Multi Commodity Exchange of India (MCX) is set to introduce shorter duration futures contracts on select commodities and options on commodity indices, which is expected to have a significant impact on its trading turnover. This decision comes on the heels of obtaining approval from the market regulator to go live on Tata Consultancy Services Ltd’s new commodity derivatives platform, starting from October 16.
MCX is one of the four Sebi-recognized national exchanges that dominate the commodity derivatives segment (CDS), boasting approximately 98% market share. Other exchanges offering CDS include NSE-anchored NCDEX, NSE, and BSE. This recent regulatory approval will pave the way for MCX to launch index options and shorter-duration contracts on benchmark gold and silver futures.
Currently, MCX offers bi-monthly futures contracts for 1 kg of gold and 30 kg of silver. While it does provide gold and silver contracts in smaller denominations, it’s the larger contracts that attract the most significant trading volumes. MCX had initially sought and received approval from the Securities and Exchange Board of India (SEBI) for shorter duration contracts. However, the exchange will approach SEBI once again for the final green light. After the implementation of shorter duration futures contracts, the exchange will also seek approval for index options.
Market experts suggest that the introduction of these contracts will be a game-changer for MCX. These instruments have the potential to significantly increase the exchange’s turnover as they have done with index options in the equity market. Index options hold a 98% market share in derivatives on the NSE, with a turnover of ₹37,380.7 trillion recorded so far in this fiscal year.
MCX’s shift towards a more versatile and dynamic trading platform is long-awaited. The exchange had an eight-year contract with 63 Moons Technologies for its commodity derivatives platform, which expired in September last year. Subsequently, in 2021, the exchange selected Tata Consultancy Services (TCS) as its new vendor, entrusting it with the task of implementing a modern commodity derivatives platform before September 2022. However, multiple delays caused the migration to be pushed back.
The latest contract extension with the old vendor was for six months, set to end in December 2023. But in a recent development, MCX confirmed that it was ready to migrate to the TCS platform, and SEBI gave its approval. This move is expected to position MCX as a more agile, adaptable, and competitive player in India’s commodity markets, and it could well be a crucial step in transforming its future growth prospects.
MCX’s stock performance has also shown positive signs, with a 70% rise from a 52-week low of ₹1,285.05 on May 22 to a 52-week high of ₹2,179.45 on October 11. It closed at ₹2,109.95 on October 13. This upward trajectory is partly attributed to the positive market sentiment regarding the exchange’s potential to enhance its offerings and trading opportunities.