Chapter One

INTRODUCTION

1.0 Background of the Study

As per the requirement of Faculty of Management (FOM) of International American University

the students of fourth semester were supposed to undergo internship in any organization for

minimum of eight weeks for the partial fulfillment of Masters in Business Administration

(MBA) program. For the internship the internee got the opportunity to do internship in Nepal

Derivative Exchange (NDEX) Tinkune, Kathmandu, Nepal

An internship is a unique aspect of education that integrates theoretical study with the planned

and supervised career related work experiences. So, internship program is included as the part of

MBA curriculum to make students more practical and make them aware of real corporate world.

Derivative sector is one of the crucial sectors in any economy. Providing risk management

services to people is the main aim of derivative and it emphasizes on portfolio investment

service.

This report is completely based on the personal experience and knowledge gained while working

as an internee in NDEX. The whole duration of internship was completed in research and

development and marketing department. This report includes all the aspects of R&D department

and marketing department

It was great experience to work as an internee in NDEX. This experience gave an opportunity to

gain practical knowledge on working in an organization and utilize conceptual knowledge in

specific area of the study.

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1.1 Objectives of the Study

The main objective of the internship report is to explore the practical experience gained

about the functioning of NDEX during internship. The other objectives of this study are as

follows:

To understand about derivative and commodity market.

To get acquainted with performance of NDEX.

To know about the broker’s responses towards the services provided by the

exchange.

To acquire the general idea on the NDEX trading software

To develop interpersonal skills and the skills of networking in the real work

environment.

1.2 Study Methodology

A research methodology defines what the activity of research is, how to proceed, how to measure

progress, and what constitutes success. It can be defined as "a particular procedure or set of

procedures”. The following methodology is used in this study and the preparation of this project

report.

1.3 Organization Selection

The internship program has been made an essential part of academic program in MBA, which

aims to expose the students to business management sector as well as industrial sector. It gives

students opportunity to apply theoretical knowledge they have gained so far into real, practical

world. NDEX was selected for the internship program as it is proved to be the good platform for

career development and growth.

1.4 Placement

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The internee was appointed and placed in R&D department and marketing department, under the

supervision of Mr. Ram Saran Upreti. The internee got an opportunity to learn a lot about the

activities carried out in derivative exchange. It was a great platform to familiarize oneself with

the corporate culture.

1.5 Duration

The internee completed Eight weeks of Internship (two months) from 17th October, 2011 to 21st

December, 2011 as the partial fulfillment of requirement of Masters in Business Administration

(MBA) of International American University (IAU). The whole internship period was spent on

the R&D Department and marketing department of NDEX, and worked as a full time internee.

1.6 Data Collection

All the information needed for the research study have been collected from different authentic

sources and have been categorized them as primary and secondary data. They are briefly

discussed below:

1.7 Primary Data

Primary data are raw and first hand data collected by the personal experience and observations. In this

internship report primary data were obtained by the internee from the experience, day to day

observation of operation, directions of supervisor and in depth interview with the NDEX staffs.

1.8 Secondary Data

Secondary data are those data which are already used and published. The secondary data for the

making of this report has been collected from the, brochure, website and other published

documents.

1.9 Limitations

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The internship period was completed gaining lots of knowledge and experiences but there were

some restrictions which somehow restricted or limited the comprehensive study. Those

limitations are listed below:

The deep analysis could not be done due to time constraint.

Some information was confidential in nature so it cannot be presented in the report.

Interpretation and conclusion were drawn within the limitation of individuals’ knowledge

and the judgmental abilities.

1.10 Activities Performed in NDEX

The internee got an opportunity to learn and perform various activities in the R&D department of

NDEX. Various activities were assigned to the market analysis reason for market taking bullish

trend and reason for trending bearish trend. Visiting to the broker and doing research of the

current status of the commodity market of Nepal.

1.11 Organization of Study

This study has been organized into five chapters. The contents of each chapter of this study are

briefly explained below:

Chapter One: It deals with background, objectives, methodology, selection placement, duration,

data collection, limitations, activities performed in NDEX and organization of study.

