The Board of Directors is pleased to present the Fifteenth Annual Report on thebusiness and operations of your Company along with the Audited Statement of Accounts andthe Auditors' Report for the financial year (FY) ended March 31 2017 (Year underreview') highlights of which are given below:
|FINANCIAL RESULTS || || || || |
| || || || ||( ` in Lakh) |
|Particulars || |
| ||2016-17 ||2015-16 ||2016-17 ||2015-16 |
|Total Income ||37587 ||35140 ||37634 ||35184 |
|Total Operating Expenditure ||17967 ||15965 ||17981 ||15966 |
|Profit before Interest depreciation exceptional items || || || || |
|and tax ||19620 ||19175 ||19653 ||19218 |
|Less: Depreciation ||1857 ||2459 ||1857 ||2459 |
|Less: Interest ||20 ||30 ||20 ||30 |
|Profit before exceptional items and tax ||17742 ||16686 ||17776 ||16729 |
|Less: Exceptional Items || ||563 || ||563 |
|Profit after exceptional items but before tax ||17742 ||16123 ||17776 ||16166 |
|Less: Provision for tax ||5115 ||4746 ||5117 ||4703 |
|Profit after tax ||12627 ||11378 ||12659 ||11463 |
|Less: Other Comprehensive Income (net of tax) ||1852 ||4670 ||1859 ||4573 |
|Total Comprehensive Income for the period (Comprising || || || || |
|Profit and Other Comprehensive Income for the period) ||10775 ||6708 ||10800 ||6890 |
|Earnings per share || || || || |
|a. Basic (`) ||24.84 ||22.39 ||24.91 ||22.56 |
|b. Diluted (`) ||24.83 ||22.38 ||24.89 ||22.55 |
The Ministry of Corporate Affairs (MCA) vide its notification dated February 16 2015notified the Indian Accounting Standards (Ind AS) applicable to certain classes ofcompanies. Your Company falls within its ambit and in compliance with the same theCompany has effective April 01 2016 (transition date being April 01 2015) adopted IndAS prescribed under Section 133 of the Companies Act 2013 read with the relevant rulesthereunder.
RESULTS OF OPERATIONS AND STATE OF COMPANY AFFAIRS
Several international and national events occurred during the course of the year underreview which had significant impact on various segments of the commodities marketincluding your Company. Prices of Bullion went up early in the year but subsided as theyear progressed. While Brexit global economic concerns and loose monetary policy of majorcentral banks helped gold prices rise the US Fed's hike in interest rates and the USelection subdued prices of the yellow metal. The demonetization of higher currency notesin India coupled with low o_cial gold purchases by the Reserve Bank of India (RBI)traditionally one of world's largest buyers of the metal further aided the decline ingold prices. As for Crude Oil the understanding between OPEC and some non-OPECcountries on oil supply cuts led to volatility in its prices. Further mine closuresimproved demand sentiments from China and US President Donald Trump's plans torebuild American infrastructure helped base metals prices to rise.
Given the backdrop of the global market the operating environment for your Companyduring the year was challenging. However the average daily turnover during FY 17 was`225.60 billion (single side) as against `219.23 billion during FY 16 with a total of0.28 million clients trading on the Exchange. The total turnover of commodity futurestraded on your Exchange stood at `58656.61 billion in FY 17 as against `56341.94 billionduring FY 16 registering an increase of 4.11%. The market share of your Company amongstall national exchanges offering commodity derivatives trading increased to 90.37% in FY 17from 84.30% in FY16. Your Company has national reach with 689 members who have appliedfor SEBI registration having 49791 Authorised Persons operating through 631270terminals including Computer to Computer Link (CTCL) across 1284 cities / towns acrossIndia as at March 31 2017. The number of contracts traded on your Exchange in FY17 stoodat 222 million as compared with 234 million for FY16 a decrease of 5.13%. For FY17 yourCompany's (standalone) total income stood at ` 37587 Lakh as compared to `35140 Lakhduring FY16 mainly attributable to increase in Average Daily Turnover (ADT) from ` 21923crores to `22560 crores and increase in Average Realization Rate (ARR) from `1.80 to`1.99. The operating income during the year under review was `25944 Lakh as against`23493 Lakh in FY16. Other income during FY17 was ` 11643 Lakh as against `11648 Lakhin the previous fiscal. The net profit after tax for the year ended March 31 2017 stoodat `12627 Lakh as against `11378 Lakh in FY16. The net worth (including SettlementGuarantee Fund) as at March 31 2017 stood at `152927 Lakh.
There was no change in the nature of business of your Company during the year underreview.
Your Company is committed to explore and exploit all opportunities for unlocking thefull potential of the Indian commodity derivatives market. During the year under reviewyour Company commenced futures trading in Castor Seed. With the launch of new contractyour Company has expanded the existing basket of agricultural products being traded on itsplatform. Further the Exchange introduced a facility of disseminating Cotton Prices inCandy in order to cater to participants who want information of Cotton prices in Candy.The Exchange made upward revision in its fee charged to members w.e.f. October 1 2016.
MCX crude oil futures MCX crude oil mini futures MCX natural gas futures and MCXsilver micro futures were amongst the top 20 commodity futures and options contracts inthe global ranking of commodity futures contracts in Calendar Year 2016 (CY16). (Source:FIA Annual Volume Survey March 2017). With an aim to seamlessly integrate with the globalcommodities ecosystem MCX has entered into strategic alliances with MozambiqueCommodities Exchange (BMM) and Singapore Diamond Investment Exchange in addition to theexisting alliances with leading international exchanges such as CME Group London MetalExchange (LME) Dalian Commodity Exchange (DCE) and Taiwan Futures Exchange (TAIFEX). MCXhas also tied-up with various trade bodies corporates educational institutions andR&D centres across the country. These alliances enable your Company in improving tradepractices increasing awareness and facilitating overall improvement of the commoditymarket.
Post the merger of erstwhile regulator Forward Markets Commission (FMC) with Securitiesand Exchange Board of India (SEBI) all rules directions guidelines instructionscirculars etc. issued by FMC or the Central Government were to remain in force for aperiod of one year from September 28 2015 or till such time as notified by SEBI.Accordingly during the year under review SEBI with its enhanced powers brought severalreforms strengthening the operational framework and risk management in commodityexchanges making the commodities market better in terms of integrity and help it goingforward. The merger of regulators has changed the landscape of commodity derivativesmarket in India paving the path for introduction of new products in commodity derivativesmarket and participation of institutions such as banks mutual funds and insurancecompanies which is likely to broad base the commodity market and your Company from asingle product Company to be a multi-product Company thereby further de-risking itsbusiness model.
The presence of SEBI as the market regulator is expected to help further increase theconfidence in the market and trust amongst all the financial and commodity marketsecosystem stakeholders and make the commodity markets more vibrant and build alevel-playing field across both the commodities and securities markets. The Regulatorydevelopments inter alia includes the following: i) Pursuant to SecuritiesContracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment)Regulations 2017 effective from January 12 2017 SEBI permitted foreign entities likestock exchange depository banking and insurance company and commodity derivativesexchange to acquire or hold upto 15% of the paid up capital of a recognized stockexchange. ii) T he provisions of Annual System Audit of Stock Brokers / Trading Members ofStock Exchanges were made applicable to the Members of National Commodity DerivativesExchanges in order to bring stability and integrity in commodities market. iii) Trading incommodity derivatives at stock exchanges operating in International Financial ServicesCentre (IFSC) was permitted. iv) Pursuant to the stock selection criteria prescribed bySEBI vide its circular dated December 16 2016 National Stock Exchange of India Limited(NSE) introduced trading on Futures & Options contracts on the securities of MCXw.e.f. April 28 2017. v) Also the Reserve bank of India vide FE.CO.FID/3469/11.01.008/2016-17 dated September 30 2016 has permitted the increase in Foreigninvestment limit under Portfolio Investment Scheme for Flls / RFPIs from default 24% to34% of the paid-up share capital of the Company as approved by the shareholders in theprevious AGM.
