The Board of Directors are pleased to present the Nineteenth 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 312021 ('year underreview'). The highlights of this Annual Report are given below:
The Company's financial performance for the year ended March 312021 is summarizedbelow:
(Rs. in lakh except EPS)
|Particulars ||Standalone ||Consolidated |
| ||2020-21 ||2019-20 ||2020-21 ||2019-20 |
|Total Income ||45542 ||48177 ||49434 ||50311 |
|Total Operating Expenditure ||20418 ||22514 ||20543 ||21948 |
|Profit before Interest depreciation exceptional items and tax ||25124 ||25663 ||28891 ||28363 |
|Less: Depreciation ||2164 ||1784 ||2206 ||1814 |
|Less: Interest ||22 ||20 ||19 ||16 |
|Add: Share of Profit of Associate ||- ||- ||9 ||4 |
|Profit after exceptional items and Share of Profit of Associate but before tax ||22938 ||23859 ||26675 ||26537 |
|Less: Provision for tax ||4156 ||3007 ||4153 ||2887 |
|Profit after tax ||18782 ||20852 ||22522 ||23650 |
|Add/(Less) : Other Comprehensive Income (net of tax) ||(97) ||(187) ||(94) ||(199) |
|Total Comprehensive Income for the period (Comprising Profit and Other Comprehensive Income for the period) ||18685 ||20665 ||22428 ||23451 |
|Earnings per share || || || || |
|i. Basic (Rs.) ||36.90 ||40.98 ||44.25 ||46.48 |
|ii. Diluted (Rs.) ||36.90 ||40.98 ||44.25 ||46.48 |
GLOBAL COMMODITY MARKET
During the year 2020 the slump in economic activities due to the COVID-19 pandemiccreated one of the worst recessions in the global economy in almost a century. It led toan unprecedented disruption in economic activities in almost all countries and requiredlarge financial support from governments to arrest the decline in GDP.
Nevertheless global financial markets remained mostly resilient even in the face ofthe disruptive events prompted by the pandemic. In particular the staggered reopening ofglobal economies through the second half of 2020 and steady vaccination rolloutthereafter addressed investors' concern resulting in markets remaining largely unscathedduring this period. Accommodative monetary and fiscal policy support by most central banksand governments enabled markets to rebound from the initial pandemic-induced disruptions.This led to many asset classes including commodity derivatives to perform wellovercoming the negative effects of the pandemic. As a result global commodity marketswitnessed a robust growth in volumes during 2020 across all the segments barring thenon-precious metals including ferrous and non-ferrous metals i.e. every metal except goldsilver platinum palladium and diamond. According to data released by the FuturesIndustry Association (FIA) aggregate global volumes of exchange traded commodityderivatives rose steeply by about 33% in 2020 from 2019.
According to the IMF's latest World Economic Outlook the global economy is expected toexpand by about 6% in 2021 largely on strong rebounds from a few major economies.However many emerging markets and developing economies continue to struggle with theCOVID-19 pandemic and its aftermath. These economies are grappling with slow progress invaccination and resurgence of cases with mutation of the virus. The prospects for globaleconomic growth may face headwinds such as these.
Your Company's performance during the FY 2020-21 and outlook during 2021-22 may beanalysed against this backdrop.
GLOBAL PANDEMIC - COVID-19
The World Health Organization declared Novel Corona virus disease (COVID-19) a globalpandemic on March 11 2020. Subsequently on March 24 2020 the Government of Indiaannounced a nationwide lockdown for 21 days to contain spread of COVID-19. Thereafter thenational level lockdown was extended multiple times followed by gradual relaxations andwas eventually phased out. However various state governments extended COVID-19 relatedcurbs with certain relaxations depending on the pandemic scenario in their states.
The Company remained functional during FY 2020-21 as the Exchange related services wereclassified under 'essential services' and thus exempted from lockdown restrictions. TheExchange by and large adopted 'Work from Home' policy ever since the onset of pandemicand only minimal critical staff have been operating from office premises. The Exchange hasalso put in place social distancing norms and other measures such as mandatory masksrestricted visitors entry virtual meetings sanitized workplaces safe physicaldistancing thermal screening at entry points availability of hand sanitizers atentry/exit points and common places awareness campaign etc. to contain the spread of thepandemic at the workplace. During the early days of nationwide lockdown trading hours inthe commodity derivatives market were truncated to 5 p.m. from 11.30/11.55 p.m. As aresult the Average Daily futures Turnover (ADT) on the Exchange dropped to '15658 crore in April 2020 vis-a-vis ' 26356 crore during the corresponding monthof fiscal year 2019-20. Nevertheless it soon recovered after restoration of the normaltrading hours for non-agricultural commodities (w.e.f. April 23 2020). The ADT rose to '23765 crore and ' 28633 crore respectively during months of May 2020 and June2020.
The operations of member brokers had also been adversely affected during the lockdowndue to restrictive movements and dampened sentiments. Likewise lockdown causeddisruptions in the physical market for commodities availability of spot priceswarehousing operations and logistics infrastructure including availability of labor. Atpresent normalcy of operations/ services at all designated warehouses has been restored.
During FY 2020-21 the ADT* of commodity futures contracts stood at ' 31595crore during FY 2020-21 vis-a-vis ' 32550 crore in FY 2019-20 a decline of 2.9%.The Average Realization Rate (ARR) decreased to ' 2.07 per lakh during FY 2020-21from ' 2.10 per lakh during the previous year. Significantly the exchange's tradedUnique Client Codes (UCC - PAN based*) during FY 2020-21 increased to 4.666 lakh from4.039 lakh.
The total turnover of commodity futures traded on your Exchange stood at ' 80.25lakh crore in FY 2020-21 as against ' 83.98 lakh crore during FY 2019-20 a declineof 4.44% largely due to reduced number of trading days/hours owing to restrictions posedby COVID-19 pandemic during Q1 FY 2020-21. The Bullion futures turnover increased by 54per cent to ' 44.84 lakh crore from ' 29.15 lakh crore during the previousyear. The Bullion segment's turnover of ' 50226.37 crore on July 28 2020 was thehighest achieved after the introduction of CTT w.e.f. July 012013. Turnover in theEnergy contracts declined to ' 18.25 lakh crore from ' 38.13 lakh crore inFY 2019-20 on account of incidence of higher margins in Crude Oil contracts pursuant toits price falling in negative territory in April 2020. The turnover in base metals totaled' 15.66 lakh crore in FY 2020-21 as against ' 15.68 lakh crore in FY2019-20. A total of 59848 metric tonnes of Base Metals was delivered through the exchangemechanism during FY 2020-21. Agriculture futures turnover remained steady during FY2020-21 at ' 1.01 lakh crore compared to ' 1 lakh crore for the previousyear.
During FY 2020-21 your Company's market share in commodity futures market hasincreased to 96.04% as against 94.01% in the previous year. The volume (in terms ofcommodity futures contracts traded on the Exchange) decreased by 31% in FY 2020-21 to 204million lots as compared to 295 million lots traded in FY 2019-20. This is consequent todiscontinuation of multiple contract variants in Crude Oil and Metal contracts incompliance with SEBI directives.
For FY 2020-21 your Company's (Standalone) total income stood at ' 45542 lakhas compared to ' 48177 lakh during FY 2019-20. The operating income during theyear under review was ' 34485 lakh as against ' 37044 lakh in FY 2019-20.Net profit after tax in FY 2020-21 was ' 18782 lakh as compared to ' 20852lakh in FY 2019-20.
In accordance with the provisions of the Income Tax Act 1961 the effective rate oftaxation remained the same as previous year i.e. 25%. Further the Company has alsoutilized MAT credit in FY 2020-21.
The net worth of the Company as at March 312021 stood at ' 158036 lakh.
There has been no change in the share capital of your Company during the year underreview. As on March 312021 the paid-up share capital of your Company stood at '5099.84 lakh comprising 50998369 Equity shares of ' 10 each fully paid. YourCompany 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.
TRANSFER TO RESERVES
For the year ended March 31 2021 your Directors do not propose to transfer any amountto the General Reserve. An amount of ' 118536 lakh is proposed to be retained assurplus in the Profit and Loss Account.
Pursuant to Regulation 43A of the SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015 (hereinafter referred to as the SEBI Listing Regulations2015) your Company had formulated a Dividend Distribution Policy which is available onthe Company's website athttps://www.mcxindia.com/docs/default-source/investor-relations/corporate-governance/dividend-distribution-policy iulv2020.pdfRS.sfvrsn=c9a29890 2.
The Board of Directors of your Company have recommended a dividend of ' 27.60(276%) per equity share on a face value of ' 10 per share for the financial yearended March 312021 subject to the approval of shareholders at the ensuing Annual GeneralMeeting.
The outgo on account of the proposed dividend of 276 % (Previous Year 300%) to be paidby the Company aggregates to approximately ' 14076 lakh being a payout of 75% ofthe profit after tax (PAT) for the year ended March 312021 as against ' 15300lakh during the previous year.
Your Directors have recommended the dividend based on the Company's performance and inview of the adequacy of existing cash / cash equivalent at its disposal to provide forcapital expenditure on technology development and new business initiatives.
Your Company had not invited any deposits from the public and as such no amount ofprincipal or interest related thereto was outstanding as on March 312021.
PARTICULARS OF LOANS GIVEN INVESTMENTS MADE GUARANTEES GIVEN OR SECURITY PROVIDEDUNDER SECTION 186 OF THE COMPANIES ACT 2013
The details of loans guarantees and investments under the provisions of Section 186 ofthe Companies Act 2013 read with the Companies (Meetings of Board and its Powers) Rules2014 as on March 312021 are set out in Note 46 to the Standalone Financial Statementsof the Company.
The Company is an affiliate member of the International Organisation of SecuritiesCommissions (IOSCO) which is an international body that brings together the world'ssecurities regulators and is recognised as the global standard setter for the securitiessector. The Exchange is also an associate member of Futures Industry Association (FIA)which is a leading global trade organisation for the futures options and centrallycleared derivatives market.
The Exchange is ranked amongst top 7 global commodity futures exchanges based ontraded volume in commodity futures in the Calendar Year 2020 (CY20). (Source: FIA AnnualVolume trading statistics January 2021).
