BackSebi order on CFMA plea to delay MCX shift to TCS
Sebi direction which followed complaint from Chennai body sparks volatility in MCX shares
PremiumMumbai: The Multi Commodity Exchange of India Ltd (MCX) stock witnessed significant volatility on Friday after the Securities and Exchange Board of India (Sebi) directed it to postpone the planned migration to a new trading platform on 3 October, in response to a petition filed by the Chennai Financial Markets and Accountability (CFMA) before the Madras high court.
MCX said in an exchange filing that it had received a Sebi-forwarded letter on 27 September from CFMA regarding its migration to the new commodity derivative platform (CDP). “It may be noted that writ petitions filed by CFMA on CDP is pending in the Madras high court for disposal," it said in the filing. “The regulator informed that since the matter involves technical issues, the same would be discussed in the Sebi Technical Advisory Committee meeting, which will be held shortly. Meanwhile, Sebi advised the exchange to keep the proposed Go-Live of CDP in abeyance," MCX added.
The MCX stock fell 8.7% to ₹1,913.25 during the first hour of trade, but gradually recovered from the lows to hit a record high of ₹2,139.95 during the last hour of trade, and finally ended 2.2% lower at ₹2,049.70.
Sebi has advised MCX and its clearing corporation Multi Commodity Exchange Clearing Corporation Ltd (MCXCCL) to submit detailed comments on the issues raised by CFMA along with supporting documents by 3 October, which will be evaluated by its technical advisory committee.
An MCX official said he wasn’t aware of the technical issues raised by CFMA against the adoption of the Tata Consultancy Services Ltd (TCS) platform.
The migration has been delayed by a year during which MCX had to renegotiate contract extensions with Chennai-registered 63 Moons Technologies Ltd, which was raising costs periodically. The contract with 63 Moons ran from October 2014 to September 2022. It had a fixed component, and a variable cost component, linked to the turnover of MCX, amounting to ₹60 crore annually.
The TCS platform will have only a fixed component and would help the exchange reduce costs drastically. MCX has paid ₹60 crore to 63 Moons in the first quarterly extension from October to December 2022. Over the next six-monthly extension, it coughed up ₹162 crore. Finally, it renegotiated another six months extension through December end for ₹250 crore, much to the market’s dismay.
MCX, however, said in June that it will try to migrate before the current contract with 63 Moons ended. It had announced on 19 September it would migrate by end-September. Subsequently, on 27 September it said it will go live by 3 October. However, the CFMA complaint has delayed the migration further.
63 Moons has derived a significant portion of its revenues from contract extension. In 2022-23, its net revenue was at ₹290 crore. Of this, MCX’s payment for extension of contract accounted for ₹141 crore ( ₹60 cr in the December quarter and ₹81 crore in the March quarter). In the first quarter of current fiscal year, net revenue was at ₹115 crore, of which ₹81 crore was from MCX. In the second and third quarters, it will be at ₹125 crore, each, as contract terms mandate full payment by MCX even if it migrates in between. “MCX’s recovery from the day’s low suggests that the markets are pricing in a resolution of the issue," Rajesh Palviya, derivatives and technical head of Axis Securities, said.
Palviya expects the stock to rise by another ₹200 to ₹2,250. The closing at ₹2,049 is a monthly breakout after two years, during which the highest closing was ₹1,703 in October 2021. At the lower end, it was at ₹1,150. After that, it never closed above the high levels until September, implying that it is in unchartered waters.
Shyam Sekhar, the founder of ithought Financial Consulting Llp, said: “This is a commercial decision that will enable significant cost savings for MCX and it should be expedited once the relevant Sebi committee completes examination of the technical issues against the TCS platform by CFMA."
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