We plan to launch options and trading in indices: Parveen Kumar Singhal, President, MCX

In the past few years, commodity exchange MCX has faced survival issues such as the imposition of Commodity Transaction Tax, NSEL scam that came to light in July 2013 and the exit of almost entire senior management. Parveen Kumar Singhal, president & whole time director at MCX, took charge of the day-to-day affairs of the company in May 2014, at a time when the average turnover and the market share of the exchange had fallen. He guided MCX through turbulent times and even during FY2015-16 when there was a steep reduction in the prices of energy and metal products, MCX was able to achieve average daily volume of about Rs 22,000 crore (single side) and market share of more than 84%. In an interview with Tarun Sharma, Singhal talks about the journey of MCX post the crisis and the future of commodity market. He also believes there is a lot of potential for the market to grow and shares that they are ready with new derivative products like options and trading in indices which shall be launched post the regulatory approval.

Market share of MCX has improved globally. Will you please explain the journey of MCX from June 1, 2013 onwards, the crisis MCX faced, how you were able to bounce back the MCX and the major achievements?

Prior to June 2013, the growth of MCX was unprecedented. Subsequently, from July 2013 onwards with the imposition of Commodity Transaction Tax (CTT), immediately followed by NSEL issues, forensic audit report of PwC, exit of almost all of our senior management personnel and the exit of our new MD & CEO within a period of about 3 months of his joining, the exchange had survival issues, especially as the regulator (FMC) denied permission for launch of contracts beyond December 2014. The average turnover of MCX had fallen to about Rs 17,000 crore per day (single side) and the market share had fallen to 77% (as against 88%). From June 2014, volumes improved on a month-on-month basis and MCX achieved average daily turnover of more than Rs 20,000 crore (single side) and the market share of more than 84% in fiscal year 2014-15.

During FY2015-16, there was steep reduction in the prices of energy and metal products, but despite those odds, MCX was able to achieve average daily volume of about Rs 22,000 crore (single side) and market share of more than 84%. As per the latest Annual Volume Survey of the Futures Industry Association (FIA), an international body which tracks derivatives markets worldwide, the ranking of MCX jumped to 6th from 7th position in the world, based on the number of contracts traded in calender year 2015. MCX was able to surpass London Metal Exchange and the growth was more than 61%, which was the highest growth among the top seven exchanges mentioned in their report.

What new products are you planning to launch in coming days?

We are ready with new derivative products like options and trading in indices, and shall launch them as and when we receive the regulatory approval.

When will we see options and indices start in commodity market?

MCX is already disseminating MCX COMDEX, MCX Metal Index, MCX Energy Index and Rainfall Index from last number of years, and thus, the exchange is ready to launch the same, once the regulator approves.

What changes are you seeing after merger of FMC into Sebi?

With the merger of FMC with Sebi (Securities and Exchange Board of India), the future of commodity exchanges in India looks very bright. Sebi is a regulator with an international repute and excellent track record. They have done tremendous ground work in the various areas of commodity derivative market even before the merger. In the last six months after taking over as the regulator of commodity market, Sebi has initiated a number of measures to streamline the regulatory structure and processes in commodity markets, such as registration of market intermediaries, movement towards comprehensive risk management framework for commodity exchanges, streamlining and strengthening the framework of the investor redressal and arbitration mechanism at commodity exchanges, issuing guidelines on annual system audit, business continuity plan, and disaster recovery, etc. All these measures are leading to increase in the market integrity, and thus helping the growth of the commodity derivatives market.

How do you see the commodity market going forward? Do you see participation will increase?

I think there is a lot of potential for the growth of the commodity market going forward. The exchange-traded commodity derivatives market is in a sweet spot with the culmination of several favourable factors that augur well for its future. After coming under the regulatory purview of the Sebi, the commodity market is getting the much-needed impetus it needs for realising its potential. At the same time, as you are aware, India is already among the largest consumers or producers of several commodities worldwide and the fastest growing emerging economy today.

The growth of the Indian economy is going to place a lot of demand for commodities, and for risk management solutions from all stakeholders, which is big opportunity for commodity exchanges. The thrust of the government on economic reforms in some critical areas, particularly its push for a unified market as evident under the National Agriculture Market (NAM), GST, push for manufacturing under the 'Make in India' initiative is also going to act as a strong catalytic force in this regard. I am also positive that participation in this market will increase manifold in the times ahead.

What is the status of clearing corporation and the exchange in GIFT city jointly with CME Group?

Sebi has mandated all national commodity exchanges to transfer the functions of clearing and settlement of trade to a separate clearing corporation by 28 September, 2018. We are committed to meeting this deadline and will operationalise our own clearing corporation which was not earlier made operational due to regulatory reasons. MCX already has the required skill set and the staff is well-conversant with the clearing & settlement operations as these activities are already successfully done in-house by MCX. Our existing technology agreement with the vendor also ensures the supporting of software requirements. Regarding possibility of setting up of an exchange in GIFT City, there are few issues which are yet to be clarified. CME Group has also yet to make their mind in setting up of clearing corporation and repository in GIFT City, which are required for an exchange coming up in the GIFT City.

Are you ready to compete with stock exchanges because as per the expectation after September stock exchanges will be eligible for commodity trading?

Although all exchanges can technically become eligible for offering all segments on their platforms, whether or not they will be allowed to do so is a matter of the regulator's prerogative. We have yet to get any clarity on this issue and we expect that the regulator would first announce the roadmap and time period during which the merger/consolidation of commodities' and securities' brokers will take place, which will be a precursor requirement before allowing the stock exchanges to have commodities as a segment and vice-versa.

MCX did not have an MD & CEO for around 22 months and you were the only person in top management as almost all the senior-level officers were either removed or resigned. Was it difficult?

In mid-May 2014, I was asked to look into the day-to-day affairs of the company in the absence of MD & CEO and without the supporting senior-level officers. I feel that my earlier experience in regulatory capacities, coupled with my experience in the exchanges and their ecosystem and credibility with the market participants helped me in getting the things in the right perspective before all the stakeholders, and thus, addressing the damages which had happened to the MCX. Additionally, being an internal person, I was enjoying the faith of the existing middle and junior-level officers of the exchange. These things helped me in getting the issues addressed even with the vacant senior positions.

In your career, you have gone through every vertical including regulatory? Which is most challenging and which is very close to your heart?

I enjoyed all the roles I have played in various verticals including regulatory. I was lucky to have enjoyed the faith of my all seniors, and with the blessings of God, enjoyed the credibility in my all earlier roles. The successful handling of crisis during Ketan Parekh scam as a ED & CEO of Delhi Stock Exchange and the crisis MCX faced about two years back were the most challenging. The role close to my heart is the period when I was with a developmental financial institution of a state, where I enjoyed the role played in developing the industrialisation and infrastructure, thereby providing employment and revenue to the various stakeholders.