the peace of mind gold contractBringing Transparency To India’s Gold

pricing based on global cuesIndia is one of the largest importers of gold in the world with 90% of country’s physical demand for the metal

is being met from imported gold bars. Despite being the largest consumer and biggest exporter of gold

jewellery, India remains a price taker and follows international market for its pricing in domestic market.

Domestic price of gold in India is, thus, derived from the international gold price, rupee-dollar exchange rate

and domestic market conditions, which includes customs duty, domestic premium, etc. For physical

market players with considerable exposure to international price risks, the single most important factor that

ensures their ability to effectively hedge the risks by trading in domestic futures is transparency in domestic

pricing. However, since 2013, domestic market conditions and government policy interventions have

distorted the rupee price of gold resulting in drastic de-coupling of domestic market from international gold

market, resulting in non-transparent price discovery and imperfect hedging.

absolute transparencyNCDEX GOLDHEDGE, launched in January 2014, marked the beginning of country’s endeavor towards

transparent price discovery in gold and re-established its link with the international market. GOLDHEDGE

offered a simple and transparent mechanism for calculating price of gold in the country based on

international price of gold and RBI reference rate irrespective of domestic market conditions. This clarity

and transparency in traded prices ensured that domestic prices continuously moved in tandem with

international prices, with little scope for manipulation and made GOLDHEDGE the perfect and most efficient

risk management tool for hedgers in the country. GOLDHEDGE was, however, introduced as an intention

matching contract.

GOLDHEDGE 1 Year Performance:

• Rs 32,587 Crore - Total traded value (From January 16, 2014 to March 18, 2015)

• 1,31,466 Lots traded • 273 Unique members traded

Source: NCDEX

900.00

800.00

700.00

600.00

500.00

400.00

300.00

200.00

100.00

0.00

200.00180.00160.00140.00120.00100.00

60.0080.00

40.0020.000.00

GOLDHEDGE - QUARTERLY PERFORMANCE IN 2014-15

KG

S

RS

CR

OR

E

Q4‘13-14 Q1‘14-15 Q2‘14-15 Q3‘14-15

ADTQ ADTV

rationale for ncdex gold futuresA survey of physical market participants throughout India carried out by NCDEX for seeking feedback from

key stakeholders on their participation in the compulsory delivery contracts in gold revealed that:

Derivation of Spot Price/Final Settlement Price (FSP) are not in sync with current market practices.

Currently, the final settlement price of compulsory delivery contracts in Indian exchanges is derived

through spot price polling. However, the spot market price of gold is shrouded in a cloud of mystery and

opacity, which does not allow market participants to back-calculate the domestic spot price for gold in the

country. Given the international linkages, effect of exchange rates and impact of domestic factors like

customs duties and premium on the spot price of gold, transparency in the calculation of final settlement

price is utmost important in ensuring efficient hedging and price risk management.

NCDEX’s newest offering GOLD Futures is an attempt to discover a composite spot price for gold in the

country by simplifying methodology used in the calculation of FSP in a very transparent manner and by

putting in place a mechanism for assessing premium/discount of gold in the country.

usp of ncdex gold futures Transparent Pricing through formula-driven FSP Derivation

Existing practice on Indian exchanges for calculating FSP is based only on spot price polling at the delivery

center. FSP in this case is a simple average of polled spot price at that center. Market participants have no

mechanism to verify the methodology and time of polling nor can they back test the components of spot

price. In NCDEX GOLD Futures, the FSP is calculated on the expiry date based on closing international

gold price on the day of expiry, RBI reference rate, prevailing customs duties and assessed

premium/discount.

In the new contract 96-97% of FSP calculation is formula-driven. The step by step calculation is as

illustrated through an example below:

Polled price for market participants at the maturity of contract

For example:T1 - Rs 27,062 T2 - Rs 27,081T3 - Rs 27,070T4 - Rs 27,050

FSP (Simple Average): Rs 27,066 per 10 grams

1. International Closing Price

2. RBI Reference Rate

3. Customs Duty

4. Premium

5. Gold price for 10 gms of 995 purity equivalent in INR

6. Price is rounded to nearest INR

Arriving at a Composite Price INR

=$1235*31.9899927

=61.75

= $392 / 10 gms* 62.80 * 10.30%

=$2*31.9899927*61.75

=2,697,108.89/100=26,971.0889

=26,971

First 3 components based on formula & data

that can be back tested by market

Independently Polled Premium

Existing – 100% Polling FSP Calculation in New NCDEX Gold Futures

a

Independently Polled Premium/Discount

In the new method for calculating FSP under NCDEX GOLD, it is not the spot price that is polled but the

premium/discount of gold in domestic market.

Grounded Contract

Transparency and simplicity in FSP calculation and independently polled premium/discount means that

NCDEX GOLD is the purest and best available price of gold in the country making the ideal contract for

market participants. It provides the most transparent and efficient risk management platform for hedgers,

ensures physical delivery at the expiry of the contract through a reliable platform for retail participants and

lastly, but not the least, creates a level playing field for small investors and day traders.

Spread Benefits

A spreader trading in NCDEX Spread Gold (GOLDHEDGE and GOLD) would require a margin of 2.5% only,

which is one-fourth of the margin requirement of 10% when trading between GOLDHEDGE and deliverable

gold contract.

B

c

d

Assessed Premium

$/0z

2-Feb-15 6-Feb-15 12-Feb-15 18-Feb-15 24-Feb-15 2-Mar-15 9-Mar-15 13-Mar-15

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14-Jan-15 20-Jan-15 27-Jan-15

National Commodity & Derivatives Exchange Limited,

Akruti Corporate Park,1st Floor, Near G.E.Garden, L.B.S. Marg,

Kanjurmarg (West), Mumbai - 400 078.

Tel.: (+91-22) 66406609-13 | Fax: (+91-22) 66406899.

E-mail : askus@ncdex.com

CIN: U51909MH2003PLC140116

Disclaimer: Trading in commodities contracts is subject to inherent market risks and the traders/investors should understand and consult their �nancial advisers before trading/investing. The contents in this publication are for guidance only and should not be treated as recommendatory or de�nitive. Neither NCDEX nor the NCDEX IPF Trust or their a�liates, associates, representatives, directors, employees or agents shall be responsible in any manner to any person or entity for any decisions or actions taken on the basis of this publication. No part of this publication may be redistributed or reproduced without written permission from NCDEX.