The Forward Markets Commission’s latest directive to Multi Commodity Exchange of India Ltd (MCX)Financial Technologies (India) (FTIL) to dilute its 26% stake in the next two to three months.
“There’s no reaction yet but as the contracts start expiring, the lower visibility of future contracts may hamper trading if the MCX divestment doesn’t progress,” the head of commodities at a domestic brokerage house said.
On Thursday night, MCX directed the contract launch calendar for 2015 “be kept in abeyance”, though contracts approved in the 2014 calendar will be available for trading.
FMC said the directive was needed as MCX failed to take necessary action with regard to FTIL’s stake after the promoters of the exchange were declared unfit in December last year. The regulator will review the decision in a month.
The regulator on Monday changed the shareholding and ownership rules for commodity exchanges to aid the stake sale; any entity found to be unfit to run a commodities exchange will have to sell its entire shareholding.
It also said a stock exchange, depository, bank, insurer or a public financial institution can hold up to 15% of the paid-up capital in a commodity exchange.
However, no individual or any other kind of company can hold more than 5%. The norms may limit the interest of potential bidders as only Kotak Mahindra Bank and the BSE would be eligible to hold 15% in MCX. Reports suggest Reliance Capital, Tata Capital and Chicago Mercantile Exchange were among the nine bidders interested.
With commodity market volumes having dipped thanks to the levy of the commodity transaction tax (CTT) since July and the sentiment worsened by the scam at the National Spot Exchange, brokers worry any substantial delay in an MCX stake sale would impact volumes further. “Although this interim directive is not likely to impact turnover immediately, if the bidding process doesn’t pick up, traders will turn anxious,” said Harish Galipelli, head of currency and commodity derivatives at JRG Wealth Management.
MCX is considered the number one commodity derivatives exchange with its strong hold on non-agri commodities. It offers monthly futures contracts in commodities like copper, aluminium and crude oil, and bi-monthly contracts in precious metals like gold and silver that account for nearly 85% of the trading activity. Between June 2013 and April 2014, the turnover on MCX declined by 70% from R12 lakh crore to R3.77 lakh crore. The trading activity on the rival NCDEX has witnessed a marginal improvement of 1% to R79,416 crore.