Shares of Multi Commodity Exchange of India Ltd. (MCX) gained over 4 percent in trade on Friday after the market regulator allowed exchanges to launch multiple contracts in the same commodity on Thursday.
The Securities and Exchange Board of India (SEBI) on Thursday allowed exchanges to reintroduce multiple contracts (especially mini contracts) in non-precious metals (other than gold and silver) such as base metals (Aluminium, Copper, Lead, Nickel, and Zinc) and crude.
The decision aims to encourage broader participation of investors in the commodity derivatives market. It would come into force with immediate effect.
“This is significantly positive for MCX. Mini contracts got discontinued in January 2020. Before that, they contributed nearly 25 percent to total base metals futures ADTO (average daily turnover) and nearly 15-20 percent to crude futures ADTO,” said analysts Sanketh and Arjun of Spark Institutional Equities.
“Arbitragers who were very active in mini contracts (before January 2020) due to potential price difference trade in mini contracts vs main contracts are expected to increase activity in the commodity derivative market and increase overall ADTO,” they added.
The analysts from Spark expect the reintroduction of mini contracts by MCX in non-precious metal to increase the overall futures ADTO by around 7-8 percent. MCX can also introduce mini contracts in options, which shall further add to overall ADTO, they added.
However, Spark highlighted that the technology transition from 63 Moons Technologies to Tata Consultancy Services Ltd. (TCS) could potentially be a hindrance to re-introduce mini contracts on an immediate basis for MCX.
Notably, MCX extended its contract for support services being rendered by its existing vendor, 63 Moons Technologies, for six months beginning from 1 January 2023. It has also signed an agreement with TCS for developing a new software system for the exchange and the current arrangement with 63 Moons is a stop-gap arrangement.
Shares of MCX Ltd. are trading 4.50 percent higher at Rs 1,576.50.
