Page 1 - MEX Express - Vol 6 Issue 3

Mercantile Exchange Nepal Limited
Invest - Trade - Earn
An ISO 9001:2008 Certified Exchange
KYC: Copper
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From the CEO’s Desk
First of all, I would gladly like to
take this opportunity to share to
all the stakeholders of the Nepali
financial market, especially commodity
market, that MEX Nepal is approaching the
completion of sixth year of its operation. It products. The central idea of the commodity
gives me immense pleasure to observe the positive vibes and
the support with constructive feedbacks that we have received
during this journey, even at tough times.
Continuing the habit of presenting new and innovative
techniques to ensure the sustainable growth and transparency
of the business, MEX Nepal is up with the invitation for the
Market Makers from everybody who is potential and capable
to fit in the criteria designed by the exchange. MEX Nepal
has realized “Every bad incident has a good lesson within”-
as it was during the tirade of negative news we got the idea
to open up the call for Market Makers in the general public.
Now, the general people can fit in the criteria to smoothen
the operation of exchange by making the market. Earlier it
was about blaming the exchanges but now it is about taking
the opportunity to enhance one’s benefit on one hand, and
contributing the financial awareness on the other. As we had
been mentioning, MEX Nepal is one of the pioneers in the
country to start the dialogues for the development of the
commodity market in the country, now MEX Nepal is trying
to organize a half-day awareness program among the finance-
literate community in the capital.
Truly it makes a lot of difference when something is done with
a balanced and encouraged state of mind and at this point of
time, when we are obsessed and obliged with the foundation
of highly anticipated transparent and user-friendly trading
platform, the new platform has provided enough scope in the
Nepali commodity market for the Market Makers. The coming
days would add up more challenges for sure, but with this
friendly relation between us and the major stakeholders in the
market, we will definitely tap them into opportunities.
Finally, I would like to mention that Doing days are on now
and being Market Makers, all of you can help us take one
step closer to the standardization process of the exchanges.
MEX Nepal would not leave a stone unturned in doing the
best to provide the market with new products and new trading
dynamics.
Be a Market Maker, Initiate the Change!
- Jitesh Surendran
MEX EXPRESS www.facebook.com/mexhome
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Physical Delivery of
AGRO COMMODITIES
The history of commodity market
dates back to the 17th Century.
At initial stages, the market for
commodities was focused on agricultural
market then was to manage the risk of price
difference during harvesting and processing
of agricultural products. Today commodity
market products exist not only in agricultural dominated economy, the economic share
products but also into a wide array of
tangible and intangible products such as
metals, stocks, indices, forex etc.
Historically, commodity trading was aimed
towards safeguarding the future price risk
for agricultural products that were agreed
to be delivered in the future. In other words, sector as well. The effective functioning
it can be said that in one way or other, the
settlement of the contract was done via
physical delivery of the traded commodity.
Though online trading has popularized
futures and spot products as dominant
players of the commodity market, physical
delivery of commodities has still not lost its the products will be a must. The quality of
charm for the end users of those deliverable
commodities.
Unlike in futures, the product traded is
physically delivered at the time of settlement producers. Standardization also reduces the
of the contract thus ensuring the practicality cost of transaction and the cost of the entire
of trade to the businessmen supposedly
producers who use the commodity as
raw materials. For example, for a sugar
manufacturing company the guarantee of
buying sugarcane in a future date can be
a major issue for his business. A contract
of physical delivery of 10,000 quintals of
sugarcane from a particular farmer can be an
efficient way to mitigate his risk.
Similarly as the price of the commodity is
dependent upon the demand and supply
in the market, it determines the fair price
of the commodity in the real market.
Volume: 6 • Issue: 3 • Year: 2014 A.D
Market Perspective
PAGE 4
The continuous auction of the prices in
the commodity market leads to fair price
discovery of the commodity as well as
ensures stability of the prices.
It would be a cliché to state that Nepal is
an agriculture based country where most of
the population of the country is dependent
on this source of livelihood. Being an agro-
of this sector is in diminishing in Nepal.
Though this sector is given high priority
less has there been the benefits reaped. The
physical delivery of agro products at pre-
stated date and pre-stated prices can be a
strong base for development of agriculture
of the physical delivery mechanism can
provide a strong base for this sector.
The mechanism of physical delivery of
commodities can enable centralized grading
of products. The more the market gets
structured the need for standardization of
the products to be delivered needs to meet
the national and international standards,
thus encouraging quality consistency among
procedure as well.
The need to practice and promote physical
delivery mechanism is high especially in
the agriculture sector. But there are major
factors challenging the commodity market
in the country. Commodity market in Nepal
is in a developing stage and still this sector
lacks regulatory body to look over it. Though
the fiscal policy of 2071/72 addresses the
role of commodity market in the national
economy, efforts to address the issue has
been minimal. Lack of regulatory authority
has handicapped the potential growth
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of this market as a whole significantly
affecting the trustworthiness of the physical
delivery mechanism in the country. This
sector requires support and backup of the
government bodies to deepen its roots in the
economy of the country.
Adding to above, lack of warehouses and
storage mechanism of agricultural products
also challenges the growth and stability of
physical delivery of agro commodities in
Nepal. The need for standard warehouses
and storage house of agro products has been
realized and highlighted by many as a major
support for the agro industries.
Another challenge that this market faces
is the lack of awareness among producers
and investors. Not many people in the
country are aware of the commodities
market in Nepal and thus many investors
are resistant to explore and invest in this
market. To increase the market base efforts
must be made to aware the customers and
investors of this market. Either by enhancing
the practical education in the academic
sector or by conducting social campaigns,
training programs
by all of the market
participants the reach
of information about
this sector must be
spread wide.
The mechanism of
commodity market
or the mechanism of
physical delivery in
commodity market
itself depends
on a number of
linked institutions,
which are critical
to its functioning.
Integration and
development of all
the components
of this market is
necessary for overall
development be it in
case of agricultural, metal or energy sector
and consequently the entire economy of the
country as a whole. Fair price discovery and
proper integration of all market participants
will develop a system that generates
itself market information, transparency,
standardization consequently promoting self
regulation.
Liberty Shakya
Assistant Manager
Compliance Department
MEX Nepal
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