Chapter two: It deals with the corporate profile of NDEX. It includes core philosophy of

NDEX, Board of Directors, managerial aspects, organizational structure of NDEX, products and

services offered by NDEX, SWOT analysis and Porter’s five forces model analysis of NDEX.

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Chapter Three: It deals with analysis of activities done at R&D department of NDEX. It

includes introduction of R&D Department and activities performed, and problem identified and

problem solved.

Chapter Four: It includes lesson learnt, conclusion and recommendations.

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Chapter Two

INTRODUCTION OF THE ORGANIZATION

2.1 Nepal Derivative Exchange (NDEX)

Nepal Derivative Exchange (NDEX) is the third derivative exchange to be established in Nepal.

Although it was established November 2008 but it was officially it started from 4th January 2010.

Just like other two commodities exchanges of Nepal it introduced commodities derivative. It

offered precious metal such as exposure gold, regular gold, mini gold, small gold, regular

platinum, regular platinum, regular silver, mini silver and exposure silver, industrial metals such

as regular copper, mini copper and exposure copper, energy product such as regular crude oil,

exposure crude oil, mini crude oil, heating oil and natural gas, agro product such as corn,

soybean, soybean oil and wheat, soft agro product such as coffee and fiber product such as

cotton.

It is located in Tinkune, Subhidanagar Kathmandu. Nepal investment bank private limited is its

official banking partner. It means if any investor want to invest in commodities through NDEX

then they should have bank account in Nepal investment Bank limited.

Nepal Derivative Exchange (NDEX) is a state of art online commodity and derivative exchange

operating in Nepal. In the world of increasing volatility, NDEX is the best platform to manage

risk across the major commodities from precious metals to base metals, from agro commodities

to energies. It is one of the best and most diverse derivative exchanges encompassing the widest

range of benchmarked product available. It brings buyers and sellers together on the electronic

trading floor of NDEX. It provides you with the tools you need to meet your objectives and

achieve financial goals

.

NDEX, professionally managed by a team of young Nepal based entrepreneurs, was incorporated

on November 20, 2008 under the Company Act, 2063 of Nepal. It is committed towards

revolutionizing the commodity derivative market in Nepal. Our aim is to empower the market

participants, stakeholders, investors through innovative product offering, technology and risk

assessment, forecasting and managing tools. We are here to transform Nepalese economy to

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more vibrant, transparent and accessible marketplace to farmers, producers, traders, financers

and government.

2.2 Value proposition

Trading commodities are standardized contracts and participants are antonymous

ensuring that the benchmark price is extracted through the electronic trading system.

NDEX enables sellers and buyers to protect price risk of the commodity from the adverse

effects of price volatility in the market.

NDEX is equipped with modern banking facilities available in Nepal, which includes

online fund transfer, instant deposit and withdrawal in co-operation with our banking

partner.

Opportunity to profit in a wide variety of commodities available around the world.

Opportunity to diversify investment portfolio.

Opportunity of Margin Trading

Opportunity to participate in trading round the clock trading

Genuine and transparent price discovery mechanism.

Variety of contract size and period available as per the necessity and capacity of traders

/investors.

2.3 visions

Become a Nepal based g-local brand for complete financial ecosystem.

2.4 Mission

Achieve excellence in commodities and derivative trading with focus on customer delight and

satisfaction through NDEX.

Bring new and creative ideas to operate both in our local product offering and for larger

marketplace.

Create harmonious environment for derivative trading with the enforcement of regulatory

regime where we are working.

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Develop proper market education and research system.

Set up complete commodity derivative eco-system in Nepal in 5 years time

Enforce zero tolerance policy towards unethical trade practices.

