The Multi Commodity Exchange of India Ltd (MCX) stock experienced significant volatility on Friday after the Securities and Exchange Board of India (Sebi) directed the exchange to postpone its planned migration to a new trading platform scheduled for 3 October. This delay was in response to a petition filed by the Chennai Financial Markets and Accountability (CFMA) before the Madras High Court.
MCX disclosed in an exchange filing that it had received a letter from CFMA via Sebi on 27 September, raising concerns about its migration to the new commodity derivative platform (CDP). The regulator informed MCX that the matter involved technical issues that would be discussed in the upcoming Sebi Technical Advisory Committee meeting. Meanwhile, Sebi advised the exchange to put the proposed Go-Live of CDP on hold.
This news initially led to a sharp decline in MCX’s stock price, with it falling 8.7% to ₹1,913.25 during the first hour of trading. However, the stock gradually recovered from its lows and surged to a record high of ₹2,139.95 during the last hour of trading. Ultimately, the stock closed 2.2% lower at ₹2,049.70.
Sebi has instructed MCX and its clearing corporation, Multi Commodity Exchange Clearing Corporation Ltd (MCXCCL), to provide detailed comments on the issues raised by CFMA, along with supporting documents, by 3 October. These submissions will be evaluated by Sebi’s technical advisory committee.
The CFMA’s petition and Sebi’s directive have raised questions about the technical issues raised against the adoption of the Tata Consultancy Services Ltd (TCS) platform, which MCX had planned to migrate to. MCX officials have stated that they are not aware of the specific technical issues raised by CFMA.
The migration to the new platform had already been delayed by a year, during which MCX had to renegotiate contract extensions with 63 Moons Technologies Ltd, a Chennai-registered company. The contract with 63 Moons was initially set to run from October 2014 to September 2022 and included both fixed and variable cost components. However, the TCS platform was expected to offer cost reductions as it would have only a fixed component.
MCX paid ₹60 crore to 63 Moons in the first quarterly extension from October to December 2022, which increased to ₹162 crore over the next two six-month extensions. Ultimately, MCX renegotiated another six-month extension through December for ₹250 crore, leading to market dissatisfaction.
MCX had announced in June that it would try to migrate to the TCS platform before the contract with 63 Moons ended. It later confirmed on 19 September that it would go live with the new platform by 3 October. However, the CFMA’s complaint has further delayed the migration.
The recovery of MCX’s stock price from its daily lows suggests that the market is pricing in the expectation of a resolution to the issue. Analysts believe the stock could rise by another ₹200 to ₹2,250. The closing price of ₹2,049 is seen as a monthly breakout after two years, signaling uncharted territory for the stock.
Shyam Sekhar, the founder of ithought Financial Consulting Llp, emphasized that the migration to the TCS platform is a commercial decision that can result in significant cost savings for MCX. He expects the process to be expedited once Sebi’s relevant committee completes its examination of the technical issues raised by CFMA against the TCS platform.
The delay in MCX’s platform migration highlights the challenges and complexities involved in transitioning to new trading systems, especially when technical issues and contractual obligations are at play.
