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Jignesh Shah on how he built MCX
June 07, 2007 13:26 IST
When the story of India's commodity futures market is penned, one man who will occupy the pride of place will, doubtless, be Jignesh Shah.
Shah, the forty-year-old managing director and chief executive officer of India's largest commodity exchange: Multi Commodity Exchange (MCX), lords over an empire he created in a decade.
It was his passion for innovation that prompted Shah to set up Financial Technologies India Limited (FTIL) at a young age, with his lifetime savings. Today, FTIL is one of India's leading financial solutions providers.
Stocks and commodity markets have always excited Shah, and his vision has always been to marry technology and the financial markets.
Excitement turned into reality when Shah set up MCX for commodity futures trading four years ago with a world-class technology backbone created by FTIL.
Since then, there has been no looking back for MCX. Today, MCX is the world's second largest exchange for silver and the third largest for gold: it clocked a record turnover of Rs 22,93,723.70 crore (Rs 22,937.237 billion) during the financial year 2006-07.
These days, Shah's office is flooded with requests from foreign financial institutions wanting to pick up stakes in the exchange. In between, Shah has been weaving a slew of global and domestic alliances, including setting up the Dubai Gold & Commodities Exchange and planning several spot exchanges across India.
"I have a global appetite for global commodities," says Shah in an exclusive interview to Commodity Online Special Correspondent Manorama Mehta.
How do you foresee the progress of MCX having achieved the numero uno position in terms of volumes?
We have always been placing ourselves in the global context. So it is not surprising that we continue to be number one. This is because we have been a technology-driven exchange with emphasis on cost efficiency and top quality service to our clientele.
Our rising volumes and benchmarking against global contracts are a result of our giving top priority to the needs and expectations of customers. While we have no reason to be complacent about our achievement, we would like to make it very clear that our geographical reach is not confined to any specific region.
We would like to develop and nurture the middle segment of the population that continues to be chary of entering the commodity space.
Do you see MCX being more active on the agriculture futures trading side?
As you may be aware, MCX has enjoyed top positions in terms of turnover in bullion, metals (particularly in copper, of late) and the energy sector. Our emphasis on agricultural commodities flows from our desire to benefit the Indian farmer while enhancing growth in these commodities.
We have emerged as business leaders in potato, kapas, soya oil, cardamom, coffee and menthol oil. These commodities have attracted high levels of open interest and are growing organically with the participation of physical market producers, consumers, processors and financial investors.
We will continue to focus on important agri commodities, generate organic growth and supplement our efforts in stepping up turnover in these commodities with our ceaseless efforts in educating participants such as farmers, small traders and individuals by extending our training programmes to them as a part of our ongoing process to clear the misconceptions about commodity trading on exchanges in India.
As such you will find that we have a global perspective as potato, soya oil and coffee are traded on international exchanges. We think and act globally.
What are your plans to step up the role of MCX in developing the market economy?
We have initiated a number of projects for the economic development of rural India and think that the very basic function of the futures market is to integrate production centres with consumption centres. This, in a way, bridges the divide between the rural and the urban economies.
One of the Financial Technologies' group companies, National Bulk Handling Corporation Ltd (NBHC), has created large warehousing capacities across the country, besides ensuring that farmers and traders obtain easy warehouse-based loans through banks NBHC has tied up with.
We have also made significant efforts in the establishment of National Spot Exchange (NSE) and Safal National Exchange (SNX) that link production centres with consumption centres for spot transactions. This apart, we conduct several training and awareness programmes on an ongoing basis at the rural level to enhance the understanding of farmers and traders and bring about their active participation in the commodity markets.
Collectively, when all the aforesaid projects come to fruition, a large amount of rural investment and employment opportunities will have materialised across the country.
When is MCX coming out with its Initial Public Offering? What are your expectations on foreign direct investment and domestic investment limits in commodity exchanges?
We expect the necessary policy in terms of investment limits to be in place in the very near future and, accordingly, our plans of an IPO and other growth strategies will be suitably implemented.
As an exchange and a technology provider what are the opportunities you foresee in the Indian market? What is your take on India's potential to become a leading player among the futures exchanges across the world?
Indian IP brands like Financial Technologies are driving global disruptive innovations by leveraging core technology and market domain leadership to create next generation enterprises like financial markets that are transparent, efficient and liquid and help unlock significant value at the middle and bottom of the socio-economic pyramid through inclusive and equitable growth in the economies they operate.
