, a southern state of India.



In terms of market share, MCX is today the largest commodity futures exchange in India, with a market share of close to 70%. NCDEX follows with a market share of around 25%, leaving the balance 5% for NMCE.

In order to start investing in Commodities Futures, you should have comprehensive knowledge about all the above Commodity Futures, which will help you further in learning about the basics of commodity futures contract and it's various features.

In the next chapter we will learn about the basics of commodity futures contract and it's various features.


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Useful Links - NCDEX | MCX | NYMEX | KITCO | CBOT | CME | AGMARKNET | WORLD GOLD | FMC | KYC Regulations
BCE/TCM/CORP/0021, BCE Trading Member Id: 545, NCDEX/TCM/CORP/0479, NCDEX Trading Member id 00155, MCX/TCM/CORP/0479, MCX Trading Member Id 10440, NCDEX Spot Trading Member Id: 10040, SEBI registration no - INZ000044135