Volumes still remain off peak levels, but steps taken to ring-fence MCX ops from Financial Technologies India (FTIL) seen aiding sentiment
Monthly turnover on Multi Commodity Exchange of India Ltd (MCX), a unit of Financial Technologies (India) Ltd (FTIL), has risen by nearly a third since November, following regulatory steps taken to ring-fence the operations of MCX from promoter FTIL.
National Stock Exchange Ltd (NSEL), a group company of FTIL, is currently engulfed in a Rs.5,574.35 crore payment crisis. As a fallout of the payment crisis, commodity markets regulator Forward Markets Commission (FMC) had also ruled that FTIL, which is also the largest shareholder in MCX, is not a “fit and proper person” to continue to be a shareholder of 2% or more in the bourse. Following which, the MCX board on 27 December, had asked its promoter FTIL to reduce its stake to 2% in accordance with the regulator’s order.
In terms of value, the monthly turnover has increased from a low of Rs.3.99 trillion in November to Rs.5.19 trillion in January, an increase of 29%. To be sure, turnover remains far below the Rs.7.76 trillion seen in the month of July before the NSEL crisis came to light. Between July and November, as the crisis at NSEL unfolded, turnover on MCX declined by 48%. While there has been some revival in the last three months, turnover remains 33% below what was recorded in the month of July.
“The main reason why the volumes have gone up in MCX is because there is an improvement in investor sentiment due to change in top management and board in MCX,” Kishore Narne, head of commodity and currency at brokerage Motilal Oswal Financial Services Ltd. “A lot of efforts have also been made by the management of MCX and brokers to restore confidence of investors. This has definitely helped in bringing back the investors who had so far refrained from investing in commodities.”
Meanwhile, turnover on rival National Commodity and Derivatives Exchange Ltd (NCDEX) has been largely steady over the November-January period. The exchange registered a turnover of Rs.98,800 crore in January compared to Rs.1.05 trillion in December and Rs.96,200 crore in November.
The MCX board and management have seen a string of resignations since the settlement crisis at NSEL surfaced. On 30 August, six MCX directors—Venkat Chary, C.M. Maniar, Shvetal Vakil, Prakash Apte, Lambertus Rutten and P.R. Barpande—resigned from the board. On 19 October, MCX’s managing director and CEO Shreekant Javalgekar also resigned. Joseph Massey, who was to retire by rotation as a director in the company, had withdrawn his offer for reappointment on 25 September.
On 31 October, Jignesh Shah resigned as non-executive vice-chairman of MCX after sector regulator FMC issued a notice to him and FTIL questioning their “fit and proper” status. Paras Ajmera, the last nominee of the promoter FTIL on MCX’s board, also stepped down on 13 November.
Since then, under direction from FMC, the MCX board has been reconstituted and now includes four directors nominated by the regulator, three FMC approved directors and five nominees of shareholders such as the State Bank of India, Canara Bank, Bank of Baroda and others.
Manoj Vaish, who until recently was the managing director and CEO of NSDL Database Management Ltd, took charge as the CEO of MCX on 1 February.
“New leadership overseeing the functioning of MCX has increased the confidence of clients who were sceptical in investing in MCX platform due to NSEL crisis,” said C.P. Krishnan, whole-time director, Geojit BNP Paribas Financial Services Ltd.
Krishnan said that the January data only reflects the fact that MCX has regained the volumes it had lost following the NSEL fiasco which had eroded the confidence of investors, but added that volumes are still very low when compared to what was seen in January last year.
MCX posted a turnover of Rs.12.97 trillion in January 2013 as against Rs.5.19 trillion in January 2014. Part of this fall has been due to the introduction of the commodities transaction tax (CTT), which was implemented in July, and impacted the volume of trade across all commodity exchanges.
Turnover on the six national commodity exchanges led by MCX shrank 36% to Rs.82.46 trillion in the nine months ended 31 December due to an escalation in the cost of trading.
Deven Choksey, managing director and CEO of KR Choksey Shares and Securities Pvt. Ltd, echoed Krishnan’s views by saying that bringing in a professional management has greatly improved the confidence of investors but added that it would take a long time for MCX to move back to the level of volumes seen before the NSEL crisis broke.
“For volumes to come back to their peak levels, the NSEL crisis has to be completely resolved and investors should get back their money,” said Choksey.
Irregularities at NSEL came to light on 31 July when the exchange abruptly suspended trading in all but its e-series contracts. These, too, were suspended a week later. The closure of trading may have been prompted by an instruction from the ministry of consumer affairs asking the exchange not to offer futures contracts. A spot exchange isn’t supposed to do so, but NSEL was doing that.
NSEL tried to implement the change, but because its appeal was to investors and members who were not interested in spot trades, it eventually had to suspend all trading. It later emerged that all the trading on NSEL happened in paired contracts, with investors, through brokers, buying a spot contract and selling a futures one for the same commodity.
The entities selling on spot and buying futures were planters or processors and members of the exchange. It turned out there were only 24 of them, and they used the paired contracts as a way to raise easy money. When the trading was suspended, the investors were left holding contracts that the members couldn’t buy because they didn’t have the money to do so.
