BSE to enter commodities trading with new platform
28 Oct 2014
Bombay Stock Exchange (BSE), Asia's oldest stock exchange, will soon enter commodities trading with a new platform, challenging the current dominance of the two major players, MCX and NCDEX.
The board of Bombay Stock Exchange had, on 20 October, approved a proposal to start a new platform for commodities trading, and the modalities are being worked out.
BSE, incidentally, had put in an initial bid, estimated at about Rs500 crore, to purchase a 15-per cent stake in the country's largest commodity exchange Multi Commodity Exchange (MCX), but later backed out of final bidding due to adverse comments made by the exchange's auditors in the wake of NSEL scam.
The Kotak Group finally acquired the MCX stake for Rs459 crore (See: FTIL to sell 15% MCX stake to Kotak Mahindra Bank for Rs459 crore), while BSE and another bidder Reliance Capital did not participate in the bidding.
BSE's equity-trading rival, the National Stock Exchange (NSE), already has a presence in the commodity segment through a stake in National Commodity and Derivatives Exchange (NCDEX).
With a total annual turnover of over Rs10,000,000 crore, the country's commodity market has only two active players and the passage of Forward Contract Regulations Act (FCRA) could boost trading volumes as it allows launch of further derivative products in the segment.
Equity bourses planning to enter commodity trading are hopeful that with advanced technology the supremacy of MCX and NCDEX could be challenged as happened in the case of NSE versus BSE.
Data available with the Forwards Market Commission show that MCX and NCDEX share 99 per cent of the total commodity market turnover with MCX leading with 80-85 per cent market share.
MCX is a leader in bullion, oil and gas and energy contracts while NCDEX focuses on futures trading in agricultural commodities.
There are a dozen other commodity exchanges, including National Multi-Commodity Exchange of India and ACE Derivatives and Commodity Exchange that see a negligible turnover.
Commodity trading gained popularity in India after MCX was launched in 2004 and it saw a sustained growth till 2013. The segment witnessed trades of over Rs6,00,000 crore every fortnight.
Commodity trading, however, got a drubbing with the levying of the commodity transaction tax, which resulted in a near 50 per cent drop in trading volumes in 2013.