By Khozem Merchant –
The Tokyo Commodity Exchange (Tocom) filled one of the remaining gaps in its global trading platform on Thursday with amove into India’s small but growing commodity futures market.
The world’s second-largest commodity exchange said it would “develop products and advise” the Multi-Commodity Exchange (MCX) in Mumbai, one of three futures centres that have emerged since market liberation in the past year in India.
Tocom’s Indian debut is the first entry by a foreign exchange since reform paved the way for the new wave of private-sector commodity exchanges in India.
Hamada Takamichi, Tocom president, said: “This mutual co-operation agreement fills a hole in our geographic presence and we believe India is set for growth.”
Jignesh Shah, managing director of MCX, said the link-up with Tocom would boost “global confidence in MCX as well as India’s futures market”.
Market makers have been surprised by the swift rise in volumes on the MCX, which attracts more than 90 per cent of total gold and silver contracts trading in India.
The same quick take-up has happened at the rival National Commodity Derivatives Exchange, whose main contract is guar, an agro-product processed into a gum-like material for use in paints, among other uses.
Daily turnover on MCX and NCDEX are each about Rs22bn ($487m), which one trader with a foreign bank said was “six months ahead of our expectations”.
Mr Shah said MCX would “reach maturity within three years” with a turnover each day of Rs100bn, fuelled by growing demand for gold.
MCX, whose investors include Financial Technologies, a software company listed in Mumbai, and several banks, has not ruled out more partnerships and even searching for a foreign strategic partner. The scope of MCX’s partnership with Tocom was described by company officials as broad and will probably include structuring new contracts for rubber, bullion and crude oil. “We will continue with a strategy based on internationally referenced products,” Mr Shah said.
Another option being considered is to list MCX products, such as its popular gold contract, on Tocom. But the idea has concerned some executives at Indian exchanges because of the disappointing response to the last such experiment.
In 2003, Nifty Futures, the most popular derivatives product in India, was listed on the Singapore Exchange only to flop – even though the cost of trading was lower in Singapore and there was a larger basket of potential investors. The product is being relaunched this year.
The entry of Tocom, whose senior management held talks with Indian commodity market regulators this week, could accelerate reforms to allow more foreign participation. Traders say easing restrictive entry norms to allow, for example, active investors such as hedge funds, into the market would swell liquidity at a time when India’s futures and options market is already 2.5 times the volume of spot trades.
Source: FT via Yahoo News