On 14 August, NSEL proposed a payout plan, but it has been unable to stick to the schedule and has not made a single successful payout since.
Monthly turnover on Multi Commodity Exchange of India Ltd (MCX), a unit of Financial Technologies (India) Ltd (FTIL), has risen by nearly a third since November, following regulatory steps taken to ring-fence the operations of MCX from promoter FTIL.
National Stock Exchange Ltd (NSEL), a group company of FTIL, is currently engulfed in a Rs.5,574.35 crore payment crisis. As a fallout of the payment crisis, commodity markets regulator Forward Markets Commission (FMC) had also ruled that FTIL, which is also the largest shareholder in MCX, is not a “fit and proper person” to continue to be a shareholder of 2% or more in the bourse. Following which, the MCX board on 27 December, had asked its promoter FTIL to reduce its stake to 2% in accordance with the regulator’s order.
In terms of value, the monthly turnover has increased from a low of Rs.3.99 trillion in November to Rs.5.19 trillion in January, an increase of 29%. To be sure, turnover remains far below the Rs.7.76 trillion seen in the month of July before the NSEL crisis came to light. Between July and November, as the crisis at NSEL unfolded, turnover on MCX declined by 48%. While there has been some revival in the last three months, turnover remains 33% below what was recorded in the month of July.
“The main reason why the volumes have gone up in MCX is because there is an improvement in investor sentiment due to change in top management and board in MCX,” Kishore Narne, head of commodity and currency at brokerage Motilal Oswal Financial Services Ltd. “A lot of efforts have also been made by the management of MCX and brokers to restore confidence of investors. This has definitely helped in bringing back the investors who had so far refrained from investing in commodities.”
Meanwhile, turnover on rival National Commodity and Derivatives Exchange Ltd (NCDEX) has been largely steady over the November-January period. The exchange registered a turnover of Rs.98,800 crore in January compared to Rs.1.05 trillion in December and Rs.96,200 crore in November.
The MCX board and management have seen a string of resignations since the settlement crisis at NSEL surfaced. On 30 August, six MCX directors—Venkat Chary, C.M. Maniar, Shvetal Vakil, Prakash Apte, Lambertus Rutten and P.R. Barpande—resigned from the board. On 19 October, MCX’s managing director and CEO Shreekant Javalgekar also resigned. Joseph Massey, who was to retire by rotation as a director in the company, had withdrawn his offer for reappointment on 25 September.
On 31 October, Jignesh Shah resigned as non-executive vice-chairman of MCX after sector regulator FMC issued a notice to him and FTIL questioning their “fit and proper” status. Paras Ajmera, the last nominee of the promoter FTIL on MCX’s board, also stepped down on 13 November.
Since then, under direction from FMC, the MCX board has been reconstituted and now includes four directors nominated by the regulator, three FMC approved directors and five nominees of shareholders such as the State Bank of India, Canara Bank, Bank of Baroda and others.
Manoj Vaish, who until recently was the managing director and CEO of NSDL Database Management Ltd, took charge as the CEO of MCX on 1 February.
“New leadership overseeing the functioning of MCX has increased the confidence of clients who were sceptical in investing in MCX platform due to NSEL crisis,” said C.P. Krishnan, whole-time director, Geojit BNP Paribas Financial Services Ltd.
Krishnan said that the January data only reflects the fact that MCX has regained the volumes it had lost following the NSEL fiasco which had eroded the confidence of investors, but added that volumes are still very low when compared to what was seen in January last year.
MCX posted a turnover of Rs.12.97 trillion in January 2013 as against Rs.5.19 trillion in January 2014. Part of this fall has been due to the introduction of the commodities transaction tax (CTT), which was implemented in July, and impacted the volume of trade across all commodity exchanges.
Turnover on the six national commodity exchanges led by MCX shrank 36% to Rs.82.46 trillion in the nine months ended 31 December due to an escalation in the cost of trading.
Deven Choksey, managing director and CEO of KR Choksey Shares and Securities Pvt. Ltd, echoed Krishnan’s views by saying that bringing in a professional management has greatly improved the confidence of investors but added that it would take a long time for MCX to move back to the level of volumes seen before the NSEL crisis broke.
“For volumes to come back to their peak levels, the NSEL crisis has to be completely resolved and investors should get back their money,” said Choksey.
Irregularities at NSEL came to light on 31 July when the exchange abruptly suspended trading in all but its e-series contracts. These, too, were suspended a week later. The closure of trading may have been prompted by an instruction from the ministry of consumer affairs asking the exchange not to offer futures contracts. A spot exchange isn’t supposed to do so, but NSEL was doing that.
NSEL tried to implement the change, but because its appeal was to investors and members who were not interested in spot trades, it eventually had to suspend all trading. It later emerged that all the trading on NSEL happened in paired contracts, with investors, through brokers, buying a spot contract and selling a futures one for the same commodity.
The entities selling on spot and buying futures were planters or processors and members of the exchange. It turned out there were only 24 of them, and they used the paired contracts as a way to raise easy money. When the trading was suspended, the investors were left holding contracts that the members couldn’t buy because they didn’t have the money to do so.
On 14 August, NSEL proposed a payout plan, but it has been unable to stick to the schedule and has not made a single successful payout since.