Other regulatory developments are covered elsewhere in this Report under the respectiveSection.
AMENDMENT TO MEMORANDUM OF ASSOCIATION _MOA_ AND ARTICLES OF ASSOCIATION _AOA_
Pursuant to the merger of FMC with SEBI and repeal of Forward Contracts (Regulation)Act 1952 (FCRA) w.e.f. September 29 2015 the object clause of the Memorandum ofAssociation and the Articles of Association of your Company was amended to reflect theprovisions of Securities Contracts (Regulation) Act 1956 (SCRA) in place of FCRA and alsoincorporate applicable provisions as contained in the Securities Contracts (Regulation)(Stock Exchanges and Clearing Corporations) Regulations 2012 (SECC Regulations) and allother relevant rules regulations directions guidelines etc. This was done with theapproval of SEBI and published in the O_cial Gazette of India and effective thereon.
SEBI vide circular no. CIR/MRD/DSA/33/2012 dated December 13 2012 issued circular onprocedural norms on Recognition Ownership and Governance for Stock Exchange and ClearingCorporated. Para 10 of the said circular states that in case the amendments to theMemorandum and Articles of Association are pursuant to Regulation Circulars etc. issuedby SEBI the same shall not be subject to shareholders approval. Accordingly shareholdersapproval was not sought for the above referred amendment to the Memorandum and ArticlesAssociation of your Company.
RISK MANAGEMENT AND RISK MANAGEMENT POLICY
As per the directions of SEBI the commodity derivatives exchanges have to transfer thefunctions of clearing and settlement of trades to a separate clearing corporation withinthree years from September 28 2015. Till then the exchanges may continue with theexisting arrangement for clearing and settlement of trades. Your Company has proactivelytaken effective steps for transferring its clearing and settlement functions to MultiCommodity Exchange Clearing Corporation Limited (MCX CCL) its wholly owned subsidiarysubject to requisite approvals. Your Company has complied with SECC Regulations relatingto risk management and has re-constituted its Risk Management Committee for inter aliaidentification measurement and monitoring risk profile of the Exchange. The saidCommittee as on the date of this Directors' Report comprise of two Independent Directorsone Shareholder Director and an Independent External Expert. A comprehensive RiskManagement Policy for managing different risks including business risk default risksettlement risk market risk legal risk operational risk technological risk anddelivery risk is in place and being implemented.
Your Company has implemented additional risk management measures like increasing themargins to cover two days "Margin Period of Risk" levy of concentration marginsand increasing the delivery margins. Pursuant to SEBI guidelines your Company hastightened the norms for members who habitually delay payment of margin and pay-inrequirements. Your Company has also increased the Base Minimum Capital norms for membersand adopted the guidelines for Default Waterfall Mechanism issued by SEBI.
As a part of risk mitigation plan for avoiding business disruption your Company hasfocused on strengthening its core technology infrastructure so that there is no singlepoint of failure. Recently your Company has shifted its Disaster Recovery (DR) Site fromNew Delhi to GIFT City in Gandhinagar Gujarat which has a robust infrastructure andaccessibility. Your Company successfully conducted live trading from DR site on April 032017 & 3rd Public mock on April 01 2017. The Company has strengthened itsBusiness Continuity Plan (BCP) and regularly conducts mock drills to test readiness andeffectiveness of IT infrastructure at its Data Centre and also its DR site. For furtherdetails relating to risks and their impact on your Company's business please refer thesection titled Risk Management' in the Management's Discussion and Analysis formingpart of the Annual Report.
INVESTOR _CLIENT_ PROTECTION FUND _IPF_
Your Company has established Multi Commodity Exchange Investor (Client) Protection FundTrust (IPF) to protect and safeguard the interests of investors (clients) by meetingtheir eligible / legitimate claims on account of default by any trading and clearingmember of the Exchange. The interest income received by investment of surplus funds of IPFis used for meeting expenses for imparting investors' (clients) education conductingawareness programs undertaking research or such other programs as may be specified bySEBI. As on March 31 2017 the corpus of IPF Trust stood at `15383 lakh (Provisional).Details of transactions entered into with IPF are disclosed as per Ind AS 24 in RelatedParty Disclosures of the Financial Statements of your Company.
SETTLEMENT GUARANTEE FUND _SGF_
Pursuant to SEBI directives with respect to the Settlement Guarantee Fund (SGF) stresstests are required to be performed on quarterly basis to determine the adequacy ofbalance in SGF. Accordingly based on the stress tests performed the balance in SGF wasdetermined to be adequate and hence no contribution to SGF has been made during the yearunder review.
Settlement related penalties and fines amounting to ` 78 Lakh (net of tax) and incomeof ` 863 Lakh (net of tax) earned from earmarked SGF investments were credited to SGFduring the year. Accordingly the cash component of SGF stood at `17049 Lakh as at March31 2017. Further the Base Minimum Capital of Members who have not applied for SEBIregistration has been released from the SGF.
To cater to the storage requirements of various members of the Exchange and theirrespective constituents / depositors who are willing to store goods and give delivery onthe Exchange platform your Company has made necessary warehousing and logisticsarrangements with Warehouse Service Providers (WSP) / Vault Service Providers (VSP). YourExchange co-ordinates with WSPs / VSPs and undertakes accreditation of the warehouses /vaults audit and inspection of warehouses / vaults for safe storage and preservation ofgoods deposited by various business participants for delivery on its platform.
Currently your Company operates through three WSPs for facilitating physicaldeliveries in agricultural commodities viz. Sohanlal Commodity Management PrivateLimited Origo Commodities India Private Limited and Yamada Logistics Private Limited. Ason March 31 2017 your Exchange has accredited 24 warehouses of these three WSPs. Out ofthe 24 warehouses 12 warehouses are registered with the Warehousing Development &Regulatory Authority (WDRA) and 12 warehouses are in different stages of registration. Thewarehouses as on the date of this Report are located at Jalgaon Jalna Yavatmal inMaharashtra Kadi Rajkot Mundhra in Gujarat Sirsa in Haryana and Adilabad in Telanganafor Cotton Bales Vandanmedu in Kerala for Cardamom Kadi and Deesa in Gujarat for CastorSeed and Barabanki and Chandausi in Uttar Pradesh for Mentha Oil. Your Company has put inplace a detailed WSP Policy and a Warehouse Inspection Policy. This is in compliance withthe SEBI revised warehousing norms for agricultural and agri processed commodities tradedon the National Commodity Derivatives Exchanges.
During the year the highest number of Cotton bales stored was recorded as 85200 balesof 170 kg each; Mentha Oil drums was recorded as 17286 drums of 180 kg each and thenumber of bags of cardamom and castor seed were recorded as 712 bags of 50 kg each and1485 bags of 75 kg each respectively in the Exchange accredited warehouses. Further thehighest value of Gold (including all of its variants) stored was `503.792 Cr while that ofSilver was recorded as
` 492.602 Cr in the Exchange accredited vaults.