2.5 Board of Directors (BOD)

Name Title

Mr. Santosh Pradhan Chairman

Mr. Ashok Kumar Pradhan Non-Execute Director

Mr. Ajay Gachhadar Non-Execute Director

Mr. Santosh Pyakurel Independent team

2.6 Management Team

Name Title

Mr. Sailesh Jha Sr. vice President, Head compliance and

surveillance

Mr. Bishowjan Thapa Shrestha Vice president and head HR

Samita Basnet Administration and client service

2.7 Organization structure of NDEX

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2.8 Types of Member of NDEX

Generally there are three types of membership that NDEX offer namely:-

Trading Member (TM)

Trading Cum Clearing Member

Institutional Trading Cum Clearing Member

Professional Clearing Member

2.8.1Trading Member

Trading Membership entitles the members only to trade on his own account as well as on

account of his clients. These Members do not have any right to clear or settle such trades. These

members must be associated with any one of the Institutional Trading-cum-Clearing Member

(ITCM) or Professional Clearing Member (PCM) having clearing rights of the Exchange. They

are the brokers of NDEX. The broker lists of NDEX are as follow:

Sl No Brokers

1 ABC Commodities and Portfolio

9

Nepal Derivative Exchange (NDEX)

Kastamandap clearing house (Clearing house)

Non Clearing House (Broker)

Client

Management Pvt. Ltd.

2 ABC Derivative & Commodities Exchange

Pvt. Ltd.

3 A.D.X. Investment Services Pvt. Ltd.

4 Agrawal Merchant Company Pvt. Ltd

5 Ascent Commodity Consultant Pvt. Ltd.

6 Asia Commodities & Securities Exchange

Pvt. Ltd.

7 Asian commodities Enterprise Pvt. Ltd.

8 Avenues Investment Company Pvt. Ltd

9 Bloomberg Investment Company Pvt. Ltd

10 BRAM Bulls Pvt. Ltd.

11 Butwal  Investment & Empowering Pvt.

Ltd.

12 Bulls & Bears Investment Company Pvt Ltd

13 Creative Commodities Pvt Ltd

14 Capital Venture Investment  Pvt. Ltd.

15 Dakshina Multipurpose Company Pvt. Ltd

16 Derivative Guru Pvt. Ltd.

17 D.S.M Investment Pvt. Ltd

18 Derivative Futures Trading Pvt. Ltd

19 D.J.S.M Investment Pvt. Ltd.

20 Eleven Rays Broking Solution Pvt. Ltd

21 Emerging South Asia Pvt. Ltd

22 e-Zone commodities Market Pvt. Ltd

23 Farwest Share & Investment Market

Pvt.Ltd.

24 Focus Invt Pvt. Ltd.

25 Future Friends Investment Company Pvt

Ltd

26 Future View Commodities Pvt. Ltd

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27 Futures focus Pvt. Ltd.

28 Global Derivatives Pvt. Ltd.

29 Haatemalo Bulls Investment and Research

Pvt. Ltd.

30 Himalayan Derivative Traders Pvt. Ltd.

31 I.D.L Commodities Pvt. LTd.

32 Jai Shreenath Investment Pvt Ltd

33 Katrina Trade and Investment Pvt. Ltd.

34 Kasti Trading Solution Pvt. Ltd

35 Lisnu Investment Pvt. Ltd.

36 Mass Capitals Pvt. Ltd.

37 MCX Nepal Pvt. Ltd.

38 MorningStar Investment Services Pvt Ltd

39 Najir Investment & Brokerage Com. Pvt.

Ltd

40 Nakashtra International Incorporated Pvt

Ltd

41 Nisha Investment Pvt. Ltd

42 Ocean Investment Com.Pvt. Ltd

43 Ojaswi Investment Pvt. Ltd.

44 Option Derivative & Commodities Market

Pvt. Ltd

45 Panchharatna Investment Pvt. Ltd.

46 Pips Invt. Pvt. Ltd.

47 Premier Commodity & Services Pvt. Ltd

48 Prime Derivative & Future Market Pvt Ltd

49 Pritam Investment Service Pvt. Ltd

50 Radius Commodities and Investment Pvt

Ltd

51 Rational Investment Pvt Ltd

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52 Real Life Concept Nepal Pvt Ltd

53 Red Partners Pvt. Ltd.

54 Sai  Share and Commodity Service Pvt Ltd

55 Secured Life Investment Pvt. Ltd.

56 Safe Investment  Pvt. Ltd.

57 Securities Research Center & Services Pvt.

Ltd.

