NMCE-ICEX merger: NCLT convenes meeting of shareholders, lenders on April 5

Former Gujarat HC justice to chair the meeting; outcome to be reported to Tribunal, which will then take merger forward

The National Company Law Tribunal (NCLT) has convened a meeting of shareholders and lenders of Ahmedabad–based National Multi Commodity Exchange (NMCE) and its bonding partner, Indian Commodity Exchange (ICEX), to arrive at a consensus over the proposed swap ratio of the merger betwen the two exchanges.

To be held in NMCE’s office on April 5, the meeting would be chaired by former justice of Gujarat High Court Kamal Mehta.

“We have reached a stage where the NCLT has convened shareholders’ and creditors’ meeting to approve the proposed scheme of merger between NMCE and ICEX under the supervision of Justice Mehta. The result of the meeting would be directly reported to the NCLT which would then take up the merger forward,” said Anil Mishra, Managing Director, NMCE.

On July 3, 2017, NMCE had announced its merger with ICEX to create India’s third largest commodity exchange, after Multi Commodity Exchange of India (MCX) and National Commodity & Derivatives Exchange (NCDEX). The merged entity, however, aimed to offer futures trading in bullion, oil rubber and agri commodities other than the ones already listed on NMCE. ICEX currently offers futures trading only in polished diamonds of 1 carat and 0.5 carat.

The boards of the two exchanges approved the merger in which ICEX’s shareholders would hold 62.8 per cent stake and NMCE’s shareholders would hold 37.2 per cent in the merged entity. Post-merger, the following entities would be shareholders in the merged entity: MMTC, Indian Potash, Kribhco, IDFC Bank, Reliance Capital, Indiabulls Housing Finance, Punjab National Bank, Bajaj Holdings, and Central Warehousing Corporation, among others.

Meanwhile, NMCE has witnessed a spike in day trading activity on its platform, without proportionate increase in open interest and underlying stock support.

“In case traders square off their positions, they do not require to keep the underlying stock in warehouses. Only if the trade is carried over, are they required to keep the stock of commodities in exchange-designated warehouses,” said Mishra.

In March 2018 alone, the total volume of traded commodities on NMCE has surged to 21,174 lots as of March 21 from a level of 19,480 on March 1. In contrast, open interest on the exchange declined to 4,688 lots on March 21 from 5,696 lots on March 1. The exchange only had a total 2,862 tonnes of rubber in its recognized warehouses across the south Indian states as of March 21, despite the fact that it offers futures trading in a host of other commodities including coffee and isabgul seed.

Normally, a number of contracts that remain illiquid throughout the year suddenly see a surge in activity in March, as traders get ready to set off their profits and losses, as per the Income Tax Act, from other derivative transactions.

Mishra, however, attributes the sudden spurt in traded volume to the participation of new members ahead of the proposed merger . The exchange has added 10 new members over the past one year to take its total registered membership to 44. Informed sources said ICEX wants to ensure fool proof approval before NMCE’s merger with it.