As Lemuir Secure Logistics Pvt. Ltd the vault service provider expressed itsintention to stop bullion vaulting operations your Company decided to switch over andavail the services of Sequel Logistics Private Limited as the new vault service providerw.e.f. February 17 2017 for facilitating physical deliveries in bullion. The vaults ofthis agency are located at Ahmedabad Mumbai and New Delhi. Your Company is making seriousefforts to bring in more credible and large players as vault service providers WarehouseService Providers and Assayers. Your Company is also working on building a comprehensivee-warehousing software. You may also refer section titled Warehousing' appearing inthe Management Discussion and Analysis forming part of the Annual Report.
TRAINING AND EDUCATION
The Training and Education Division has the following key objectives:
(a) facilitation of structured learning of commodity trading to the community at largeand investors in particular; and (b) augmentation of business development and product toplines through training of various market participants. To achieve the said objectivesyour Company in FY 17 registered 1429 candidates for the MCX Certified CommodityProfessionals (MCCP) to help the ecosystem. In conjunction with the Business Developmentand the Product teams the Company held over 50000 man hours of trainings for tradersfarmers students bankers teachers etc. The team conducted 103 programs on sensitizingthe community on Options in Commodities given the imminent launch of the same. The teamhas hosted and trained 5 International delegations and 30 students and corporatedelegations to help them understand the operations of a commodity exchange. Your Companyhas conducted 27 awareness programs and 3 Faculty Development Programs. Also your Companyhas entered into MOUs with 11 Educational Institutions. The team is also in the process ofintroducing new methods to reach the public through webinars vernacular programs andmobile learning aids. Your Company aims to increase its annual trainings to 100000 manhours in the coming year.
There has been no change in the share capital of your Company during the year underreview. As on March 31 2017 the paid-up share capital of your Company stood at `5100Lakh comprising 50998369 Equity shares of `10 each fully paid.
Your Company has during the year under review neither issued any Equity shares withdifferential voting rights nor any shares (including sweat equity shares) to its employeesunder any scheme save and except transfer of shares by the ESOP trust to eligibleemployees pursuant to the Employee Stock Option Scheme (ESOP 2008).
TRANSFER TO RESERVES
For the year ended March 31 2017 your Directors do not propose to transfer any amountto the General Reserve. An amount of `95670 Lakh is proposed to be retained as surplus inthe statement of Profit and Loss Account under the heading Reserves and Surplus'.
DIVIDEND AND DIVIDEND DISTRIBUTION POLICY
As per the Dividend Distribution Policy of the Company the Board considering variousparameters as mentioned in the Policy shall endeavor to maintain a dividend pay-out(interim if any and final put together) in the range of 30 to 50 per cent of profitsafter tax (PAT) every financial year on the standalone financials. Considering thefinancial statements for FY 17 and particularly in view of the fact that the Company hasadequate cash at its disposal with no immediate cash outflow requirement coupled with nospecific investment in the horizon resulting in significant outflow of cash resourceyour Directors have recommended a final dividend of `15 per Equity share (150%) asagainst ` 6.50 per share (65%) for the FY 16 on a face value of `10 per share aggregatingto `7650 Lakh subject to approval of shareholders at the ensuing AGM.
The outflow on account of the proposed dividend and tax thereon aggregates to ` 9207Lakh (including the Dividend Distribution Tax of `1557 Lakh) being a payout of 73% ofthe profit after tax for the year ended March 31 2017. Pursuant to Regulation 43A of theSEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (hereinafterreferred to as the SEBI Listing Regulations 2015) the Board at its meeting held onAugust 10 2016 amended the existing Dividend Distribution Policy. The revised policy isattached as Annexure I to this Report. The same is also available under the weblinkhttps://www.mcxindia.com/docs/default-source/investor-relations/corporate-governance/dividend_distribution_policyfire.pdf?sfvrsn=2
Your Company had not invited any deposits from the public and as such no amount ofprincipal or interest related thereto was outstanding as on the date of the Balance Sheeti.e. March 31 2017.
PARTICULARS OF LOANS GIVEN INVESTMENTS MADE GUARANTEES GIVEN OR SECURITY PROVIDEDUNDER SECTION 186 OF THE COMPANIES ACT 2013
Your Company has during the year under review not given any loans guarantees orprovided security and has not made any investments in any body corporate in excess oflimits specified under Section 186 of the Companies Act 2013. Pursuant to the ConsentTerms between the Company and Metropolitan Stock Exchange of India Ltd. (MSEI) filed withand taken on record by the Hon'ble Bombay High Court the Company has since receivednecessary approval and no objection from SEBI for conversion of warrants of MSEI into itsEquity Shares. Accordingly the Company vide its letter dated September 29 2016 to MSEIhas exercised the conversion right of 265177600 warrants issued as per the Scheme ofReduction cum Arrangement into 265177600 Equity shares of `1 each. The Equity shareshave since been allotted and credited to demat account of the Company on October 3 2016.As per the consent terms an amount of 150740072/- has been received on October 142016 towards balance 150740072 warrants.
Investment in CDSL led Repository: The Board at its meeting held on January 132017 approved the investment in one or more tranches of an amount not exceeding `12crores by way of subscription at par basis to acquire 24% Equity stake in the CDSL ledcommodity repository proposed to be set up for creation and management of electronicNegotiable Warehouse Receipts.
CONSOLIDATED FINANCIAL STATEMENT
Your Company has in accordance with Section 129(3) of the Companies Act 2013prepared consolidated financial statements consolidating its financials together with itswholly owned subsidiary company Multi Commodity Exchange Clearing Corporation Limited(MCXCCL). The audited consolidated financial statements have been prepared on the basis ofthe related Consolidated Financial Statements which is in accordance with the requirementsof the Ind AS prescribed under Section 133 of the Companies Act 2013 (the Act')read with relevant rules issued thereunder as applicable and other accounting principlesgenerally accepted in India and forms part of this Annual Report.
Multi Commodity Exchange Clearing Corporation Limited: MCXCCL a wholly-ownedsubsidiary of your Company was set up for having a separate clearing house to provideservices such as clearing and settlement of trades and guaranteeing counter party risk. Asof March 31 2017 the company's paid-up capital is `6 crores. As on date MCXCCL has notcommenced business. In terms of SEBI circular dated November 26 2015 commodityderivatives exchanges shall transfer the functions of their clearing and settlement oftrades to a separate clearing corporation within three years (i.e. September 27 2018).Till then the exchanges may continue with the existing arrangement for clearing andsettlement of trades.
Your Company has initiated the process to operationalize MCXCCL. MCXCCL has made anapplication dated September 30 2016 to SEBI for recognition of the company as ClearingCorporation under Regulation 4 of the SECC Regulations.
The Board of your Company at its meeting held on June 30 2016 accorded it approvalto make an investment in one or more tranches by way of subscription to the Equityshares of the face value of `10/- each in MCXCCL for cash at par an amount not exceeding`150 crores for operationalising MCXCCL in line with the requirements stipulated by SEBIfor clearing corporations.
SME Ex change of India SME Exchange of India Limited (SME) a subsidiary of yourCompany which wasLimited: set up to provide a platform for transacting clearingand settlement of trades in small and medium enterprises segment is under the process ofmembers' voluntary winding up.
The requisite formalities for application of winding up of the Company has beencompleted. The Registrar of Companies on May 30 2017 has approved the Liquidatorsstatement showing the manner in which the winding up has been conducted and the propertyof SME has been disposed o_. The O_cial Liquidator shall issue the final report on windingup of the SME after receiving the No Objection Certificate from the Registrar of Companiesand the Assessing Officer Income Tax department.
During the year under review there have been no companies which have become or haveceased to be the subsidiaries or associate companies of your Company. Further neither theManaging Director & CEO nor the Whole-time Director of your Company receives anyremuneration or commission from any of its subsidiary.
A report on the performance and financial position / salient features of the subsidiaryas per the Companies Act 2013 is provided as Annexure II.
