The exchanges will also work jointly towards market development, risk hedging, and domain knowledge. Malayasias Bursa is the worlds benchmark market for crude palm oil.
It is a strategic partnership. We are exploring to have the licence to use their prices for settlement, which is the benchmark price, said Jignesh Shah, managing director, MCX.
The alliance is broad-based and the immediate initiative will be trading in crude palm oil. Both the exchanges also hinted that they would continue to explore opportunities in other commodities in the future. We are also looking for a possibility of cross listing and that is another area of co-operation in the long run, said Raghbir Singh Bhart, head, global markets, Bursa Malaysia.
The contracts that would be traded would be rupee denominated and this would enable traders to hedge themselves against the price volatility, said Mr Shah.
For settling the contracts, MCX would be using the final settlement price of Bursa, officials from both the exchanges said. Both the exchange officials said that such a tie-up would largely benefit the small and medium traders who are currently not able to hedge themselves against the price distortions.
When asked about the volumes expected from the tie-up Shah said,
It should be around 20 multiple of the import value which, by itself is going to be very big. However, as an exchange you do not commit to volumes.