With an aim to seamlessly integrate with the global commodities ecosystem the Companycontinues to have strategic alliances with leading international exchanges viz. CME groupDalian Commodity Exchange (DCE) London Metal Exchange (LME) Mozambique CommoditiesExchange (BMM) Taiwan Futures Exchange (TAIFEX) and Zhengzhou Commodity Exchange (ZCE).The Company has also tied up with various trade bodies corporates and educationalinstitutions across the country to improve trade practices increase awareness andfacilitate overall improvement of the commodity market ecosystem.
Product Segment Highlights Bullion
In pursuit of the Atmanirbhar Bharat mission the Company has embarked upon the path ofrecognizing domestic bullion refiners for good delivery of Gold on Exchange platform.
The Exchange empaneled two Indian refiners for delivery of Gold under the existingcontract specifications of Gold Mini (100 grams) futures with effect from March 06 2021.
Accordingly for the first time the delivery of 190 kg Indian refined Gold was made inthe Gold Mini April 2021 futures contract.
As per SEBI directives the Exchange aligned the trading unit and delivery unit ofSilver Mini contract to 5 kg from June 2020 contract onwards from the earlier tradingunit and delivery unit of 5 kg and 30 kg respectively. Thereafter Silver Mini (5kg)contract saw successful delivery of 3600 kg in its first-ever delivery cycle and has seensuccessful delivery of 25740 kg during the FY 2020-21.
The Bullion segment attained various landmarks during FY 2020-21:
The Bullion turnover recorded a high of ' 50226 crore on July 28 2020 thehighest in last seven years. Silver (all variant) turnover of ' 33239 crorerecorded on July 28 2020 and Silver (all-variant) volume of 5469 MT seen on July 22 2020were both seven and half year highs. Further in FY 2020-21 the Company set a twelve-yearhigh for Silver delivery in a single contract with 140 MT being delivered in theSeptember 2020 contract. Similarly in FY 2020-21 Silver deliveries for all variants puttogether witnessed highest annual number since inception of 517.7 MT.
Further Silver Options (30 kg) turnover and volume hit an all-time high of '741 crore and 111 MT on August 26 2020 and also registered an Open Interest of 172 MThitting an all-time high on August 17 2020.
Gold Petal futures contracts saw successful delivery of 36.4 kg (36438 coins) sinceits launch in October 2019.
A product profile for Bullion has been hosted on the website of the Company to helpinvestors understand the physical market dynamics which influence the trading on theExchange.
The global economic and industry slowdown shutdown on account of COVID-19 resulted inunprecedented price movements in energy markets. Declining crude oil demand and globalsupply glut combined with huge shortage in storage capacity dented the crude oil pricesand for the first time recorded history NYMEX's WTI Crude oil prices swirled down tonegative terrain (-$37.63/bbl on April 20 2020).
The Exchange undertook various risk management measures such as introducing additionalmargins slab based margins and also added a negative price trading feature in the systemto be prepared for any kind of untoward movement in the energy commodity prices.
The volume and turnover of the Company Crude Oil Contract was severely impacted byCOVID-19 lockdowns reduced trade timings and negative crude oil prices. The Company'sCrude Oil futures contract's average daily turnover was down to ' 2796 crores inFY 2020-21 from ' 11303 crore in FY 2019-20. The average daily turnover of theCompany crude oil options contract also saw a decline of 61% to ' 188 crore in FY2020-21 from ' 482 crore in FY 2019-20.
Further the volumes were also impacted due to stringent risk management measuresundertaken in terms of higher margins which went up as high as 130% and were thengradually brought down to 20% in February 2021.
The natural gas futures contract garnered good volume and traction by clocking anaverage daily turnover of ' 4361 crore in FY 2020-21 compared to an average dailyturnover of ' 1774 crores in the previous financial year. Further on February 172021 the Company's natural gas futures contract recorded highest daily turnover (sinceDecember 2018) of ' 10053 crore.
The ADT in Agri commodities in FY 2020-21 has been higher (' 397 crore) compared to theprevious FY 2019-20 (' 391 crore). The Exchange launched a new commodity in theAgriculture basket i.e. Rubber contract (1 MT) on December 28 2020. The participation hasbeen good and the Exchange is striving to achieve new milestones in the current financialyear. Rubber contract saw deposits of 837 MT by the end of FY 2020-21.
The Crude Palm Oil (CPO) also recorded highest annual turnover since introduction ofCTT in FY 2020-21 of ' 84593 crore. The Cotton contract has gained significanttraction and the Exchange has achieved highest deposits of 226175 bales (1 bale = 170Kgs) in the FY 2020-21.
The evening trading hours for international referenceable agricultural commodities(Cotton Crude Palm oil Kapas and RBD Palmolein) was revised w.e.f April 23 2020 due toCOVID-19 and its consequential lockdown. The trade end time was reduced from 9 p.m. to 5p.m. The same was restored w.e.f. June 02 2020.
Aluminium Zinc Nickel Lead and Copper contracts were converted from cash settled todelivery settled as directed by the Regulator. The trading units and delivery units werealigned to ensure that there were no issues like odd lot treatment in the contracts.
The delivery-based mechanism for these contracts has given an opportunity to the basemetals industry in India to not only manage their price risk but also use the Exchangeplatform to give and take deliveries. In all delivery of 59848 MTs for all five metalsput together went via the Exchange settlement in FY 2020-21.
Delivery based contracts allowed the holder of metals to deliver on MCX when there wasno offtake in physical market on account of disturbances caused by pandemic. The Exchangeworked out to be the perfect platform for delivery-of-last- resort.
As demand picked up post the peak lock down phase metal also moved out of thewarehouses seamlessly.
The primary delivery centre for Aluminium was moved to Raipur from Thane while Thanecontinued to be an additional delivery centre. Additional grades of T-bars and Sows werealso added in the aluminium futures contract.
In pursuit of the Atmanirbhar Bharat mission the Company has embarked upon the path ofbranding domestic Refined Lead Producers to facilitate their direct participation in pricediscovery and good delivery on Exchange platform.
Subsequent to SEBI approval the Exchange had launched MCX iCOMDEX Bullion (BULLDEX)and Base metal (METLDEX) index futures contracts respectively on August 24 2020 andOctober 19 2020. The contracts witnessed encouraging participation from marketstakeholders. The average daily turnover# during FY 2020-21 for index futures on MCXBULLDEX and MCX METLDEX was ' 263.10 crore and ' 66.20 crore respectively.
The Exchange also started disseminating index values for MCX iCOMDEX Energy Index(ENRGDEX) that represents energy sector with effect from October 29 2020. The Crude Oiland Natural Gas futures form the underlying constituents for the said index.
To develop market depth and liquidity in far month contracts and encourageparticipation across commodity segments on the Exchange the Exchange levied flattransaction fees of ' 130 per crore of turnover in far month futures contractsduring the financial year 2020-21. Further to encourage options trading the Exchangecontinued to waive transaction fees on all commodity options contracts during FY 2020-21.Also to encourage index futures trading the Exchange waived transaction fees on MCXiCOMDEX Index futures till March 312021.
The Company had introduced Liquidity Enhancement Scheme (LES) in Gold Mini options (inGoods) for the period from September 012020 to December 10 2020 and incurred an expenseof around ' 135 lakh under the scheme. The scheme was aimed to provide continuoustwo-way quotes for important strike prices of both call and put option contracts togenerate initial liquidity in the contract. Thereafter the said scheme was discontinuedas it failed to meet the desired objective.
As on March 312021 the Company has a national reach with 636 members having 52777Authorised Persons operating through 38.92 lakh terminals connected through variousavailable modes of connectivity (including Computer to Computer Link (CTCL) InternetBased Trading and Wireless Trading) across 1016 cities/towns across India.
The unique traded client codes (UCC - PAN based*) which is of significant importance toExchange witnessed a jump from 4.039 lakh in FY 2019-20 to 4.666 lakh in FY 2020-21.
Consequent to the Reserve Bank of India (RBI) permitting subsidiaries of banks to offerbroking services for commodity derivatives segment of SEBI recognised stock exchangeseight bank (broking) subsidiaries were registered with the Exchange during FY 2020-21.
On the institutional front 2 Mutual Funds have started to participate in commodityderivatives and the exchange has on boarded 2 Portfolio Management Service providers and 1EFE. Further 3 custodians are providing custodial services in commodity derivativessegment.
During the year under review SEBI the sectoral regulator relaxed the timelines forcompliance with various regulatory requirements for trading members / clearing members andlisted companies due to the COVID-19 pandemic. SEBI has strengthened mechanism therebyensuring adequate compensation to the non-defaulting counter party in the commodityderivatives segment by standardizing the delivery default norms.
The important Regulatory developments during FY 2020-21 primarily by SEBI are ashereunder:
i. To allow ease of doing business in the securities market SEBI decided to make useof technological innovations which can facilitate online KYC. Investor's KYC can becompleted through online KYC process and Video in person verification.
ii. Permitted reporting entities as recommended by UIDAI subject to compliance of theconditions to undertake e-KYC Aadhaar Authentication service of UIDAI in SecuritiesMarket.
iii. In continuation to the circular dated February 25 2020 the implementation ofMargin obligations to be given by way of Pledge / Re-pledge in the Depository System hasbeen extended till August 012020 and holding of Power of Attorney by Trading Member (TM)/ Clearing Members (CM) not to be considered as equivalent to the collection of margin byTM / CM in respect of securities held in the demat account of the client is applicablefrom August 012020.
