MCX eyes product innovation, to launch agricultural offerings

New Delhi:  Product innovation and the launch of agricultural products are the key focus areas for Mrugank Paranjape, the new managing director and chief executive officer (CEO) of Multi Commodity Exchange (MCX).

Paranjape took charge at MCX on 9 May after working with Deutsche Bank for the past 14 years. This is his first stint at the helm of an exchange.

“It was a challenge but I believe that this space and platform has great scope for growth,” Paranjape said.

The exchange has slowed down on product innovation in the past three years due to regulatory concerns.

“We could have done more on product innovation. However, the exchange was focussing on giving more comfort to the regulators that we have things under control,” said Paranjape.

Pranajape was referring to the Rs.5,574.35 crore scam at the National Spot Exchange Ltd (NSEL) which halted trading on the commodities bourse in July 2013.

Having been founded by the same promoter—the Jignesh Shah-led Financial Technologies Ltd (FTIL)—the MCX management underwent a complete overhaul with P.K. Singhal handling the affairs of the exchange as joint managing director for the past two years.

“The challenges that the exchange was facing since July 2013 following imposition of Commodity Transaction Tax (CTT), payment crisis at NSEL and exit of several employees in the wake of a forensic audit of the exchange’s operations, are over, and the exchange is at a solid footing,” said Paranjape.

MCX’s management is looking at the merger of the erstwhile Forward Markets Commission (FMC) with the Securities and Exchange Board of India (Sebi) as a growth opportunity.

MCX says that it is ready to launch options and indices for commodities as and when Sebi allows their launch and when its technology is sound enough to handle the volumes that will follow with the introduction of options.

Finance minister Arun Jaitley indicated that new products would be allowed in commodity derivatives trading in his budget speech this year.

The Sebi committee on commodities has already recommended launch of options and indices for commodities. The regulator is favourably considering the recommendations of the Commodity Derivatives Market Advisory Committee, Mint reported on 7 March

Introduction of options trading, at least in non-agricultural commodities, will bring in additional liquidity and depth to the commodity derivatives markets, experts say.

MCX has already submitted a laundry list of products it wants to introduce, including agricultural products, for regulatory approval.

The MCX management hinted that it may consider entering the currency segment if it gets the necessary regulatory approval to do so.

On the technology front, the management will continue with its existing technology partner FTIL, with which it has a contract till 2022.

On MCX’s cash reserves that are close to Rs.12,000 crore, Paranjape said that he would hold onto the reserves, which would help in expansion and meeting the networth for a clearing corporation.

“Sebi has given us three years to set up a clearing corporation. However, we believe that it is an essential requirement for managing risks and we are speeding up the process of setting up one,” said Paranjape.

As per Sebi regulations, all stock exchanges are required to have a clearing corporation with a minimum networth of Rs.300 crore. Soon after the merger of FMC with itself in September 2015, Sebi allowed commodity exchanges three years to meet the regulatory requirement.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.