10 members account for 40% of MCX turnover

Exchange IPO prospectus admits overdependence.

Futures trading at the country's leading commodity exchange MCX runs the risk of being heavily dependent on 10 players, who account for as much as 40 per cent or about Rs 10 lakh crore turnover.

MINORITY RULE

The MCX currently has 1,811 members

The share of top 10 members in the turnover increased to 40.20 per cent during the April-December 2007

The exchange accounts for 75 per cent of the total commodity futures turnover in the country

In 2006-07, the turnover of the exchange was around Rs 37 lakh crore

"The loss of these members or a decrease in their volume of trades may adversely impact our revenues and profitability," the Multi Commodity Exchange (MCX), which is seeking to raise an estimated Rs 500-600 crore through an IPO, said in its draft prospectus.

The draft prospectus pointed out that although the MCX currently has 1,811 members, the share of top 10 members in the turnover increased from 30.19 per cent during 2005-06 to 40.20 per cent during the April-December 2007.

In actual terms, the share of top 10 members at more than 40 per cent would translate into huge amounts as the total turnover of MCX was about Rs 23 lakh crore during 2006-07.

MCX itself, being the largest exchange, accounts for 75 per cent of the total commodity futures turnover in the country, which has been estimated at around Rs 37 lakh crore during 2006-07.

Among the domestic commodity exchanges, the market share of MCX in futures trade based on value of contracts was more than 90 per cent in case of important commodities like gold, silver, crude oil and copper.

The other commodities, which are traded on the MCX include cotton, non-ferrous metals such as zinc and lead, rubber, cashew, sugar, coffee, chana, masur etc.

MCX also has the largest number of 55 commodities traded on the exchange in the world followed by 23 commodities at Chicago Board of Trade and 20 commodities at London Metal Exchange.

MCX has filed the draft prospectus with the market regulator Sebi to raise about Rs 500-600 crore by issuing one crore shares with a face value of Rs 5 to the public at a premium.

The public offering will include 60 lakh fresh shares and 40 lakh shares presently owned by promoter company Financial Technologies (India) Limited (FTIL) and Corporation Bank.

Apart from MCX, the other important commodity futures exchanges in the country include NCDEX and NMCE with market shares of 20.31 per cent and 0.51 per cent respectively.

The draft prospectus of the MCX also pointed out that the company will use the proceeds of the public issue for acquisitions and strategic investments in addition to improving technology and setting up the commodity ecosystem infrastructure.

MCX would also invest Rs 100 crore as equity in the company-promoted clearing corporation, which would offer services to other exchanges like the spot exchange and the energy exchange.

The regulatory body Forward Markets Commission (FMC) has already approved the proposal of the MCX to set up a clearing corporation as a wholly owned subsidiary.

The company has earmarked Rs 50 crore towards the commodity ecosystem infrastructure programme, which aims at reaching grass-root level commodity participants through technology and creating awareness among the farming community about the prices.

In addition, the MCX proposes to spend about Rs 135 crore out of the public issue proceeds for expanding and upgrading technological infrastructure of its exchange.