Further issued circular extending timelines on July 29 2020 allowing the system ofparallel acceptance of the client securities by way of title transfer up to August 312020and TM/CM may continue to hold funded stocks in 'Client Margin Trading Securities Account'till August 312020.
iv. To bring in uniformity in the guidelines to be followed by the Stock Exchangeslaid down criteria for identification and selection of a location as a delivery centre.
v. Halved the broker turnover fee for the period June 2020 - March 2021 in itsefforts to help market participants to tide over challenges due to COVID-19. The currentapplicable rate is ' 10 per crore for non-agricultural commodities.
vi. Mutual fund schemes cannot invest in physical goods in commodity derivatives exceptin 'Gold' that too through Gold ETFs.
vii. Relaxed provision for Mutual Funds for holding physical gold and silver up to 180days from 30 days.
viii. To harmonise the action amongst all Stock Exchanges/ClearingCorporations/Depositories in a time bound manner SEBI has prepared Standard OperatingProcedure(SOP) in the cases of Trading Member(TM ) / Clearing Member (CM) leading todefault to protect the interest of non-defaulting clients of a TM and /or non-defaultingclients / TM(s) of the CM. SOP has outlined actions to be taken by respective marketparticipant or MII within a given time frame after detection of the early warningsignals/other triggers until declaration of defaulter of TM / CM by the Stock Exchange /Clearing Corporation. It also covers forensic audit by Initiating Stock Exchange (ISE).
ix. Repealed the eligibility criteria for selection of commodity futures contract asunderlying for options shall be amongst the top five futures contracts in terms of totaltrading turnover value of previous twelve months.
x. That the Exchanges/ CC(s) shall adopt the specified upfront margin collectionframework to enable verification of upfront collection of margins from clients in cash andderivatives segments the applicable upfront margins are required to be collected from theclients in advance of the trade.
xi. Members to review the client shortfall from two perspectives based on (a) EODmargin obligation and (b) Peak margin obligation during the day. Further higher of (a)and (b) to be considered for levying of penalty as per the extant framework. The peakmargin obligation of client shall be adopted in a phased manner as given below:
Phase I- 25% (for 3 months from the date of implementation i.e up to 28.02.2021)
Phase II- 50% (for subsequent 3 months i.e up to 30.05.2021)
Phase III- 75% (for subsequent 3 months i.e up to 31.08.2021)
Phase IV 100% (w.e.f 01.09.2021) to compare the shortfall with peak margin forrespective client and differential shortfall as allowed for respective phase can be fundedby TM own funds.
Members to ensure changes in trading risk management surveillance systems tointegrate peak margin related reporting. Provisions of this circular are effective fromDecember 012020
xii. Guidelines for execution of Power of Attorney (PoA) by the client favouring Brokerand/or DP. It is reiterated that PoA is optional and not be insisted. PoA can be used forStock Exchange related settlement obligation and for pledging / re-pledging of securitiesin favour of TM/CM margin requirements. Also all off-market transfer of securities will beonly by execution of Physical DIS duly signed by the client himself or by way ofelectronic DIS.
xiii. Stock Exchange (SE) and Clearing corporations (CC) to initiate suitable actionsfor liquidating the assets (movable and immovable) of defaulter member including that ofdebit balance clients (to the extent of debit balance) within six months of declarationof defaulter for recovery of the assets not in possession of the SE/CC beforeappropriate court of law.
xiv. Stock Exchanges created a separate fund out of the Regulatory Fee as permitted bySEBI to utilize the fund exclusively for the benefit of and easy participation byFarmers/Farmers Producers Organisations (FPOs) in the agricultural commodity derivativesmarket. FPOs have been intimated of the details of the fund for their active participationon the Exchange platform and benefit from the support extended by the fund.
xv. To further strengthen the Investor Grievance Redressal Mechanism issued certainclarification w.r.t. Resolution of complaints by Stock Exchange (Timeline Service relatedcomplaints Complaints to be referred to IGRC) handling of complaints by IGRC andArbitration.
xvi. Regarding testing of Software used in or related to Trading and Risk Managementit was decided that requirement of mandatory mock trading sessions to facilitate testingof new/existing software having changes of functionality shall be optional only if theExchange provides a suitable simulated test environment to test such software.
xvii. In view of the situation arising due to COVID-19 pandemic and nationwide lockdownimposed by the Government and representations received from Stock Exchanges relaxationswere provided in timelines for compliance with various regulatory requirements to tradingmembers / clearing members depository participants RTAs / issuers KRAs stock brokersand listed entities by December 312020 and for submission of Cyber Security and CyberResilience Audit for half year ended on September 30 2020 by members is extended up toJanuary 312021.
xviii. Advised all exchanges regarding refund of security deposit on Surrender ofmembership by Trading Members on approval of surrender of TM's registration by SEBI theExchange shall release Security Deposit (SD) of the TM in the following manner:
If TM engaged in trading on behalf of clients then security deposit will bereleased after a period of 3 years from the date of receipt of surrender application byExchange from the TM or 5 years from the date of disablement of TM's trading terminalsby the Exchange whichever is earlier.
If TM is engaged only in proprietary trading in last 3 years prior to the dateof application then deposit will be released after 1 year from the date of receipt ofsurrender application by exchange or 3 years from the date of disablement of TM's tradingterminals by the Exchange whichever is earlier.
xix. Revised the norms for Daily Price Limits (DPL) for commodity futures contracts(excluding Index Futures and Options).
xx. Norms issued for Investment and disclosure by Mutual Funds in Exchange TradedCommodity Derivatives (ETCDS)
xxi. Decided that the Code of Conduct and Institutional Mechanism for prevention offraud or market abuse shall be applicable to Stock Exchanges Clearing Corporations andDepositories to ensure accountability of the management / designated persons in case ofnegligence / failure.
xxii. Directed Registered Intermediaries (RIs) to upload the KYC records of LegalEntities (LE) accounts opened on or after April 012021 on to CKYCR as per the provisionof the Prevention of Money Laundering (Maintenance of Records) Rules 2005. The provisionsof this circular are not applicable to Foreign Portfolio Investors (FPIs).
xxiii. In view of the advancement in technology improved automation of processes andwith a view to reduce the time period specified for moving from the Primary Data Centre(PDC) to the Disaster Recovery Site (DRS) modified framework for Business Continuity Plan(BCP) and Disaster Recovery (DR) of MIIs was laid down. The important modifications aregiven below:
a. Constitute an Incident and Response team (IRT)/ Crisis Management Team (CMT)
b. MIIs should test such switchover functionality by conducting unannounced livetrading from its DRS for at least 1 day in every six months.
c. Unannounced live trading from DRS of MIIs shall be done at a short notice of 45minutes.
d. MII shall within 30 minutes of the incident declare that incident as 'Disaster'and take measures to restore operations including from DRS within 45 minutes of thedeclaration of 'Disaster'
e. Accordingly the Recovery Time Objective(RTO)- the maximum time taken to restoreoperations of 'Critical Systems' from DRS after declaration of Disaster- shall be 45minutes.
RISK MANAGEMENT AND RISK MANAGEMENT POLICY
Your Company has put in place an Enterprise Risk Management ("ERM") frameworkto enable and support achievement of business objectives through identificationevaluation mitigation and monitoring of risks applicable to your Company. Your Companyhas a comprehensive Risk Management Policy for managing risks such as Regulatory &Compliance risks Technology risks Business risks Operational risks Credit risks andMarket risks People risks Cyber Security risks Legal risks Reputational risks andBlack swan events related risks. The Risk Officer reviews the Internal Audit Report(s) andsuggests measures to improve the controls.
The Board of Directors have constituted a Risk Management Committee (RMC) for interalia identification measurement and monitoring the risk profile of the Exchange. Ason March 312021 the Risk Management Committee comprised of three Public InterestDirectors and an Independent External Expert. The Risk Management Committee periodicallyreviews the Risk Management Policy and its implementation thereon as well as the RiskRegister which also includes observations from Internal Audit. The Committee alsoperiodically examines and evaluates the Risk Management Information Systems (RMIS)covering existing as well as emerging risks. The risks in relation to internal controlover financial reporting is reviewed by the Audit Committee.
For details relating to 'Risks and Concerns' of your Company please refer theManagement Discussion and Analysis forming part of this Annual Report.
INVESTOR PROTECTION FUND (IPF) AND INVESTOR SERVICE FUND (ISF)
Your Company has set up Multi Commodity Exchange Investor Protection Fund (IPF) toprotect and safeguard the interest of investors/ clients in respect ofeligible/legitimate claims arising out of the default of a member on the Exchange. Theinterest income on investment of surplus funds of IPF is used for imparting investor/client education awareness undertaking research activities or such other programs as maybe specified by SEBI.
Currently the applicable IPF compensation limit is ' 25 lakh per client withno member-wise limit for SEBI-registered members declared defaulter on or after January24 2018. Further the limits of ' 2 lakh per investor per defaulter member and '200 lakh per defaulter member shall continue to be applicable for claims against membersdeclared defaulter prior to January 24 2018 and for non-SEBI registered members.
As on March 312021 the corpus of IPF stood at ' 20479 lakh. Your Company hasalso set up an Investor Service Fund (ISF) for providing basic minimum facilities atvarious Investor Service Centres. The Company has set up 10 Investor Service Centresacross India till date. SEBI has permitted the exchanges to utilize the corpus of ISF forconducting various investor education and awareness programs capacity building programsand maintenance of all price ticker boards installed by the exchanges cost of training ofarbitrators and grievance redressal committee members etc. In addition to above thecorpus may be utilized in any other manner as prescribed/permitted by SEBI in the interestof investors from time to time.
Your Company has transferred 1% of the turnover fees charged from its members on amonthly basis to ISF. As on March 31 2021 the corpus of ISF stood at '845.98 lakh.Considering the recent origin of ISF and its corpus being inadequate SEBI had permittedutilization of interest on IPF to pursue activities of ISF for a period of 3 yearsstarting from April 012018. However your company has not utilised interest income of IPFfor the activities to be conducted under ISF.
In-order to enhance literacy and to promote investor education and awareness in thecommodity derivatives market over 400 awareness programs/ webinars were conducted underthe banner of MCX IPF and ISF in FY 2020-21. Out of these programs/ webinars over 70programs were regional webinars conducted jointly with SEBI. In the wake of the COVID-19pandemic the Exchange has initiated most of the awareness programs through webinars whilea few awareness programs were done with physical presence of participants in theinteriors. These awareness programs / webinars were conducted across India for investorsstudents hedgers physical market participants/ stakeholders from the bullion/ metalindustries energy markets and agricultural sector including farmers farmer producerorganisations (FPO's) and also for micro small and medium enterprises (MSME's)corporates etc.
