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Derivatives
Spot Price and polling in commodity exchange
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8 November, 2013, 2:12 PM
Like any other derivative a futures contract derives its value from the underlying commodity. The spot and futures market are closely interlinked with price and sentiment in one market affecting the price and sentiment in the other.
Fair and transparent spot price discovery attains importance when studied against the role it plays in a futures market.
In India is no effective mechanism or real time spot price information of commodities. The only government agency which collects spot prices is agmarknet which collects the post-trade mandi data, but even such information is not disseminated real time. The exchange needs the spot price information real time at several points in time during the trading hours. Moreover, agricultural spot markets in India are spread over 7000 mandis across the country. Prices for the same commodity differ from mandi to mandi. This is a direct consequence of the lack of integration of markets and the lack of good transportation facilities. The price differentials create a problem in the development of a unique representative spot price for the commodity. Considering the importance of spot price information to the trader and the unavailability of reliable source of real time spot price data, NCDEX has put in place a mechanism to poll spot prices prevailing at various mandis throughout the country. This process in analogous to the interest rate polling conducted to find the LIBOR rates.
The Exchange collates spot prices for all commodities on which it offers futures trading and disseminates the same to the market via the trading platform. This collection and dissemination of spot prices is done by various reputed external polling agencies which interact directly with market participants and collect feedback on spot prices which are then disseminated to the market.
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