‘We look forward to more reforms, new product launch, wider participation’

The commodity derivatives market has witnessed many regulatory changes to imbibe fresh confidence among participants. The RBI’s decision to allow bank subsidiaries to act as a clearing member of commodity exchanges has come as a morale booster for one and all linked to commodity trading. Given the positive momentum, commodity market regulator SEBI is expected to speed up reforms in the coming years. Mrugank Paranjape, Managing Director and CEO, MCX, shares his views with BusinessLine on the way ahead for commodity market. Excerpts:

What, according to you, are the major events that shaped commodity exchanges in 2017?

The commodity derivatives market in India had not witnessed much development over the years in the form of product development and most importantly, participants. In this context, the year 2017 assumes great significance as the regulator has embarked upon a focused approach to develop the commodity derivatives market. We have seen the regulator enabling a regime conducive for launching new products and increasing the categories of participants in the market. Structurally, a strong and efficient market platform, its ability to sustain variety of products and attracting larger number of participants should remain the focus areas. In this regard, we have seen the regulator taking several steps. In fact, this year witnessed a significant milestone in the history of commodity derivatives market when we launched India’s first commodity options in gold on Dhanteras. The market got its first new instrument in 14 years. We saw the first institutional participation in 14 years when a Category - III Alternative Investment Fund initiated trade on our platform this year. Some of the other key events also include banks being permitted to act as Professional Clearing Member on the commodity derivatives exchanges and its sponsored entities being permitted to offer commodity broking services. This apart, consolidation and integration of the broking licenses in commodities and equity into one entity is also a very significant event.

The launch of Commodity Repositories under the Warehousing Development and Regulatory Authority to issue electronic Negotiable Warehouse Receipts and the roll-out of GST will help create a unified national market for commodities.

How do you see the coming year for commodity exchanges? What are the regulatory measures you think that would boost volumes on the exchange platform?

The regulator has already released a consultation paper on permitting Mutual Funds and Portfolio Management Services to participate in the commodity derivatives market. Institutional participation is the key for growth in every market. We look forward for more reforms and opening up the commodity derivatives exchanges for wider participants with the flexibility for exchanges to introduce new products and instruments. The evolving regulatory landscape is bound to open up many opportunities for market participants amidst some challenges. Innovative products and new entrants with ease of doing business for intermediaries would augur well for the commodity markets. We look forward to SEBI’s approval for launching options in more commodities. We will have our own Clearing Corporation soon. The efforts of the government towards integration of spot and derivatives markets, and modernisation of both agriculture and non-agriculture spot markets would also attain greater momentum.

Do you see trading cost coming down over the years?

It is quite difficult to say a straight yes or no to this. The trading cost reflects the direct interest of multiple stakeholders — the exchange, trading members, regulator and the government. While it is natural for users to expect the cost to come down to stay competitive, it is then expecting other stakeholders to sacrifice part of their revenue. A high percentage of cost on exchange platform comprises government levies and taxes. Market participants have made representation to the government for rationalisation of taxes. With commodity derivatives market growing continuously and other efficiencies coming into play, it has to be seen whether exchanges and its members can bundle in more value-added services or pass on the benefits in the form of reduced costs.

COMMENT NOW