As per directions received from SEBI at least 1/3rd of the awarenessprograms under IPF and ISF were conducted for FPO's and MSME's during the period August 72020 to March 312021.
Some major awareness initiatives in FY 2020-21 were as follows:
i. World Investor Week (WIW) was celebrated from November 23 2020 - November 29 2020throughout India under the aegis of SEBI & IOSCO.
- 100 awareness programs/ webinars were conducted during WIW which had around over5200 participants.
- 'Ring the Bell Ceremony' was conducted as a part of the World Investor Week 2020 on24th November 2020 in the presence of Chief Guest Shri G. MahalingamWhole-Time Member SEBI and Guest of Honour Shri G. P. Garg Executive Director SEBI andMr. P. S. Reddy MD & CEO MCX. The Commodity Insights Yearbook 2020 created inpartnership with the National Institute of Securities Markets (NISM) was also launchedduring the 'Ring the Bell' Ceremony.
- Quiz competition with over 1800 registrations and 373 participants and SloganCompetition with 219 participants was held each day and awards were distributed towinners.
- Under the "SMS-WhatsApp Campaign" Awareness Creatives were sent to over24300 individuals each day through SMS.
- As a special focus on creating awareness amongst the farmers during the WorldInvestor Week where 37 awareness programs with physical presence of farmers in the Stateof Gujarat were conducted while maintaining social distancing and local government norms.
- Investor Awareness camps with 3 different TV channels were conducted.
ii. Awareness programs were conducted with several prominent Institutes andAssociations under the aegis of IPF and ISF including Institute of Company Secretaries ofIndia IMC Chamber of Commerce and Industry Indian Institute of Materials ManagementIndian Electrical and Electronics Manufacturing Association (IEEMA-South) All IndiaCotton Seed Oil Industries Association Indian Transformer Manufacturers Association(ITMA) Bullion and Jewellers Association of Assam Textile Association India IndianInstitute for Production Management (IIPM) Indian Institute of Plantation Management(IIPM) various State and National Universities.
Awareness through Media channels:
Investor awareness through media activities form an integral part of MCX IPF's investorawareness initiatives. The objective is to spread mass awareness and educate commoditymarket stakeholders. During FY 2020-21 a number of investor awareness activities werecarried out in partnership with organizations such as-Network18 Group-TV18 and CNBC AwaazZee Business Hindu Business Line Financial Express Business Standard Mint Times Groupand Outlook Money magazine across digital electronic and print modes. MCX IPF knowledgeseries camps/webinars were conducted on digital platforms and the recorded episodes of thepanel discussions were telecast on TV channels like ETNOW CNBCTV18 and Zee Business.These were made available on the YouTube channel of the Exchange. Besides these acommodities knowledge series was started in the print and electronic media namely ET ina Classroom in Economic Times and Commodities Trade on CNBCTV18 respectively.
In order to reach the masses at regional levels the Monk Who Trades comic series wastranslated into vernacular languages and published regularly. Some of these comic stripswere further developed into animated videos with voice overs. These videos weredisseminated though digital modes on ET.com Financial express Business standardLivemint Hindu Business Line Money Control CNBCTV18.com and www.mcxindia.comand TV channels such as ETNOW TV18 CNBC Awaaz and Zee Business. The comic series wasalso displayed on digital screens at airports for higher visibility. Further the comicseries was extended to Radio and aired in 11 regional languages as short messages at 68stations across India. In order to reach out to farmers on the benefits of hedging ananimated Agri movie was developed and broadcast on TV.
A new approach was adopted during the World Investor Week 2020 wherein cricket themedadvertisements were designed and published in various publications to impart investorawareness messages.
MCX IPF uses various social media channels like YouTube Twitter Facebook and LinkedInfor mass awareness and education.
TRAINING AND EDUCATION
Even during the time of the pandemic the Company continued to spread among variousstakeholders knowledge about commodity derivatives commodity trade new productslaunched and about using the derivatives exchange platform for price risk management andprice discovery.
To achieve the said objectives your Exchange during FY 2020-21:
i. Recorded 230 registrations for the MCX Certified Commodity Professionals (MCCP)examination;
ii. Conducted 5 customized MCCP training programmes over webinar;
iii. Held 144 programmes on the Bullion Index Metal Index and the contracts launchedon these indices during the year;
iv. Conducted over 77 Investor Protection Fund programmes across the country of theseover 39 programmes were for farmers and FPOs;
v. Conducted 136 general awareness programmes on commodity derivatives including onoptions and Options in Goods;
vi. Held 6 faculty development programmes for colleges and educational institutions;
vii. Conducted 2 capacity building programmes.
Your Company aims to increase the number of training sessions in the coming year fornew participants such as corporates banking and mutual fund segments.
The training material for the MCCP certification programme was updated. All MCCPtraining and tests are now based on the new training material and the related questionbank is now aligned to the same. The testing process has also undergone a change due tothe pandemic as all MCCP tests are now AI- proctored. This enables candidates to abide bysocial distancing guidelines take tests from their office or homes without the need totravel to test centers as was the norm earlier. This change was necessitated due to asignificant reduction in the MCCP registrations and tests taken. SEBI notification datedNovember 21 2019 which has made the NISM derivatives paper no. 16 mandatory for membersof the exchange contributed to the reduction in numbers.
Consequent to the transfer of clearing and settlement division of the Exchange to MultiCommodity Exchange Clearing Corporation Ltd. (MCXCCL) w.e.f. September 01 2018 physicaldeliveries of the commodities traded on the Exchange platform are effected through MCXCCL.Necessary warehousing arrangements with Warehouse Service Providers (WSP)/ Vault ServiceProviders (VSP) have been made by MCXCCL to cater to the storage requirements of variousmembers of the Exchange and their respective constituents/ depositors who are willing tostore goods and give delivery on the Exchange platform. MCXCCL also undertakesaccreditation of the warehouses/vaults to ensure safe storage and preservation of qualityof goods deposited by various business participants for delivery on the Company'splatform.
MCXCCL has a wide network of warehouses for delivery of commodities traded on theCompany's platform. This provides confidence to members to trade on the Company'splatform. As of March 312021 MCXCCL has entered into agreements with eight WSPs forfacilitating physical deliveries in Agricultural Commodities and Base Metals. As at March312021 MCXCCL has accredited 49 warehouses of these eight WSPs of which 42 warehousesare registered with the Warehousing Development & Regulatory Authority (WDRA). Theremaining 7 warehouses for metals do not fall under the jurisdiction of WDRA.
Further MCXCCL entered into agreements with three VSPs for facilitating physicaldeliveries in Bullion. There are 24 accredited vaults of these agencies located atAhmedabad Delhi Mumbai Bengaluru Chennai Cochin Hyderabad Jaipur Rajkot AgraSalem and Kolkata.
Multi Commodity Exchange Clearing Corporation Limited (MCXCCL)
MCXCCL a wholly-owned subsidiary of your Company was set up as a separate clearinghouse for providing Clearing and Settlement services to the Company. MCXCCL collectsmargin from the members effects pay-in and pay-out and oversees delivery and settlementprocess. SEBI has granted renewal of recognition to MCXCCL for a period of three yearscommencing from July 31 2019 and ending on July 31 2022 subject to complying with allRules Regulations Guidelines and other instructions as may be issued by SEBI from timeto time.
Risk management being an important function for a clearing corporation MCXCCL has awell-defined Risk Management Framework in place. This works at various levels across theenterprise to form a strategic defense cover for the company. MCXCCL has constituted aRisk Management Committee which periodically monitors and reviews risk managementframework and the implementation of SEBI norms on risk management.
MCXCCL is recognized by European Securities & Markets Authority (ESMA) as 'thirdcountry' Central Counter Party (CCP) under European Market Infrastructure regulation sothat European participants can now apply lower risk weight age towards their exposures toMCXCCL. As commodity markets expand their outreach to the Eligible Foreign Entities (EFEs)interested in hedging their commodity exposures in Indian commodity markets this willmake hedging by European entities cost efficient.
MCXCCL is recognized as a Qualifying Central Counter party (QCCP) by SEBI. This enablesthe participants to apply lower risk weigh tage towards their exposures to MCXCCL as perBasel II capital adequacy framework. This is apart from membership of CCP12 the renownedglobal association of Central Counter parties and membership of Asia-Pacific CentralSecurities Depository Group (ACG).
During the year under review there was no change in Authorized Issued and Paid upShare Capital of MCXCCL. As on March 312021 Authorized Share Capital of MCXCCL stood at '30000 lakh and issued and paid-up share capital of MCXCCL stood at ' 23999 lakh.The net worth of MCXCCL as at March 312021 stood at ' 34926.32 lakh.
Further the Company has authorized MCXCCL to act as a Collecting Agent in terms ofRule 2(c) of Indian Stamp (Collection of Stamp Duty through Stock Exchanges ClearingCorporations and Depositories) Rules 2019 to collect the stamp duty under the said Rules.The Rules came into force with effect from July 012020. Accordingly collection of stampduty started from the said date.
Core Settlement Guarantee Fund (Core SGF)
SEBI vide circular no. SEBI/HO/CDMRD/DRMP/CIR/2018/111 dated July 11 2018 issuednorms related to computation of SGF requirement and standardized stress testing for creditrisk in commodity derivatives. The total Core SGF as on March 312021 stood at '469 crore of which ' 99 crore has been contributed by the Company ' 283crore has been contributed by MCXCCL and ' 87 crore has accrued from Penalties andInterest.
SME Exchange of India Limited (SME)
SME a subsidiary of your Company was set up to provide a platform for transactingclearing and settlement of trades in small and medium enterprises segment. The company hadbeen under the process of members' voluntary winding up and the requisite formalities forthe same had been completed. The Official Liquidator had issued the final report videletter dated March 05 2019. This was filed before Hon'ble High Court Bombay in respectof voluntary liquidation of SME. The Hon'ble High Court Bombay has passed order datedAugust 30 2019 granting the prayer for treating SME as dissolved. The requisite e-form(s)have been filed in this regard.
