2. Scope : Dateline
• Part 1 – Power of a
Dream.
• Part 2 – Family
Lineage.
• Part 3 – The Axe
Effect.
• Part 4 – Bodyline Days.
• Part 5 – Conclusion.
Era Business School
Ajay K Raina; AJ2
4. An 8 Years Old Dreamer
• A class Two student dreams of:– Becoming an Engineer;
– Studying abroad;
– Starting own business;
– Marrying a class fellow…..
• Jignesh Shah.
• Deviating on Purpose!
– Backgrounds/Stories need to be known.
– MCX’s sibling issues; holistic approach.
Era Business School
Ajay K Raina; AJ4
5. Unrolling the Carpet
• BE from Mumbai.
• Joined 100 Cr BOLT;
turned a still birth into a
miracle child.
• 5Lac/Mortgage – 1995.
• 5 Terminal FTIL.
• 5000 Workforce; 80% of
domestic base.
Era Business School
Ajay K Raina; AJ5
6. And the Rise Defied the Gravity
•
•
•
•
•
•
•
MCX in 2003.
NSEL in 2008.
IEX in 2008.
MCX-SX (CD) in 2008 and 2012 (full).
Set up exchanges in five countries.
NBHC.
Forbes list of Richest Indians.
Era Business School
Ajay K Raina; AJ6
7. Before we Trudge on, some Memory Pegs….
• Derivatives.
• Futures and Forwards.
• Options.
• Cash settlements v/s
Delivery.
• Spot.
Era Business School
Ajay K Raina; AJ7
8. Commodity Futures Markets…..
•
•
•
•
•
•
•
•
Gud’ol days – BCTA 1875.
Cotton to oilseeds and foodgrains.
Between two great wars.
Defence of India Act.
Mid 1950s to mid 1960s.
Pepper and Turmeric when Pak came calling.
The Khusro & Kabra Committees; Reforms’91.
Dirty Dozen and wow!
Era Business School
Ajay K Raina; AJ8
9. ….Commodity Futures Markets
• The big 6 (MCX, NCDEX, NMCE, ICEX,
ACEDCEX, UCE + 16 commodity specific.
• 113 commodities.
• No options, no trading in Urdh, rice and Tur.
• Why dis Kolavari di?
– Price discovery and risk management.
– Demand-supply equations: Harvest & Lean.
– Seasonal amplitudes.
– Causes inflation?
Era Business School
Ajay K Raina; AJ9
10. An Inefficient Guardian
• FMC regulates.
• NSEL misusing the name = doubts!
• Tools:– Limit on open position of an individual members as well
as client to prevent over trading;
– Limit on price fluctuation (daily/weekly) to prevent
abrupt upswing or downswing in prices;
– Special margin deposits to be collected on outstanding
purchases or sales to curb excessive speculative
activity through financial restraints;
– Times of shortages.
– Daily reports from the Exchanges to check excessive
speculation and price volatility.
Era Business School
Ajay K Raina;
13. MCX since 2003…
• The Multi Commodity Exch of India Ltd.
• FMC regulated.
• Commodity Futures Trade – online
trading, clearing and settlement of
commodity futures transactions = risk
management.
• 30 commodity futures contracts across
segments including bullion, ferrous and
non-ferrous metals, energy, and
agricultural commodities.
Era Business School
Ajay K Raina;
14. ……MCX…..
• Extensive national reach, with 2100+ members,
400,000+ trading terminals spanning 1770+
cities and towns across India.
• Market share of 87.3% (value traded).
• 3rd largest commodity futures exchange in the
world (No of contracts traded).
• World's largest exchange in silver and gold
futures, 2nd largest in copper and natural gas
futures, and the 3rd largest in crude oil futures.
Era Business School
Ajay K Raina;
15. ….MCX….
• MCXCOMDEX- gives information on market
movements in key commodities.
• Other commodity indices developed by the
exchange include MCXAgri, MCXEnergy, and
MCXMetal.
• Holds ISO 9001:2000 quality management
standard, ISO 27001:2005 information security
management standard and ISO 14001:2004
environment management standard.
Era Business School
Ajay K Raina;
16. ….MCX….
• Strategic alliances with leading international
exchanges such as CME Group, LME, SHFE and
TAIFEX.
• Electronic trading platform by promoter, FTIL;
difficult to replicate exchange technology+
Innovations give MCX its competitive edge.
• 15 notable awards.
• Key shareholders- FTIL, SBI and it's associates,
NABARD, NSE, Fid Fund (Mauritius) Ltd., Corp
Bank, UBI, Canara Bank, BoI, BoB, HDFC Bank,
SBI Life Insurance and NCDEX.
Era Business School
Ajay K Raina;
17. Making the Difference…
• 2003:Born to Innovate– Futures evening
sessions to synchronise with global exchanges.
• 2004 : NAFED+FTIL= Agreement= Spot Exch.
• 2005: MCX-COMDEX launched; Hi, London.
• 2006 : Hello, NYMEX + Hi, Euronext.
• 2009: Ni Hao, Shanghai.