58 Service First Pvt. Ltd.

59 Serving In Derivative Exchange Pvt Ltd

60 Sevenseas Commodity & Trading Pvt. Ltd

61 ShakyaMuni Commodities Traders Pvt.

Ltd.

62 Source Investment Pvt Ltd

63 Subha Mangal Investment  Company Pvt.

Ltd.

64 Swabalamban Bikash Company Pvt. Ltd

65 Synergy Securities and Investment Pvt Ltd

66 United Rising Star Pvt Ltd

67 Upgrade Management Group Pvt. Ltd.

68 Wealth & Investment Management Pvt Ltd

69 West Kathmandu Business Investment Pvt

Ltd

70 White Solders Nepal Pvt. Ltd

Source ndex.com.np

As we have already discussed earlier broker charge certain percentage of commission to

its investor who want to trade from them so following table will make us clear about the

commission charge by NDEX brokers:-

Commodities Commission per lot

Exposure gold Rs 1200+vat

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Regular gold Rs 1200+vat

Mini Gold Rs 700+vat

Small gold Rs 700+vat

Gold Rs 50+vat

Palladium Rs 1200+vat

Platinum Rs 1200+vat

Exposure Silver Rs 1200+vat

Mini Silver Rs 300+vat

Regular Silver Rs 1200+vat

Crude oil Regular Rs 1200+vat

Crude oil Mini Rs 700+vat

Crude oil exposure Rs 1200+vat

Heating oil Rs 1200+vat

Natural gas Rs 1200+vat

Corn Rs 1000+vat

Soybean Rs 750+vat

Soybean oil Rs 1200+vat

wheat Rs 750+vat

Cotton Rs 1200+vat

Copper regular Rs 1200+vat

Mini copper Rs 300+vat

Exposure copper Rs 1200+vat

Coffee Rs 750+vat

2.8.2 Trading Cum Clearing Member (TCM)

Trading-cum-Clearing Membership entitles the members to trade and clear, both for

themselves and/ or on behalf of their clients. Kastamandap clearing house acts as the

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clearing house of Nepal Derivative Exchange. Recently Morningstar investment service

one of the broker of Nepal Derivative Exchange have taken the license of trading cum

clearing member.

2.8.3 Institutional Trading Cum Clearing Member

Institutional Trading-cum-Clearing Membership entitles the members in addition to the existing

rights and responsibilities as TCM shall be also entitled to and liable to settle and clear the

trades/transactions done by the Trading Members affiliated with them

2.8.4 Professional Clearing Member

Professional Clearing Membership entitles the members only to clear and settle s the trades

executed by their clients. Kastamandap Clearing House is located in Baluwatar Kathmandu.

2.8.5 Who can be the members?

Corporate

Investment Companies

Private Limited Companies.

Registered Partnership firms and

Cooperative societies

2.8.6 Some of the document to be submitted by the member to the Exchange

Dully filled Application form.

Curriculum Vita of the applicant( Authorized person of firm)

Must have at least bachelor degree.

Must have past experienced regarding this market.

Attested copies of Company registration certificate.

Attested copies of Memorandum of articles & certificate of commencement of business

for corporate / institutions

Attested copy of the board resolution authorizing the application for membership for

corporate & institutions.

Company minute with authorize signature.

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Attested copies of citizenship.

Attested copy of PAN or VAT Registration certificate.

Agreement Clearing Member and Trading Member

TM undertaking.

In case of partnership firm, copy of Firm Registration Certificate, Copy of Registered

Partnership agreement, undertaking from all partners authorizing the managing partner to

do the required agreements and other works.

Bank reference letter.

Passport sized photo of the signatories to be paste on the application form.

Minimum paid up capital of firm 10 Lakhs

Authorized capital above 50 lakhs.

