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Role of Warehouse in Futures Market

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Abhijeet S
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abhishreshthaa
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Role of Warehouse in Futures Market - September 10th, 2010

What is the role of a Warehouse in Futures Market?


In India, vibrant spot markets, in various commodities, exists for 100s of years.
In these markets, there are farmers, industrialists, warehouses, consumers, dealers and traders, who buy and sell commodities.


There are warehouses, which stores commodities and there are consumers, who consume them eventually.


MCX or, for that matter, any other Futures Exchange do not aim to replace, replicate or substitute such spot markets, rather the only value added service of MCX is to support the spot market players by developing their price risk efficiency through providing hedging tools.


Therefore, a Futures Exchange has to base its delivery process on the basis of existing physical market practices and use existing warehouse infrastructure, which is capable of handling billion dollars worth of physical market trades.


So the same infrastructure can properly take care of minuscule delivery tendered in a futures market.




When is the role of a Warehouse most necessary?


The role of a warehouse is most necessary in the spot market where a farmer after having harvested his crop sells them to commission agents who in turn sells them to a Mandi.


The Traders in Mandi may then sell it to a large consumer or to a trader who in turn will sell it to some other consumer, industry, exporter or miller at the right time and right price.


The Goods during this period are stored in the warehouse.


It is seen that today 80% of the warehousing capacity is used by the Government for storing various commodities under the Public Distribution System andfor storing fertilizers.




What is a Demat Electronic Warehouse receipt?

Demat Electronic Warehouse Receipts are expected to be electronic records created by an approved agency after dematerialisation of the physical receipt issued by a Warehouse.


In securities market the physical shares of the company are dematerialized by their Registrar and Transfer Agents using a Depository empowered under the Depositories Act.
Also, the total shares of a company are monitored by the Registrar of Companies and the Stock Exchanges.




In commodities market, there is no standardization of monitoring of warehouse receipts issued by a warehouse by any regulatory body.


Similarly, the transfer of ownership also gets affected under a mutual agreement and not as per any Statutory Act.


It remains to be seen whether such transfer will be considered good transfer under Negotiable Instruments Act and whether electronic records will be good title considering the above shortcomings.


And also the fact that commodity is perishable and may not be a good delivery if the buyer finds out that it has deteriorated beyond the specifications mentioned in the contract.


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Alan Murfee
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Re: Role of Warehouse in Futures Market - October 8th, 2012

Thanks for tour views and research.
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Rose Marry
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Re: Role of Warehouse in Futures Market - April 22nd, 2016

Quote:
Originally Posted by abhishreshthaa View Post
What is the role of a Warehouse in Futures Market?


In India, vibrant spot markets, in various commodities, exists for 100s of years.
In these markets, there are farmers, industrialists, warehouses, consumers, dealers and traders, who buy and sell commodities.


There are warehouses, which stores commodities and there are consumers, who consume them eventually.


MCX or, for that matter, any other Futures Exchange do not aim to replace, replicate or substitute such spot markets, rather the only value added service of MCX is to support the spot market players by developing their price risk efficiency through providing hedging tools.


Therefore, a Futures Exchange has to base its delivery process on the basis of existing physical market practices and use existing warehouse infrastructure, which is capable of handling billion dollars worth of physical market trades.


So the same infrastructure can properly take care of minuscule delivery tendered in a futures market.




When is the role of a Warehouse most necessary?


The role of a warehouse is most necessary in the spot market where a farmer after having harvested his crop sells them to commission agents who in turn sells them to a Mandi.


The Traders in Mandi may then sell it to a large consumer or to a trader who in turn will sell it to some other consumer, industry, exporter or miller at the right time and right price.


The Goods during this period are stored in the warehouse.


It is seen that today 80% of the warehousing capacity is used by the Government for storing various commodities under the Public Distribution System andfor storing fertilizers.




What is a Demat Electronic Warehouse receipt?

Demat Electronic Warehouse Receipts are expected to be electronic records created by an approved agency after dematerialisation of the physical receipt issued by a Warehouse.


In securities market the physical shares of the company are dematerialized by their Registrar and Transfer Agents using a Depository empowered under the Depositories Act.
Also, the total shares of a company are monitored by the Registrar of Companies and the Stock Exchanges.




In commodities market, there is no standardization of monitoring of warehouse receipts issued by a warehouse by any regulatory body.


Similarly, the transfer of ownership also gets affected under a mutual agreement and not as per any Statutory Act.


It remains to be seen whether such transfer will be considered good transfer under Negotiable Instruments Act and whether electronic records will be good title considering the above shortcomings.


And also the fact that commodity is perishable and may not be a good delivery if the buyer finds out that it has deteriorated beyond the specifications mentioned in the contract.


Hey friend,

Here I am up-loading Role of Warehouse Receipt Systems in Enhanced Commodity Marketing and Rural Livelihoods In Africa, please check attachment below.
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