MCX Tech Transition: The Battle Is Afoot For NSE And BSE

Commodity derivatives is the new battleground for Indian exchanges. The tech transition woes of MCX is a unique opportunity for the National Stock Exchange (NSE) and the BSE to get back into the game in the segment -- it is now or never. On Sunday, MCX got a go-ahead from market regulator SEBI to launch its new commodity derivatives platform (CDP).  The developments from here on will be fast-paced.

So far, MCX has been unbeatable in crude oil, bullion and base metals derivative trading, with nearly 100 per cent market share. But in less than 10 days, MCX is likely to switch to a new commodity derivatives platform (CDP) developed by TCS and may divorce its two-decade-old tech vendor 63Moons (erstwhile Financial Technologies) in the next few months. In the view of the experts, such transitions for today's tech-laden high-speed exchanges are never an easy affair. It amounts to transplanting the running engine of a jet plane in mid-air. If the transition of MCX is smooth, its status as India's numero-uno commodity derivatives marketplace is cemented for the foreseeable future. 

While MCX believes its success is guaranteed, for the NSE and BSE, this is a one-time opportunity to convenience brokers and traders to switch to their platform, in case of any recurring glitches or the exchange comes to a standstill. In the cutthroat game of market share, such events are fatal, especially when the opponent is NSE. Also, BSE is now in the market with renewed vigour and greater regulatory support, unlike the yesteryears.

But the NSE accounts for a lion's share in the equity derivatives segment and brokers are well versed with its platform. In addition, come next week, NSE is launching nearly identical contracts for crude oil and natural gas to counter the monopoly of MCX while it already has bullion contracts that are similar to MCX. If the situation demands, NSE's strategy will ensure that the brokers do not have much to worry about their API (Application Programming Interface) changes to move from MCX. If brokers want a one-stop platform to trade everything, they will move to NSE or BSE without a blink of an eye. But MCX may be betting that even if a few glitches occur initially, its monopoly status ensures that brokers remain patient and give it a chance to repair and move on. Brokers may actually do that but their patience will run out if MCX is not on track sooner than expected i.e. by the end of December - it has tech support from 63Moons till the end of this year.

BSE is launching options on futures in precious metals and energy (WTI crude oil and Brent crude oil) contracts and futures contracts on base metals like copper, zinc, and aluminium from October 9.  NSE has received SEBI approval for launching options contracts on underlying WTI Crude Oil and Natural Gas Futures from October 9. On the BSE, ODIN software is now available for commodity and equity trading - the same which MCX uses and most brokers are accustomed to. Non-agri commodity derivatives turnover rose by 56.4 per cent to Rs 147.8 lakh crore in 2022-2023 from Rs 94.5 lakh crore in 2021-22.

MCX Newphoria

Whether to rejoice or not is a big question for the markets with regard to MCX's new CDP. As per the last circular of MCX, for starters, the exchange said it will not have facilities like Multi-MAT, LTP-based spread, Spread IOC and Combination orders (2 Leg/ 3 Leg). Simply put, those wanting to initiate multi-leg trading positions or shift from one expiry month to another, must do so via different orders. It can definitely push up the impact cost, something which goes against the design of algo machines. Initially, single-order multi-leg trading positions and last trading price-based spreads will remain out of reach for MCX traders, even as the markets move in the blink of an eye.

Also, MCX will not handle the request for a change in IP address and it will be effective from the next working day. Other features not available: Net position, margin-related functionalities, institutional trades and its approval feature are available only through the BaNCS application. Meaning, you should have another application if you wish to avail these features altogether. Again, efficiency and ease could be affected. User Update Setting not available: if members require any modification, they have to send a request (and wait for a call centre response). Disallowed: Product basket and turnover limit functionality at the user level.

The adage of today's age, 'someone's pain, is someone else's gain' applies aptly to the current situation of MCX, if NSE and BSE have the ability to capitalize on the opportunity.

The game starts after Pitru Paksha, considered in the Hindu calendar to be inauspicious for any new initiatives given the death rite performed during the ceremony - it ends on October 14. Then, watch out for the battle to play out for the next couple of months in India's commodity derivatives market.

Palak Shah

BW Reporters The writer is author of the book: The Market Mafia - Chronicle of India’s High-Tech Stock Market Scandal & The Cabal That Went Scot-Free. Palak has been a journalist in Mumbai for nearly two decades now. He has worked for most premier pink papers including The Economic Times, Business Standard and The Financial Express and The Hindu Business Line. He was drawn to crime reporting at the age of 19 but a few years in the field told him that the fabric of crime had changed and the organised gangs, as Mumbai had witnessed during the eighties, no longer existed. It was business and markets that dominated the scenario. His passion to unravel the intricacies of the ‘white money’ economy led Palak to the world of finance and regulations.