• 2010: Howdy Taiwan!
• 2011: Micro contract in Silver – IKg.
Era Business School
Ajay K Raina;
18. …. Making the Difference
• 2011: Micro contract in Gold – 01 gm.
• 2012: IPO rated 5/5 by CRISIL; over-subscribed
by 54+ times; first listed exch of India.
• 2013: Recorded highest daily turnover –INR
1200b in April.
• 2013, however, is not over yet; the ride
continues!
Era Business School
Ajay K Raina;
21. Not too Far Back
• MCX-SX v/s SEBI in 2010.
– FTIL holds 31.18% stakes in MCX.
– FTIL and MCX each hold 5% stake in MCX-SX.
• MCX-SX v/s NSE (CCI) in 2011.
• With not many friends around, a sister concern
of MCX, NSEL (99.99% market share of Spot
Business; since 2008) with its promoters, FTIL
and NAFED, flirts with disaster by crossing a
line………… MCX pays for its affinity.
Era Business School
Ajay K Raina;
22. NSEL – an Affair to Forget…
• Licensed to do spot trading, NSEL was found
dealing with future contracts running into 12-36
days….. Mid July 2013.
• Naked contracts added to the problem.
• 07 days – cuts D,P & S period down to 11 days.
• 15 days – Suspends all one-day fwd contracts
except e-series ones; creates 5600 Cr Liability.
• FTIL shares tank 65%...... MCX sinks too; trade
volumes drop by 98% over two weeks.
Era Business School
Ajay K Raina;
24. ….NSEL – an Affair to Forget
• MCX-SX loses bank guarantees.
• NSE sells its stake in MCX.
• NSEL makes promises; defaults in payment
plan.
• WH Receipts rumoured to be fake.
• FTIL’s stake in MCX down to 26%.
• NSEL, FTIL and MCX neck-deep into trouble
even though MCX has nothing fundamentally
against it.
Era Business School
Ajay K Raina;
25. Part 4 – Bodyline Days
Era Business School
Ajay K Raina;
26. Challenges for MCX: Beyond
• Collateral Damages:– Main promoter’s fortune
wiped from $ 2b to less
than $100m over one
month.
– Questions being asked
about ability of the flagship
to run exchanges.
• FMC may move from
Consumers’ Affairs to FM.
Era Business School
Ajay K Raina;
27. Earning Drivers
• To understand other challenges, a look at the
financial model:– Transaction fees – almost 50% of total earnings.
– Membership admission fees
– Annual subscription fees
– Terminal charges
Era Business School
Ajay K Raina;
28. .. Challenges for MCX: Transactions
• CTT issues; 20% decline
expected as in case of STT.
• Reduced Volumes:– Over-dependence on bullion
and changing import duties
and curbs.
– Uncertain movement of gold
prices internationally.
Era Business School
Ajay K Raina;
29. .. Challenges for MCX: Other Issues
• Post facto sanction for FDI investment declined.
– Reverse mobility of capital.
– Future investments affected.
– Later relaxations show flip-flop in policy making.
• Income from Fees:– Reduced confidence.
– Potential stakeholders cautious.
– Expansion of terminals not likely as of now.
• Buy out bids…. Kodak Group?
Era Business School
Ajay K Raina;
30. The Road Ahead….
• Scenario 1 – Bye-bye Mr Shah
– Forced by present circumstances
though Shah’s innovative drive
would be missed.
– Mr Shah is, however, a hard nut
to crack and may not easily give
in.
– Resultant ‘tug of war’ will add to
the negative sentiments.
– Will govt step in and take over
FTIL/NSEL?
Era Business School
Ajay K Raina;
31. ….The Road Ahead….
• Scenario 2 – Buy out of
FTIL’s Stake
– Shah goes but new
management likely to fill in.
– Faster restoration of
investors’ confidence likely;
probably the best option for
investors.
• Scenario 3 – Govt takes
over NSEL; MCX?
Era Business School
Ajay K Raina;
32. Part 5 - CONCLUSION
Era Business School
Ajay K Raina;
33. The Recent & the Latest…..
• Rs 5,600 crore dues to 148 members/brokers,
representing 13,000 investors of NSEL; 128 Cr.
• The re-payment plan failed on four occasions.
• Talks about compulsory regn with WDRA
(Warehousing Devp & Regulatory Authority).
• Probe panel chaired by economic affairs
secretary + EOW investigations on.
Era Business School
Ajay K Raina;
34. • MCX claims “हम आप क हैं कौन?’’ but gives
े
guarantees; probe on.
• 84% upward move in MCX share price over
past two weeks.
• Market cap of MCX as on date is 2285 Cr.
• Settlement Guarantee Fund as part of risk
management exercise by FMC.
• FMC sees change of parenthood.
• MCX-SX license renewed for another year but
with conditions and warnings by SEBI.
Era Business School
Ajay K Raina;
36. Konfused!!
• If FTIL had to play
dirty, why did it
choose NSEL
instead of MCX?
• If FMC deals with
Futures, why is it
called Forwards
Markets
Commission?
Era Business School
Ajay K Raina;