India's largest commodity derivatives exchange for metals and energy is now expanding in spot commodity trading and it plans to replicate its strength in metals, including precious metals, and energy contracts in the spot market as well. The move will be a major development following market regulator Sebi's nod to equity and commodity exchanges to enter each other's domains.
The country's oldest equity bourse, the Bombay Stock Exchange, has already announced plans to enter commodity derivatives and set up a spot exchange for gold. MCX's articles of association don't allow it to expand into unregulated areas. However, the finance ministry is considering several steps to synchronise spot and derivatives markets to help farmers and industrial units hedge commodity risk.
As a part of the move, a committee appointed under Niti Aayog member Ramesh Chand had submitted its report on the subhect. The ministry has now called a meeting of all stakeholders on Saturday, March 24, to discuss this along with the issue of regulating the spot market, the source said.
When contacted, Mrugank Paranjape, MD & CEO, MCX said, "We are waiting for the regulations on spot markets. For commodities, there are likely to be many sectoral regulators but for operational efficiency, spot trading should be allowed under one exchange with commodity-wise permission to be taken from respective sectoral regulators."
He added that once the clarity on regulations emerges, the exchange would be ready to launch spot operations.
The Niti Aayog panel had set up two sub groups to prepare reports for synchronising agri and non-agri markets. After receiving inputs from the sub groups, the committee submitted its report to the finance ministry. The government is also considering this report, which is understood to have recommendations on how to get spot market price to settle futures contracts, as transparent spot prices are not available in most commodities.
Another issue is regulation spot markets if regulated exchanges enter the area. This aspect is being debated in detail because, as far as the much hyped gold spot exchange is concerned, a regulator in all likelihood will be be proposed in the form of a Gold Board. For gas, there is Petroleum and Natural Gas Regulatory Board (PNGRB) which can regulate gas-energy spot exchange. Central Electricity Regulatory Commission can look after spot trading in electricity if other exchanges enter the arena. However for metals there is no such mechanism. Agri is a state subject, so regulating a spot exchange in this area will be a challenge.
Meanwhile MCX is also considering delivery-based settlement in metals. It is launching one such contract in brass, for which Jamnagar-Rajkot in Saurashtra (Gujarat) and Moradabad are major hubs. MCX will have delivery location in Jamnagar to begin with. Spot prices will be gathered by polling. However for other base metals where derivative trading is settled in cash, MCX is exploring ways to enhance the products. Paranjape said, "We are evaluating whether to launch a separate contract with delivery based settlement or permit the same contracts to have delivery settlement."