2.8.7 Membership Process

2.8.8 Membership Charge fee and structure

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Sumbission of membership Application form along with all the document and membership charge

processi ng of membership form and document

interaction with membership interview commitee

Approval of Membership Commitee

Membership

Sl.NO Particulars Trading

Member

Trading-cum-

Clearing

Member

Institutional

Trading-cum-

Clearing

Member

Professional

Clearing

Member

1 Membership Fee Rs. 4,50,000/- Rs. 5,50,000 Rs. 20,00,000 Rs. 15,00,000

2 Eligibility Net Worth

For Membership

Rs.

10,00,000/-

Rs. 50,00,000 Rs.

1,50,00,000

Rs.

2,00,00,000

3 Interest Free Security

Deposit

(Refundable)

Rs 2,00,000/-

(50% Cash +

50% Cash

Equivalent

Rs. 15,00,000

(50% Cash +

50% Cash

Equivalent)

Rs. 1 Crore

(50% Cash +

50% Cash

Equivalent)

Rs. 1 Crore

(50% Cash +

50% Cash

Equivalent)

4 Processing Fee Rs. 5,000/- Rs. 5,000 Rs. 10,000 Rs. 10,000

5 Annual Subscription

Fee

Rs. 50,000/- Rs. 1,00,000 Rs. 2,00,000 Rs. 2,00,000

Source: ndex.com.np

2.8.9 Steps for investor to invest through NDEX platform

Go through the broker listed under NDEX

Must have got bank account in Nepal Investment bank.

After the documentation process the investor can trade through NDEX.

2.9 Products and contract specification of NDEX

Sl.NO Product Code of contract Initial margin Contract size

1 Exposure Gold Exp GOL Rs 25,000 1 kg (1000gm)

2 Regular Gold GOL Rs 75,000 1 kg

3 Gold Mini GOLM Rs 45,000 500 gm

4 Gold Gold10 Rs 1000 10 gm

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5 Platinum PLT Rs 120,000 2 kg (2000gm)

6 Palladium PAL Rs 75,000 1 kg (1000gm)

7 Exposure Silver Exp SIL Rs 25,000 30 kg

8 Silver mini SILM Rs 15,000 5 kg

9 Silver Regular SIL Rs 75,000 30 kg

10 Cotton Regular COT Rs 90,000 10000 kg

11 Coffee Regular COF Rs 40,000 5000 kg

12 Exposure Copper EXPCOP Rs 25,000 5000 kg

13 Copper mini COPM Rs 15,000 1000 kg

14 Regular copper COP Rs 75,000 5000 kg

15 Crude Regular CRU Rs 75,000 250 BBL

16 Exposure Crude EXPCRU Rs 25,000 250BBL

17 Crude MINI CRUM Rs 30,000 50BBL

18 Heating oil HEA Rs 75,000 8400 US

GALLON

19 Natural Gas NAG Rs 75,000 250 MMBTU

2.10 SWOT Analysis

A scan of the internal and external environment is an important part of the strategic planning

process. Environmental factors internal to the firm usually can be classified as strengths (S) or

weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats

(T). Such an analysis of the strategic environment is referred to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firm's resources and

capabilities to the competitive environment in which it operates. As such, it is instrumental in

strategy formulation and selection.

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S W

O T

Strengths of NDEX

Experienced, highly motivated, competent, and well trained employees are the strengths

of NDEX

NDEX has been providing wide range of products and services to its broker.

NDEX has a prevalence of a strong corporate culture and well established goodwill and

good corporate image in the market..

In context of derivative and commodity market the name NDEX is itself a brand. So, it’s

not necessary like other banks to invest huge amount of money in marketing.

Is only the commodity exchange which provide exposure contract to the client.

User friendly trading software compared to other exchange..

Weaknesses of NDEX

Not so good infrastructure compared other exchange such as Mercantile Exchange Nepal.

Don’t have commodities such as zinc, cocoa, wheat, sugar etc

Opportunities of NDEX

Can introduce new commodities such as agro commodities.

With the use advanced technology performance can be upgraded to capture the

competitive market position.

