Will Financial Tech exit MCX in time?

The stock of MCX has been skyrocketing with Financial Technologies selling its stake in the company. Over the last one week, FT has been offloading its stake in MCX in the open market.

The deadline given by FMC for FT to reduce its stake in MCX is nearing. FT will have to bring down its stake in MCX to 2 per cent by August. Currently FT holds 20 per cent in MCX. If it fails to comply with this order, MCX will not be allowed to launch contracts beginning 2015.

In April this year, the exchange had to withdraw some contracts in gold and silver that were for the month of February and April 2015, according to the directive of the FMC. So, MCX’s operations may come to a standstill if FT doesn’t exit in time. And all the investors who have open positions in various contracts on MCX will have to square them off. Already, MCX has been hit by falling volumes in gold and industrial metals after the introduction of CTT. MCX’s revenue for 2013-14 was lower by 36 per cent and PAT was down 49 per cent over the previous year.

Industry experts, however, say that FMC may extend its deadline this time again. “The FMC may give FT some more time, given that it has been showing intention to divest its stake,” added a person who heads an investor association.

The commodity brokers though don’t seem much perturbed. CP Krishnan, Whole Time Director, Geojit Comtrade, says, “The FMC is watchful of the situation and would not want traders to be affected.”

People in the research desk of commodity trading houses say that the trading community is also not concerned, as they trade only in near-month contracts. And over the next four months, when they look to invest in January or February 2015 contracts, the issue would be sorted out. In gold, for instance, the volume for August contract was 7,616 lots on Thursday; while that for the December contract was just 10 lots. So, if the issue gets sorted out, by August or latest by October, MCX can still open contracts for 2015 and existing traders can roll over easily.

Dharmesh Bhatia, Deputy Vice-President of Kotak Commodities, says that while there may be some difficultly for traders till the issue is resolved, over the longer run, FT’s exit will only benefit the exchange which will have a more robust and transparent platform.

Hedgers will be the worst hit if things turn up negatively for MCX. For bullion and base metals, MCX is the sole exchange in the country that provides a hedging platform. Big commodity importers and exporters who hedge on MCX’s platform for gold, base metals and crude oil, may then have to look for options on LME, say industry experts.