Electronic spot trading bourse launched

The Multi Commodity Exchange of India (MCX) in partnership with Financial Technologies and National Agricultural Co-operative Marketing Federation (NAFED) will set up India's first electronic exchange for spot trading in commodities, called the National Spot Exchange for Agricultural Produce (NSEAP).

NSEAP will be a national level electronic exchange linked to agriculture produce marketing co-operatives (APMC) and other physical market players through an electronic platform.

The central minister of agriculture, Sharad Pawar, said, "This is the first initiative of electronically networking producers and consumers of agricultural commodities to create a common market at an all India level. This will go a long way in creating a common market across India."

NSEAP will facilitate a consumer-producer linkage across the country to disseminate critical information, including prices, on commodities to enable farmers sell their produce at the highest price.

Food processing units and corporate houses will be able to buy goods directly from the market through this exchange.

Pawar announced that the government was planning to introduce a legislation to make warehouse receipts a negotiable instrument to facilitate increased agricultural lending by banks.

Banks would also be able to lend to traders while the system would also help reduce the cost of public support for agricultural marketing.

Transaction costs will be reduced and price-risk management will improve.

Pawar said the number of intermediaries between farmers and users of any agro-product needed to be brought down.

Procurement of agro-products by major business enterprises directly from production centres would help farmers get remunerative prices and the spot exchange would facilitate such deals, the minister said.

FTIL will provide the necessary technical backing for creating an electronic network for the flow of information, analyses, communication and commerce.

MCX already has a turnover of Rs 1000 crore a day and it will strengthen its infrastructure for the spot exchange.

Though NSEAP will be an independent institution, the spot exchange and MCX will complement each other because of common consortium of promoters.

State Bank of India would be the principal clearing and settlement bank for NSEAP and ensure transmission of money from one centre to another.

NSEAP would have a large network of intermediaries consisting of a segment of commission agents already operating in APMCs and also using agents operating in the futures market.

It aims to provide a single point access to the users for buying, selling, storing, transporting, and payment of commodities.

Chairman of the Forward Markets Commission, S Sundareshan, said, "The futures market needs to function in harmony with the physical market. Hence having a national spot exchange would serve the purpose of having an efficient and integrated market."