About a year after the Reserve Bank of India (RBI) cleared the decks for banks to enter commodity derivatives trading, Axis Bank has become the first bank to enter commodity futures through its equity broking arm Axis Securities (ASL).
ASL has started offering its customers futures trading in commodities -- bullion and energy, to begin with -- currently being traded on the Multi Commodity Exchange (MCX). Depending on the initial response from its customers, the broking firm will expand its product basket for other non-agri and agri-commodity offerings.
ASL has also applied for membership to the National Commodity and Derivatives Exchange (NCDEX) to make available to its customers commodity futures currently active on this exchange.
"We are the first bank's subsidiary to enter into commodity futures. While our clients can trade in all commodities available for trading on MCX, we believe they would be interested initially in bullion and energy. If the initial response is satisfactory, we will expand the products basket for our clients. We have also applied to the NCDEX for membership," said Arun Thukral, managing director and chief executive officer, ASL.
The Securities and Exchange Board of India (Sebi) had last year allowed banks to enter commodity futures trading for its retail customers. This was followed by the RBI also opening the sector for banks in a bid to deepen commodity futures with a new class of traders.
Soon after, private banks started engaging with national-level commodity exchanges to understand futures trading in non–agri and agri commodities. Apart from ASL, ICICI Securities and HDFC Securities have also applied for membership of both MCX and NCDEX.
While efforts to reach Shipla Kumar, chief executive officer of ICICI Securities, did not elicit any response, a senior HDFC Securities official confirmed having applied for exchange membership.
When asked about the one-year delay after regulators approved banks' entry into commodity futures, Thukral said, "We needed to understand commodity futures trading, set up facilities, appoint required personnel, etc, to start the business."
ASL has offered its clients trading on the MCX free of broking charge for a week, after which the broking firm would levy a nominal broking charge on its clients.
"Banks-led broking firms currently contribute to between 30 and 40 per cent of equity customer base. With bank brokers allowed to trade in commodities, similar contribution may be seen in commodity markets going forward. In the next 2-3 years, they are expected to increase the commodity market volumes by at least 15-20 per cent," said Mrugank Paranjape, managing director and chief executive officer, MCX.
ASL has around 2 million customers, while the MCX has issued around 2.6 million UCC (Unique Client Codes) and is poised for higher growth with bank-led brokers' entry into commodity futures.
Meanwhile, MCX has reported a decline of around 15 per cent in its daily average turnover this financial year at nearly Rs 220 billion in August compared to Rs 260 billion in April this year.