The Telegraph
Since 1st March, 1999
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Fillip for commodity derivatives

Calcutta, Aug. 7: The Inter-connected Stock Exchange of India (ISE) has decided to introduce trading in commodity derivatives by tying up with one of the recently founded multi-commodity exchanges.

ISE could even take an equity stake in one of the commodity bourses to strengthen the alliance, said its managing director, V. Shankar. The exchange would soon approach Sebi — the securities market regulator — for approval, he added.

ISE, promoted by 14 regional stock exchanges, was a non-starter in its intended form — there is hardly any trading on its own platform for trading in shares.

Its subsidiary — ISE Securities & Services Ltd (ISS) — which allows members to trade on the National and Bombay stock exchanges, has, however, a daily turnover in excess of Rs 100 crore.

ISE is not the first stock exchange to consider trading in commodities. The National Stock Exchange holds 25 per cent in National Commodity & Derivatives Exchange (NCDEX), and promoted it jointly with ICICI Bank and a couple of other financial institutions.

The Calcutta Stock Exchange, too, had previously considered foraying into commodity derivatives but could not do so for want of funds and approval from the regulator.

Some of the other regional bourses were reported to have sought membership of the Multi Commodity Exchange of India (MCX), on which trading is set to start in September.

Though MCX is considering proposals from regional exchanges favourably, NCDEX is unwilling to accept regional bourses as members till they have set their houses in order.

“If we allow a regional exchange to become a member of NCDEX, its brokers will automatically gain access to our platform. But many of these brokers do not fulfil our membership requirements (in terms of net worth) and could not have become NCDEX members directly.

“So, till the regional exchanges have completed demutualisation and improved their surveillance functions, NCDEX is not very keen on having them as members,” said Narendra Gupta, chief business officer of the NSE-promoted commodity exchange.

The government has permitted derivatives trading in 122 commodities. Going forward, trading in commodity indices will also be introduced. NCDEX is developing an index and expects to launch it in six to nine months.

Regional bourses are facing extinction; some have already closed down. Experts say access to a multi-commodity exchange may turn the tide for many of them — especially the ones like Calcutta Stock Exchange that have had close links with commodity markets for ages.

NCDEX is expecting a daily turnover of Rs 70-100 crore to start with. Experts say, going forward, the turnover of commodity bourses will increase as trading in indices and options is introduced and eventually could exceed that of the stock exchanges. The two commodity exchanges — MCX and NCDEX — are starting with a handful of commodities, but promise to expand their portfolios soon. In the beginning, trading in gold and silver futures are expected to hog the limelight.

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