May 27 2020
MCX plans currency derivatives foray
04 July 2018

To tap commodity market participants who use the currency segment to hedge against risks

The Multi Commodity Exchange of India (MCX), the country’s largest commodity bourse in terms of market share, plans to enter the currency derivatives segment.

The exchange has been mulling an entry in the currency arena for a while now and the idea has even been discussed among the board of directors who are not averse to the idea, said a person familiar with the matter.

‘Continuous evaluation’

“Starting a currency derivatives segment has been under continuous evaluation within the exchange and it has been discussed at the board level as well,” the person said, on condition of anonymity. “While the board has been receptive, they have sought more clarity and hence the exchange is seeking further feedback from market participants,” he added. The unified licence regime kicks in on October 1 and will allow equity and commodity exchanges to expand their offerings by starting new segments. The BSE and the National Stock Exchange (NSE) have already announced plans for commodity trading under the new regulations framework.

“The advent of universal exchanges provides multiple opportunities,” said an MCX spokesperson, replying to a query from The Hindu. “However, at this point of time we see better opportunities in the commodity ecosystem. We continue to evaluate over time and expedite appropriately as and when needed.”

Currency derivatives see average daily volumes in excess of ₹60,000 crore. The BSE is the largest player in the currency segment followed by the NSE with the Metropolitan Stock Exchange of India (MSEI) having small share. In June, it reported an average daily turnover of ₹33,961 crore on its currency derivatives platform while the NSE clocked ₹29,161 crore. MSEI reported a daily average turnover of only ₹239 crore in June.

Steady rise in turnover

The average daily turnover of the currency segment of NSE was ₹12,705 crore in 2014-15, which rose to ₹18,603 crore in 2015-16 and thereafter to ₹20,779 crore in 2017-18.

This fiscal till date, the average daily turnover is pegged at ₹29,008 crore.

Market experts are of the view that while a commodity exchange would not benefit much by venturing into equity or equity derivatives, the currency segment could help in hedging for existing participants of the commodity markets

“MCX adding currency derivatives alongside commodity markets may facilitate hedging by import- / export-focused commodity merchants,” said Patrick Young of D.V. Advisors, a Europe-based capital markets advisory firm.

“Dislodging incumbent market leaders in derivatives is difficult but forex contracts are homogenous and not subject to licensing such as Nifty futures. At the same time, MCX has nothing to lose here and market participants are likely to enjoy lower fees through competition, at least for a while.”

Just like the equity segment, the commodity market is dominated by two entities — MCX and the National Commodity & Derivatives Exchange (NCDEX). While MCX mostly has energy, bullion and metal contracts, NCDEX has created a niche for itself with agri-contracts.



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