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The Ace Commodity Exchange, promoted by the Kotak Group, has approached the market regulator Forward Markets Commission (FMC) to allow market maker participation in exchanges to drive liquidity and improve participation. Market makers provide quotes on both the buy and sell side so that there is enough liquidity in a particular contract.
Mr Dilip Bhatia, Chief Executive Officer, Ace Commodity Exchange, said: “We have approached the FMC seeking permission for introduction of market makers. The move will put the recently launched exchanges on a level-playing field with the established ones.”
The regulator can prescribe separate norms including the role, fee to be paid, and other checks and balances for the market makers, he said. There is very little room to manoeuvre for new exchanges as the contract specification for all the commodities are very similar.
Stressing on the need for market makers, Mr Bhatia said in the last two years there has not been much success in new commodities introduced for trading by any of the five online exchanges.
Liquidity, an impediment
Despite marketing efforts, investors keep away from new commodities launched due to lack of liquidity, he said. Currently, gold and silver futures contribute about 86 per cent of cumulative turnover of five online commodity exchanges.
“We have managed to be little different by tweaking our delivery centres and charging a uniform fee of Rs 100 a trade of Rs 1 crore, besides our warehousing and assaying charges are five to 10 per cent cheaper compared to our competitors,” he said. The average daily turnover in Ace has improved substantially to Rs 300 crore in April compared to Rs 160 crore logged when the exchange was started in November last year.
National Multi-Commodity Exchange, one of oldest commodity exchanges has a different view on market makers.
Mr Kailash Gupta, Executive Vice-Chairman, NMCE, said though market makers will bring in volumes finding the right people to act as market maker will be a costly affair. “An investor acting as market maker will require high investment and thus will expect commensurate high returns which will be very difficult to achieve,” he said.
Exchanges have to invest in promoting the contracts in which market makers are involved and conduct road shows to spread awareness. These activities will require stable cash flow into exchanges, he added.
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