Success Needs Time!

The topic reminds me of a popular diagram I first saw the Facebook where there were two simple sketches trying to portray the picture of success. One showed that people expect the success was a straight line of 45 degrees mostly, but sometimes the angle might change. Whereas, the reality is that the way to success is way too zigzag and with numerous twists and turns. It is a lesson for those who believe actions are as easier done as said. The bottom-line of the preview is that MEX Nepal has finally succeeded in adding up Silver to its trading platform as a deliverable product.

Yes, it took a long time to materialize the idea. But, finally Mercantile Exchange Nepal Limited has started the physical delivery of Silver through the exchange platform. Such initiatives are very tedious to kick off independently and similarly, we have also been joined hands by the Century Commercial Bank Limited, a popular commercial country in the country for the accomplishment of the same endeavor. It has already been discussed earlier that any commodity to be tradable through the exchange platform of a commodity exchange, there are few pre-requisites to be met.

Quality of the commodity cannot be compromised, and not just that, the commodity has then to be standardized and accredited by an authentic agency. After that, another financial institution is necessary which can better take care of the storage of the commodities, especially in case of precious metals and then an insurance company which together with a banking institution can assure the value and quality of the product. The insurance is also the safeguard measure for the financial institutions against the risks and uncertainties. And then comes the technical standards of the commodities regarding the quality, quantity and others which will establish an assurance among the clients and market participants for the product.

Above shown is the contract specification of the Silver. The major features of the deliverable Silver are as follows:

a.       First time in Nepal

b.      Product Code: DSILVER20KG

c.       Initial Margin: 15% of the total contract value. (This will maximize the leverage benefit that a client can make out of the silver price.)

d.      Price Quoted: Nepali Rupees Per 10 Grams

e.       Delivery Period: T+5 days (continuous days)

f.       Validity: T+15 days (continuous days)

g.      Storage Cost: NRs. 20 per Kg per day (applicable from the 6^th day)

h.      Equity Hit Level : 4% of Used Margin + Half Commission

i.        Commission: NRs. 850 + VAT

j.        Trading Days: Monday to Friday (Except specified holidays)

k.      Trading Sessions:

Monday to Thursday – 11 AM to 4 PM

Friday – 11 AM to 1 PM

l.    

     Delivery Centers: All branches of Century Commercial Bank Limited in the Kathmandu Valley. And Biratnagar, Janakpur, Butwal, Nepalgunj, Birgunj and Pokhara branches outside the valley.

There are few major challenges that need to be addressed in our markets:

1.      Customers are not habituated:

To start with, customers in Nepal and in most of South Asia have not been that habituated to trade the physically deliverable commodities through online platforms. Normal trading of clothes, household stuffs, etc. through online platforms have been gaining popularity in recent days but that has not sufficiently given scope for the development of commodity market in the same direction.

2.      Varied and Inefficient Internet Access:

In case of Nepal, there are several places where the computers and computer literate persons are present but the effect is yet to be materialized because the problem with internet speed, accuracy is rampant. The topographical structure of the country adds up further infrastructural and technical challenge to the speed and accuracy of the internet. Because the exchange platforms need a consistent and efficient internet speed, this can be a challenge for the establishment and promotion of the model.

3.      Issues of Commission and Fast Payments

Regarding the same system, Nepal is facing challenge in the form of so-called expensive commission and charges associated with the Silver. It is to be understood that the commission is to sustain the easier platform the clients receive through which they visualize their silver purchase. Once the commissions are removed of the exchange platform, the exchanges cannot exist. And above that, the total commission of 20 Kg silver comes below NRs. 1000, where the total deal amount is almost NRs. 1.4 millions. Once a buyer takes the order even NRs. 0.6 lesser than the market price, the buyer can see that there is nothing called commission as that is all made up. The awareness and understanding related to commission is yet to be transferred to the public. Another problem associated with the same that earlier the clients used to call in the banks and take the delivery with no advance payments and paid the total cash after delivery. As the buyers have to pay 15% of the total contract value before the order is placed, the challenge to convince the people in the market has hiked.

4.      Quality and Regulation Issues

May it be buying a cloth from the online platform or a commodity like silver from the online platform the concerns regarding the quality of the commodity are always higher. People are not yet willing to get convinced about the quality of the commodity. People have to understand that in the process that we have started, the bank has assured the quality of the product, and any concerns with the same will be dealt thoroughly by the bank, of course with the involvement of the exchange. And then, the most of all, if only the regulation of the government could open the paves of the standardized online trade, the whole market system would be revolutionized.

MEX Nepal is happy to take one more step towards success adding up such commodity to the exchange platform. This is the beginning and if the policy and legislature supports, MEX Nepal is hopeful to portray its efficient commodity prices to the region itself. Further plan of bring 1 Kg. of sliver contract looks more feasible for the general public. MEX Nepal would be very happy to bring such revolution in the Nepalese market.

Note: This article was published in "Capital Markets" published by South Asisn Federation of Exchanges in July Edition, 2014.