New Delhi, Dec 1 (IANS) Leading commodity exchange Multi Commodity Exchange (MCX) Tuesday launched India’s first transaction facility to integrate the futures markets with the physical markets.
The facility, Exchange of Futures for Physicals (EFP), involves two parties that wish to swap futures and physical positions at the same time. In all cases, one party already has physical exposure to a product that it wishes to sell and/or convert to a price exposure via futures.

To start with, MCX will be offering EFP in gold and gold mini, silver and silver mini, copper, zinc, aluminium, nickel, lead, chana, wheat and mentha oil.

“This is an important step towards achieving greater integration of the commodity futures markets with the physical market and it will greatly enhance the utility of commodity futures trading for commodity value chain stakeholders,” said a MCX statement.

Price risk is the main cause for defaults in physical trade.

EFP eliminates this risk through the futures market. For physical market players, EFP is the preferred method of commodity delivery, as it provides greater flexibility than the traditional exchange-set delivery system and cuts down sales and supply risk.

“The introduction of EFP by MCX is expected to go a long way in closely and more efficiently connecting the country’s burgeoning commodity futures market with its vast underlying spot markets,” said chief executive Lamon Rutten.

Internationally, almost all benchmark commodity exchanges facilitate EFP transactions.