Securing a modest share in volume trade is not cause for celebration yet at Ace Derivatives and Commodity Exchange Ltd. But it certainly warrants a pat on the back for getting on to the growth curve in the highly restrictive commodity futures segment, believes its chief executive officer, Mr Dilip Bhatia.

The national multi-commodity exchange, that has completed a little over a year of operations, will spend the rest of the year consolidating its farm commodity portfolio.

Diversifying into the metals and energy space in commodity futures is the next step but that will happen only in the next financial year, says Mr Bhatia. Ace Derivatives' growth has been good and on expected lines.

“Our focus this year is to complete the agriculture segment as soon as possible and attain at least 25 per cent market share in all the commodities that we are in,” Mr Bhatia said. Even as it moves on to the non-farm segment, Ace will look at launching more agricultural commodities.

At present, there are five national multi-commodity exchanges operating in a highly-restrictive regulatory environment. Exchanges have been awaiting Parliament's approval to amendments to a forward contracts regulation law of 1952. The Bill is now being studied by a Parliamentary Standing Committee of the Department of Consumer Affairs.

The Differentiation edge

While some of the older exchanges have found their strong areas, the newer entrants are prompted to look at differentiation in their offerings to bring in active participation.

Mr Bhatia says Ace has been trying to bring in that differentiation in design of the contract, warehousing infrastructure, delivery and open interest, among others.

Ace's foray into farm commodities was a planned strategy, says Mr Bhatia. “We wanted to start with a segment that had a lot of scope for growth,” he said.

Ace Derivatives, with a membership strength of 500 members, is currently offering eight commodities — soyabean, refined soyaoil, mustard seed, chana, guar seed, guar gum, castor and sugar — and believes it has covered 85 per cent of the liquidity pool in this segment. With its foray into farm commodities, Ace Derivatives is up against National Commodity and Derivatives Exchange, which has been strong in this segment.

Higher volumes

The exchange has chosen to go in for highly liquid commodities and, in turn, has been able to build its volumes, which now stand at a daily average of Rs 600-700 crore compared with day one's volumes of Rs 167 crore.

Adding new delivery centres for commodities has helped bring in more participation as it widens the choice, says Mr Bhatia. “We looked at delivery centres to make the differentiation. For mustard seeds we added Jodhpur as a delivery centre and we are planning to add one more centre,” he said. The exchange also added Sriganganagar for guar.

Ace also offered technological differentiators, such as the spread window, which allows participants to place orders for two months. Once the spread is defined, the order gets executed automatically.

“I am personally very bullish about soyaoil, where we have 30-35 per cent of market share of the volumes traded,” Mr Bhatia said.

Ace Derivatives has chosen to go for tried-and-tested commodities as launching an absolutely new commodity is very difficult in the absence of a market-maker concept.

“There is a need for an anchor participant who ensures liquidity in the initial months of the contract. FMC has not yet given any word on it as there are worries whether such a mechanism would lead to bogus or artificial volumes,” Mr Bhatia said.

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