In accordance with Section 136(1) of the Companies Act 2013 the financial statementsincluding consolidated financial statements and all other documents required to beattached thereto and audited annual accounts of MCXCCL the subsidiary company areavailable on our website under the weblink https://www.mcxindia.com/investor-relations.Shareholders interested in obtaining a copy of the audited annual accounts of thesubsidiary company may write to the Company Secretary at the Company's registered office.Copies of the annual accounts of your Company and of its subsidiary company would be keptat the registered office of your Company for inspection by any shareholder.
MANAGEMENT'S DISCUSSION AND ANALYSIS STATEMENT
Management's Discussion and Analysis Statement as stipulated under the SEBI (ListingObligations and Disclosure Requirements) Regulations 2015 forms a part of this AnnualReport.
INITIATIVES AND OUTLOOK
During the year SEBI undertook policy measures to improve market transparency riskmanagement market accessibility participation and investor protection. With a view tosynchronise practices at commodity derivatives exchanges with those at stock exchanges aseries of regulatory initiatives were effected in the market by SEBI. The measures takenby SEBI RBI and the Government of India in the area of commodity derivative markets arelisted below: i. Additional risk management norms like enhancement in initial margins tocover atleast a Margin Period of Risk
(MPOR) of 2 days for all commodity derivatives contracts mechanism for determining theDelivery Period Margin Concentration Margins default waterfall mechanism liquidationmechanism in the event of default amongst others were introduced. ii. Revised warehousingnorms were issued for agricultural and agri-processed commodities. iii. Six newcommodities for futures trading viz. Diamond Brass Pig Iron Eggs Cocoa Tea wereadded to the list of commodities notified under SCRA. iv. Bullion was allowed to be keptas collateral upto a maximum of 30% of total liquid assets (TLA) of a clearing member(CM). As per the modified conditions "Total commodities collateral for any CM shallnot exceed 30% of the TLA of the CM out of which non-bullion collateral shall not exceed15%". v. Circulars were issued to consolidate and update norms with regards tovarious policies like Daily Price Limits Position
Limits Position Limits for Hedgers Spot Price Polling Mechanism Transaction ChargesShort-collection of margin from clients by members Delivery Procedures etc. prescribedby the erstwhile regulator FMC. vi. International Organisational of SecuritiesCommissions (IOSCO) Principles for Financial Market Infrastructures (PFMIs) were madeapplicable to Commodity Derivatives Exchanges having annual turnover of more than INR 5lac crore in previous financial year. vii. Detailed guidelines were issued for determiningthe eligibility retention and re-introduction of derivative contracts in commodities.viii. RBI vide circular dated September 14 2016 set up a working group to review theguidelines for hedging of commodity price risk by residents in the overseas markets duringthe development phase of our commodity derivative market. ix. To mitigate the settlementrisk Settlement Guarantee Fund and Stress Testing methodology was prescribed. x.Guidelines were issued for simpli_cation of account opening process and use of Central KYCRecords. xi. Guidelines were issued for sponsorship of programmes in media channels andmedia interaction. xii. Exchanges were allowed to decide trading holidays amongthemselves. xiii. Price dissemination was mandated through SMS and other electronic media.
xiv. M andatory requirement for PAN in Unique Client Code was reiterated. xv. Certainmodifications in contract specifications at Exchange level were permitted. xvi. PortfolioManagement Services (PMS) was prohibited in Commodities markets. xvii. The guidelines forAlgorithmic Trading and prohibited Colocation were re-notified.
OPPORTUNITIES FOR THE COMPANY
Your Company remains committed to explore new opportunities being charted out by theregulators and government. Entry of institutional participants introduction of newproducts efforts for integration of commodity spot and derivative markets integration offinancial markets and commencement of GST regime are opportunities for which your Companymade preparations to reap their full potential. In the last one year there have beensignificant movement in each of these policy initiatives viz. discussions by regulatorswith stakeholders floating of consultation papers approval by Board of the regulatorannouncements by the government etc. Your Company opened a new office at GIFT CityGandhinagar measuring over 22600 sq ft which was inaugurated by Shri Vijay RupaniHon'ble Chief Minister of Gujarat on January 31 2017. The office houses the Exchange'sBusiness Continuity (BC) and Disaster Recovery (DR) centre and a training and educationfacility.
During the year your Company signed a Memorandum of Understanding (MoU) with SingaporeDiamond Investment Exchange (SDiX) the world's first and only commodity exchange tradingin physically settled diamonds for cooperation in areas such as knowledge sharing andresearch standardization of product for Indian markets and enhancing transparency inpricing. The exchanges through this MoU also have agreed to work towards assistingstakeholders in India's diamond industry by introducing international best practices inprice risk management and price discovery through innovative spot and derivative marketoperations. The move will also foster sharing of information between the exchanges.
In September 2016 your Company had signed a MoU with the Mozambique Commodity Exchange(BMM). By entering into the MoU both Exchanges expressed their intention to facilitatepotential collaboration in areas such as sharing of knowledge research experiences. BMMaims to develop the Mozambican commodity markets ecosystem consisting of energy basemetals and agricultural products for delivering better value to the stakeholders. Towardsthis objective MCX will work with BMM to help Mozambique realize its potential incommodities derivative trading. During the year under review as part of our commitmenttoward financial literacy in commodity derivatives and endeavour to reach out to a largernumber of market participants your Company signed MoUs with 11 educational universitiesand institutions. These were in addition to the 9 MoUs entered in the previous financialyear. The 11 educational institutions are Mandsaur University (Madhya Pradesh)Marwari University (Gujarat) Vinobha Bhave University (Jharkhand) Lal Bahadur ShastriInstitute of Management (Delhi) Navitas Resources Pte. Ltd. (Singapore) ImaticusLearning Pvt. Ltd. (Maharashtra) Loyola Institute of Business Administration (TamilNadu) EduedgePro Pvt. Ltd. (Maharashtra) Symbiosis Centre for Management & HumanResource Development (Maharashtra) Gnanam Business School (Tamil Nadu) and PondicherryUniversity (Pondicherry). Pursuant to these MoUs Awareness Programmes and ClassroomSessions on Commodity Derivatives were organised with some of these institutions for theirstudents and faculty.
In our efforts to create market awareness on commodity options before the regulatoryapproval is provided for the launch of contracts few advanced options programmes inaddition to basic commodity option programmes were conducted across the country. Thesebenefitted various ecosystem stakeholders. The Company would continue to conduct suchadvanced Options programs across the Country in its endeavor to develop a healthyecosystem of stakeholders fully prepared for the launch of Options in the near future.Three eLearning Programmes were launched during the year in Statistical Arbitrage TradingPython for Commodity Trading and Getting Started with Algorithmic Trading in associationwith EduedgePro Pvt. Ltd.
The examination of our flagship training and certification programme on commoditymarkets MCX Certified Commodity Professional (MCCP) is available in two regionallanguages Gujarati and Hindi besides English. In all 1429 candidates enrolledfor the MCCP examination and 630 candidates were certified during FY2017.
COMMITMENT TO QUALITY
With a quest to achieve excellence in products and services offered your Companycontinues to monitor and maintain its effective and well-crafted Quality ManagementFramework (QMF). QMF is aligned to the business objectives of the Exchange and ensuresthat your Company provides highest quality of service to its members and clients. Your
Company is focused on continually improving its existing robust processes and qualityof services. Over the years your Company has evolved mature processes which enabled itto reduce unpredictability across various business operations. Your Company successfullycleared the ISO 9001:2008 Surveillance Audit this year after rigorous process auditsacross all its key operations. This showcases your Company's dedication and commitmenttowards sustaining a customer centric by providing a robust Quality Management System.
