Brokers seek innovative products from new comexes

Ask why a client should switch when relationships are smooth.

Leading commodity brokers are shying away from new derivatives exchanges due to lack of innovative products and services.

A couple of heads of broking firms Business Standard spoke to said they had asked these commodity exchanges to introduce better ideas, with some relaxation in contract specifications, products, delivery centres and other norms to differentiate themselves from the existing exchanges before taking a decision on membership.

Brokers, however, have enrolled themselves with exchanges to avail of future opportunities in case new contracts are launched or innovative ideas are operationalised.

“The membership of new commodity exchanges is free. It is just a matter of filling a form. But how many registered members have started trading is a point to look at,” said a senior official with a Mumbai-based broking firm.

“The specifications of a majority of contracts on these newly-launched exchanges are just a copy of that on the older platforms.

Since there has been no change, we abstained from taking membership of any new exchange,” said Naveen Mathur, associate director, commodities and currencies, Angel Broking. “Clients want value for money,” he said.

WHY SWITCH?
Dilip Bhatia, CEO of ACE Derivatives and Commodities, a newly accredited national commodity futures trading platform, confirmed a couple of brokers had sought clarity on issues “which should differentiate us from existing trading platforms”.

ACE, with over 200 new members, is working on all these aspects, including lot size, warehousing facilities and delivery centres, to differentiate itself from the existing players. Bhatia plans to start trading in commodities, including agri, bullion, energy and base metals, in October.

Traders believe new exchanges have nothing new to offer other than inter-exchange arbitrage. For example, the gold contract for delivery in December is at Rs 19,102 per 10g. The same contract is at Rs 19,104 or Rs 19,100 per 10g on new exchanges. This means brokers can book some profit by buying on one exchange platform and selling on the other.

“Other than this, almost all features are the same. Why should a client switch to a new exchange when relations built over several years are smooth?” asked Mathur.

Citing the example of the Indian Commodity Exchange, promoted by Indiabulls and MMTC, Kishore Narne, head of research at Anand Rathi, said: “This exchange did not offer anything new despite promising a lot at the time of launch. MCX specialises in bullion, base metals and energy, while NCDEX has expertise in agri commodities. The effort by both exchanges to take a pie of each other did not give any appreciable result.”

The exchange, which is reportedly awaiting Reliance ADAG as a new anchor inventor, has maintained its fortnightly turnover at close to Rs 15,000 crore since its start about a year ago. The exchange had said it would come out with products like delivery-based metal contracts, but these were yet to be launched.

No new exchange will succeed unless it comes out with different products, says Narne. Forward Markets Commission Chairman B C Khatua said the financial and functional autonomy proposed to be given to it would allow it to grant exchanges the permission to launch innovative products such as options, which should boost the turnover of derivatives.