Life is not a template and neither is mine. Like several who have worked as journalists, I am a generalist in my over two decade experience across print, global news wires and dotcom firms. But there has been one underlying theme in each phase; life gave me the chance to observe and tell a story -- from early days tracking a securities scam to terror attacks and some of India's most significant court trials. Besides writing, I have jumped fences to become an entrepreneur, as an investment advisor -- and also taught the finer aspects of business journalism to young minds. At Forbes India, I also keep an eye on some of its proprietary specials like the Rich list, GenNext and Celebrity lists. An alumnus of Xavier Institute of Communications and H.R College of Commerce and Economics in Mumbai, I have worked for organisations such as Agence France-Presse, Business Standard, The Financial Express and The Times of India prior to this.
In April 2015, Parveen Kumar Singhal, the joint managing director of MCX, India’s largest multi-commodity bourse, was attending the Global Commodities Summit in Lausanne, Switzerland. But what might have been just a presence at a technical seminar at the historic lakeside Beau-Rivage Palace hotel turned out to be a coup of sorts for MCX.
Singhal, 60, a veteran with over three decades of experience across stock exchanges and regulatory agencies, spotted a stall belonging to the US-based CME Group, which owns and operates derivatives and futures exchanges. He sought a meeting with their senior managing director Derek Sammann, who was a speaker at the summit.
They met the next day. For Singhal, this was a chance to discuss, with CME, details of their long-standing strategic partnership—a licensing agreement—which was due to expire that month.
Since 2006, the CME Group and MCX have been in an agreement which allows the Indian bourse to use the New York Mercantile Exchange (NYMEX) oil and natural gas futures prices. MCX runs ‘mirror’ contracts in rupee terms, which are based on the settlement prices for the corresponding NYMEX futures contracts in the US.
The meeting was positive, and both parties emerged keen to strengthen their ties beyond the licensing agreement.
In July this year, the CME Group and MCX agreed to explore a joint viability study to set up operations at the International Finance Service Centre in Gujarat. The Gujarat International Finance Tec-city (Gift) is an under-construction central business district located between Ahmedabad and Gandhinagar; this offers financial companies and investors high quality infrastructure, tax incentives and friendlier labour laws. Economic zones such as this will compete with financial hubs like Singapore and Dubai and attempt to corner a share of the global financial services business.
The CME Group and MCX have also agreed to identify opportunities to develop new products and market them, besides implementing best clearing practices and customer education.
MCX’s licensing agreement has been extended as well.
What may appear to be an ordinary sequence of events is, in fact, a significant positive movement forward for the bourse. As Jayant Manglik, president (retail distribution) of Religare Securities, one of India’s largest commodities broking firms, says, “The relationship between CME and MCX is not new, but it would have been difficult for CME to okay this agreement earlier. Now it can extend its relationship,”
A senior MCX official agrees. “There was too much negativity in the system for any concrete steps to be taken,” he tells Forbes India. He was referring to the events of 2013, when the role of financial markets entrepreneur Jignesh Shah—the promoter of Financial Technologies (India) Ltd (FTIL) group and MCX at that time—came under the scanner after irregularities were discovered at one of Shah’s bourses, the National Spot Exchange Ltd (NSEL).
The NSEL scam is one of the largest in India’s financial market history. Over 13,000 investors lost a cumulative Rs 5,689.95 crore as a result of which they have taken NSEL and Shah to court to claim their dues. A total of Rs 379.81 crore has been recovered so far, according to August data on NSEL’s website.
At that point, India’s commodity regulator, the Forward Markets Commission (FMC), spotted several irregularities at NSEL, after independent audits. In some cases, the settlement of contracts was made well beyond the permitted 11 days. The regulator also uncovered instances of short-selling, where sellers entered into contracts without owning an underlying commodity. The contracts always registered a profit on long-term positions.
MCX, India’s only listed exchange, has not been legally found linked to the NSEL scandal and no money trail has been traced back to Shah. But FMC, through a subsequent order, forced FTIL to sell its stake in all the group’s exchanges.
However Shah, 48, had already decided to do so in October 2013.
This was a preemptive move, in a sense, since, on December 17, 2013, FMC, in a damaging report, declared Shah and his holding company, FTIL, as “not fit and proper” to run a regulated exchange or hold any position or stake at MCX and other exchanges.
Two days later, FTIL moved the Bombay High Court, challenging FMC’s ‘fit and proper’ order. This matter is still in court.
Singhal was approached by Shah to join MCX-SX, which he did in 2009. A year later, he joined MCX as deputy managing director. MCX insiders say that Singhal was twice offered the charge of the exchange, but he refused since he was close to retirement age.
Singhal will now serve on the MCX board till October 2017.
“[Manpower-wise] the worst is not over for the exchange. We are in immediate need for more senior people, including a CEO. The exchange has no clear succession plan at the moment,” Singhal says.
In May this year, FMC shot down MCX’s proposed appointment of Balasubramaniam Venkataramani (BSE’s chief business officer) as the new MD and CEO, as it had not followed “the process laid down”. A selection committee will now be formed to restart the process.
Despite the disarray, Derek Sammann of the CME Group is looking at the broader picture, one in which MCX, with an 87.48 percent market share in the January to March quarter, could continue to play a dominant role. The NCDEX (National Commodity and Derivatives Exchange) is a distant second with a 11.52 percent share and the balance 1 percent is held by a mix of smaller national and regional exchanges.
The timing of CME’s MoU with MCX is significant, say analysts. “CME continues to repose faith in MCX,” says Vivekanand Subbaraman, an analyst with HDFC Securities.
CME Group offers the widest range of global benchmark products across all major asset classes, including agricultural commodities, metals and energy. It also has a strategic partnership with the National Stock Exchange (NSE), based on license agreements for benchmark US and India equity indexes. “There are mutual benefits that both CME Group and MCX can derive from working closely together,” Sammann told Forbes India in an email. “The global importance of India’s economy and its position as one of the engines of global growth have made India a compelling and key market for CME Group.”
This association also comes at a time when the governance of India’s commodities markets is to come under the Securities and Exchange Board of India (Sebi). India’s government has cleared the way for FMC’s merger with the markets regulator. Analysts are betting on a further boost to reforms and the introduction of new products, similar to what Sebi has achieved in India’s equities markets. “When the Sebi-FMC merger happens, the new regulator will look at newer products. This will be positive for India’s markets, how positive is unclear at the moment,” says HDFC Securities’ Subbaraman.
Commodity options account for only 13 percent of total derivatives volumes globally, a UBS 2015 study shows, but the proportion is expected to be much higher in India when these are allowed. They base this on the success seen at the NSE, where options—first introduced in 2001—account for around 79 percent of futures and options (F&O) volumes and much higher than global equity exchanges.
Given the prospect of a crisp and more conducive policy and regulatory market environment, MCX is showing signs of an institution starting to breathe easy. Its position as a market leader is back, with higher volumes and market share, and the dark ghosts of the NSEL scam appear to be moving away.
It is at the threshold of a new beginning, ready to become version 2.0, and that too, without a promoter—or even a CEO.
But this could be its most interesting phase too: With new shareholders, who will soon seek to operate in a new regulatory regime, and with the potential for sharper growth with newer products.