Commodity exchanges are bouncing back from the impact of high value currency demonetisation. Trading volumes on MCX, the country’s largest commodity exchange, was down post-demonetisation and the Government measure to temper demand for gold. Mrugank Paranjape, Managing Director, MCX spoke to Business Line on the way ahead. Excerpts:

What is the impact of demonetisation on MCX?

It is very difficult to say what is the impact of any one event on the exchange by analysing a set of data. If you look at our volumes, pre-demonetisation the ratio of business used to be 35 per cent bullion and 25 per cent base metals while energy was equivalent to bullion. Post-demonetisation, bullion and base metals have sort of switched places. In fact, base metals is generating more volumes than bullion post-demonetisation. The bullion industry in general has been impacted by demonetisation. I think that has affected us. The volumes are down by about 20 per cent predominantly on account of gold sector.

Has your focus on agriculture sector delivered results?

I want to reiterate that our core strength is metal and energy. However, from a longer term perspective we are engaging with agriculture sector for two reasons. Of the 91 commodities approved for futures trading, the ones which have failed to attract investors interest are more in agriculture sector. There is enough incremental value in existing products. The value chain in each of the agriculture products we have presence in, is as rich as bullion. We have four agriculture contracts which have done well. Obviously in any of these businesses success comes slow. We are waiting for Sebi’s approval to launch two or three new contracts.

Is exchange business margins under stress? Will cut in transaction charges help?

We have done a repricing which helped stabilise our overall revenues at the previous year’s level. We will not have too much margin pressure yet. But, if the volumes do not pick up in next two or three quarters then we might see margin pressure. Just lowering transaction charges alone will not attract liquidity. Of course, we will make it attractive to the extent we can but that cannot be a determining factor.

Will cost go up with your own clearing house?

The clearing corporation which will be a wholly-owned subsidiary in place. We have to capitalise it and seek Sebi’s approval. We want to set it up soon. It is a necessary infrastructure for institutional participation. Clearing corporation will not have much impact on our overall earnings because it is just moving capital from one entity to another. The money is available with us. We have all the infrastructure and people needed for the clearing house. We have to just shift them to the new entity. The incremental expenditure will be very low.

Will launch of options be delayed?

It is very difficult to say because we were expecting it to be approved at the last Sebi board meeting. It is now understood that Sebi needs to address certain legal aspects. It is difficult to predict how much time it will take. But we are absolutely prepared for it. We have the technology in place. We will file for approval after Sebi finalises the guidelines.

Is there any progress in your plans to launch spot exchange?

Given the past history, we have decided not to venture into any business which is not regulated. The Budget has evinced an interest to arrive at a convergence of spot and futures market. From that perspective we are keen that spot exchange should take off. We are also keen to send our views once a committee is formed to pursue this vision. Our interest is in bullion, base metals and cotton. We have to see how the government creates a national infrastructure that covers both segments.

What is the progress in setting up repository with CDSL?

CDSL has got in principle approval from WDRA (Warehouse Development and Regulatory Authority) to set up repository. We will have up to 24 per cent stake in the subsidiary to be floated by CDSL to create the repository which will enable issuance of electronic negotiable warehouse receipts.

Will you launch trading in diamonds in tie-up Singapore Diamond Investment Exchange?

A) At present, there is no platform for trading in diamond. Given the large chunk of bullion traders we are catering to, this will be a very good addition to the value chain. We believe the whole focus on spot related activities will pick up and exchanges will have a bigger role to play. If Sebi allows futures trading in diamonds, we will definitely look to tap in to Singapore exchange’s expertise.

Sebi has ordered a special audit on your technology?

It is an audit related to 2006-13. We have appointed an audit firm and they are working under the terms of reference set by Sebi. We have an agreement with Financial Technologies for five years and we are going abide by that.

Will you consider having your own software?

Towards the end of the agreement with FTIL we will also consider having our own software or another software vendor to lower cost. We will keep our eyes and ears open on the trends in this regard.

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