As MCX awaits new trading platform, rivals NSE, BSE eye core markets with new launches

MCX (Multi Commodity Exchange of India Ltd) has been under the spotlight for a long time with regard to its transition to a new commodity trading platform from the one developed by its erstwhile promoter Financial Technologies India Ltd, now known as 63 Moons, that it has contracted to use till the year-end after repeated extensions.

MCX is said to have maintained its strong dominance largely due to its focus on non-agri commodities and the rise in options trading in recent years. Image Courtesy: Freepik.

As MCX manoeuvres the regulatory rigmarole over a new trading platform, its better-known rivals NSE and BSE, despite their relatively minuscule market share, are set to launch a major bid on Monday to enter the areas hitherto dominated by the country's largest commodity exchange.

MCX (Multi Commodity Exchange of India Ltd) has been under the spotlight for a long time with regard to its transition to a new commodity trading platform from the one developed by its erstwhile promoter Financial Technologies India Ltd, now known as 63 Moons, that it has contracted to use till the year-end after repeated extensions.

MCX announced last month that it will go live with the new platform developed by TCS from October 3, the implementation was put on hold soon after by the capital market regulator Sebi due to "technical issues" and in the wake of some pending legal matters.

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While the exchange has been holding mock trading sessions for the new software for quite a long time and will continue on October 10-12, it said on Sunday that Sebi has withdrawn its directions to "keep the proposed Go-Live of CDP (Commodity Trading Platform) in abeyance".

The exchange said Sebi's decision followed replies submitted by it and its clearing corporation to the regulator on the complaint of Chennai Financial Markets and Accountability (CFMA).

"Subsequently, Sebi Technical Advisory Committee has recommended that MCX and MCXCCL may Go-Live with the CDP and to intimate Sebi regarding the proposed date for Go Live," it said in a regulatory filing.

As the confusion persists over the implementation of the new platform that has been casting a big shadow over the exchange's business for a long time now, the rivals are set to make a major bid on Monday to capture core business segments of MCX in the commodity derivatives market, where it still enjoys a huge market share of over 98 per cent.

Many market players opine that volumes might soon start shifting to NSE and BSE if the two dominant stock exchanges keep their focus on getting a foothold in the commodity space as well.

BSE said it will launch contracts in options on futures in precious metals and energy (WTI crude oil and Brent crude oil) contracts and futures contracts on base metals like copper, zinc, and aluminium on October 9.

"These commodity contracts will provide market participants (particularly corporates, value chain participants and foreign portfolio investors) an efficient way to manage their commodity price risk against volatility," it added.

BSE, formerly Bombay Stock Exchange, is known as Asia's oldest and the world's fastest stock exchange, and it will celebrate its 150th anniversary in July 2024.

The contracts being launched by BSE in the Commodity Derivatives segment with effect from October 9 include Gold Options on Futures, Silver Options on Futures, WTI Crude Oil Options on Futures, Brent Crude Oil Options on Futures; as also Aluminum Futures Contract, Copper Futures Contract and Zinc Futures Contract.

On the other hand, the country's largest stock exchange NSE said it has received Sebi's approval for launching Options contracts on underlying WTI Crude Oil and Natural Gas Futures. The contracts would be available for trading from October 9.

NSE had earlier announced the launch date as October 16, but it has been re-scheduled to October 9.BSE also said that ODIN Software has commenced offering the BSE Commodity Derivatives Segment from October 7.

During August 2023, the overall turnover of all commodity derivatives contracts was Rs 23.8 lakh crore, which was an increase of 23.1 per cent over the previous month.

The percentage share of agri and non-agri segments in overall turnover accounted for 1.2 per cent and 98.8 per cent, respectively. Similarly, the percentage share of futures and options contracts in overall turnover stood at 18.0 per cent and 82.0 per cent, respectively.

MCX is said to have maintained its strong dominance largely due to its focus on non-agri commodities and the rise in options trading in recent years.

In terms of percentage share of commodity derivatives turnover among exchanges, MCX had the highest market share of 98.7 per cent, followed by NCDEX (1.2 per cent) and NSE (0.05 per cent) at the end of August 2023.

While BSE has recorded nil turnover since May 2023, the NSE recorded a turnover of Rs 1,159 crore, and presently, only contracts of WTI Crude oil and Natural gas are the major contracts traded at NSE, according to Sebi's latest monthly bulletin.

The pan-India turnover in the commodity derivatives segment increased by 49.7 per cent in 2022-23 to Rs 150.1 lakh crore, up from Rs 100.3 lakh crore in 2021-22.

Among exchanges, MCX, which held 98.4 per cent share in overall commodity derivatives turnover, recorded an increase of 68.3 per cent during 2022-23, Sebi said in its latest annual report.

On the other hand, turnover declined for other exchanges BSE, NCDEX and NSE by 98.9 per cent, 54.7 per cent and 10.1 per cent, respectively. NCDEX contributed 1.4 per cent to the total turnover, followed by NSE (0.12 per cent) and BSE (0.06 per cent).

In 2022-23, the turnover of the non-agri segment increased by 56.4 per cent to Rs 147.8 lakh crore from Rs 94.5 lakh crore in 2021-22, while that of the agri segment decreased by 60.1 per cent to Rs 2.3 lakh crore from Rs 5.7 lakh crore over the last year.

This resulted in a decline in percentage share in the overall turnover of the agri segment to 1.5 per cent from 5.7 per cent in the previous financial year. On the other hand, the share of non-agri segment turnover increased from 94.3 per cent in 2021-22 to 98.5 per cent in 2022-23.

MCX became the world's second-largest commodity exchange soon after it was set up in 2003 by its erstwhile promoter Jignesh Shah, once known as the 'Exchange Man of the World' for having established 14 exchanges across six continents in a span of ten years.

After a payment default of Rs 5,600 crore in 2013 at his then smallest venture National Spot Exchange Ltd (NSEL), which had a daily trading volume of Rs 200 crore as compared to more than Rs 1.2 lakh crore a day at his biggest exchange MCX, Shah was forced out of all Sebi-regulated businesses under regulatory orders amid a multi-agency probe.

Years after his exit, MCX continues to depend on 63 Moons for the commodity trading platform in the absence of new software, which was supposed to be developed, tested and delivered to it by September 2022.

To ensure continuity of the existing commodity trading and clearing platform, MCX had to continue the services of 63 Moons, initially for a three-month period, then extended by another two quarters, and then again for a further six months beginning July 1, 2023.

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