By Sreekumar Raghavan
Often it is very difficult to get a comprehensive picture of an industry size and performance from just looking at a few of its individual components and aggregating it. It is true of the futures industry as well. Just by looking at CBOT trade volumes or our own MCX and National Stock Exchange which also deals in futures trading may give no clue as well. Just as Sensex or Dow Jones Industrial Index may not be the true barometer of corporate performance and expecations always.

One meaningful measure of how futures markets works comes every year from Futures Industry Magazine published by Futures Industry Association, USA. In its latest issue dated March 2010, it shows us how financial crisis impacted futures market around the world in 2009 but it was more pronounced in the West than in the East. The number of futures and options traded in Asian exchanges actually rose 24%, according to Galen Burghardt and Will Ackworth, the authors of the report.

The Futures Industry mag makes special mention of the success of India's leading exhcanges MCX-SX part of the Multi-Commodity Exchange of India (MCX) and National Stock Exchange. "In late 2008, two Indian exchanges, MCX-SX, the stock exchange subsidiary of MCX and NSE listed US dollar/ India Rupee denominated futures. Last year, the total number of dollar/India rupee contracts that traded on the two exchanges reached 450.3 mn split equally between MCX-SX and NSE." Those two contracts are now the most heavily traded currency futures of the world, the article notes.

The report points out that in China the futures industry growth was driven by commodity futures markets. The Shanghai Futures Exchange which mostly trades futures based on industrial metals, tripled in volume reaching 434.9 mn contracts. The Dalian Commodity Exchange grew by a most 30% to 416.8 mn contracts while Zhenzhou Comex rose a mere 2% to 227.1 mn. The article does point out that there is a variation between metals and grains contract sizes between Chinese and European exchanges but still volume of contracts traded is a good barometer of relative growth of exhcanges around the world.

The report points out that commodity futures are thriving in China thanks to the classic function of futures-- price discovery and risk hedging. For the Chinese that are consuming huge amounts of raw materials, Chinese futures industry is now developing contracts based on common modern materials such as steel and plastics, the Futures Industry report notes and has proved far more successful at it than any Western exchange.



Russia, Brazil exchanges also did well in 2009 but in the Western exchanges Eurodollar futures were down 26.7% while Eurobor futures were down 15.6% in volumes.India's National Stock Exchange is in 7th position among futures exchanges world wide with 918,507,122 contracts traded with a growth of 52.7% while MCX volumes grew at an astounding rate of 273% at 384,730,330 contracts while NCDEX grew at a modest 21.6% at 28,881,948 contracts.

Ofcourse, just as with film reviews, I would be spoiling the show if were to tell the whole story told by Galen Burghardt and Will Ackworth but it nevertheless gives a snapshot of what took place in futures industry in 2009 in comparison with 2008. (Those interested in the report may log on to www.futuresindustry.org)

There is talk of launching movie futures in USA which might get the regulator nod soon and several new innovations are set to happen in global futures industry. The growth of Asian futures market is encouraging but I wish that more exchanges were started with the intention of brining common man to futures trading. Now he is hurt more than anyone else by rising food inflation, raw material prices for construction of houses, transportation. It may not be bad idea to think of a basket of commodities of daily use and whose prices tend to be volatile season to season and year to year. Club them into meaningful packs and offer for investment to the common in small lots. If he can use the mechansm to hedge and also enable price discovery, that would be similar to the success of every conceivable commodity for industry that is being brought in futures trading in China.

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