In line with your Company's vision and commitment of ensuring information security andto build confidence amongst its stakeholders your Company has developed and implementedsimple effective and robust processes and controls using latest international standardISO / IEC 27001:2013 on Information Security Management System. It has also deployed aproactive Information Risk Management approach and carries out risk assessment activitieson a periodic basis.
RESEARCH AND DEVELOPMENT
Your Company is constantly undertaking research activities for the development of newproducts keeping in view emerging policy and regulatory scenarios global best practicesin markets and risk management in an effort to enhance value proposition to stakeholders.After extensive research of the physical markets and stakeholders the Company commencedfutures trading in Castorseed on January 05 2017. With SEBI permitting options oncommodity derivatives we are in continuous interaction with stakeholders and theregulator to ensure that the design of the contract specifications risk managementmeasures and settlement mechanisms are in the best interests of the growth and developmentof the proposed segment of the market. Effective coordination is also being undertakenwith regulatory authorities and policy makers for enhancing the utility of the markets toretail and corporate participants in terms of risk management and portfoliodiversification. Extensive research is also being undertaken in association with researchinstitutions of national repute for assessing the socio-economic impact of futures marketon the commodity ecosystem and to understand policy changes that would further the growthand development of this market. During 2016-17 your company signed a MoU with the TheInstitute of Companies Secretaries of India (ICSI) to jointly conduct interactivesessions faculty development programmes research conferences and other activities withthe objective of achieving knowledge creation and spreading awareness about the benefitsof commodity price risk management. Similarly Your Company signed an agreement withIndira Gandhi Institute of Development Research (IGIDR) to support and undertake researchon contemporary issues of relevance in India's commodity derivatives market.
A number of research studies were undertaken during the year under review. A study ofimpact of futures markets on the stakeholders of the gold value chain and their hedgingpractices was taken up with Pahle India Foundation. This was done to understand theparticipants' views on products policies and process for making the market stakeholderfriendly and economical. The National Institute of Agricultural Economics and PolicyResearch has undertaken a study on the price linkages between the spot and future marketsand the benefits of futures trading in cotton to its ecosystem. A Study on the Levelof Compliance to Commodity Risk Disclosure Regulations in India & Abroad' had beenundertaken by The Institute of Company Secretaries of India Centre for CorporateGovernance Research & Training (ICSI-CCGRT) Mumbai at our request to helpunderstand risk disclosure standards and compliance in India and abroad. The findings ofthe study are being shared with stakeholders and regulators. IGIDR completed a study onthe detrimental effects of the Commodity Transaction Tax (CTT) on the growth andefficiency of the market as also on government revenue collection. The findings of thisstudy were widely disseminated.
The initiatives for growth and market development taken by your Company have beenrecognized at various fora by several institutions. Your Company was honoured with the BestCommodity Exchange' Award at the Bullion Federation Global Convention organized bythe Bullion Federation in Agra during 21st-24th July 2016; and withthe Best Exchange of the year in Bullion Industry' at the 9thInternational Gold Summit & Excellence Awards jointly organized by ASSOCHAM and WorldGold Council on September 29 2016. Your Company was also named Exchange ofthe Year' by ASSOCHAM at their 15th Commodity Futures Market Summit& Excellence Awards on March 01 2017 and as the Best Exchange Bullion & Metals' by Commodity Participants Association of India (CPAI) attheir 5th International Convention on March 18 2017.
Given the nature of its operations your Company has a very low impact on theenvironment. Notwithstanding this it is committed to minimal adverse environmental impactthrough efficient use of natural resources including electricity which is critical tothe Exchange's technology-driven business. Your Company has an effective EnvironmentalPolicy and adheres to it. Your Company believes that in order to meet the objectives ofits Environmental Policy employee commitment is imperative. Thus your Company throughits Corporate Social Responsibility (CSR) team creates awareness amongst employees andencourages them to adopt conservation practices. Your Company cleared the ISO 14001:2004surveillance audit and continues to monitor its Environment Management Plan which isdeveloped on the basis of the Environment Review conducted annually to assess the impactof the Company's activities. Your Company has also developed an e-waste policy for thesafe disposal of e-waste from its premises. Its tie-up with authorised e-waste recyclershelps it to dispose its e-waste in an eco-friendly manner.
In order to help employees dispose-o_ their e-waste in an environment friendly manneran e-waste drive was conducted at the registered office in association with CROMA forsafe disposal of electronic items like head phones CD's Hard Disks etc.
CORPORATE SOCIAL RESPONSIBILITY _CSR_
Your Board constituted a CSR Committee at its meeting held on December 26 2013 whichhas been re-constituted from time to time. The Corporate Social Responsibility Policyguides the Company's CSR approach including but not limited to rural development womenand children empowerment eradicating hunger and promoting education health caresanitation environment conservation etc. and the same is available on your Company'sweb link viz. URL: https://www.mcxindia.com/about-us/csr As per Companies Act 2013 allcompanies having a net worth of ` 500 crore or more or a turnover of ` 1000 crore ormore or a net profit of `5 crore or more during any financial year are required toconstitute a CSR committee of the Board of Directors comprising three or more directorsat least one of whom should be an independent director. All such companies are required tospend at least 2% of the average net profits of three immediately preceding financialyears on CSR-related activities. Accordingly the Company was required to spend `3.08crore towards CSR activities. Your Company utilized `3.29 crore on CSR activities whichexceeds the prescribed amount.
Your Company views CSR activities as an opportunity to serve the interest of communityat large and promote inclusion the major plank of your Company's business philosophy.The social initiatives of your Company aims to create an enabling environment byempowering communities. We believe that necessary and timely interventions can make thecommunities environment sustainable and improve the socio-economic conditions of thecommunity concerned. The CSR policy is in line with the activities mentioned underSchedule VII to the Companies Act 2013 (as amended from time to time). Your Company isimplementing and monitoring the CSR activities in letter and spirit and has interalia approved projects for water shed programs in drought prone areas capacitybuilding and empowerment of women and youth through livelihood skill building trainingrehabilitation of children with disabilities addressing the issue of malnutrition andearly learning development requirements of children from the lower economic sectionempowering farmers by strengthening the Gramin Suvidha Kendra activities etc. YourCompany shares the responsibility of meeting the needs of the community through thematicinterventions designed in line with the vision embraced in the CSR policy. Your Companyhas resolved to engage and motivate employees for active participation in the CSRactivities of the Company by initiating various engagement initiatives and has initiatedteaching engaged in imparting training to the students in BMC Schools in Mumbai belongingto socially backward section. Your Company has initiated the Gramin Suvidha KendraProgramme in 2006. This service to the farmers provides necessary assistance guidanceand support in agriculture and allied activities to make farming sustainable andprofitable. It is a single window service in association with India Post designed toempower small and marginal farmers with information about market prices of the locallyproduced commodities and best practices for enhancing the quality of their produce.Through the Gramin Suvidha Kendra initiative your Company has empowered the farmers andsupported sustainable agricultural practices for conservation of the environment andsaving one of the most critically endangered bird species the Great Indian BustardArdeotis nigreceps from extinction.
The details of CSR policy and initiatives adopted by the Company on CSR during the yearis available on our website (https://www.mcxindia.com/about-us/csr). The Annual Report onCSR activities under Section 135 of the Companies Act 2013 is provided in Annexure IIIof this Report.
BUSINESS RESPONSIBILITY REPORT
Pursuant to Regulation 34 of the SEBI Listing Regulations 2015 read with SEBI (ListingObligations and Disclosure Requirements) (Amendment) Regulations 2015 the Annual Reportof top 500 listed entities based on market capitalization shall include the BusinessResponsibility Report (BRR) describing the initiatives taken by Company from anenvironmental social and governance perspective.
