MCX and Financial Technologies

Hi Abhishek,

It is very difficult to see through the crystal ball and predict impact of new entrants like BSE & NSE on MCX’s market share. Though, my own investment thesis is based on the central premises

• The current commodity trade on exchanges is set to grow exponentially due to introduction of options, new products and new participants. Thus, my hypothesis is that the pie will grow much bigger than what it is today (multi fold).
• World over, it has been difficult to take away market share by new entrants from incumbents, especially in commodities where they enjoy monopoly. Thus, even if BSE/NSE enter the commodity exchange space, MCX may shade some market share, but is likely to remain leader in energy/metals/precious metals. (this has been proven in India. NCDEX has retained it’s market share in agri commodities inspite of MCX launching number of agri commodities contract and similarly MCX has not given away any market share in it’s forte to NCDEX inspite of NDEX launching contracts in gold/silver/energy)

On faster platform speed- I do hear that it at times is an attraction for speculator. However, I wonder if that is a preference of customers (traders), what will stop MCX from emulating/adopting the strategy and moving to a much faster platform? At the end of the day, there is nothing so proprietary about faster platforms and are but are supplied/built by third parties/providers.

Another perspective we should keep in mind: when SEBI will allow BSE/NSE to enter in commodity space, it will also allow commodity exchanges to enter equity/equity derivative space. It will be a two way street. Thus, the target market for MCX will also expand and it may too decide to enter in that space.