Your Company entered into an agreement with Central Depository Services Limited (CDSL)and CDSL Commodity Repository Ltd. (CCRL) effective May 18 2018 for setting up andoperationalization of a new repository under the Warehousing (Development and Regulation)Act 2007. Pursuant to Section 2(6) of the Companies Act 2013 CCRL became an associatecompany of MCX w.e.f. June 04 2018 consequent to investment of ' 1200 lakhcomprising of 12000000 equity shares of ' 10 each equivalent to 24% stake inCCRL.
During the year under review there were no companies which have become or have ceasedto be the joint venture of your Company.
Further the Managing Director & CEO of your Company does not receive anyremuneration or commission from its subsidiary. A report on the performance and financialposition/salient features of the subsidiary and associate company as per the CompaniesAct 2013 is provided as Annexure I.
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 at the weblink https://www.mcxindia.com/investor-relations.
CONSOLIDATED FINANCIAL STATEMENT
Your Company has in accordance with Section 129(3) of the Companies Act 2013prepared the annual consolidated financial statements consolidating its financials withits wholly owned subsidiary company MCXCCL and the associate company CCRL. The annualaudited consolidated financial statements have been prepared in accordance with therequirements of Ind AS prescribed under Section 133 of the Companies Act 2013 read withrelevant rules issued there under as applicable and other accounting principlesgenerally accepted in India and forms part of this Annual Report.
MANAGEMENT DISCUSSION AND ANALYSIS STATEMENT
Management Discussion and Analysis Statement as stipulated under the SEBI ListingRegulations 2015 forms a part of this Annual Report.
COMMITMENT TO QUALITY
Your Company continues its journey of delivering value to all its stakeholders throughinvestments in quality programs. Your Company has been enabling excellence in product andservice delivery through compliance of robust processes quality management systemcustomer centricity and risk mitigation. Your Company has adopted several externalbenchmarks and certifications to validate the processes and controls implemented acrossthe Exchange.
Your Company resolves to maintain its preeminent position in the Commodity space henceis proactively investing towards building robust and scalable platform like CommodityDerivatives Platform to support its future business growth and regulatory compliance.
Despite the Financial Year 2020-21 being full of unprecedented challenges your Companywas successful in upholding its commitment towards compliance with and adherence tointernational best practices as laid out in ISO standards such as ISO 27001:2013(Information Security Management System) ISO 22301:2019 (Business Continuity ManagementSystems) & ISO 9001:2015 (Quality Management Systems). Your Company successfullyre-certified on all aforementioned standards.
As a part of its commitment to our subscribers trading members and the partnerecosystem your Company also undertook proactive audits to strengthen its core processescyber security posture and adherence to regulator guidelines as they came into effect.Your Company is happy to report that despite issues posed by the pandemic theorganisation has successfully evolved to adapt to the new-normal and that all securityincidents were contained to have a zero effect on the trading platform or any adverseeffect to our subscribers and trading partners.
It is the constant endeavour of your Company to hire and retain the top talent. As apart of the strategic organisational restructuring the Company has invested in seniorleadership resources and also strengthened the middle management layer.
RESEARCH AND DEVELOPMENT
Your Company undertakes research activities for developing new products consideringthe evolving market needs policy and regulatory landscape and global best practices.Based on such research and market requirements the Exchange launched Rubber futuresapart from futures contracts in MCX iCOMDEX Bullion Index and Base Meal Index during theyear 2020-21. The MCX iCOMDEX Indices are constituted of commodity futures contractstraded on MCX and conform to both the SEBI prescribed guidelines as well as thefinancial benchmarks set by the International Organization of Securities Commissions(IOSCO) in construction administration and governance.
Your Company undertook a number of research studies during 2020-21. A study titled'Study on Comparative Assessment of the Commodity Markets of China and India' was carriedout by a team from IIM Ahmedabad to study the special characteristics of the commodityderivatives market in China. The study found some unique features in the regulatoryframework and market development initiatives by the commodity exchanges in China whichcontribute to their success. Your Company also undertook two survey-based research studieson futures trading in two commodities - Mentha Oil and Cardamom. The main findings of thestudies and recommendations of the researchers for development of these two contracts wereforwarded to SEBI for further action.
Following SEBI guidelines and instructions on use of interest income from theExchange's Investor Protection Fund (IPF) for research your Company undertook fourresearch studies in partnership with academic institutions on various themes connectedto commodity derivatives market. These were 'How futures market in India has improvedefficiency of physical commodity markets' undertaken by IIT Kharagpur 'Why commoditiesshould be included in an investment portfolio RS. An analytical study' undertaken by IIMKozhikode 'Overcoming issues of quality standardization in agricultural commodities tofacilitate participation in derivatives' undertaken by IIM Bangalore and 'DevelopingDomestic Price Benchmarks and Lessons from Global Markets - Case of Base Metals'undertaken by IIM Ahmedabad. The findings of the studies have been widely disseminated forcreating awareness about commodity derivatives market among the people. They are alsoavailable on the website of the company at www.mcxindia.com.
During the year 2020-21 your Company also engaged with a number of educationalinstitutions and participated in research conferences conducted by institutions such asIIM Ahmedabad The National Institute of Securities Management (NISM) etc. To spreadawareness and promote research in commodity markets and its ecosystem the 'CommodityInsights Yearbook 2020' was published during the year. NISM an institution established bySEBI was the partner organization in publication of the Yearbook. The publication wasreleased by Mr. G. Mahalingam Whole Time Member SEBI at a 'Ring the Bell' ceremonyduring World Investor Week 2020. The Commodity Insights Yearbook an annual publicationaims at dissemination of comprehensive knowledge on the commodity market ecosystem forthe benefit of all stakeholders including market participants financial institutionspolicymakers practitioners analysts producers traders consumers industry observersacademicians etc. The 2020 edition of the Yearbook focussed on the Precious Metalssegment. Like in earlier years the Yearbook together with relevant data in user-friendlyspreadsheets has been made available for free download on the Exchange's website toensure maximum dissemination.
Given the nature of its operations your Company has a very low impact on theenvironment. Notwithstanding your Company is committed to minimizing its environmentalimpacts through efficient use of natural resources including electricity which is thekey touch point of the Exchange's technology driven business. Your Company is governed byan effective Environmental Policy. Your Company believes that in order to meet theobjectives of its Environmental Policy employee commitment is imperative. Your Companyconstantly endeavors to create awareness amongst employees and encourages them to adoptconservation practices on an ongoing basis. Your Company successfully completed ISO14001:2015 surveillance audit without any observation and continues to monitor itsEnvironment Management Plan developed on the basis of the Environment Review conductedannually to assess the impact of the Company's activities. Your Company has alsodeveloped an E-Waste Policy for the safe disposal of e-waste from its premises and hastie-ups with authorized e-waste recyclers to dispose the e-waste in an eco-friendlymanner. Further the e-waste disposal is minimized by adopting best practices inmaintenance and re-use of resources. Other initiatives implemented by your Company to savethe environment are smoke emission test noise pollution test water test cold foggingand password enabled printer to minimize wastage of paper.
CORPORATE SOCIAL RESPONSIBILITY (CSR)
Embedded in the vision and mission of your Company CSR has always been considered asan opportunity to serve the nation and to bring a perceptible change in the lives of thepeople. Focused on the community priorities your Company regularly aligns its strategyby constantly expanding its CSR outreach for the inclusive growth and development of thesociety.
The CSR allocation for FY 2020-21 was ' 288 lakh. Further in accordance withrecent amendments to the CSR Rules the Company brought forward CSR un-spent amount ofearlier years aggregating to ' 269 lakh.
The Company has made specific allocations towards supply of medical equipment to publichospitals in order to supplement the efforts of public hospitals to provide treatment toCOVID-19 patients. In the year under review other interventions included supporting ruraldevelopment through Integrated Watershed Management Scheme empowering women anddifferently abled enhancing education to visually challenged encouraging highereducation and pursuing nursing courses for economically weaker girl students etc.
The interventions during the year epitomize the conviction of your Company to serve andempower the needy communities and to contribute towards the development of the nation.Going forward your Company aims to further strengthen its initiatives and continue toserve the society at large.
The brief of the CSR activities undertaken during the year have been provided in theAnnual Report on CSR activities forming part of this Report as Annexure II.
The CSR Policy formulated in accordance with the Companies Act 2013 (as amended fromtime to time) guides the Company's CSR approach to sub serve the well-being of thesociety at large. The CSR Policy and initiatives adopted by the Company on CSR areavailable at the web link https://www.mcxindia.com/about-us/csr.
BUSINESS RESPONSIBILITY REPORT
Pursuant to Regulation 34 of the SEBI Listing Regulations 2015 the Annual Report oftop 1000 listed entities based on market capitalization shall include a BusinessResponsibility Report (BRR) describing the initiatives taken by Company from anenvironmental social and governance perspective. In compliance with the same BRR formspart of this Annual Report.
ETHICS AND GOVERNANCE POLICIES
Your Company adheres to high ethical standards to ensure integrity transparencyindependence and accountability in dealing with all stakeholders. Accordingly yourCompany has adopted various codes and policies to carry out the duties in an ethicalmanner. Some of these codes / policies framed and implemented by your Company are the Codeof Conduct and Code of Ethics Code of Conduct for Prevention of Insider Trading Code ofPractices and Procedures for Fair Disclosures of Unpublished Price Sensitive InformationWhistle Blower Policy /Vigil Mechanism Policy on Related Party Transactions Policy fordetermining Material Subsidiaries Corporate Social Responsibility Policy Risk ManagementPolicy Nomination and Remuneration Policy Policy for Appointment of Independent ExternalPersons on Committees of the Board Board Diversity Policy etc.
Pursuant to Section 92(3) of the Companies Act 2013 the Annual Return for FY 2020-21is available at the web link https:// www.mcxindia.com/investor-relations.
MEETINGS OF THE BOARD
Eleven meetings of the Board of Directors were held during FY 2020-21. For furtherdetails please refer to the report on Corporate Governance forming part of this AnnualReport.
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 Regulations 2015 the Board of Directors have implemented a vigilmechanism through the adoption of a Whistle Blower Policy which has been amended from timeto time. For further details please refer to the report on Corporate Governance formingpart of this Annual Report.
