Need to attract hedgers through proper regulations: MCX CEO P S Reddy

I spent five years, and I am already 61. I had an eventful stint including handling Covid pandemic and technology platform development. The exchange embarked on the development of technology platforms during Covid. This is the first time in the world a live exchange shifted both the clearing and trading platform in one go. It was one of the riskiest exercises that we have undertaken because we had no other choice. It is like replacing an engine of the flight when it is flying at 30,000 feet. The other choice was to keep paying the previous vendor whatever they asked for. Having gone through such an arduous route I need some rest. Obviously, that does not mean I am going to sit idle.

When Covid broke out, everything was shut and it was a trying time for all of us. We had put 50 key operations people in the exchange office to run the entire business online. We managed it between March-May 2020. After that, few employees got Covid. Then we dismantled the set-up. People were getting used to making business plans through video conferencing and zoom meetings. Covid was a great learning for us. Then a substantial time was occupied for launching the new platform as the contract was awarded in February 2021, at the beginning of second Covid wave.

Internal expertise is there to run the exchange. The entire operations are run on a set of two major modules. TCS proposed a solution of T7, the trading platform run at Deutsche Boerse and BANCS for clearing and settlement. TCS had to marry these two and put up a solution for us. These systems are good, but the integration took more time. The kind of complexity Indian markets have is not there anywhere in the world. In terms of managing client margins or generating peak margin report 7-8 times in a day to make sure clients at that point of time had adequate margins, position limit monitoring across groups among others are the reasons why it took us so much time. In hindsight we can say this and that could have been done better, but during the Covid we could not co-locate the teams. A good amount of TCS team was sitting in Chennai, our team and T7 team was in Mumbai. A lot of videoconferencing was happening, but a lot of understanding gaps were also there.

The number of hedgers on the exchange is far less compared to the international markets. We are well placed in gold trading, but for the rest of the commodities it is largely taking place in the international market. India should be a price setter as it is the largest producer or consumer of many products. Similarly, the far month contracts are not active and that may be one of the reasons why people are going abroad. Currently companies have to disclose their hedging position in their annual report. Even that is not followed properly. A diktat like that of RBI banning jewellers from hedging gold position abroad will go a long way in bringing other products, such as metals trade in India.

Yes. We have made a representation to the Government. In delivery-based contracts, the government has to remove the hassles of GST. Our ask is when goods are lying in the exchange accredited warehouses there is no need for levying GST. When traded on the exchange it is changing hands only on the paper without being put on use. Exchange accredited warehouses should be treated as a bonded warehouse. Exchange will collect the GST and pay the Government when the commodity moves out of the warehouse. We are already collecting and paying almost ₹700 crore of commodity transaction tax and another ₹100 crore stamp duty. Even the GST collection can be handled by the exchanges better. We have multiple delivery centres for metals. Buyers may not be knowing from where they will get the delivery. So, buyers have to register for GST in all these States. In this ecosystem, we have speculators, hedgers and financial players. Not everybody takes delivery. Financial players do need to register for GST. They just play on the spread between near month and far month contracts. Currently, in each delivery settlement cycle, they have to take delivery on the record and pay GST. When they sell it then they have to show the GST credit. This is unnecessary and does not serve any purpose.

We are looking at introducing futures on 10-gram gold coins. We are undertaking system tests for these products. We will also launch refined sunflower wash oil and refined cotton wash oil. We have got the approvals. We are designing options on index and will apply to SEBI for approval. We have applied for introducing electricity derivatives and approval is pending with the SEBI.

This will not have any impact on us. When the announcement was made the stock price dipped but soon recovered as the market realised actual impact basis exchange disclosures on impact assessment. Since 2021, MCX has been charging members for trading in options unlike other exchanges. After SEBI recent diktat, its fees are to be paid even if exchanges provide options free of charge. Exchanges are obligated to pay the regulatory fee. In 2020-21, our options turnover was hardly anything but in last two years turnover has picked up and we have covered SEBI fees fully. Exchange margins will not shrink. We are charging around ₹80 per ₹1 crore turnover in options. In this we pay ₹1.20 paise as SEBI fee.