Multi Commodity Exchange of India

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Multi Commodity Exchange of India
MCX.jpg
Founded 2003
Headquarters Mumbai, India
Key People CEO and MD Lamon Rutten
Products Commodity derivatives contracts
Twitter @mcx_india
LinkedIn Profile
Website www.mcxindia.com

The Multi Commodity Exchange of India (MCX) is India's largest derivatives and commodities exchange and controls around four fifths of India's rapidly expanding public-trading market for commodity futures. International investors including Fidelity and NYSE Euronext also hold stakes in MCX.

According to the annual Futures Industry Association's survey of the world's leading derivatives exchanges in 2016, the Multi Commodity Exchange of India was ranked as the world's 19th largest derivatives exchange by contract volume. The report said futures and options traded on MCX grew 13.3 percent from 2015, to 245 million contracts.

Background

The MCX was launched in November 2003 by Financial Technologies (India) Ltd (FTIL), a financial services software firm which secured one of the four licenses offered when the Indian government ended a longstanding ban on commodities exchanges in 2002. It has since grown more rapidly than its two main domestic rivals, National Multi-Commodity Exchange (NMCE) and National Commodity and Derivatives Exchange (NCDEX), and is now the market's leading derivatives exchange.

Financial Technologies had been the largest shareholder in the exchange but its top executives were deemed "not fit and proper" to run any exchange in India in December 2013. (See "Trouble at MCX" below) Financial Technologies initially held at 64 percent stake in MCX but wound that down to 26 percent by 2013. When regulators cracked down on the firm, it was forced to reduce its stake to less than 2 percent by the end of 2013.[1]

Other founding shareholders included State Bank of India, Union Bank of India and HDFC Bank.

An affiliate of Fidelity acquired a 9.24 percent stake in February 2006 for $49 million, and Citigroup and Merrill Lynch each bought a 5 percent holding in September 2007. NYSE Euronext took a 5 percent stake in the exchange in June 2008. It held a 4.73 percent stake in September 2013 but sold almost all of it off in the fourth quarter of 2013.[2]

Other early shareholders included: National Bank for Agriculture and Rural Development (NABARD), the National Stock Exchange of India (in which FTIL held a 1 percent stake), Union Bank of India, Canara Bank, Bank of India, Bank of Baroda, HDFC Bank and SBI Life Insurance, Passport Capital and GLG Partners.[3] The company has fostered product development with a dozen alliance partners, including the London Metal Exchange, the New York Mercantile Exchange and the Tokyo Commodity Exchange.

MCX holds a 49 percent stake in the Dubai Gold & Commodities Exchange, where Jignesh Shah is listed as vice chairman.

Trouble at MCX

In December of 2013 the board of MCX asked Financial Technologies of India to cut its holding in the exchange from 26 percent to 2 percent after India's regulator, Forward Markets Commission, said it was unfit to own a controlling stake. [4] The move by the regulator stemmed from a payment default by an MCX subsidiary called the National Spot Exchange Ltd. in October 2013. Police seized property and shares worth $487 million from exchange officials and defaulters in the investigation.

Financial Technologies' chairman Jignesh Shah, and former managing directors Joseph Massey and Shreekant Javalgekar were prohibited by regulators from holding any position at the exchange.

In 2013, shares in Financial Technologies plunged 68 percent after July 31, 2013 when regulators suspended trading in most commodities contracts at the exchange. A flurry of news reports said that other markets were interested in buying stakes in MCX including a partnership stake by United Stock Exchange and the Bombay Bullion Association. Another report sited the Universal Commodities Exchange as a potential merger partner with MCX.[5][6]

Total foreign institutional investment holdings in MCX fell dramatically in Q4 of 2013, during the exchange's regulatory actions to 25.23 percent, from 37.9 percent, while non-institutional investors rose to 34.5 percent from 21.9 percent.

