MCX: Clarification on whistleblower allegations

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Published: September 10, 2019 7:07:25 AM

Malpractice in cotton trade from November 2018 to June 2019 by two international customers, which delivered stock of sub-standard quality. MCX passed it off to investors who bought on the exchange platform.

MCX has remained focused on bringing more and more retail participation and engaged with many hedgers, direct consumers and producers of commodities

Concern: Malpractice in cotton trade from November 2018 to June 2019 by two international customers, which delivered stock of sub-standard quality. MCX passed it off to investors who bought on the exchange platform.

Clarification: Those two international customers have been participating for some time now, and from November’18 to June’19, they bought the commodity and sold the same commodity. There is no remiss here and there is an opportunity to retest the quality. In one instance, it received a complaint for quality of cotton for a small quantity. MCX retested and quality met the standards specified in the contract; the delivery too has been lifted. People tend to keep stock on the delivery platform in order to be able to trade again.

Siphoning money by increasing contract to foreign vendor

MCX entered into an agreement with a UK-based firm in July/August 2018 for gold and energy spot exchange platform development. The contract value for software was ~Rs 200 m – it has not been increased and the scope of the project also remains the same. They will provide minimum viable product (over 22-23 sprints, currently 18th sprint is underway). Further enhancements will be taken care of by the internal tech team. Thus, the allegations are false. Also, allegation of chairman and Mr Paranjape travelling together to Europe is a figment of imagination.

Unable to handle delivery of gold.

Three vaults where deliveries are given are in Ahmedabad. This has been the case since inception. MCX had ~Rs 5 b of insurance cover in two vaults and another Rs 10 b in the third. Intent is given by 7.00 pm in the evening for the delivery. The pay-in is the next day morning at 11.00 am. The gold was moved from the vault suggested by the trader to another two vaults for higher insurance cover. Now the insurance cover has been increased to a total of Rs 30 b from Rs 20 b. It has also taken a floating cover applicable to any vault in case a delivery devolves.

Rampant support to algorithm trading without retail participation

The complainant cited that top 15 traders contribute 90% of total volumes and mainly trade through algorithms. However, management clarified that algorithms contribute only 35% of total volumes. This is important as they provide volumes/liquidity.

MCX has remained focused on bringing more and more retail participation and engaged with many hedgers, direct consumers and producers of commodities. It is a continuous development process. MCX will continue doing that to develop the market and retain market share. ‘Algorithm’ trades continue without any problems.

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