NSE and BSE Make a Move on Commodity Space as MCX Faces Challenges
Introduction
The Multi Commodity Exchange of India Ltd (MCX) has been facing challenges in transitioning to a new commodity trading platform. As a result, other stock exchanges like the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are set to make a major bid to enter the segments dominated by MCX.
Challenges Faced by MCX
MCX has been contracted to use a commodity trading platform developed by its erstwhile promoter, but the transition has faced regulatory and legal hurdles. Despite holding mock trading sessions, the new platform’s implementation has been put on hold by the capital market regulator due to technical issues and pending legal matters.
Opportunities for NSE and BSE
Due to the uncertainty surrounding MCX’s new platform, market players speculate that volumes might start shifting to NSE and BSE. These dominant stock exchanges aim to enter the commodity derivatives market.
BSE’s Offerings
BSE plans to launch contracts in options on futures for precious metals, energy, and futures contracts on base metals like copper, zinc, and aluminium. These contracts will provide participants an efficient way to manage commodity price risk and volatility.
NSE’s Offerings
NSE has received approval from the regulator to launch options contracts on WTI Crude Oil and Natural Gas Futures. These contracts will be available for trading from October 9.
Current Market Scenario
MCX currently enjoys a significant market share of over 98% in the commodity derivatives market. However, if NSE and BSE focus on entering the commodity space, market players anticipate a potential shift in volumes from MCX to the two dominant stock exchanges.
Turnover and Market Share
In August 2023, the overall turnover of all commodity derivatives contracts witnessed a 23.1% increase, reaching Rs 23.8 lakh crore. MCX maintains its dominance, particularly in non-agri commodities and options trading.
Among exchanges, MCX holds the highest market share of 98.7%, followed by NCDEX at 1.2% and NSE at 0.05%.
Rise in Turnover
The pan-India turnover in the commodity derivatives segment rose by 49.7% in 2022-23, amounting to Rs 150.1 lakh crore. MCX recorded an increase of 68.3% in turnover, while other exchanges like BSE, NCDEX, and NSE experienced varying degrees of decline.
Agri and Non-Agri Segments
In 2022-23, the turnover of the non-agri segment increased by 56.4% to Rs 147.8 lakh crore, whereas the turnover of the agri segment decreased by 60.1% to Rs 2.3 lakh crore. The non-agri segment now accounts for 98.5% of the overall turnover.
MCX’s Journey
MCX, established in 2003 by Jignesh Shah, became the world’s second-largest commodity exchange. However, after a payment default at one of Shah’s ventures in 2013, he was forced out of all Sebi-regulated businesses. MCX continues to rely on its existing commodity trading platform due to delays in developing new software.
Conclusion
As MCX faces challenges with its new trading platform, NSE and BSE are seizing the opportunity to enter the commodity derivatives market. With their new offerings, market players anticipate a potential shift in volumes from MCX to NSE and BSE.
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