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| 'A cost-competitive and transparent system will automatically attract customers' | | Q&A: Ajit Mittal, MD & CEO, Indian Commodity Exchange Ltd |
| Dilip Kumar Jha / Mumbai Oct 13, 2009, 00:49 IST |
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 The three national commodity exchanges, MCX, NCDEX and NMCE, have covered almost the entire spectrum of globally traded commodities for derivative trading, while 18 regional exchanges possess domain expertise in agricultural commodities, leaving little room for entry-level players. But, Ajit Mittal, managing director and CEO of Indian Commodity Exchange Ltd (ICEX), the coming-soon commodity trading platform, tells Dilip Kumar Jha he’s banking on quality service at competitive prices for success. Excerpts:
Why do we require another commodity exchange and how will ICEX be different from the existing ones?
Commodity trading in India is an evolving paradigm. Unlike developed countries, commodities trading is a recent phenomenon here, with a history of a little over six years. The structural deficiencies in the commodities’ ecosystem, which have not been able to provide a serious connect between physical and futures market, are known — absence of good delivery mechanism, good logistics supply chain and warehousing system, etc. We are trying to be a holistic multi-commodity exchange with equal focus on both agri and non-agri, unlike other exchanges specialising either on agri or on bullion and metals.
This is the first public private partnership (PPP) initiative. We have a joint venture partner, MMTC, which is the largest importer of metal and the largest canalising agency of the whole list of agri commodities.
Sensitive commodities generating huge volume on the exchanges are banned currently. Is it an opportunity or threat for you?
I believe the ban on sensitive commodities, including sugar and a number of pulses, would be lifted in the not-too distant future. Hence, I see it as an opportunity, which gives us time to evaluate the market to launch trader-friendly contracts. There, MMTC will have to play a vital role for connecting physical market players with the futures market. So far, the futures market is more of speculators’ play.
The market should have serious participation from players who provide volume. If such players participate on the platform, it completes the value chain. That is what we seek to do, reaching out to people who are either trading, producing or consuming those commodities. None of the existing exchanges has reached out to that segment we are banking on, be it oilseeds, gold or base metals.
Warehousing has been a serious problem, as is assaying, storage, etc. But, our associates include Indian Potash which has around a million tonnes of warehousing capacity. MMTC has 16 delivery centres across all the major cities. We are not going to utilise all 16 in the beginning but to begin, we will be utilising all leading metros for deliveries.
On existing exchanges, Ahmedabad is the only delivery centre for gold. But, we want to add other centres, including Chennai and Hyderabad, which are big bullion consuming centres. These are very important destinations for South Indian consumers. Likewise, many more of such things.
What parameters are you adopting to attract customers?
If you have a cost-competitive transaction system, transparent mechanism, best trading technology, automatically people are going to be attracted. The technology we are offering is the best in the class in the world. Accuracy, fault tolerance system, all of these are absolutely cutting-edge.
What are you doing on domain expertise of agricultural commodities, which still lies with regional exchanges, rural associations and trade bodies ?
Going forward, we would try to engage regional exchanges and trade bodies who can work primarily as aggregators. Regional exchanges are focusing on specific regional commodities. The one in Indore primarily focuses on soy and Ahmedabad on cotton. We are going to focus on these exchanges to bring them on a national platform with a large network of commodities.
We would be keen on a tie-up with these exchanges and associations. Talks are in advanced stages with a number of leading members of the Bombay Bullion Association to bring them on our platform, mainly for delivery in bullion in Mumbai which does not exist currently. They are keen on getting delivery here. If such service is offered to them, they would be happy to trade on your platform.
Are you rationalising membership fee for those coming through these exchanges?
Yes. We have broad understanding with such bodies and therefore, members are definitely going to enjoy such benefits. The fee has been rationalised to Rs 2.5 lakh for trading-cum-clearing members, very low compared to other exchanges. For individual members, the fee stands at Rs 1 lakh. We are very selective on membership with quality and serious people. Instead of having 1,000 common members, 100 of quality members with serious trading intent would be fine for us.
Others have first-mover advantages.
We are a long-term player, to bring value to the commodity eco system. They have been in the field for the past six years. But, we are going to learn from past mistakes and deal with the loopholes in the system. If we succeed even partly in our efforts, I do not see why business will not come to us.
You have to divest a further 14 per cent in the exchange. Are you in talks with any foreign direct investor?
We would have four years to bring down our stake to the regulatory guidelines of 26 per cent from the date of launch, planned in November. Currently, we are not in talks but, given the opportunity we may look at the option. As of now, we have closed the divestment plan.
In the first set of contract launches, you have chosen 10 highly liquid commodities on the existing platforms. You have also said the second phase of contracts’ launch will have distinctive features. When is this expected and with what differences?
We would be launching the second set of contracts in December, with local aggregators. We cannot divulge much on that, except on cotton. We are planning to launch Jalandhar delivery cotton contracts, as the centre is one of the largest consumers of cotton in India, with a large number of ginning and spinning machines. But, my first focus is to make the exchange live, which will give us more visibility and stability in operation.
What regulatory changes are required for a smoothly functioning commodity eco-system?
In addition to full regulatory power to the Forward Markets Commission, spot markets also require to be regulated. This is currently no one’s baby. Also, warehousing needs a speedy mechanism of a regulator which can check quality, assaying and certifying of agri commodities.
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