BSE, NSE to foray into commodity derivatives from Oct 1, to start with gold

Brokers say equity exchanges will have to innovate to make inroads into the commodity space

India's two leading equity bourses, the National Stock Exchange (NSE) and BSE, on Wednesday said they will foray into the commodity derivatives space starting next month. 

Both these exchanges have received the approval from the Securities and Exchange Board of India (Sebi) to start commodity futures trading. They have also obtained regulatory approval for their respective clearing corporations.  

The entry of BSE and NSE into commodity derivatives trading is expected to give a fillip to the market as the broker and client base will expand.   

Brokers, however, say equity exchanges will have to innovate to make inroads into the commodity space.  

"We have applied for Sebi approval to launch gold and silver contracts. We are planning to launch on October 1. This will be the first phase of commodity launch. In the second phase, we will be launching energy contracts, including crude oil," said Ashishkumar Chauhan, managing director and chief executive officer, BSE.

An NSE official said, "We have also got approval from Sebi to launch commodity futures. We will certainly launch gold futures from October 1. We may launch other contracts as well. Apart from commodity futures, we have received Sebi approval for our own clearing corporation, which is set to go live along with the commodity futures trading."

The foray of equity exchanges will intensify the competition in the commodity derivatives space. Both the NSE and BSE would be vying to grab market share from the existing commodity exchanges such as Multi Commodity Exchange (MCX) and National Commodity & Derivatives Exchange (NCDEX), while the incumbent players will try to protect their turf.   

Industry experts say production innovation would be the key. While adding some new delivery centres, MCX and NCDEX will try to protect against migration of trade volumes. 

"The system of a single screen with all the three trading classes -- equity, commodity and currency -- already exists. Liquidity would be a prime driver for trading volume. For clients, nothing will change with the entry of new players into commodity futures as they chose trading platforms. For brokers, however, exchange-wise collateral will not be required if clients want to trade in all asset classes on one platform. Product innovation would be the key for the success of BSE and NSE," said Kishore Narne, associate director (commodities and currencies), Motilal Oswal Financial Services.

Trade sources say that MCX currently clocks a daily turnover of around Rs 80 billion from gold contracts. The exchange has already succeeded in attracting a wide number of participants from all across the country.  

Meanwhile, commodity bourses have no immediate plans to foray into equities trading.

In a recent interaction with Business Standard, Mrugank Paranjape, managing director of MCX, had said that the exchange has no plan to enter into equity segment. He had further said that there was no fear of migration of volume from MCX to any other exchange.  

Meanwhile, BSE started mock trading in commodities in January this year. Also, the exchange has signed a memorandum of understanding with traders and users of agricultural commodities, including the Cotton Association of India, for their launch in the future.  
 

Opening the doors

• Sebi grants approval to NSE, BSE for commodity futures
• BSE seeks approval for gold, silver contract launch; plans to go live from October 1
• NSE also to begin trading in commodity derivatives, with gold on October 1
• Traders seek product innovations to drive volumes
• Brokers seek single collateral for all segments
• To help traders use exposure across various assets