We're talking to 2-3 financial institutions for fund-raising: Saurabh Sarkar

Interview with MD & CEO, MCX-SX

The Multi Commodity Exchange-Stock Exchange (MCX-SX) was recently given permission by the Securities and Exchange Board of India (Sebi) to launch new contracts in the currency, interest-rate and equity segment. In his first interview after the nod, managing director and CEO of the exchange Saurabh Sarkar spoke to Sneha Padiyath and Sachin P Mampatta about his plans for the exchange. Edited excerpts:

What is the way forward for the MCX-SX now?

The last one year has been difficult for us. Now that we have gotten over a lot of uncertainty about the future of the exchange, my priority is to shift the focus entirely towards business. This year by June, we aim to have at least 20-25 per cent of the market share in the currency futures segment. We used to have something like 50 per cent at our peak, two years ago. We are currently at 12 per cent market share. This will help us achieve break-even.
 

What are your capital-raising plans?

We are in talks with some investors to raise money. Now, it is a lot easier, people are entertaining discussions. So, investments will also come. Our priority is to get one investor who can hold up to 15 per cent stake. Ideally, it would be a bank or insurance company or some similar financial institution. We are talking to two or three financial institutions. One of them we hope will take 15 per cent that will bring the required capital into the exchange.

Will this stake sale be through dilution?

There are two ways through which this could happen. One, the MCX is holding some warrants which, I believe, they will have to sell in six months. Someone can buy these from the MCX and convert the warrants... then money which is lying in reserves could be transferred and added to our net worth. Second, if I get money directly into the company, that is even better. The MCX, at some point, will get a buyer. But we are also talking to some institutions.

It is important for our business to grow. People should see potential in the exchange. In these kind of businesses, when you have problems like we did, it takes a lot of time. Our goals are modest. We are just focusing on the currency-side. We want to be where we were one-year back. I think that is achievable. Equity, we can only start pushing after we raise money.

When FTIL (Financial Technologies) sold its entire stake in the MCX-SX to some large investors, warrants, which had already been cancelled, were sold to these investors. How was that done?

We had cancelled them at that time because we realised that it was causing a problem and as per legal opinion we decided to extinguish these warrants. But when FTIL showed serious intent with good quality of investors, we decided that maybe we should accede to their request.

By the time FTIL approached us, the Board had already decided to extinguish the warrants. But then they reconsidered it when they realised that FTIL was serious about selling it. And the people who were buying it also were good. It was a positive surprise for us. We recommended to the Board that it was in the interest of the company.

And in the subsequent meeting, the Board considered these decisions and converted these warrants into shares. Sebi has allowed us to launch contracts after being satisfied that the issues have been resolved.

Your investor list reads like a virtual who’s who of Dalal Street… you have Rakesh Jhunjhunwala, his mentor RK Damani, as well as Nemish Shah. How did this come about?

It happened at FTIL’s end. We had a few meetings with the investors when they needed clarity on operations and the business scenario. But that was the extent of our interaction.

So, what is on the anvil, in terms of products to be launched?

The order of priority is currency futures because it is the segment in which I am available for the past five years and have had a good business. Then comes interest futures, currency options. Then debt followed by equity.

First, we want to get financial institutions, which can hold 15 per cent stake, someone who considers this a strategic long-term investment. We have an immediate requirement for the next six months for funding our clearing corporation. We have been asked to raise it’s net worth to Rs 100 crore by June from about Rs 35 crore at present. As per regulations, eventually it has to be Rs 300 crore by 2017.

What about the equity segment?

Right now if I focus on operational break-even and bring in this money, that is good enough. After sometime, when these product-lines gain some traction, then we will shift focus to our equity business. Pursuing equity market-share is going to be futile for me now.

Our goal is to fund ourselves by about Rs 300 crore by this calendar year. Once we have done that then next year we can have a very good business plan for equity and equity derivatives.

There are some discussions on creating an international finance centre. What are your thoughts?

If we are allowed to offer back-office or clearing services for which we have the expertise to other exchanges…then I think that would really be a good thing. It could create some jobs and bring in some capital.

Do you see the possibility of replicating an SGX-like platform over here?

Maybe nothing in the next two-three years but 10 years from now you could have from an SEZ one of the largest exchanges in Asia operating. India is very advantageously placed from the time-zone point of view. A lot of those from Hong Kong and Singapore could come here.