Commodity exchange proposal may run into rough weather

Commodity exchange proposal may run into rough weather

New Delhi: State-run firm MMTC India Ltd and brokerage house Indiabulls Financial Services Ltd‘s plan to set up a national-level commodity exchange but the proposal may find it difficult to get a regulatory nod in the absence of any specific guidelines.

MMTC and Indiabulls Financial plan to set up a special purpose vehicle for the exchange, with the public sector firm holding a minority stake of 26%.

“We have already applied to Forward Markets Commission (FMC) for permission to set up a national-level commodity bourse," MMTC chairman and managing director Sanjeev Batra said. However, when contacted, FMC chairman B.C. Khatua denied having received any application for the venture. “We are yet to take a decision whether to allow another commodity exchange at the national level," he said.

Another problem which could be faced by the MMTC-Indiabulls joint venture could be the absence of any rule book from FMC for a commodity exchange at the national level. The exchanges in existence have been established on the basis of broad parameters. A senior official, from an existing commodity exchange who did not wish to be identified, said only the regulator can say whether there is any need for a fourth exchange at the national level.

“This proposed exchange by Indiabulls and MMTC would be promoted by those who are already trading in the futures market, while the other two leading exchanges, such as Multi Commodity Exchange of India Ltd (MCX) and National Commodities and Derivatives Exchange of India Ltd (NCDEX) do not have a conflict of interest," the official added.

MMTC recently received approval from the commerce ministry to get into the commodity futures sector and the exchange is estimated to attract an initial investment of Rs100 crore. MCX is promoted by a private-listed company, Financial Technologies India Ltd, while NCDEX is a demutualized body, in which various financial institutions hold stakes. MMTC would be competing with three existing commodity exchanges and allowing trade in certain commodities not yet conducted by MCX and NCDEX and that would give it an advantage.

“The new exchange would have to compete with NCDEX and MCX," Batra said. “We will allow trading in both agro and metal commodities, where delivery will play an important role. There are opportunities for starting futures trading in carbon, iron ore and fertilizer, which are not available currently in any exchanges."

MMTC’s plan to enter the futures market comes at a time when the business of commodity exchanges is sliding. Turnover of all the commodity exchanges in the first half of this fiscal dropped by about 8% to Rs17,55,165 crore, from Rs18,98,678 crore in the year-ago period. Batra said the fall in turnover of late is a temporary phase and was mainly because of the ban on certain agri-commodities in the futures market. “We had appointed PricewaterhouseCoopers to study the prospect of starting a commodity exchange and its report said India has enough potential and space in futures trading of commodities," he said.