As your Company falls within the top 500 listed Companies the said Regulations areapplicable to it. In compliance with the same the BRR forms part of this Annual Report.
Further your Company has evolved a Business Responsibility Policy encompassing thebroad scope of the initiatives to be undertaken to best sub-serve the interest of allthe Stakeholders.
EXTRACT OF ANNUAL RETURN
The extract of Annual Return of your Company pursuant to Section 92(3) of the CompaniesAct 2013 read with Rule 12(1) of the Companies (Management & Administration) Rules2014 is attached as Annexure IV to this Report.
Your Company continues to be committed to good corporate governance aligned with thebest corporate practices. The report on Corporate Governance as stipulated underRegulation 34(3) read with Schedule V of the SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015 and the certificate from a Practicing Company Secretaryregarding compliance with Corporate Governance norms forms part of this Annual Report.The report on Corporate Governance also contains the disclosures required under theCompanies Act 2013.
MEETINGS OF THE BOARD
Nine meetings of the Board of Directors were held during FY 17. For further detailsplease refer to the report on Corporate Governance forming part of this Annual Report.
ETHICS AND GOVERNANCE POLICIES
Your Company adheres to the highest ethical standards to ensure integritytransparency independence and accountability in dealing with all stakeholders.Accordingly your Company has adopted various codes and policies to carry out its dutiesin an ethical manner. Some of these codes / policies framed and implemented by yourCompany are Code of Conduct and Code of Ethics Code of Conduct for Prevention of InsiderTrading Whistle Blower Policy / Vigil Mechanism Policy on Materiality of Related PartyTransactions and on dealing with Related Party Transactions Policy for determiningMaterial Subsidiaries Corporate Social Responsibility Policy Risk Management PolicyNomination and Remuneration Policy Policy for appointment of Independent External Personson Committees of the Board Board diversity policy Dividend Distribution Policy etc.
WHISTLE BLOWER POLICY / VIGIL MECHANISM
Your Company believes in the conduct of the affairs of its constituents in a fair andtransparent manner by adopting highest standards of professionalism honesty integrityand ethical behaviour. Pursuant to Section 177(9) of the Companies Act 2013 read withRule 7 of the Companies (Meetings of Board and its Powers) Rules 2014 and Regulation 22of the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 the Boardof Directors have implemented a vigil mechanism through the adoption of Whistle BlowerPolicy. For further details please refer to the report on Corporate Governance whichforms part of this Annual Report.
CONTRACTS AND ARRANGEMENTS WITH RELATED PARTIES
Your Company has formulated the policy on materiality of related party transactions anddealing with related party transactions. The same is uploaded on the website of yourCompany and may be accessed at the web link:https://www.mcxindia.com/docs/default-source/investor-relations/corporate-governance/amended_policy_onfirelated_partyfitransactions_05may2016.pdf?sfvrsn=2 All related party transactions entered into byyour Company are in the ordinary course of business and at arm's length pricing basis.
All the related party transactions entered into by your Company during the year underreview were placed and approved by the Audit committee and / or by the Board asapplicable in accordance with the Companies Act 2013 SEBI Listing Regulations 2015 andother applicable guidelines / directions from Regulator if any.
SEBI directions provide that every national commodity derivatives exchange shall creditpenalties other than the settlement related penalties to its Investor Protection Fundfor all transactions executed on the Exchange. IPF is held in trust and managed by theTrustees who are appointed as per the provisions of the Trust Deed and the RulesBye-Laws and Regulations of the Exchange. The transactions with IPF are regulated inaccordance with the regulatory requirements / guidelines issued from time to time and isindependently managed. Except for complying with the regulatory requirements your Companydoes not have any pecuniary relationship with IPF. However in view of clarificationissued by Institute of Chartered Accountants of India IPF is being treated as a relatedparty and as such transactions entered into by your Company with IPF entails a reportingrequirement without the need for following other concomitance of the Related PartyTransaction Policy. Pursuant to Section 134(3) (h) read with Rule 8(2) of the Companies(Accounts) Rules 2014 the particulars of material contracts or arrangements with relatedparties to be reported under Section 188(1) of the Companies Act 2013 are appended inForm AOC 2 as Annexure V to this Report.
All Related Party Transactions as required under Ind AS 24 Related PartyDisclosures are reported in Note 35 of Notes to Accounts of the standalone andconsolidated financial statements of your Company.
Your Company being deemed to be a recognized stock exchange under Securities Contract(Regulation) Act 1956 (SCRA) is inter alia regulated by SEBI. As mandated bySECC Regulations the appointment of all the Directors on the Board of your Company iswith the approval of SEBI. As on the date of this Report your Board comprises of 14(fourteen) Directors of which 7 (seven) are Public Interest Directors 6 (six) areShareholder Directors (including the President & Whole Time Director) and 1 (one)Managing Director.
"Public Interest Director" under the SECC Regulations means an independentdirector representing the interests of investors in securities market and who is nothaving any association directly or indirectly which in the opinion of the SEBI is inconflict with his role and accordingly such directors are considered as IndependentDirectors for adhering compliance with the provisions under the SEBI Listing Regulations2015 and Companies Act 2013. Your Company has received confirmations from the respectivePublic Interest Directors to the effect that each of them meets the criteria ofindependence as prescribed under Regulation (16)(b) of the SEBI Listing Regulations 2015and Section 149(6) of the Companies Act 2013. The nomination / appointment of IndependentDirectors / Public Interest Directors on the Board of your Company is also in accordancewith the eligibility conditions prescribed by SEBI. Further all the Directors haveconfirmed that they are Fit and Proper' in terms of the SECC Regulations. YourCompany has also obtained afirmation of adherence to Schedule IV of the Companies Act2013 and the Code of Conduct of your Company in accordance with the SEBI ListingRegulations 2015 from all the Directors as applicable.
Your Company has 3 (three) women Directors on the Board as against the stipulation ofappointing at least one Woman Director on the Board. The Board of Directors re-designatedMr. Parveen Kumar Singhal as the President and Whole Time Director' w.e.f. April01 2016 to hold such office up to the date of his current contract / service with theCompany.
Mr. Mrugank Madhukar Paranjape was appointed as the Managing Director & CEO of theCompany for a period of three years w.e.f. May 09 2016 with the approval of SEBI.
Pursuant to the approval of the Board the shareholders at their 13th AnnualGeneral Meeting (AGM) and SEBI vide its letter dated June 08 2016 Mr. Hemang Raja wasco-opted as the Shareholder Director on the Board of your Company w.e.f. June 30 2016.
Further pursuant to the approval of SEBI Mr. Saurabh Chandra was appointed as thePublic Interest Director w.e.f. July 03 2016 in place of Mr. Dinesh Kumar Mehrotrawhose term expired on July 02 2016.
Mr. Ajai Kumar and Mr. Manjueshwar Anantha Krishna Prabhu Shareholder Directors of theCompany were liable to retire by rotation at the 14th AGM of the Company heldon September 19 2016. Mr. Ajai Kumar offered himself for re-appointment where as Mr.Manjueshwar Anantha Krishna Prabhu did not seek re-appointment. The resolution forre-appointment of Mr. Ajai Kumar was not passed with requisite majority and the Board ofDirectors decided not to fill in the vacancy. Pursuant to the approval of the Board theShareholders at their 14th AGM and SEBI Mr. Chengalath Jayaram was appointedas a Shareholder Director w.e.f. November 25 2016.