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Competition in an Industry

Substitute Products

Suppliers Customers

Relative Power of other Stakeholders

Threat of new Entrants

Threats of Nepal SBI Bank

No governing body.

Frequent closures, strikes, power shortages, etc in the nation is also a major threat for

retaining growth of this market.

Political instability in the country is another major threat for NDEX as its functioning

could not be proper in such a chaotic situation.

Threat from ne derivative exchange.

2.11 The Five- Forces Model

The model was originally developed by Michael E. Porter, a Harvard professor and noted

authority strategic management. According to Porter (1985) successful managers do more than

simply react to the environment. They act in ways that actually shape or change the firm’s

environment. Porter’s model is an excellent method for analyzing the competitive environment

in order to adapt to or influence the nature of competition.

Figure No 3.2: Porter’s Five Forces Model

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The rivalry among firms in an industry:

As a first step in understanding the competitive environment, a firm must identify its

competitors. The more the firms compete against one another for customers, the lower is the

level of industry profits. In intense competition, weaker firms are eliminated and the strong firms

survive. When firms compete for the same customers and try to win market share at the other’s

expense, all must react to and anticipate their competitors’ actions.

The potential for new entry into the industry:

The easier it is for firms to enter an industry, the more likely it is for industry prices and

therefore industry profits to be low. Thus, the high barrier to entry, the lower is the threat of

competition. With fewer competitions, it is easier to obtain customers and keep prices high.

The power of suppliers:

If there are only a few suppliers of an important input then suppliers can raise the price of that

input. An expensive input results in lower profits for the firm. Firms are at disadvantage if they

become overly dependent on nay powerful supplier.

The power of customers:

If only a few large customers are available to buy a firm’s output, they can bargain to reduce the

price of that output. As a result, firms make lower profits. Thus, a firm’s ability to identify its

main customers and produce goods and services their want is a crucial factor affecting its

competitive position.

The threat of substitute products:

Often, the output of one industry is a substitute for the output of another industry. Firms that

produce a product with a known substitute cannot demand high prices for their products. This

constraint keeps their profits low.

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Relative power of other stakeholders:

Other stakeholders of the firm like government of the country, political parties, labor unions, etc.

also have influence upon the operation and functioning of any firm. Thus, a firm should always

try to fulfill all the requirements of these stakeholders to exist and to function competitively in

the market place.

The Porter’s Five Forces model is a simple tool that supports strategic understanding where

power lies in a business situation. It also helps to understand both the strength of a firm’s current

competitive position, and the strength of a position a company is looking to move into. Despite

the fact that the Five Force framework focuses on business concerns rather than public policy, it

also emphasizes extended competition for value rather than just competition among existing

rivals.

Analysis of NDEX in relation to Five Forces Model

This model is applicable in the derivative and commodity sector. Analyzing NDEX through this

model is the aim of describing this model. Derivative and commodity market is one of the most

developing sectors in Nepal.

There are many investment alternatives for the client of the Nepal such as investing in real state,

mutual fund, stock market, investing in gold etc. Thus we have already discussed that derivative

sectors is also one of the investment opportunity for the client so other investment management

companies are the threat it NDEX.

There are 4 commodity exchanges in Nepal which offer the similar commodities contract

specification to the client. Customers are being king of the market and fulfilling their expectation

should be the prime objective of NDEX to retain existing customers and attract new ones.

Identifying potential customers and catering to their need to their level of expectation should be

main objective of NDEX.

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Substitute product in case derivative sector could be other financial institutions that provide

similar kind of services and facilities to customers. For NDEX threat from substitute products

could be those well established investment companies who offer high return to customers in

deposits and lends high sum of amount

The main Stakeholders of NDEX are yet to be formed but talk is going on with Security Board of

Nepal (SEBON).

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Chapter Three

ANALYSIS OF THE ACTIVITES DONE

For the internship program, Nepal Derivative Exchange (NDEX) was chosen as the organization

for the study, at Tinkune. Duration of the internship was of two months, which started on 18th

October 2011 and was successfully completed on 21st December. Due to the keen interest in R &

D, a specific concentration was given to the department and decided to spend two months of

internship in R &D and few weeks in Marketing department..

