The country's oldest exchange BSE will be completing one year in the commodity derivatives market this month. Though one year is very little to gauge the success of an exchange, the BSE has gained confidence to levy trading charges, reversing its earlier stance of offering it for free. In an interview with BusinessLine , Ashishkumar Chauhan, Managing Director, BSE shares his views and vision of the commodity exchange. Excerpts:

How do you rate your performance in last one year?

It has been an eventful and interesting journey. We started with non-agriculture commodity futures and entered the agriculture space sooner than expected. Today, some of our agriculture contracts are doing much better than older exchanges and, in some, we are comparable.

In the early days, we did not have terminals installed as vendors were not ready. We are now working closely with software vendors, even supporting them financially, to take our software to every nook and corner of the country.

What pushed the BSE to enter the agriculture commodity space earlier than planned?

We had signed agreements with various associations a year before we launched operations. For whatever reasons, they asked us to launch agriculture contracts. When we started, we did not want people to trade only in gold or guarseed. We wanted to provide various commodities to call ourselves a serious commodity exchange. We have done it in a calibrated way and entered into agriculture commodities; we handle warehousing, testing and the delivery aspect.

Unlike other exchanges, the BSE began with compulsory delivery of contracts. Was that a hurdle?

When SEBI allowed stock exchanges to enter the commodity space, it wanted to enforce better practices. One of the mishaps that happened was due to lack of physical delivery. Both the government and regulator wanted the linkage between physical and futures trade established. Otherwise, the exchanges are not useful to the trade. They just create confusion in the market. Equity derivatives also started without delivery, rightly so, because there was no delivery in index. Now, of course, you can deliver index funds, but when they started, there were no sizeable index funds. But across the world, index derivatives trade without delivery.

Though LC Gupta committee suggested that stock futures and options be deliverable, we started off without the deliverable option. In 2019, SEBI made stock options and futures deliverable.

Similarly, the panel wanted commodity contracts deliverable, but traditional commodity exchanges were not equipped to handle it. We did not want to start at a sub-optimal level and then move up the chain.

Going by the launch of three new agriculture contracts on a single day, will you focus more on agriculture contracts?

Our focus would be on both agriculture and non-agriculture. We will soon launch Brent crude. We have tied up with the Intercontinental Exchange, which has the largest crude trading contract in the world. We also focus on currency, interest rate futures and equity derivatives. We have employed specialists to work across commodities.

Do you think liquidity is still a concern?

I have been told that not more than 20,000 people trade in a month across five exchanges. It is true that we have a shallow market. In fact, in the last five years, the number of participants has shrunk, primarily due to lack of linkage between spot and futures market prices.

Though commodity exchanges have been around for 15 years, there has been no big progress. Now that SEBI is focusing on linking the futures market with the spot by enforcing delivery, I think participation should improve. Liquidity will also improve as SEBI has allowed banks, mutual funds and foreigners to participate in the commodity space.

SEBI has taken corrective measures. I see an explosion in terms of the number of participants in commodity in the next few years, with national exchanges like BSE and others entering the space. We have over four crore registered investors. Participants are also interested in linkages with domestic prices for contract settlement. Indian markets were settling on foreign prices as if we were a foreign market, but now things are changing. Compulsory delivery has made linkage with the domestic market strong. But, of course, we are in a transitionary phase.

Why is there no much traction from mutual funds and bank-owned broking firms despite SEBI allowing them to trade in commodities?

They are still preparing for risk management issues. Custodians need to be prepared. Currently, not a single custodian is available. The recent issues in commodity such as gold, cotton and castor seed oil have created doubts in the minds of participants about the risk management.

Professional investors have questions on the standard of operations. In fact, one of the reasons they give for fall in market participation is the worries in overall framework in Indian traditional commodity exchange market.

We have to step up to ensure the confidence in the Indian market is back. Ultimately, the onus is on the large institutions to protect the interest of their own investors and trade with caution.

There are concerns today over fairness and safety of the market. The BSE brings these two issues on table for the market.

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