BSE plans foray into commodity trading; board gives nod for new platform
A proposal to start a new platform for commodities trading was approved by the BSE board on October 20, said two sources.
Asia's oldest stock exchange BSE will soon make a foray into commodity trading. A proposal to start a new platform for commodities trading was approved by the BSE board on October 20, said two sources familiar with the development.
BSE's rival in equity trading, the National Stock Exchange (NSE), already has a presence in the commodity segment through a stake in National Commodity & Derivatives Exchange. Bourses such as BSE entering commodity trading are eyeing the passage of Forwards Contract Regulations Act (FCRA) that could boost trading volumes as it allows launch of further derivative products in the segment.
Earlier this year, the Kotak Group bought a 15% stake in the Multi Commodity Exchange (MCX). While the FCRA Bill was tabled in Parliament last year, the previous government did not pass it in the wake of a major scam at spot exchange NSEL. Despite the severe crisis post the NSEL scam, MCX still dominates commodity trading in India with close to 80% market share.
Experts said new players are hopeful that the supremacy of MCX could be challenged with advanced technology. Akin to the equity market landscape where NSE and BSE are the only two national-level exchanges, the commodity space is divided between two bourses — MCX and rival NCDEX. Data from the Forwards Market Commission showed the two share 99% of the total commodity market turnover with MCX leading with 80-85% market share.
There are a dozen other commodity exchanges, including National Multi-Commodity Exchange of India and ACE Derivatives and Commodity Exchange that see a negligible turnover. Commodity trading gained popularity in India after MCX was launched in 2004 and it saw a sustained growth till 2013. The segment witnessed trades of over Rs 6 lakh crore every fortnight.
Levying of a Commodity Transaction Tax, however, resulted in a near 50% drop in trading volumes in 2013. MCX is a leader in bullion, oil & gas and energy contracts while NCDEX focuses on futures trading in agricultural commodities.