We're giving MCX a stable cost base to ramp up profits: Mrugank Paranjape

In a Q&A with Business Standard, MD & CEO of the commodity bourse says he expects Sebi to allow trading in MFs, PMS and index-based derivatives this quarter

Daily average volumes on the Multi Commodity Exchange during the three month-period ended December 31, 2018, were the highest in the past 22 quarters since commodity transaction tax (CTT) was imposed, due to which there has been a sharp improvement in profits. In interview with Rajesh Bhayani, the exchange’s MD & CEO, Mrugank Paranjape said, “we are making MCX a company with stable treasury income and a predictable cost structure.” Edited excerpts: 

How have the past three months, during which there has been a sharp increase in competition, affected business at MCX?

Competition can and should increase the overall size of the market. However, in the exchange business, liquidity (trading volume) does not move merely on cost incentives. While incentives don’t help much, we have, in any case, built reserves of over Rs 1,000 crore which we can use as and when needed. Yes, competition has made us work harder and that is reflected in our results.

How is MCX responding to the competition?

We need to ensure that our technology remains competitive. We've just upgraded our matching engine latency. We also think that our products need to remain relevant. Towards this end, we have added pan-India delivery centres for gold.

What are the new products and instruments you are planning?

In line with regulatory directives, we are converting all our base metal contracts to deliverable contracts. This will keep us engaged for the next 6-7 months. Aluminium has also been made deliverable and next will be zinc. We have our set of options to work on, especially since they are starting to show some good depth and width of participation now.

We expect Sebi to come out with norms for index-based derivatives trading and allow MFs and PMS in this quarter. These could be the next growth drivers. A stable cost structure will help ensure that whenever volumes rise, profits automatically go up.

Is the improvement in MCX's performance and profitability sustainable?

MCX has seen volumes at a 22-quarter high after commodity transaction tax was imposed in July 2013. Average Daily Turnover (ADT) on the exchange in the quarter beginning October, when even BSE and NSE launched commodity derivatives, grew 31.56 per cent to Rs 26,614 crore over the corresponding quarter of the previous year. The key reason for rising volumes is increased participation by members. Since equity and commodities now come under one company, commodity is certainly getting a big push. During the whole of last year, 270,000 clients traded on our exchange. We have already crossed that number this year. In the December quarter, two bank subsidiaries that become members also contributed to volumes. We expect two more bank subsidiaries to take membership within a fortnight, which will help drive business further.

MCX also spoke about a spot exchange in gold. Any update?

We are ready to launch the spot exchange whenever the government permits. If they prefer a spot exchange outside Sebi's ambit, then there has to be a separate regulator. We as an exchange are ready for that too.