The internship program proved to be a great learning experience. The internee was provided with

a full and realistic view of workplace culture by the employees at research and developement

department, where the internee could get the opportunity to integrate academic skills and

knowledge in the practical and professional setting that would help to cope up or deal with the

professional challenges. Moreover cooperation and proper assistance provided by the staffs in

the operation and research and development department is very much appreciable. In the

existence of such a good and helpful environment, knowledge could be gained to the fullest.

3.1 Introduction to Research and development department

Research and development, often called R&D, is a phrase that means different things in different

applications. In the world of business, research and development is the phase in a product's life

that might be considered the product's 'conception'. That is, basic science must exist to support

the product's viability, and if the science is lacking, it must be discovered - this is considered

the research phase. If the science exists, then turning it into a useful product is

the development phase. Further terminology refinements might call it engineering to refine

production so that the product can be made for a cost that appeals to consumers.

Research and development is an investment in a company's future - companies that do not spend

sufficiently in R&D are often said to be 'eating the seed corn'; that is, when their current product

lines become outdated and overtaken by their competitors, they will not have viable successors

in the pipeline. So how much is reasonable to spend on research and development? That is highly

dependent both on the technology area and how fast the market is moving. Two percent of

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company revenue, not profit, might be enough in a fairly sedate market, but to keep up in rapidly

changing markets, companies should expect to spend fifteen percent or more in research and

development just to keep up with the rest of the pack.

3.2 Activities done at the Research and Development department of NDEX

Under the supervision of operation in charge of NDEX following activities are carried out during

the whole internship program:

3.2.1. Market Analysis

Since we started from zero level knowledge of commodity and derivative market so after getting

the basic knowledge of commodity and derivative market from our intern supervisor sir Mr. Ram

Saran Upreti. We got the task of to analyze the market. Generally there are two ways of

analyzing the commodity market

Fundamental market analysis

Technical market analysis

3.2.1.1 Fundamental Market Analysis

Fundamental analysis means analysis of facts and figure and predicting weather the market will

have a bullish trend or bearish trends. For the fundamental analysis we need to keep a good

watch on the news published from Europe and USA business sheets. Following sites were

preferred to us by our supervisor for the purpose of fundamental analysis, ibtimes.com,

forexfactory.com, oilngold.com, ecpulse.com, marketwatch.com, Bloomberg.com, cnbc.com etc

3.2.1.2 Technical analysis

Technical analysis is also referred to as chart analysis. Technical analysis is based on completely

different assumptions. With a technical analysis, the starting premise is that the market is made

up of a large group of people. The assumption is that this large group of people will behave in

predictable patterns.

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The challenge for technical analysts is to find these patterns in the price movements of the stock.

The patterns tend to become obscured in the price trends, since outside events also tend to

influence the movement of the stock price. These outside events tend to add “noise” to the

patterns that mask or change the price patterns of the stock. Sometimes, outside events interrupt

the pattern completely and start a new pattern. An example is an event like the September 11

attack in New York, which had a huge effect on stock prices.

Technical analysis uses many tools or techniques. Elliot Wave theory, moving averages, chart

analysis, stochastic analysis, trend analysis, and Bollinger bands are just a few of the common

ones. However, the goal is always the same: to predict the price movement of the stock. If the

prediction is correct, then a profit is made.

3.2.2. Handling NDEX trading software

As we have discussed earlier that trading of commodities is done through internet so particular

exchange software is required for the purpose of trading. So due to the help of our supervisor we

got the good knowledge of NDEX trading software.

3.3 Other Activities

I also got a chance to do research of commodity and derivative market by visiting to the number

of broker, upcoming exchanges and asking them certain queries about the market and the way of

improving this market in Nepal. We were provided a certain questionnaire by our supervisor sir

which we distributed among the broker and asked them to fill.

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Chapter four

LESSONS LEARNT, CONCLUSION AND RECOMMENDATIONS

4.1. Lessons Learnt

The first and the most important thing learnt throughout the internship period was to deal

with the real world situations and how to work and behave in the corporate world.