CONTRACTS AND ARRANGEMENTS WITH RELATED PARTIES
Your Company has formulated a policy on materiality of related party transactions anddealing with related party transactions as amended from time to time. The latest Policy isuploaded on the website of your Company and may be accessed at the weblink:https://www.mcxindia.com/docs/default-source/investor-relations/corporate-governance/policy-on-related-party-transactions may2020.pdfRS.sfvrsn=a9f191902.
All related party transactions entered into by your Company during the period underreview were in the ordinary course of business and at arm's length pricing basis. Alsoprior omnibus approval was obtained for related party transactions which were ofrepetitive nature and entered in the ordinary course of business and are at arm's length.All the related party transactions entered into by your Company during the year underreview were placed before and approved by the Audit Committee and/or by the Board asapplicable in accordance with the provisions of the Companies Act 2013 SEBI ListingRegulations 2015 and other applicable guidelines/directions from the Regulator if any.Further transactions entered into between a holding company and its wholly ownedsubsidiary whose accounts are consolidated with such holding company are exempted from theprovisions related to omnibus approval under the applicable provisions of the CompaniesAct 2013 and the SEBI Listing Regulations 2015. However the Company as a goodcorporate governance practice does seek omnibus approval for transactions to be enteredinto with MCXCCL wholly owned subsidiary of the Company.
Pursuant to Section 134(3)(h) read with Rule 8(2) of the Companies (Accounts) Rules2014 the particulars of material contracts or arrangements with related parties referredto in Section 188 (1) of the Companies Act 2013 in Form AOC-2 is appended as AnnexureIII to this Report.
All Related Party Transactions as required under Ind AS 24 - Related Party Disclosuresare reported in Note 38 of Notes to Accounts of the standalone and consolidated financialstatements of your Company.
Your Company being a recognized stock exchange and regulated by SEBI is required to interalia comply with the provisions relating to constitution of the Company's Board ofDirectors as specified in the Companies Act 2013 the Securities Contracts (Regulation)(Stock Exchanges and Clearing Corporations) Regulations 2018 (SECC Regulations 2018) andthe SEBI Listing Regulations 2015.
Your Company has a well-diversified Board comprising of Directors coming from variouswalks of life and having broad range of experience in the areas of managementtechnology governance leadership finance and legal. A multi-faceted talent-pool enablesleveraging differences in thought perspective knowledge skill regional and industryexperiences to ensure effective corporate governance and sustained commercial success ofthe Company.
As on March 31 2021 the Board comprised of 10 (ten) Directors of which 6 (six) werePublic Interest Directors (PID) 3 (three) were Shareholder Directors and 1 (one) ManagingDirector. Your Company had 2 (two) women independent Directors on the Board in compliancewith the SEBI Listing Regulations 2015.
A "Public Interest Director" under the SECC Regulations 2018 means anindependent director representing the interests of investors in securities market and whois not having any association directly or indirectly which in the opinion of the Boardis in conflict with his role and accordingly such directors are considered as IndependentDirectors for adhering compliance with the provisions of the SEBI Listing Regulations2015 and the Companies Act 2013.
As mandated all the Public Interest Directors of your Company have been dulyregistered with the databank for Independent Directors maintained by the Indian Instituteof Corporate Affairs.
Your Company has received confirmations from all the Public Interest Directors to theeffect that each of them meets the criteria of independence as prescribed underRegulation (16)(1)(b) of the SEBI Listing Regulations 2015 and Section 149(6) of theCompanies Act 2013. There has been no change in the circumstances affecting their statusas independent directors of the Company. The nomination/ appointment of IndependentDirectors/ Public Interest Directors on the Board of your Company is in accordance withthe eligibility conditions prescribed by SEBI and is made with the approval of SEBI.
Further all the Directors have confirmed that they are 'Fit and Proper' in terms ofthe SECC Regulations 2018. Your Company has also obtained affirmation of adherence toSchedule IV of the Companies Act 2013 and the Code of Conduct of your Company inaccordance with the SEBI Listing Regulations 2015 from all the Directors as applicable.
In view of the expiry of tenure of Mr. Shankar Aggarwal (DIN: 02116442) as a PID on theBoard of your Company on September 30 2020 the Board in compliance with the provisionsrelating to appointment and performance review of a PID prescribed under the SECCRegulations 2018 and SEBI circular no. SEBI/HO/MRD/DOP2DSA2/CIR/P/2019/26 dated February5 2019 recommended to SEBI the extension of tenure of Mr. Shankar Aggarwal as a PID onthe Board by another term of three years. SEBI vide letter dated June 24 2020 approvedthe re-appointment of Mr. Shankar Aggarwal as a PID on the Board of your Company. TheBoard is of the opinion that Mr. Shankar Aggarwal possesses the requisite qualificationexperience expertise and holds high standards of integrity.
Details relating to performance evaluation is covered in the section relating to'Performance Evaluation of the Board' Ms. Madhu Vadera Jayakumar (DIN: 00016921)Shareholder Director was liable to retire by rotation at the 18th Annual General Meeting(AGM) of the Company held on August 312020 and being eligible offered herself forre-appointment. The resolution of her re-appointment was passed by requisite majority.However Ms. Madhu Vadera Jayakumar tendered her resignation as a Shareholder Directorfrom the Board of your Company w.e.f. October 14 2020 due to personal reasons. Mr. AmitGoela (DIN: 01754804) Shareholder Director who was also liable to retire by rotation atthe 18th AGM of the Company was re-appointed with the approval of the shareholders andSEBI w.e.f. August 312020.
Ms. Padma Raghunathan (DIN: 07248423) Shareholder Director tendered her resignationfrom the Board of your Company w.e.f. close of business hours on March 30 2021 due toher super annuation from the services of NABARD.
In accordance with the provisions of the Companies Act 2013 Mr. Hemang Raja (DIN:00040769) Shareholder Director who has been longest in office since his appointment isliable to retire by rotation at the ensuing AGM and being eligible is seekingre-appointment. The Board recommends his re-appointment.
KEY MANAGERIAL PERSONNEL (KMP)
The following employees became KMPs under the SECC Regulations 2018 during FY 2020-21:
|Sr. No. Name ||Effective Date |
|1 Mr. Manav Jain Chief Technology Officer ||September 012020 |
|2 Ms. Ruchi Shukla Head - Energy ||October 24 2020 |
|3 Mr. Puneet Shadija Vice President - Technology ||February 08 2021 |
|4 Mr. Pradip Dey Vice President - Technology ||February 10 2021 |
|5 Mr. Sambit Patnaik Vice President - Business Development ||March 012021 |
|6 Mr. Dhananjay Rokde Vice President - Technology (CISO) ||March 18 2021 |
Further the following employees ceased to be KMPs under the SECC Regulations 2018during FY 2020-21:
|Sr. No. Name ||Last working day |
|1 Mr. Sunil Kurup Vice President - Technology ||October 13 2020 |
|2 Dr. Pareshnath Paul Chief Information Officer ||March 312021 |
|3 Mr. Arvind Sharma Vice President - Business Development# ||March 312021 |
#on attaining super annuation
PERFORMANCE EVALUATION OF THE BOARD
Your Company has formulated a Policy for Performance Evaluation/Review in accordancewith the provisions of the Companies Act 2013 SEBI Listing Regulations 2015 SECCRegulations 2018 SEBI Circular dated January 05 2017 providing guidance to listedentities about various aspects involved in the Board Evaluation process ("SEBIGuidance Note") and SEBI circular dated February 05 2019 on performance review ofPublic Interest Directors.
The Policy has been framed with an objective to ensure that individual directors ofthe Company and the Board as a whole work efficiently and effectively for the benefit ofthe Company and its stakeholders.
Your Company has implemented a system of evaluating performance of the Board ofDirectors and of Committees and of individual Directors through peer evaluationexcluding the Director being evaluated on the basis of a structured questionnaire whichcomprises evaluation criteria as listed hereunder.
The criteria for performance evaluation inter-alia includes the following:
i. Internal Evaluation of Individual Director's Performance
An individual Director's performance is evaluated based on his/ her level ofparticipation and contribution to the performance of Board/ Committee(s) meetingsqualification & experience knowledge and competency fulfillment and ability tofunction as a team initiatives taken adherence to the rules/regulations havingindependent views and judgement providing guidance to senior management and Boardmembers etc.
ii. External Evaluation of Individual Director's Performance
Pursuant to SECC Regulations 2018 read with SEBI circular dated February 05 2019 thetenure of PIDs may be extended by another 3 years subject to performance evaluationinternal and external both carrying equal weightage. Such PIDs shall be subject to:
a. Internal evaluation by all the governing board members based on the criteriafor the performance review of individual director; and
b. External evaluation by a management or a human resources consulting firm basedon their pre-determined criteria.
iii. Evaluation of the Board as a Whole
Providing entrepreneurial leadership to the Company having clear understanding of theCompany's core business and strategic direction maintaining contact with management andexternal stakeholders ensuring integrity of financial controls and systems of riskmanagement making high quality decisions monitoring performance of managementmaintaining high standards of integrity and probity encouraging transparency etc.
iv. Chairman's Performance Evaluation
Providing effective leadership setting effective strategic agenda of the Boardencouraging active engagement by the Board members providing guidance and motivation toMD & CEO impartiality in conducting discussions establishing effective communicationwith all stakeholders etc.
v. Performance Evaluation of Board Committees
Sufficiency in the scope for addressing the objectives effectiveness in performing thekey responsibilities adequacy in composition and frequency of meetings quality ofrelationship of the Committee with the Board and the management clarity of agendadiscussed discussion on critical issues clarity of role and responsibilities etc.
A detailed note on the composition terms of reference etc of Audit Committee iscovered under the Corporate Governance Report. During the year under review all therecommendations made by the Audit Committee were accepted by the Board except thefollowing:
The Audit Committee at its meeting held on May 30 2020 while considering amendmentsto the Dividend Distribution Policy of the Company recommended to the Board a revision inthe dividend pay-out ratio to 30%-75% (earlier 30%-50%). The Board at its meeting held onthe same day agreed not to have a floor of 30% for the pay-out ratio and decided to fixthe upper limit of dividend pay-out at 75%.
