Commodity futures mart set for big changes

The commodity futures market, which has a turnover of over Rs 50 lakh crore, will see more changes and a deepening of the market with the entry of two new exchanges in the second half of 2009.

The International Multi-Commodity Exchange (IMCX) is expected to launch in August and another from Kotak Mahindra Bank is in the process of giving the final shape to its plan to launch countrywide exchange in association with Ahmedabad commodity exchange. IMCX, the fourth national commodity trading bourse, is promoted by Indiabulls and MMTC, and is awaiting the final recognition from the commodity market regulator the Forward Markets Commission (FMC) to launch its membership drive.

Already three exchanges are active and the fourth is planning an entry which will have niche features once it starts. This newly set up commodity exchange has already held one round of mock trading with active players from the commodity market. “Members were very enthusiastic to enroll with us. But, we decided to get the final recognition before commencing enrollment,” said Ajit Mittal, MD and CEO of the exchange. It is expecting FMC to grant final approval in a couple of weeks.

The metals segment is actively-traded on the commodity futures exchange. But, deliveries are not taking place and IMCX will offer facility of delivery in copper from the beginning, said Mittal.

“Though, the three exchanges have the ‘first mover’ advantage, we will have a distinctive edge to offer product and services with zero default taking lessons from existing players’ experience,” said Mittal. Citing copper’s example, Mittal said 8 per cent excise duty is a major hindrance to launch delivery-based copper contracts. But, anyway consumers are accepting delivery from spot market. Though regulator FMC has recommended to the government that if delivery takes place on the floor of the exchange, there are Cenvat-related issues that need to be sorted out, IMCX will offer the delivery option in any case.

For base metals, the exchange is planning to launch contracts with a small lot size of one tonne and even lower to attract more participation from small traders.

IMEX is planning to offer trade in gold and silver from bullion basket, while crude and natural gas would be prioritised from energy sector. Delivery-based copper contracts would be launched from the base metal segment and a couple of spices, oil seeds and cash crops are proposed to be offered from agri commodities sector.

Surveillance would be another niche, claimed Mittal. IMCX is availing of SPATIAL, the world class commodity trading technology from the US which is capable of “fault free” trading and “zero tolerant” surveillance in the commodity market space. Mittal, having worked as the surveillance head with the currency market regulator the RBI and thus, possesses a rich experience in surveillance system.

Our surveillance on agri commodities would be the key strength learning from past dealings on existing commodity exchanges.

IMCX sent its request for final approval to the regulator about a month ago. The regulator sought some clarifications which were sorted out. Now, according to Mittal, FMC may visit our operating facilities in Gurgaon before granting final approvals. But, we are hoping to go live anytime in August this year with the launch of contracts from all four baskets of commodities.

The entry of the fourth exchange would be significant as another national-level commodity futures trading platform, in addition to the existing three MCX, NCDEX and NMCE, is likely to intensify competition in commodity market space and traders may find the opportunity to deal with the best of them.

Meanwhile, IMCX is in talks with a number of state warehousing corporations for quality assaying certification of agricultural commodities which it considers Central Warehousing Corporation (CWC) a logical partner.

Also, the exchange has urged the regulator to extend the trade timings in globally-referenceable commodities to combat price differences between closing price in international platform and opening price on Indian bourses. At present, night session in commodity bourses ends at 11.30 pm Indian time.

The exchange, which got initial approval from the Ministry of Commerce about two years ago with two equity partners of Indiabulls with 74 per cent and the public sector MMTC Ltd with 26 per cent, has already divested its equity according to FMC directive to India Potash Ltd and United Stock Exchange of 10 per cent each. However, the two initial equity partners will remain major stakeholders with Indiabulls holding 40 per cent and MMTC 26 per cent. The remaining 14 per cent stake are offloaded to private corporate entities.