Learned about the corporate culture.

The exposure to practical environment has increased the experiences of internee and

confidence to tackle with the real word problems.

Learned how to behave with the seniors and colleagues and make good relationship with

them.

Learned how to speak, function and work in corporate way.

Learned a way of trading in derivative and commodity market..

Importance of time i.e. working within the time constraints is essential in the real world.

Learned the functioning of research and development department.

Practical exposure of marketing and research.

Learnt account opening procedures.

4.2 Conclusions

The Nepalese Derivative Market is very young. The investors haven’t been able to analyze the

situation properly. They are not smart enough to study the situation and take good judgments.

There is no regulating body in the Nepalese derivative market. Most of the investors find the

derivative market as some sorts of gambling place where people gather together for gambling

purpose and try to make out high returns with least investments. But it is very important that one

must realize that there is a difference between gambling and speculation and the future markets

are not like “gambler” markets.

Participants in physical markets use futures market for price discovery and price risk

management. In fact, in the absence of futures market, they would be compelled to speculate

on prices. Futures market helps them to avoid speculation by entering into hedge contracts. It is

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however extremely unlikely for every hedger to find a hedger counterparty with matching

requirements. The hedgers intend to shift price risk, which they can only if there are

participants willing to accept the risk. Speculators are such participants who are willing to take

risk of hedgers in the expectation of making profit. Speculators provide liquidity to the market;

therefore, it is difficult to imagine a futures market functioning without speculators.

So there comes a question like what is the difference between a speculator and a gambler.

Speculators are not gamblers, since they do not create risk, but merely accept the risk, which

already exists in the market. The speculators are the persons who try to assimilate all the possible

price-sensitive information, on the basis of which they can expect to make profit. The speculators

therefore contribute in improving the efficiency of price discovery function of the futures market.

But it doesn’t mean that the speculation is always good for the economy of a country. Over-

speculation needs to be curbed because it can lead to distortion of price signals. For this in case

of the Nepalese Derivative Market, the positions held by speculators are subject to certain

margins.

In the Nepal’s economy, there are various factors that are having a real negative impact on the

overall performance of the Nepalese markets. First comes is the power supply problem. With the

increasing temperature and drought in the country, the power supply is getting poor. Till the

month of Magh-2066, the country is facing 11 hrs of load shedding. Because of this, the

manufacturing and other industries are suffering a heavy loss every day. Also, the global

economic crisis has forced the industries to cut off the number of employees and thus prevent

them from the probable future crisis. The continuous political instability has also hit hard to the

market.

4.3 Recommendation

All in all the derivatives market in Nepal does not have a longer history and thus seems to be still

underdeveloped. Government has prepared some concepts on the derivatives market for risk

minimizing for farmers but still the investors are motivated towards earning abnormal profits

from speculation. Even though the focus is for agricultural risk management the overall

utilization of the market is for speculation. People are utilizing the derivative market for

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speculating rather than risk hedging. Existing commodities exchanges and the people who take

part in the market phenomena should be aware to keep the future of the derivatives market

bright. The derivatives market needs to focus on variety of commodities that can manage the

risks of that particular commodity. The derivative market on the resources available locally can

help develop the derivatives market as well the infrastructures making people as well as the

country resourceful. The people should be aware of these markets and the role it can play in their

economic elevation. It can bring the stability in the market condition of derivatives in Nepal. It’s

solely the effect of role that people can play to balance the derivatives economy. How fast and

with what level of ease does the economy overcome the imbalance is what determines the future

of the Nepalese Derivative Market

.

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Appendix

Hierarchy of Nepal Derivative Exchange

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Santosh PradhanChairman/President

Bishojan Thapa Shrestha

Vice president/HR head

Ram Saran UpretiBusiness development head/intern supervisor

Intern

BIBLIOGRAPHY

Books

Basic of Commodity market. Monaj Budhathoki

Publication

Year book of Nepal Derivative Exchange Private Limited.

Websites

Ndex.com.np

Investopedia.com

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