The government recently issued India Good Delivery Standards for gold. How do you see this impacting gold derivative on the exchange?
An industry-wide group, including the MCX, had submitted a draft India good delivery standard to the BIS, which has taken final shape and was gazetted in January 2020. This covers the product and technical parameters for bullion. As of now, only gold refined by London Bullion Metal Association (LBMA) accredited refineries can be delivered on the MCX platform. However, we have already started a screening process to permit gold deliveries from Indian bullion refineries even if they are not LBMA accredited. It is also important that such screening process includes benchmarking with international quality standards for refining and assaying capabilities, as well as adherence to OECD guidelines for responsible sourcing and supply chain.
We are ensuring stringent compliance with quality norms, as we expand the good delivery list to include domestic refineries. We are in touch with auditors who comply with the OECD guidelines for responsible sourcing and supply chain. Auditors capable of assessing the technical parameters of assaying and refining ability including proficiency testing, pro-active monitoring and compliance with product standards are in touch with us so that quality guidelines can be met with. Completion of audits will enable approved domestic bullion refineries to deliver gold on the MCX platform. It is noteworthy that till date 115 MT gold has been delivered through exchange-traded gold derivatives.
Base metal derivatives have seen a fall in volumes after mandatory delivery has been introduced. What is your plan to regain lost volumes?
Volumes contracted after mandating delivery-based settlements across all base metal contracts. In line with the regulator's advice, we have tweaked delivery sizes for all base metals with only one contract instead of mini and main contracts in metals. However, hedgers and big companies want different delivery sizes to increase hedging. Hence, we are changing the size of zinc, lead and aluminium contracts from one tonne to 5 tonnes from June contracts onwards. This will help increase volume with genuine hedging happening in these metals. We have been discussing with metals producers, consumers and refiners the scope of increasing their hedging business. Our focus will be on gaining lost ground in this segment and develop it further.
What are the new products that the exchange is planning to introduce?
We had vibrant potato futures earlier and we are working on their reintroduction. We plan to permit the trading of Agra variety potato futures. Another product on our radar is electricity futures and we intend to apply for it once there is clarity on whether the Securities Exchange Board of India (SEBI) or Central Electricity Regulatory Commission (CERC) will act as the market regulator. The matter is under litigation in the Supreme Court. This allows for the introduction of more products with the exchange platform helping the reduction of spreads. We had applied to SEBI last December for permission to launch futures indices. We will launch them as soon as we get approval for the same.
Spot gold exchange has been permitted in GIFT City and we are evaluating the proposal. The GIFT regulator is yet to announce norms for setting up of a spot gold exchange.
Mutual funds were permitted long back. Are you planning to introduce them?
We are optimistic about mutual funds (MFs). We have approached the Association of Mutual Funds in India (AMFI) and requested them to ask gold exchange-traded funds (ETFs) to get active on the derivative platform. The proposal is that ETFs can buy gold as required by them on MCX futures and keep them rolling over as required. They buy physical gold at present. The money they save can be invested in a liquid asset to ensure higher returns. Further, as we understand, the multi-asset allocation funds are not permitted to make any fresh investments in physical gold and hence would benefit by use of gold derivatives accordingly.