The government is planning to set up a pan-India commodity exchange that would be the largest in the sector. The exchange would be set up with 26% equity holding by Minerals & Metals Trading Corporation of India (MMTC), the country?s largest international trading house.
The move is expected to parallel the development of the National Stock Exchange in the early nineties that expanded the equity culture beyond the metros to small Indian towns. It would also serve to eventually merge or combine the country?s plethora of 21 commodity exchanges, in addition to the Multi-Commodity Exchange (MCX), National Commodity & Derivative Exchange and National Multi-Commodity Exchange of India Ltd.
?We have given MMTC an in-principle clearance to set up a commodity exchange,? said a senior government official. The venture could rope in a private partner to hold 74% stake. MMTC would have to set up a separate division or a subsidiary to enter the new business and seek clearances from the consumer affairs department and the FMC.
The new exchange is expected to trade in the entire spectrum of commodities, including plantation crops, metals and minerals like gold and silver. Experts say that given MMTC?s track record, it would result in improved market efficiency.
BC Khatua, chairman, Forward Markets Commission, the regulator for the sector, told FE, ?We have not yet received any proposals from any party to set up a commodity exchange. However, the sector needs consolidation. Right now we have no plans to permit any other exchange.?
Compared to the equity markets, the growth of commodity exchanges have been hampered by restrictions, which disallow FIIs and mutual funds. The government has been mulling a 49% foreign investment cap (26% FDI and 23% FII) in commodity exchanges to make them at par with stock exchanges. Transactions in commodities were worth Rs 36 lakh crore last year, compared with Rs 29 lakh crore on BSE and NSE spot combined. But restrictions imposed by the government in the wake of a spike in prices has reduced turnover this year.
V Shunmugam, chief economist, MCX, downplayed the impact of the potential competitor: ?We see no immediate threat in the medium to long term emerging from any new national-level exchange?.