MCX invites bids to set up commodity derivatives platform

KOLKATA: Multi Commodity Exchange of India (MCX) has invited proposals from technology companies to set up an advanced commodity derivatives platform for trading and clearing services, as its contract with 63 Moons will expire in September 2022, said a senior MCX executive.

MCX plans to launch spot exchange in metals in less than a year, followed by other asset classes. At present, it offers options on commodity futures contracts.

According to the eligibility criteria for the new technology partner, as mentioned in the request for proposal (RFP) document, even 63 Moons (erstwhile Financial Technologies (India)) will be eligible to bid for the project. However, unlike in the past, the company will have to renegotiate the financial part (fees) in the competitive environment, experts said. The last date for submission of proposals will be November 20, 2020.

FTIL, a trading software and technology major, was the original promoter of MCX, and the company had then allegedly quoted very high fees and annual maintenance charges for the trading platform. However, due to regulatory compulsions following a massive payment default by another subsidiary, National Spot Exchange Ltd (NSEL), FTIL had to vacate the control of MCX, though its technology provider status remained intact until the end of contract period.

“The MCX trading software was found wanting when crude oil prices started trading in the negative territory. Whereas, CME was able to tweak its trading systems, MCX couldn’t offer the same in a timely manner, leading to legal disputes and loss of trading volumes,” said Chirag M Shah, practicing counsel and market veteran. “The new contender must be someone who is able to offer cutting edge and timely solutions to tackle such eventualities and allow the exchange to offer newer products across segments.”

The RFP document of MCX says the system needs to be extensible to commodity spot auctions, spot continuous trading, equity and debt, currency futures and options, interest rate derivatives and forward contracts, among others.

The rival exchange, National Commodity and Derivatives Exchange, uses the system provided by MillenniumIT, which is the leading ultra low-latency technology provider and part of the London Stock Exchange Group.

Competition in the commodity derivatives is likely to hot up in the coming years, with measured steps by stock exchange majors NSE and BSE in the coming years. Having a state-of-the-art and flexible trading system would be a key factor in retaining market share in the segment.

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