NCDEX proposes to cover APMCs in common clearing corporation

Gives a different dimension to commodities trading in India as eventually spot trading may also come on commodities platform

The National Commodity and Derivatives Exchange  (NCDEX) has proposed a clearing corporation across market segments.

Its spokesperson said, “There is need for common clearing across market segments, catering to mandis, forwards and futures, as well as state and central government procurement and sale.”

As reported earlier, a committee appointed by the government on the subject has already proposed “an independent single common clearing corporation may be set up for the national commodity exchanges.” That would cover futures and forward contracts but spot markets and mandis, beside state procurement, would be outside the platform.

NCDEX has a subsidiary which integrates Agricultural Produce Marketing Committee-run mandis electronically and trading is also happening on that platform. However, for thousands of mandis, there are no transparent settlement and clearing institutions.

Experts believe even if the idea is accepted, this can only be implemented in phases. In the capital market, there is no common clearing corporation; exchanges do independent clearing.

“The NCDEX group would be happy to offer its clearing and settlement services to smaller and regional exchanges, to benefit from our expertise,” said the exchange’s spokesperson.

Adding: “It is important that a single source of potential failure in the marketplace be avoided, as it can cause systemic risks, the ramifications of which could be disastrous to the entire market. At this stage of market development, it is important to develop the market by ensuring competition, so that innovation and customer service is not compromised.”

NCDEX is the only national commodity exchange to have a vertically integrated architecture. Their own clearing corporation handles a monthly average of 100,000 deliveries. The highest numbers are in castor seed, cotton deoiled cake, chana and soybean. It handles an average daily volume of Rs 3,500 crore and open interest of Rs 6,600 crore.