Mr. Prithvi Haldea was appointed as a Public Interest Director for a period of 3 yearson the Board w.e.f. October 25 2016 in the vacancy arising out of the completion oftenure of Mr. G. Anantharaman on October 18 2016.
Mr. Arun Bhargava was appointed as a Public Interest Directors for a period of 3 yearson the Board w.e.f November 19 2016 in the vacancy that arose on completion of tenure ofMr. Satyananda Mishra as a Public Interest Director and the Chairman of Board on November18 2016. Mr. Saurabh Chandra was elected as the Chairman of Board with the approval ofSEBI w.e.f December 01 2016.
In terms of Regulation 24(3) of SECC Regulations SEBI vide letter dated January 302017 has granted extension of the term of Ms. Pravin Tripathi Mr. Subrata Kumar Mitra Mr. Arun Kumar Nanda and Dr. Govinda Rao Marapalli Public Interested Directors on theBoard till the completion of the period of three years from their respective dates ofappointment as Public Interest Directors by the erstwhile Regulator Forward MarketsCommission. Accordingly the tenure of Ms. Pravin Tripathi shall be up to August 11 2017Mr. Subrata Kumar Mitra and Mr. Arun Kumar Nanda up to May 18 2018 and Dr. M.Govinda Rao up to August 07 2018.
In accordance with the provisions of the Companies Act 2013 Mr. Amit Goela and Ms.Padma Raghunathan Shareholder Directors who have been longest in office since theirappointment as such shall be subject to retire by rotation at the ensuing AGM and beingeligible are seeking re-appointment. The Board recommends their re-appointment.
KEY MANAGERIAL PERSONNEL
Pursuant to Section 203 of the Companies Act 2013 Mr. Mrugank Madhukar ParanjapeManaging Director & CEO was considered as the whole-time key managerial personnel ofthe Company w.e.f. May 09 2016.
Consequent to resignation of Mr. Sandeep Kumar Sarawgi Chief Financial Officer (CFO)and Mr. Viswanathan Krishnan Chief Regulatory Officer (CRO) from the services of theCompany they ceased to be a Key Managerial Personnel (KMP) w.e.f. August 08 2016 andOctober 31 2016 respectively. Mr. Narendra Ahlawat Senior Vice President MarketOperations and a KMP was designated as the CRO w.e.f. November 22 2016.
Further Mr. Sanjay Wadhwa was appointed as the CFO of the Company for a term of threeyears and identified as a KMP w.e.f. February 27 2017.
PERFORMANCE EVALUATION OF THE BOARD AND THE EVALUATION CRITERIA
In accordance with the provisions of the Companies Act 2013 and SEBI (ListingObligations and Disclosure Requirements) Regulations 2015 your Company has formulatedthe criteria for performance evaluation of individual Directors Board Committees and theBoard as a whole.
A statement indicating the manner in which formal annual evaluation of the Directorsthe Board and Board Committees has been made and the criteria for the same are set out in AnnexureVI to this Report.
The composition of Audit Committee is covered under the Corporate Governance Report.During the year under review there were no instances where the Board had not acceptedany recommendation of the Audit Committee.
STATUTORY AUDITOR AND THEIR REPORT
M/s. Shah Gupta & Co. Chartered Accountants (Firm Registration No. 109574W) wereappointed as Statutory Auditor by the shareholders at their 13th AGM held onSeptember 29 2015 for a period of five years subject to rati_cation by the shareholdersat every AGM. Accordingly the appointment of M/s. Shah Gupta & Co. CharteredAccountants as Statutory Auditor of the Company is placed for rati_cation by theshareholders.
The Report given by the Auditor on financial statements of the Company forms part ofthe Annual Report. There is no qualification reservation or adverse remark made by theAuditor in their report.
SECRETARIAL AUDITOR AND SECRETARIAL AUDIT REPORT
M/s Rathi & Associates Practicing Company Secretaries were appointed as theSecretarial Auditor by the Board to conduct the secretarial audit of the Company forfinancial year 2016-17.
In accordance with Section 204(1) of the Companies Act 2013 the Secretarial AuditReport for the financial year ended March 31 2017 is annexed as Annexure VII tothis Report. The Secretarial Audit Report does not contain any qualification reservationor adverse remark.
INTERNAL CONTROL AND THEIR ADEQUACY
The Board has put in place various internal controls to be followed by your Company toensure that the internal control mechanisms are adequate and are effective. The Board hasalso put in place state-of-the-art technology and has automated most of the key areas ofoperations and processes to minimize human intervention. The design implementation andmaintenance of adequate internal financial controls are such that it operates effectivelyand ensures the accuracy and completeness of the accounting records and their presentationgives a true and fair view of the state of affairs of the Company and are free frommaterial misstatements whether due to error or fraud.
The operational processes are adequately documented with comprehensive and well definedStandard Operating Procedures which also include the financial controls in theform of maker and checker being with separate individuals.
The Board has approved a scheme of financial sub-delegation to o_cials of your Companyfor incurring expenses. The Board with a view to ensure transparency has also formulatedvarious policies and has put in place appropriate internal controls for the procurement ofservices materials fixed assets monitoring income streams investments and financialaccounting.
Internal control measures includes adherence to systemic controls information securitycontrols as well as role-based / need based access controls. Further the existing systemsand controls are periodically reviewed for change management in the situations ofintroduction of new processes / change in processes change in the systems change inpersonnel handling the activities etc.
The Audit Committee of the Company comprising of Public Interest Directorsperiodically reviews and recommends the unaudited quarterly financial statements as alsothe annual audited financial statements of your Company to the Board for approval. YourCompany has appointed a firm of chartered accountants to conduct independent financial andoperational internal audit in accordance with the scope as defined by the Audit Committee.The reports from the Internal Auditors are reviewed by the Audit Committee on periodicbasis and the Internal Auditor have been advised to issue _ash reports if required.Further all related party transactions are placed before the Audit Committee and areapproved / rati_ed by it after deliberations.
SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALSIMPACTING THE GOING CONCERN STATUS AND COMPANY'S OPERATIONS IN FUTURE
No significant and material orders were passed during the year under review by theregulators or courts or tribunals impacting the going concern status and Company'soperations in future.
HUMAN RESOURCE DEVELOPMENT
Your Company believes in strategic alignment of Human Resources to its businesspriorities and end objectives. As on March 31 2017 your Company employed 388 employees.
Your Company continues to have in place an Anti-Sexual Harassment Policy in line withthe requirements of "The Sexual Harassment of Women at the Workplace (PreventionProhibition & Redressal) Act 2013". An internal Complaints Committee was formedin FY 2015 and continues to exist to redress complaints received regarding sexualharassment. No complaints were received during the financial year 2016-17 in relationthereto. Your Company has also imparted awareness training to all employees on theAnti-Sexual Harassment policy during the year'.
Your Company continues to attract retain and nurture talented workforce in itsendeavour to be an employer of choice. The attrition rate was 12% during the year underconsideration.
The disclosures pursuant to SEBI (Share Based Employee Benefits) Regulations 2014Section 62 of the Companies Act 2013 read with Companies (Share Capital and Debenture)Rules 2014 as at March 31 2017 in connection with the ESOP 2008 are set out in AnnexureVIII to this Report.
PARTICULARS OF REMUNERATION
Your Company has adopted a well-defined Nomination & Remuneration Policy forDirectors Key Managerial Personnel and other employees which form part of this report as AnnexureIX.
The ratio of the remuneration of each director to the median employee's remunerationand other details in accordance with Section 197 (12) of the Companies Act 2013 read withRule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules2014 forms part of this report as Annexure X.