STATUTORY AUDITORS AND THEIR REPORT
M/s Shah Gupta & Co. Chartered Accountants (Firm Registration No. 109574W) wereappointed as Statutory Auditors of the Company under casual vacancy for FY 2014-15.Subsequently they were appointed as Statutory Auditors by the shareholders at their 13thAnnual General Meeting (AGM) held on September 29 2015 for a period of five yearssubject to ratification by the shareholders at every AGM. Thereafter in terms of theamendment in the provisions of the Companies Act 2013 the shareholders at the 16thAGM of the Company held on August 312018 approved that the said appointment would not besubject to ratification at every subsequent AGM.
The shareholders at their 18th Annual General Meeting (AGM) held on August312020 have appointed M/s Shah Gupta & Co. Chartered Accountants (Firm RegistrationNo. 109574W) for another term of 5 (five) consecutive years to hold office from theconclusion of the 18th Annual General Meeting until the conclusion of the 23rdAnnual General Meeting of the Company at a remuneration of ' 15 lakh (Rupees Fifteenlakh) for the financial year 2020-21 plus reimbursement of out-of- pocket expenses andapplicable taxes with an escalation of upto 10% once in two years and change in theengagement partner.
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 AUDITORS AND THEIR REPORT
M/s Naithani & Associates Practicing Company Secretaries were appointed as theSecretarial Auditors by the Board to conduct the secretarial audit of the Company for thefinancial year 2020-21. Further M/s Rathi & Associates Practicing CompanySecretaries were appointed as the Secretarial Auditors by the Board of MCXCCL to conducttheir secretarial audit for the financial year 2020-21.
In accordance with Section 204(1) of the Companies Act 2013 and Regulation 24A of SEBIListing Regulations the Secretarial Audit Reports of the Company and MCXCCL for thefinancial year ended March 312021 are annexed as Annexure IV to this Report.
The Secretarial Audit Reports do not contain any qualification reservation or adverseremark.
INTERNAL CONTROLS AND THEIR ADEQUACY
Your Company has maintained adequate internal financial controls over financialreporting which are constantly assessed and strengthened with new/revised standardoperating procedures. The Board has adopted policies and procedures for ensuring theorderly and efficient conduct of its business including adherence to the Company'spolicies safeguarding of its assets prevention and detection of fraud error reportingmechanisms accuracy and completeness of the accounting records and timely preparation ofreliable financial disclosures.
The Company's internal control system is commensurate with its size scale andcomplexities of its operations. The Audit Committee of the Board actively reviews theadequacy and effectiveness of the internal control systems and suggests improvements tostrengthen the same. The Audit Committee of the Board and Statutory Auditors areperiodically apprised of the internal audit findings and corrective actions taken. Auditplays a key role in providing assurance to the Board of Directors on the effectiveness ofinternal controls and the veracity of the financial statements. Such internal financialcontrols over financial reporting were operating effectively as of March 312021.
DETAILS IN RESPECT OF FRAUDS REPORTED BY AUDITORS UNDER SUB SECTION (12) OF SECTION 143OTHER THAN THOSE WHICH ARE REPORTABLE TO THE CENTRAL GOVERNMENT
No fraud has been reported by the Auditors to the Audit Committee or the Board.
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.
Crude Oil Matters: On account of multiple writs filed against Exchange beforevarious High Courts of India the Exchange filed a Transfer petition before the Hon'bleSupreme Court inter-alia among other grounds that none of the Courts haveterritorial jurisdiction over the matter and therefore all the writs ought to betransferred to Mumbai. SEBI also had filed a separate Transfer Petition before the SupremeCourt seeking transfer of the Writ Petitions. None of the Hon'ble Courts have granted anyinterim relief.
Pursuant to petition of SEBI the Hon'ble Supreme Court vide its order dated July 242020 stayed the proceedings of all the Writ Petitions filed before various High Courtstill the final disposal of the matter and tagged the petition of SEBI with the Company'spetition. Post the said order two more Transfer Petitions were filed before Hon'bleSupreme Court. All the aforesaid matters shall be listed in due course for hearing anddisposal.
PESB Vs MCX (Singapore International Arbitration Centre):
On January 15 2021 PESB filed Notice of Arbitration before Singapore InternationalArbitration Centre (SIAC) for a claim of Singapore Dollar (SGD) 4.5 - 5 million on a roughand preliminary basis. On January 29 2021 the Company filed its Response and CounterClaim whereby the Company claimed an amount of approximate SGD 3282874.
Thereafter the Parties have initiated discussion for amicable settlement on mutualterms and accordingly have regularly informed SIAC to pause arbitration proceedings. Thematter is now kept on hold by SIAC.
Compounding of offences:
During FY 2014-15 your Company had filed 9 applications seeking compounding ofoffences of earlier years under Section 621A of the Companies Act 1956 against the ShowCause Notices received from the Registrar of Companies Mumbai. Compounding had beeneffected in respect of 8 applications and the Company had paid the fees imposed by theCompounding Authority relating thereto aggregating to ' 743000/-. The Company had alsoreceived the copy of the Orders passed by the relevant authority in respect of the 8compounding applications. As on March 312021 one compounding application is pending forhearing with the Regional Director Western Region Mumbai.
HUMAN RESOURCE DEVELOPMENT
Human Resource (HR) is a strategic business partner and plays a pivotal role indeveloping company's strategy by enhancing employees perception throughout the workforceand providing a well - rounded experience for the employee. As on March 31.2021 theExchange had 343 employees.
In order to assess employee's potential to manage next level responsibilities andsetting the right work culture across the organization HR completed Assessment Centre inthe organization through a third party agency for all employees at Assistant VicePresident and above level.
Keeping in mind the health of the employees your Company has taken a special COVID-19policy for all employees in case they are hospitalised or home quarantined.
During COVID times HR organised employee engagement activities known as Fun Fridays forall employees to participate. This helped in improving connect between the employees.
Exchange has also rewarded employee's children for their exceptional efforts in passing10th and 12th standard examination with flying colors.
DISCLOSURES PERTAINING TO THE SEXUAL HARASSMENT OF WOMEN AT THE WORKPLACE (PREVENTIONPROHIBITION AND REDRESSAL) ACT 2013
Your Company continues to have in place an Anti-Sexual Harassment Policy and iscomplied with the provisions relating to the constitution of Internal Complaints Committeeunder " The Sexual Harassment of Women at the Workplace (Prevention Prohibition& Redressal) Act 2013".
No complaint was received during the FY 2020-21 in relation thereto.
EMPLOYEE STOCK OPTION SCHEME
The stock options granted to the employees of the Company operate under the"Employee Stock Option Scheme 2008 (ESOP 2008)" of the Company formulated inaccordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme)Guidelines 1999 which was approved by the shareholders at the Extraordinary GeneralMeeting held on February 27 2008. MCX ESOP Trust constituted by the Company isresponsible for administration and implementation of the scheme under the directions ofthe Nomination and Remuneration Committee of the Board of Directors of the Company. Thesaid Scheme is being implemented in compliance with the provisions of the SEBI (ShareBased Employee Benefits) Regulations 2014 [SBEB Regulations] and there has been no changein the Scheme during the year ended March 31.2021.
There were no grants pending for vesting as at March 312021. No new grants were madeduring FY 2020-21
The relevant disclosures required under the SEBI Regulations for the year ended March312021 are available on the website of the Company athttps://www.mcxindia.com/investor-relations/corporate-governance.
PARTICULARS OF REMUNERATION
Your Company has adopted a well-defined Nomination & Remuneration Policy forDirectors Key Managerial Personnel and other employees formulated in terms of theprovisions of SECC Regulations 2018 Companies Act 2013 and SEBI Listing Regulations2015. The said Policy forms part of this Report as Annexure V and is alsoavailable under the weblink https://www.mcxindia.com/docs/default-source/investor-relations/corporate-governance/remuneration-policymarch2019. pdfRS.sfvrsn=ebedd890 2
The ratio of the remuneration of each Director and KMP to the median employee'sremuneration and other details in accordance with Section 197 (12) of the Companies Act2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 and Regulation 27(6) of the SECC Regulations 2018 forms part ofthis Report as Annexure VI.
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 SECC Regulations 2018 a statement containing particulars ofemployees as stipulated therein also forms part of this Report as Annexure VII.
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) CONSERVATION OF ENERGY
Your Company's operations are not energy intensive. However it undertook variousmeasures to reduce energy consumption by using energy-efficient computer systems andequipment. As an ongoing process your Company evaluates new technologies and techniquesto make its infrastructure more energy efficient.
i. Steps taken or impact on Conservation of Energy:
Your Company has in-row cooling system for servers in the Data Center. This cools onlythe equipment and not the external environment thereby ensuring that no energy is wastedin running compressors excessively to maintain the desired temperature levels of externalenvironment. Additionally your company has VRV air- conditioning system for the entirebuilding which works on invertor compressor resulting in energy saving. Your Company hasUV resistant film on facade glass windows to reduce the heat entering the building. Thisreduces the air-conditioning load. The glass windows also reduces the electricityconsumption due to lesser requirement of lighting during the day.
Your Company has installed Motion/Occupancy Sensors in low footfall area forcontrolling lights and reduce energy consumption.
Your Company maintains adequate capacitor bank for non-linear electrical loads likeair-conditioning plant pumps and motors thereby reducing the drawing of extra energy andimproving the power factor. The Company uses low energy consuming electrical equipmentwith modern efficient devices such as LED lights IP based cameras etc. Also energyaudit heat load calculations and power factor corrections are carried out at regularintervals.
ii. Steps taken by your Company for utilizing alternate sources of energy:
No alternate source of energy is utilized by your Company.
iii. Capital investment on energy conservation equipment:
No capital investment on energy conservation equipment/s during the year under review.
B) TECHNOLOGY ABSORPTION
(i) The efforts made towards technology absorption:
Cloud Initiative - laaS & DaaS
This year your Company undertook the first step to avail public cloud services i.e.Infrastructure as services (IaaS) requirement for testing & development environmentsprovisioning and Desktop as services (DaaS) for development to leverage its benefitswithout initial huge capital expenditure and be able to scale up/down based on demand ofrequired infrastructure. By availing the aforementioned public cloud services yourCompany have been able to save on efforts time and capital involved in provisioning therequired infrastructure for testing and development environments.
