Barley, cashew, castor seed, chana, chilli, aluminium ingot, gold, sponge iron, Brent crude oil, furnace oil and power. Different as they are from each other, these products nevertheless share a common connection. They are among the 34 commodities traded on the Mumbai- headquartered National Commodity & Derivatives Exchange Limited (NCDEX), the third-largest agri-exchange in the world, and the only online multi-commodity exchange in India promoted by national-level institutions.

Says Chandra Shekhar, Head, Information Technology, NCDEX, “The Life Insurance Corporation of India, National Bank for Agriculture and Rural Development, National Stock Exchange of India Limited (NSE) and ICICI were the initial four promoters. Other shareholders include Canara Bank, CRISIL, Goldman Sachs, Intercontinental Exchange, Indian Farmers Fertilizer Cooperative Limited and Punjab National Bank.”

NCDEX commenced operations on December 15, 2003. “When we started, everything was new to us because the government permitted commodity trading in futures on the electronic platform only in 2002. Spot trading is not permitted on the electronic platform because it is a state subject. It continues to be carried out in mandis, and Agriculture Produce Marketing Committee markets,” Chandra Shekhar continues. NCDEX currently facilitates trading in five product groups:agriculture, bullion, metals, energy and polymers. “NCDEX commands 85 percent of the e-trading market in agri-commodities and 25-30 percent of the market in bullion,” says Chandra Shekhar.

The business model of an online exchange like NCDEX is vastly different from that of a traditional commodity exchange. The latter are commodity and location-specific, restricted to members, and trading takes place on the trading floor. “Here the same concept is put on an electronic platform which is accessible across the country. This helps achieve the two major objectives of a commodity exchange, but in a pan-India way: one, price discovery, and two, with large volumes coming from all parts of the country, there is mitigation of risk for buyers and sellers,” explains Chandra Shekhar.

He then goes on to share some interesting numbers about NCDEX. Each commodity traded on the exchange has different contracts matched with the arrival of the crop or the product in the market. At present, NCDEX has 150 futures contracts in the market. The all-India membership stands at 875, with presence in 570 cities and on 18,500 terminals, of which 7,000-8,000 terminals are active at any point of time. Inclusive of sub-members and the clients of its members, NCDEX has close to 1,25,000 clients. All the terminals are connected to NCDEX through VSAT, leased line and the Internet.

“We have gone in for three types of connectivity taking into consideration the geographical reach and infrastructural constraints inside the country. A critical component of trading is latency because once the trader puts an order he should get confirmation within the assured time. Here, we give a commitment that within two seconds they will get the order confirmation,” states Chandra Shekhar. The exchange has 1,637 VSATs connected to it.

NCDEX receives approximately 4,00,000 orders in a day, of which roughly 50 percent convert into trades. The average daily turnover is about Rs 7,000 crore both ways. Some time back, the exchange had attained a peak of Rs 7,300 crore one way.

When NCDEX started in 2003, the top management was still unsure about how to reach out to members across the country. “The Internet had yet to arrive in a big way. Factoring in the geography, distance and connectivity issues, VSAT and leased lines were the only viable options,” says Chandra Shekhar. NCDEX therefore tied up with a VSAT vendor. Explains Chandra Shekhar, “We felt that VSATs would help in equal dispersal in the sense there wouldn’t be latency where traffic is concerned since VSAT connectivity is constant. This is very important in the exchange scenario because all members should have equal opportunity for trading irrespective of their locations.”

When the VSAT roll out began, the asking rate was five VSATs a day, Chandra Shekhar recounts. Today, it stands at a more manageable 10 VSATs a week. There were initial roll out problems. For example, members would face CRC errors when logging in, network problems cropped up often, and multi-casts wouldn’t go—these were resolved over a period of time. On the leased line front, NCDEX didn’t opt for MPLS at the start. “We created points of presence in major cities through leased lines at designated telephone exchanges. For instance, in New Delhi, we hired rack space in the Karol Bagh exchange and installed 48V DC routers that were connected back-to-back to the exchange through the multiple leased lines we had taken. Our Delhi members only needed to take local leased lines to connect to this router. We went about replicating this set-up in other cities. Only in Mumbai members directly connected to the exchange,” explains Chandra Shekhar. Today, NCDEX has close to 600 members connected via leased lines. However, they have also been given ISDN connections as a fall-back option. “In case of any eventuality, the router is configured to automatically switch to ISDN if the leased line goes down,” he reveals.

