MCX, NCDEX try to grab each other's market shares

Both comexes account for over 95% of commodity futures trading business in India

After the Forward Markets Commission (FMC) allowed comexes to fix different transaction charges in intra-commodities and contracts early this month, the Multi Commodity Exchange (MCX) and the National Commodity & Derivatives Exchange (NCDEX) have started targeting each other’s strongholds.

The two comexes account for about 95 per cent of the commodity futures trading business in India.

Responding to NCDEX’s move to cut transaction charges steeply in the non-agri and agri commodities segments last week, MCX announced a cut of about 70 per cent in transaction charges. Through the drastic cuts in transaction charges, NCDEX had attempted to capture market share in non-agricultural commodities trading, in which MCX accounted for about 90 per cent of the overall business.

“Both exchanges are trying to reduce transaction charges in the category that is not active for them. For example, NCDEX has reduced transaction charges in non-agri commodities that aren’t very liquid there. Similarly, MCX has reduced transaction charges in agri commodities. Barring the small volume in a couple of agri commodities, there is no liquidity in this segment on MCX,” said Ashok Mittal, chief executive officer, Emkay Commotrade, a city-based commodity broking firm.

Early this month after eight years of suspension , FMC had allowed different transaction charges, following a recommendation in this regard from commodity markets participants. After that, it introduced different transaction charges for different commodities to make trading more cost-effective for participants and widen the customer base. In segments   refined soya oil, soyabean and castor seed, NCDEX had allowed a transaction fee of Rs 1.95 for every Rs 1,00,000 of turnover; for monthly average daily traded value (ADTV) of up to Rs 200 crore; and for the incremental monthly average daily traded value (ADTV) a transaction fee of Re 1.3 for every Rs 1,00,000 of turnover. For gold hedge, crude oil, crude palm oil, steel, etc, members will now have to pay a transaction fee of Rs 0.40 for every Rs 1,00,000 of turnover for monthly ADTV of up to Rs 50 crore and on the incremental monthly ADTV, a transaction fee of Re 0.30 for every Rs 100,000 of turnover.

Similarly, MCX announced a substantial cut in transaction charges for agri-commodities, with an aim to reduce the cost of trading for participants in this segment. For agri-commodity contracts, MCX has reduced the fee to Rs 0.75 for every Rs 100,000 of turnover for members generating monthly ADTV of up to Rs 20 crore, and Rs 0.50 a lakh on incremental turnover exceeding Rs 20 crore. “This move by MCX will make trading in agri-commodities more accessible for the farm community and other participants in the commodity market ecosystem and improve overall hedging efficiency. This is an important incremental step towards market inclusion,” said Manoj Vaish, managing director and chief executive, MCX.

In the case of non-agri commodities, MCX reduced the transaction charges to Rs 2.10 for every Rs 100,000 of turnover for members generating ADTV of up to Rs 350 crore, and Rs 1.4 for every Rs 1 lakh on incremental turnover exceeding Rs 350 crore. Earlier, for both agri and non-agri commodities, MCX used to charge Rs 2.50 for every Rs 1 lakh of turnover for members generating ADTV of up to Rs 250 crore, Rs 1.25 per lakh on incremental turnover above Rs 250 crore to Rs 1000 crore; and Rs 1 per lakh on incremental turnover above Rs 1000 crore.

“Merely reducing transaction charges will not serve any purpose. Traders will be looking at impact costs, spread, liquidity and a host of other issues before shifting any business from one exchange to another,” said a senior official at a leading commodity broking firm. According to Mittal, exchanges are not reducing transaction charges in the liquid segment to do anything for traders. Instead, they are trying to grab each other’s market share, he added.