MCX gains 5%, hits record high on Sebi's nod to launch new trading platform

Approval from regulator remains positive for MCX as it will enable the launch of more products

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Shares of Multi Commodity Exchange of India (MCX) hit a record high of Rs 2,149.50 as they gained 5 per cent on the BSE in Monday's intra-day trade after the company received market regulator Sebi's approval to launch new trading platform. The stock surpassed its previous high of Rs 2,139.95 touched on September 29, 2023.

In an exchange filing, MCX informed the exchanges that it has received approval from the Securities and Exchange Board of India (Sebi) to launch new web-based commodity derivative platform (CDP), reversing its previous order to hold the proposed launch.

Originally, MCX had planned to go live with CDP on October 3.

Approval from regulator remains positive for MCX as it will enable launch of more products and thereby higher volumes, according to ICICI Securities.

Earlier, India's largest commodity derivative exchange, after market hours on September 29, had informed investors that the market regulator had placed its impending transition to a new CDP in abeyance.

Sebi's decision followed a letter received from the Chennai Financial Markets and Accountability (CFMA) on the proposed transition. CFMA had filed writ petitions on CDS and the same is pending for disposal before the Madras High Court.

Thereafter, replies of MCX and MCXCCL were submitted to Sebi, after following due process. Subsequently, Sebi Technical Advisory Committee has recommended that MCX and MCXCCL may Go-Live with the CDP.

Accordingly, Sebi has withdrawn its directions to MCX and MCXCCL to keep the proposed Go-Live of CDP in abeyance, it said in an exchange filing. READ HERE

Meanwhile, analysts at HDFC Securities believe that post the technology transition, the investor focus will shift to product launches, volume growth and improving profitability. Options notional ADTV has increased ~3x YoY and is currently more than Rs 1,000 billion (~5x of futures). Options growth is driven by a surge in active UCCs (+126 per cent YoY) and higher activity in crude/natural gas contracts.

The launch of new products like index and mini/weekly options will further boost volumes. The options premium-to-notional ratio will decline gradually but the premium volume will register ~47 per cent CAGR over FY23-26E, it added.

The brokerage firm maintains ‘buy’ rating on MCX with a target price of Rs 2,400 per share. The MCX has witnessed impressive growth in options volume but uncertainty around the technology shift has been the key overhang.

MCX profitability was impacted by the higher payout of Rs 140 crore/Rs 330 crore to the technology vendor in FY23/24E, leading to a drop in Ebitda margin (26/17 per cent in FY23/24E vs. ~45 per cent average). The shift to the new platform will pivot the cost structure to a higher fixed-cost model. The total cost will decline by 51 per cent in FY25E due to a significant reduction in software support charges, analysts said.

In the past six months, MCX has outperformed the market by surging 41 per cent, as compared to 10 per cent rise in the S&P BSE Sensex. Further, in the past one year, it has rallied 61 per cent as against 13 per cent gain in the benchmark index.