Can BSE, NSE gain foothold in commodity space?

NSE offers no transaction charge in derivatives commodity trading. Further, I believe that weather derivatives will be a good bet in India, said Ravinder Kumar, senior research analyst (commodities) at SMC Global Securities Ltd

Commodity Trading

♦ Commodity derivatives trading rose 23% to Rs23.8 lakh cr in Aug

♦ Agri, non-agri segments account for 1.2% and 98.8% respectively

The domestic commodity derivatives space is in a sweet spot amid ongoing geo-political developments across the world. MCX is set to launch its new trading platform, developed by TCS, from Monday (October 16), while India’s leading bourses BSE and NSE are bracing up to garner a major chunk of business in the commodity derivatives segment by launching new products. The current situation has set the stage for stiff competition among MCX, NCDEX, BSE, and NSE. The MCX is undisputed market leader in commodity derivatives segment as it commands a whopping 98.7 per cent market share, followed by NCDEX with 1.2% and NSE with 0.05% in August 2023.

The big question is whether BSE and NSE are able to eat into MCX’s space as NCDEX couldn’t give a major competition all these years. Considering technology backup and market reputation, NSE seems to be a major threat to MCX in the near future, observe market analysts. Moreover, the competition and more products will facilitate wider hedging options, they said.

“It’s good for hedgers and traders as they get new platform and several products to enhance trading decisions. BSE and NSE should consider different products to offer,” Ravinder Kumar, senior research analyst (commodities) at SMC Global Securities Ltd, told Bizz Buzz.

National Commodity and Derivatives Exchange (NCDEX) recently tied up with Skymet Weather Services for rolling out a weather index and facilitate derivatives trading. However, they’re waiting for approval from Sebi.

“I believe that weather derivatives will be a good bet in India. Because our agriculture sector is mostly monsoon-dependent. As of now, there’s no weather derivatives products in the country,” opines Kumar.

BSE is Asia’s oldest stock exchange as it will celebrate its 150th anniversary in July 2024. It has a strong presence among investors and institutions. One should not under estimate BSE as it has huge potential to compete with MCX, said a senior derivatives analyst.

BSE’s latest product range includes Gold Options on Futures, Silver Options on Futures, WTI Crude Oil Options on Futures, Brent Crude Oil Options on Futures; as also Aluminum Futures Contract, Copper Futures Contract, and Zinc Futures Contract.

On the other hand, the country’s largest stock exchange NSE has received Sebi’s approval for launching Options contracts on underlying WTI Crude Oil and Natural Gas Futures. The contracts are available for trading from October 9. NSE had earlier announced the launch date as October 16, but it advanced the launch to October 9.

“NSE offers no transaction charge in derivatives commodity trading. NSE is offering crude oil derivatives contracts. It’ll further enhance the spread advantage for active traders. Technology innovation also makes the difference among bourses. NSE seems to be leading in technology-driven trading platform and it also enjoys high reputation among investors. NSE’s reputation is greater than MCX’s. Hence, in the future NSE will definitely make its mark in the commodity derivatives space too. Further, there’s no exchange transaction charge on NSE except Sebi charges,” the analyst said.

BSE and NSE are betting big to capture core business segments of MCX in the commodity derivatives segment. BSE launched options contracts in precious metals and energy (WTI crude oil and Brent crude oil) contracts and futures contracts on base metals like copper, zinc, and aluminium on October 9.

“These commodity contracts will provide market participants (particularly corporates, value chain participants and foreign portfolio investors) an efficient way to manage their commodity price risk against volatility,” BSE said in a statement.

MCX’s implementation of the new web-based Commodity Derivatives Platform (CDP) would interface with members for providing risk management, collateral management, and settlement-related services to members and market participants. MCX will conduct a mock session on October 15 in order to allow members to connect, validate the setup, and participate during the mock session.