'Participation of big players on MCX cannot swing futures wildly'

Last Updated : 13 February 2013 at 16:10 IST

This year, India would complete a decade in commodity futures trading. And India's ten year successful marathon run in futures trading can in no way be divorced from the name Multi Commodity Exchange of India or MCX.

Rakesh Neelakandan of Commodity Online caught up withSumesh Parasrampuria; Director – Business Development, MCX to gather some idea of business development initiatives of India's premier exchange in Metals and Energy space.

Parasurampuria also spoke about MCX's tie-ups with other international exchanges and on market volatility advancing hedging further in scale. He is of the opinion that “participation of big industry players on the Exchange cannot swing markets wildly.”

The e-mail interview is provided below:

What are your plans for educating potential market participants and what is the status of and response to such initiatives? Kindly note that this question applies to big and small potential market participants.

MCX is focused on growing India’s commodity futures market through dissemination of knowledge by conducting awareness programmes, publication of whitepapers, articles and books on various topics relevant to markets, policy, and ecosystem development. In the process, the Exchange engages with physical market participants and myriad of stakeholders.

The Exchange, in collaboration with Forward Markets Commission (FMC) and trade associations, organizes awareness programmes throughout the country. In that way, the Exchange has been contributing to the “inclusion” process through education, enabling various stakeholders to benefit directly or indirectly from the commodity markets.

During 2011-12, about 500 awareness programmes were conducted for farmers alone all across the country, while in 2012-13 (April – October) about 300 programmes have been conducted for farmers.

MCX has conducted about 100 awareness programs targeting SMEs during each of the years 2011-12 and 2012-13, covering diverse sectors and regions of the country.

The Exchange has also taken the lead in organising stakeholders’ meets for varied commodities value chain participants. These meets are aimed at discussing various issues facing market participants and to make these markets more participant-friendly. They have witnessed active participation from corporates, SMEs, hedgers and physical market participants.

What is the kind of tie-ups that MCX has with other international exchanges? Please elaborate on MCX cooperation with LME as well as the response to the road show that took place in December in New Delhi.

With an aim to seamlessly integrate with the global commodities ecosystem, improve trade practices, provide the best services to participants through adoption of global best practices, penetrate new markets and facilitate overall improvement of commodity futures market, MCX has forged strategic alliances with leading international exchanges, various trade bodies and corporates.

The exchange has entered into agreements with the CME and LME to “reference” their prices and help align domestic prices with international benchmarks. Hence, in India, MCX offers the benchmark prices to domestic participants, and integrates the domestic commodity economy with the global economy, thereby helping in reducing the “basis risk” of international trade (when local prices do not move in line with prices in international (derivative) markets). This has enabled SMEs to use domestic exchanges for effective risk management in international commodities, at a low cost.

MCX partnered with LME for its India Road show 2012 held in Mumbai and New Delhi. It witnessed experts from MCX, LME and other renowned speakers provide their valuable insights. It was very successful and received an overwhelming response from the Indian metals industry.

Is current market volatility preventing ordinary market participants from trading on commodity markets?

On the contrary, the need and demand for hedging on commodity futures exchanges increases with rise in price volatility. The continued risk of volatility in commodity prices, a growing number of participants realising the importance of hedging, and the low impact cost of MCX’s contracts, have made the Exchange’s platform attractive for the market participants.

As Indian economy gets more aligned with the global economy, in an attempt to comply with the WTO norms, the need for risk management will only increase further. Moreover, even in domestic commodities, risks are endogenous to the market system, attributed to oversupply, lower demand, change in technology, etc.

This necessitates risk management through an institutionalised risk management platform. Hence, what we foresee is only huge growth for the commodity derivatives sector.

How active are big industry players in metals-energy sector when it comes to hedging risks in futures? Isn’t it a fact that their participation having the potential to swing markets wildly deters them from participating in market activities?

MCX has witnessed healthy participation on all its product offerings and has been successful in attracting participation from all types of market participants, both big and small. We have developed contracts with different lot sizes to accommodate the needs of varied market participants.

MCX’s commodity prices very closely follow the commodity prices on international benchmark exchanges. More importantly, the Exchange is a neutral platform which essentially reflects on how the future might unfold, based on the maximum possible information of the present.

The participation of big industry players on the Exchange cannot swing markets wildly. 

As published here: http://www.commodityonline.com/news/participation-of-big-players-on-mcx-cannot-swing-futures-wildly-52797-3-52798.html