In April of 2016 it was reported that CME Group plans to take a 15 per cent stake in MCX, following the Indian government’s decision to increase foreign holding in Indian commodity exchanges to 15 per cent from five per cent. Currently, a single investor cannot own more than 15 per cent in a commodity exchange. CME had placed a non-binding bid in 2014 when Financial Technologies had to sell its 26 per cent stake in MCX, an unnamed source was quoted as saying.[7]

Business Model and Product Development

The MCX operates its own clearinghouse and had 1,381 members at March 31, 2007, introducing a fourth membership class in October 2007. The MCX listed futures in 58 commodities as of Nov. 14, 2007, focused on metals, energy and agricultural products. In terms of the number of contracts traded, MCX claims to rank no. 1 in silver, no. 2 in gold and no. 3 in crude oil, copper, zinc and natural gas, based on data published on the respective Web sites of competitive exchanges.

Natural gas futures were launched in July 2006, potato futures in September 2006, and coffee futures in January 2007. MCX also has attracted volume in trading kapas, soya oil, cardamom, and menthol oil. On Oct. 6, 2008, MCX Stock Exchange (MCX – SX), a subsidiary of MCX, announced the launch of currency futures in Mumbai. Live trading began on the MCX-SX platform at 9 a.m. on Oct. 7, 2009.

MCX launched India's first electricity futures on Jan. 9, 2009. The contracts are weekly and monthly. They trade in units of 24 megawatt hours; the tick size is 1 rupee per megawatt hour.[8]

Key people

Contract Volume

Year Total Annual Volume* Percent Change
2016 245,077,515 13.3%
2015 216,346,961 61.8%
2014 133,751,848 (-)49.5%
2013 264,627,693 (-)72.4%
2012 959,613,240 (-)19.8%
2011 1,196,322,051 10.6%
2010 1,081,813,643 180.7%
2009 385,447,281 --

History

  • On June 1, 2010 - MCX launched the lead mini futures contract. The contract mirrors the full-sized 5-ton lead futures contract, but is sized at 1 ton.[9]
  • On May 24, 2010 - MCX launched a zinc mini futures contract. The contract mirrors the full-sized 5-ton zinc contract on MCX but is sized at 1 ton.[10]
  • On April 15, 2010, MCX-SX announced it had completed its regulatory compliance the shareholder structure of the exchange. MCX-SX announced its shareholders at that time, notably, IFCI Limited as the largest shareholder with a 13.23 percent stake, Union Bank of India with 11.5 percent and Punjab National Bank with 9.2 percent.[11]
  • On January 14, 2010 - parent company Financial Technologies (India) Ltd announced that MCX had migrated its trading and clearing platforms to the next version of its DOME trading platform, and CnS, its clearing and settlement technology.

MCX announced on October 17, 2009 that it had reduced members' transaction fees from four Indian Rupees per 100,000 rupees of turnover to 2.5 rupees, eliminating the previous incremental system of fees.[12] MCX officials expect the new charges to cut members' trading costs by around 50%.

References

  1. "Citigroup and Merrill invest in MCX". Business Standard.
  2. NYSE Euronext sells entire MCX stake in December quarter. Financial Times.
  3. "FTIL Annual Report". Financial Technologies.
  4. MCX Asks Financial Tech to Cut Stake After Regulator's Rebuke. Bloomberg.
  5. FT, MCX stocks surge around 20% sparks off rumours. The Economic Times.
  6. Will Universal Commodity Exchange merge with MCX?. The Times of India.
  7. CME Group Eyes 15 Percent Stake in MCX. Business Standard.
  8. MCX Launches India's First Electricity Futures. FO Intelligence.
  9. MCX launches futures trading in Lead Mini. MCX.
  10. MCX launches futures trading in Zinc Mini. MCX.
  11. MCX Stock Exchange Completes Shareholding Compliance under MIMPS Regulations. MCX-SX.
  12. MCX lowers transaction fees. Press Trust of India.