India's largest commodity exchange, the Multi Commodity Exchange is fast emerging as a global leader in commodities trading, as the government gets ready to raise the limit on overseas investments in commodity bourses.
The exchange has chalked out a series of plans to set its foot in the global commodities platform. As a prelude to the big plans, last week, MCX roped in India's most respected financial leaders as stake holders.
ICICI Venture Funds Management Co. acquired 3.55 per cent, Infrastructure Leasing & Financial Services 5 per cent and Kotak Group 1 per cent in MCX from the holding company Financial Technologies. The transaction values the company at $1.1 billion.
The Indian investors join Citigroup Inc., Merrill Lynch & Co. and Fidelity International Ltd that have already bought stakes in the exchange to benefit from a surge in commodity futures trading in India.
Today, MCX is the second largest exchange in silver in the world, the third largest in gold; the exchange clocked a record turnover of Rs Rs. 22,93,723.7 crore during the financial year 2006-07.
MCX has also entered into various strategic agreements with global exchanges like The Tokyo Commodity Exchange (TOCOM); The Baltic Exchange, London; Chicago Climate Exchange (CCX); New York Mercantile Exchange (NYMEX), London Metal Exchange (LME); Dubai Multi Commodities Centre (DMCC); New York Board of Trade (NYBOT) and Bursa Malaysia Derivatives, Berhad (BMD).
Why are Indian and global investors and financial institutions keen to pick up stakes in MCX?
The best reasoning comes from K V Kamath, Managing Director and CEO, ICICI Bank Limited, said: "I am happy that ICICI Venture is partnering with Financial Technologies in its highly successful MCX venture. FT is creating next generation financial markets within India and globally, where the benefit of technology and price transparency empowers the masses to benefit from globalization. It is our philosophy to partner with growth-oriented companies that seek to leverage technology and the power of markets for economic transformation, and this investment is a great example of such a partnership."
According to Uday Kotak, Executive Vice Chairman and Managing Director of Kotak Mahindra Bank Limited, he values MCX's vision of converting India into global hub in major commodities in the economy.
"Over the last few years, commodities futures market in India has experienced an unprecedented growth in terms of the number of modern exchanges, commodities allowed for derivatives trading and the value of futures traded.
Jignesh Shah, Managing Director & CEO, MCX says the exchange will now scale up operations with these partners and benefit from the fast-growing trade in commodity futures.
"This milestone is a testimony of the quality of the institute we have built, in and from India where the global and domestic best have converged," Shah said.
Earlier, in an interview to Commodity Online, Shah had said: "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."
Analysts say with the fresh stakes sales, MCX is set to enter the global commodities platform actively with a series of ambitious plans.
First, with the Indian government all set to come out with specific guidelines on foreign direct investment in commodity exchanges soon, MCX may go for an initial public offering.
The exchange had dropped its IPO plan in 2006. The Cabinet Committee of Economic Affairs is all set to announce the guidelines for FDI in commodity exchanges. Following this, the Forward Markets Commission is expected to submit the proposal for ownership structure of exchanges before the Union ministry of consumer affairs.
MCX submitted a draft for the IPO before Sebi in March 2006 and received the approval in June 2006. The issue size was pegged at 50 lakh shares.
While everything was perfectly in order, a Securities and Exchange Board of India regulation towards de-mutualisation of capital market, limiting the stake-holding of a single entity in the stock market to five per cent, came. Then, a debate broke out on the ownership pattern of commodity exchanges and FDI in exchanges.
The government last year allowed overseas funds to buy up to 49 per cent in its stock exchanges. The limit for a single investor was set at 5 per cent.
The cap for commodities exchanges could be raised up to 10 per cent for each investor, or twice the limit set for stock exchanges, officials have pointed out.
The government decision in this regard is expected this month, and soon, MCX will go the IPO. And MCX will be the first trading exchange that will be listed in an Indian bourse.