Cyber Security framework
Special emphasis was laid by your Company on continuous improvement in its cybersecurity framework and information security management systems. There is a continuousprocess and highest priority was given by the senior management to all matters of cybersecurity and risk management. It is the constant endeavour of your Company to comply withthe expectations of the Regulator and guidelines laid down by the national agencies taskedwith information security and cyber defence of critical infrastructure. There is adedicated Security Operations Centre (SOC) staffed with industry experts who are armedwith the latest threat intelligence to protect our critical infrastructure. The SOCprovides 24x7x365 vigilance against cyber threats proactive response against incidentsand provides vital inputs on improvement of your company's security architecture anddesign.
Your Company is not just committed to protection of assets by deploying securitymeasures for Work from Home (WFH) but have implemented a long-term strategy to deal withthe challenges of teleworking. As the Company is undertaking its first steps towards acloud implementation all required measures and counter measures are being undertaken toensure that the new infrastructure is protected from inception and adheres to theinternal policies and regulatory guidelines that are published from time to time.
The Company has also been classified as a national CII (critical informationinfrastructure) custodian vide notifications from the Ministry of Finance (MoF) &National Critical Information Infrastructure Protection Center (NCIIPC). Your Company hasalready taken measures to meet expectations of the agency keeping in mind the additionaldue diligence and controls for safeguard of the CII.
Switchover/switchback between Primary & DR site on account of 'Nisarga'
Your Company ensured smooth running of Trading Operations from 3rd June 2020 till 12thJune 2020 from Disaster Recovery Site on account of the warning received by IMD oncyclonic storm 'Nisarga' in Mumbai. Your Company in compliance with regulatory normsconducted smooth successful two day unannounced live trading twice in FY 2020-21.
Upgradation of information technology systems
Your Company has allocated substantial resources towards upgrading informationtechnology systems with an over-arching goal of achieving higher capacity lower latencyimproving market efficiency and transparency enhancing user access and providingflexibility for future business growth and market needs. Your Company had upgraded itssystem to support negative pricing Options for Goods and iCOMDEX Bullion Index.
Enhancements in negative pricing includes support for negative bid and ask including"0" Zero functionality in MAT & TWS were provided to the Members. TheExchange also released revised version of MCX Application Programing Interface (API) forFix and Non Fix API to accept negative price in the system for CTCL vendors and Membersdeveloping In-house application.
(ii) The benefits derived like product improvement cost reduction and productdevelopment:
During FY 2020-21 your Company continued to invest in IT systems and using it as anenabler to provide a competitive advantage. Your Company's robust technologyinfrastructure continues to provide uninterrupted trading experience reliabilitycredibility and mitigating risk of single point of failure.
Your Company has an in-house software development team which undertook severalinitiatives in FY 2020-21 to enhance develop and roll out various ancillary andperipheral systems as required by the organisation. In certain areas the team hasdeveloped in-house solutions like Sentinal - Alert Management System NMS - NotificationManagement System etc to replace existing vendor applications thereby removing vendordependency and increasing flexibility to implement requirements as per businessexpectation and timelines. Other initiatives included CTCL approval process automationCTCL enablement/disablement facility as an enhancement to eUIMS portal and Hedgeapplication for eligible foreign entities (EFEs). With a right mix of in-house andoutsourced resources your Company is adopting new technologies to deliver the growingbusiness needs and ensuring quality services for the clients.
(iii) Details of imported technology (imported during the last three years reckonedfrom the beginning of the financial year):
Your Company has not directly imported any technology during the last three financialyears.
(iv) Your Company has incurred ' 25 lakh on Research and Development during theyear under review:
C) FOREIGN EXCHANGE EARNINGS / OUTGO DURING THE YEAR UNDER REVIEW
The details of foreign exchange earnings and outgo during the year under review formspart of the Significant Accounting Policies and Note no. 35 of Notes to Accounts of thestandalone and consolidated financial statements.
Your Company is committed to good corporate governance aligned with the best corporatepractices. The report on Corporate Governance as stipulated under Regulation 34(3) readwith Schedule V of the SEBI Listing Regulations 2015 and the certificate from aPracticing Company Secretary regarding compliance of conditions of corporate governanceforms part of this Annual Report. The report on Corporate Governance also containsdisclosures as required under the Companies Act 2013.
The disclosure pertaining to resources committed towards strengthening regulatoryfunctions and ensuring compliance with regulatory requirements backed by an activitybased accounting in terms of Regulation 33 of the SECC Regulations 2018 is as under.
The Company has dedicated resources to manage the regulatory functions given in thetable below. There are 113 resources in these functions at various designations. Each ofsuch department is headed by a senior official of the Company reporting to the ChiefRegulatory Officer who in turns reports to MD & CEO. The total cost incurred by theExchange towards these functions in FY 2020-21 was ' 1365 lakh.
|Department ||Count |
|Regulatory Compliance ||5 |
|Inspection & Audit ||23 |
|Membership ||18 |
|Investor Services Department ||23 |
|IPF ||4 |
|Legal Compliances ||2 |
|Surveillance & Investigation ||20 |
|Market Operations ||18 |
UPDATES POST MARCH 312021:
i. On the expiry of tenure of Mr. Basant Seth (DIN: 02798529) as a PID on the Boardthe Exchange had sent a panel of names as required under the SECC Regulations 2018 andapplicable SEBI circular. SEBI vide its letter dated April 08 2021 approved theappointment of Mr. Chandra Shekhar Verma as a Public Interest Director on the board of theCompany for a period of three years from the date of his joining in terms of Regulation24(2) of SECC Regulations 2018. Mr. Verma joined the Board of the Company on May 222021.
ii. In view of the approaching expiry of tenure of Dr. Deepali Pant Joshi(DIN:07139051) as a PID on the Board the Exchange had sent a panel of names as requiredunder the SECC Regulations 2018 and applicable SEBI circular. SEBI vide its letter datedJune 29 2021 approved the appointment of Mr. Harsh Kumar Bhanwala as a Public InterestDirector on the board of the Company for a period of three years from the date of hisjoining in terms of Regulation 24(2) of SECC Regulations 2018. His appointment would beeffective August 08 2021 or from the date of his joining the Board.
iii. Mr. Vaibhav Aggarwal and Mr. Vijay Patel have been appointed at Vice Presidentlevel in the Technology Department w.e.f May 03 2021 and May 06 2021 respectively andare KMPs under the SECC Regulations 2018. Further Mr. Dhananjay Rokde ceased to be theCISO of the Company w.e.f. July 02 2021.
i. In view of the prevailing situation due to COVID-19 pandemic and representationreceived from the Association of National Exchanges Members of India (ANMI) StockExchanges and Depositories SEBI has decided to extend the timelines for compliance withthe regulatory requirements by the Trading members / Clearing Members / DepositoryParticipants / KYC Registration Agencies till July 312021 and certain compliancerequirements till June 30 2021. June 2021
i. "Settlement of Running Account of Client's Funds lying with Trading Member(TM)" SEBI has decided the following: Trading members should settle the runningaccount of client funds after considering the end of the day (EOD) obligation of funds ason the date of settlement across all the stock exchanges at least once within a gap of 30or 90 days between two settlements of running account as per the preference of the client.
TM will have to first adjust the value of securities accepted as collateral from theclients by way of margin pledge created in the depository system for the purpose of marginand value of commodities respectively and then they should adjust the client funds.
Client's running account shall be considered settled only by making actual payment intoclient's bank account and not by making any journal entries. Journal entries in clientaccount shall be permitted only for levy / reversal of charges in client's account.
The clients having credit balance who have not done any transaction in the 30 calendardays since the last transaction the credit balance should be returned to the client bytrading member within next three working days irrespective of the date when the runningaccount was previously settled.
Retention of any amount towards operational difficulties in settling the accounts ofregular trading clients (active clients) should be discontinued.
The Authorized person is not permitted to accept client's funds and securities.
i. SEBI had issued Master circular compiling all the circulars issued by the departmenttill April 30 2021.
ii. SEBI had issued detailed guidelines on Standard Operating Procedure for handling ofTechnical glitches by Market Infrastructure Institutions (MIIs) and payment of"Financial Disincentives structure.
The said "Financial Disincentives" when triggered automatically underpredefined conditions shall be credited to the Investor Protection Fund / Core SettlementGuarantee Fund maintained by the MII.
iii. In order to bring in uniformity while giving effect to the contract modificationsso that the desired impact and the modified contract represents a healthy replica of thephysical market SEBI has decided in consultation with the Stock Exchanges to reduce thenumber of days of advance intimation for all the three categories i.e. Category ACategory B and Category C to 10 days.
i. The Exchange has aligned the delivery lot and trading lot of Mentha Oil contracts to2 drums w.e.f. July 2021 expiry from the earlier delivery and trading lot of 6 drums.
ii. The Exchange has launched Silver Mini options contracts with Silver Mini(5Kilograms) Futures as underlying on July 19 2021.
DIRECTORS' RESPONSIBILITY STATEMENT
Pursuant to the requirement of Section 134 of the Companies Act 2013 your Directorsconfirm that:
a) in the preparation of the annual accounts for the year ended March 312021 theapplicable accounting standards have been followed and there are no material departuresfrom the same;
b) they have selected such accounting policies and applied them consistently and madejudgements and estimates that are reasonable and prudent so as to give a true and fairview of the state of affairs of the Company as at March 312021 and of the profit of theCompany for the year ended on that date;
c) they have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Act for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities;
d) they have prepared the annual accounts on a 'going concern' basis;
e) they have laid down internal financial controls to be followed by the Company andthat such internal financial controls are adequate and are operating effectively; and
f) they have devised proper systems to ensure compliance with the provisions of allapplicable laws and that such systems are adequate and operating effectively.
The Board of Directors wishes to place on record their sincere gratitude for thevaluable guidance and continued support extended by the Securities and Exchange Board ofIndia Reserve Bank of India Stock Exchanges Ministry of Corporate Affairs othergovernment authorities Banks and other stakeholders. The Directors would also like totake this opportunity to express their appreciation for the dedicated efforts of theemployees of the Company.