Financial markets for equities and commodities are great equalizers. Vibrant and liquid markets have globally proven to be effective disruptive platforms to help drive 'inclusive and equal' growth for not just the top but also to help unlock value from middle and bottom of the economic pyramid.
That is why it is important to take the markets and the benefits of markets to the heartland of India so we can achieve the agenda of 'inclusive' growth that will help transform the nation into a new India of our dreams -- a prosperous India of more equity and greater equality.
Let us be very clear that our being 'technology savvy' is not an end in itself. It is just an instrument in our efforts to be the top 'global exchange.' We do not think in terms of regional or fragmented markets either geographically or commodity-specific.
We have a totally integrated approach towards deepening and widening 'commodity space' globally. Therefore it is in order that our exchange business is structured in such a way that eventually we will emerge as global leaders in creating and operating a transparent, efficient and liquid exchange with the highest price performance value proposition across all asset classes -- commodities, currency and equities. That is why earlier we emphasized a totally integrated approach.
Now it is true India has an edge in software technology and tremendous growth potential. MCX has capitalised on its technological leverage by setting up six exchanges -- four in India and two overseas. Therefore, it is needless to add that it has been possible for us to penetrate markets in the middle of the pyramid that the existing players have ignored largely and that needs to be traversed.
It is a matter of just pride that all major brokerages use Financial Technologies suite of products. That is why we have been able to clock around 80 per cent market share in the securities and commodities trading segments.
We are modest about our achievements so far lest we are lulled into complacency. But we will not allow that thought to endanger our endeavour to reach the peak in global summit in exchanges. All our efforts in the future will be geared to fulfilling the ambition.
You have gone global by tying up with the Dubai and Mauritius governments to set up exchanges there. How have you achieved this success and what is the future course?
Having promoted a technology company and simultaneously having the experience of establishing and managing a commodity exchange eco-system in India has given us the advantage of replicating the success overseas. Accordingly, governments and institutions from a number of countries are contacting us and seeking our assistance, and we are helping them in similar initiatives.
Governments across nations feel the need to have a commodity exchange eco-system for their rural economies to grow better in a globalised environment. We are a technology-driven company with domain knowledge that meets their requirements for implementing cutting edge technology solutions that are so effective in managing markets.
What is strategy from Financial Technologies and its group companies to achieve newer heights in the future?
First you must understand that technology has underpinned our strategy. In fact, the FT group of companies are technology-driven entities spurred by ceaseless obsession with quality of service provided to our clientele. It is not for nothing that in just about three years our group has grossed over Rs 10,000 crore (Rs 100 billion) turnover from under Rs 10 crore (Rs 100 million). Now, please remember that it is not only technological leverage that has been instrumental for this achievement but our ceaseless efforts in what can be called spreading 'commodity culture' among a wide swathe of population.
Now you will realise why we focus on research and training programmes to educate all segments of population keen on participating in commodity sector. Our latest initiative Project Pragati (an MCX-Rotary International joint venture) aims at creating awareness among rural youth about tremendous career opportunities and wealth creation in commodity space in the countryside.
While the 90s was the decade of equities, we would like to make the next few decades the age of commodities. Now you will understand why we are positioning ourselves as a global player.
Let us add that our endeavour will be to fashion ourselves into a technology company focused on (Intellectual Property Rights), IPR, creation in the financial markets and trading sector by harvesting intellectual capital. Now you will appreciate why we fan out globally to trawl in talents to achieve our targets.
It is simply 'horses for courses.' It naturally follows that we are building a brand to match the best in global commodity and financial space to leverage quality products to generate sustainable and assured annuity revenues. Perhaps, as is the vogue, 'a model,' if you will, that leverages a strong technological platform to promote transaction intensive multi-billion-dollar business.
Even while doing all this, please remember that our entire emphasis will be on a triad of technology, transparency and trust that will truss up our strategy and approach. We would like to build a commodity market with morality, with a global perspective in mind.
That is why it is needless to add that we are extending our geographical reach across the country and beyond it blurring the boundaries that fragment the markets. That is not, however, an easy task. We are aware that development of spot and futures markets hinges on a well spread out network of warehousing and storage to be manned by new-generation professionals.
That is why MCX focuses on training and awareness programmes to achieve this objective. Research and development will supplement these efforts and give us an edge in product development in the global context.