High availability
For exchanges, whether they connect through leased lines or VSATs, high availability is paramount. Chandra Shekhar paints a few scenarios to emphasize the point. “Let us assume there is a fire at a point of presence exchange in Kolkata which brings down the leased lines. If trading comes to a standstill, members would fall back on ISDN, or now, come through the Internet. Again, assume the VSAT hub in Noida goes down due to some problems. If the service restarts after 2-3 minutes, and if 4,500 users start connecting through VSAT to our server, there would be a gate crash. To avoid that during normal scenarios, our server allows only 100 to 150 users to log in every minute. When there is a disruption, the plan is to wait 15 minutes to allow at least 75 percent of the members to log in before trading is resumed. However, the critical aspect is that even a one-minute disruption is the equivalent of 15 minutes of outage and market losses would be too much. Hence, we cannot afford these scenarios to materialize. High availability applies to exchange applications too. According to Chandra Shekhar, there has never been a case where the exchange’s matching engine stopped, with the servers delivering 99.999 percent uptime. However, if a disruption does happen, a stop and start situation would mean an interval of 30 minutes before trading resumes, he points out, adding in the same breath that such a situation should never happen.

Given the criticality of a high availability scenario, whether it is connectivity or applications, where a gap of even a minute can lead to huge monetary losses for the exchange and its members, and keeping in mind the resources required to run the operations, Chandra Shekhar decided that outsourcing was the way to go.

“What we did was to go in for managed services from 3i Infotech. They work with us across all IT functions. The important thing is that they are resource-rich. For instance, if I have an urgent need for a Veritas resource, getting that resource on my own would be too difficult. But my managed service provider can quickly fill that gap. The services offered are SLA-based on the uptime they are giving us,” he says.

3i Infotech has stationed a team of 30-35 people onsite at NCDEX to work 24x7. The services provided span servers, network and security. Specific services include system administration, UNIX administration, Veritas administration, Talisma application support, database analysis, portal development & support, network security management, IT deployment and upgradation support. NCDEX only has five people in its IT team.

Always watchful
According to Chandra Shekhar, being an online exchange means that every product is tech-enabled which means that the IT team always has to be on its toes. When a new product is introduced, all the contract details need to put in the trading system so that a trader, when he logs in, gets all the information he needs to trade. This is the responsibility of the IT team. Another issue NCDEX had to face was educating the members about the nitty-gritty of online trading as many were based outside the four metros. “We had this challenge right at the start. For example, the front end download registered nearly 8 MB. The exe had to be run, and certain files copied in certain directories. Every month new commodities and contracts would be introduced and they would have to re-load those details.” NCDEX has set up a strong customer support team to handhold members till they are ready to conduct the first trade. It also conducts extensive onsite as well as outstation training sessions for members. Over the past three years, 500 training sessions have been conducted.

A critical element of NCDEX’s operations is reconciling trades at the end of the day. “Till the time two orders are matched so that they become a trade, all the trades remain in the matching engine. Unlike a hard-disk based RDBS, ours sit in the memory. Continuity is important here.”

It’s only now that NCDEX has embarked on setting up its own disaster recovery (DR) site. As of now it is co-hosted with the DR site of NSE in Chennai. “We have replicated the servers; a couple of mock tests have taken place, like the link stability by sending files offsite. However, it will take 2-3 months before it becomes operational.”

Meanwhile, Chandra Shekhar has his hands full. Among the projects he is working on is one for a spot exchange. “Some of the state governments have given us permission for spot trading. We are working on aspects like connectivity since most spot trading takes place at state-sponsored markets and in small quantities.” NCDEX is also a key participant in a project that will see the launch of a power exchange in the country within the next three months. Being an online exchange, the project is expected to throw up more challenges for NCDEX’s IT team.