Further in accordance with Section 197 (12) of the Companies Act 2013 read with Rule5 (2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014and Regulation 27(5) of Securities Contracts (Regulation) (Stock Exchanges and ClearingCorporations) Regulations 2012 a statement containing particulars of employees asstipulated therein also forms part of this Directors' Report as Annexure XI.
CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS / OUTGO
The disclosures to be made under Section 134 (3) (m) of the Companies Act 2013 readwith Rule (8) (3) of the Companies (Accounts) Rules 2014 are explained as under:
A. C onservation of energy:
Y our Company not being energy intensive takes various measures to reduce energyconsumption by using energy-efficient computer systems and equipment. As an ongoingprocess your Company evaluates new technologies and techniques to make its infrastructuremore energy efficient.
i) Steps taken or impact on conservation of energy
(a) Exchange Data Center has in-row cooling system for servers that cools equipmentonly and not the external environment to ensure that no energy is wasted in runningcompressors excessively to maintain the desired temperature levels of externalenvironment.
(b) Motion sensors connected to lighting were installed in washrooms where the footfallis low adding to energy saving. (c) LED lighting installed at Disaster Recovery site atGIFT City to reduce energy consumption and saves energy. (d) Strict implementation andmonitoring of equipment on / off schedule to reduce wastage of energy. (e) Maintainingadequate capacitor bank for non-linear electrical loads like air-conditioning plant pumpsand Heat Recovery System to lower drawal of extra energy and improve power factor.
(f ) Preventive maintenance of air conditioning system on scheduled basis to ensurethat the heat sensors and electronic components are properly functioning for compressorsto achieve variable compression linked to heat levels for reduction in power consumption.
ii) Steps taken by your Company for utilising alternate sources of energy:
No alternate source of energy is utilized by your Company.
iii) Capital investment on energy conservation equipment:
During the year under review `12 Lakh was invested for installation of LED lights atthe Disaster Recovery site at GIFT City.
B. Technology absorption: i) The efforts made towards technology absorption:
Technology is a key enabler and core facilitator for achievement of the major goals ofyour Company and is identified as one of the strategic pillars. Your Company hosts allmission-critical applications and supporting infrastructure in its state-of-art DataCenter which is supported by the best-of-breed network security and other necessaryinfrastructure. Your Company's technological infrastructure is built on the nextgeneration technology mechanism which can cater to all market participants by virtue ofbeing fast secure cost effective transparent and regulated. Your Company continues tomake substantial investment in its technology platform and systems for meeting increasingmarket requirements and for keeping pace with the rapid technological developments andchanges.
All departments within the Company use technology to deliver superior services to theinternal customers and trading and clearing members of the Exchange. With a view tosupport operations of the Surveillance Department effectively your Company has setup andaugmented systems for real-time analytics and data warehouse.
ii) The benefits derived like product improvement cost reduction product developmentor import substitution:
Your Company has implemented cutting edge technologies which are best in class ITsystems and practices in order to ensure that its technology platform is a strategicbusiness tool for building competitive advantage.
The Company's robust technology infrastructure has continued to provide uninterruptedtrading experience and ensures no single point of failure. Through use of carefullyevaluated and implemented technology solutions your Company has been able to offerquality services at optimal costs.
iii) In case of imported technology (imported during the last three years reckoned fromthe beginning of the financial year)
Your Company has not directly imported any technology during the last three financialyears.
iv) Your Company has incurred `4857237 on Research and Development during theyear under review.
C. F oreign Exchange Earnings / Outgo during the year under review:
Y our Company is engaged in the business of operating a commodity derivative exchangeand aspire to gain opportunities as and when available for rendering its servicesinternationally. The details of foreign exchange earnings and outgo forms part of theSignificant Accounting Policies and Note no. 31 of Notes forming part of the standaloneand consolidated financial statements.
UPDATES POST MARCH 31 2017
Y our Company commenced futures trading in Refined Bleached and Deodorized (RBD)Palmolein w.e.f April 5 2017. Detailed guidelines for trading in Option' oncommodity derivatives exchanges have been issued by SEBI. The Company is taking allpossible steps to launch Options trading at the earliest. In this regard the Company hasmade an application to SEBI for launch of Gold Option Contract with Gold (1 kg) Futures asunderlying as it satisfies both the criteria for selection of underlying commodityfutures for options as specified in SEBI circular SEBI/HO/CDMRD/DMP/CIR/P/2017/55 datedJune 13 2017. The rationale for selecting Gold (1 kg) contract are: (i) MCX gold contractis a Flagship' commodity contract (ii) Large number of potential stakeholders;(iii) Gold has a well-defined value chain and (iv) Introduction of Gold Options' waslong awaited by market participants.
SEBI has with the objective to align practices in securities markets issuedcomprehensive guidelines on June 13 2017 for Investor Protection Fund Investor ServiceFund and its related matters for National Commodity Derivatives Exchanges which isapplicable from July 01 2017.
SEBI's permitted Category III Alternative Investment Funds (AIFs) to trade incommodity derivatives.
T he implementation of GST is expected to bring significant gains to the commodityderivatives market as GST will replace the multiple state and central indirect taxeswhich enhance inefficiencies and the cost of participation. Besides GST will also pavethe path towards creation of a uni_ed national market for commodities by removing theinter-state tax arbitrage. A detailed analysis with respect to the same is covered inManagement's Discussion and Analysis' forming part of the Annual Report MCXCCL(Wholly Owned Subsidiary of MCX) has increased its authorized Share Capital from theexisting
`10 crore to `150 crore divided into 15 crore Equity shares of `10/- each. YourCompany has infused additional capital of `100 crore to meet the minimum net worthcriteria required for a clearing corporation and put in place systems and processes toenable it to commence its operations during the financial year 2017-18.
Consequent to the expiry of the term of Mr. Ajay Puri as the Company Secretary ofthe Company on he attaining the age of sixty being the age of retirement ceased to be aKMP w.e.f. June 30 2017. Mr. Ashwin Patel was appointed as the Company Secretary andidentified as a KMP w.e.f. July 01 2017. For further details please refer theManagement's Discussion and Analysis' forming part of this Annual Report.
DIRECTORS' RESPONSIBILITY STATEMENT
Pursuant to the requirement under clause (c) of sub-section (3) of Section 134 of theCompanies Act 2013 with respect to the Directors' Responsibility Statement yourDirectors state that: (a) In the preparation of the annual accounts for the year endedMarch 31 2017 the applicable accounting standards read with requirements set out underSchedule III to the Act have been followed and there are no material departures from thesame; (b) The Directors have selected such accounting policies and applied themconsistently and made judgements and estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of the Company as at March 31 2017 andof the profit of the Company for the year ended on that date; (c) The Directors have takenproper and sufficient care for the maintenance of adequate accounting records inaccordance with the provisions of the Act for safeguarding the assets of the Company andfor preventing and detecting fraud and other irregularities; (d) The Directors haveprepared the annual accounts on a going concern' basis; (e) The Directors have laiddown internal financial controls to be followed by the Company and that such internalfinancial controls are adequate and are operating effectively; and (f) The Directors havedevised proper systems to ensure compliance with the provisions of all applicable laws andthat such systems are adequate and operating effectively.
Your Directors place on record their sincere gratitude to the Government of IndiaMinistry of Finance Department of Economic Affairs Ministry of Corporate AffairsSecurities and Exchange Board of India Reserve Bank of India Foreign InvestmentPromotion Board BSE Limited Department of Post Shareholders Financial InstitutionsBankers Members of the Exchange and Business Associates for their continued support andfaith in the Company. Your Directors also wish to place on record their appreciation forthe contribution made by employees at all levels.
For and on behalf of the Board of Directors
July 13 2017