Giving foreign players access to mentha and cotton trade to make markets more liquid: Mrugank Paranjape, MCX

A slew of new commodities will now be traded in India and that would be a big game changer in the long run for the commodity derivatives market, Mrugank Paranjape, MD & CEO, MCX, tells ET Now.

Edited excerpts:

One of the Sebi announcements last evening said FPIs will be allowed to trade in the derivatives market. On paper, this is a game changing news. Do you think the FII community would be excited to come here?

I definitely agree with you that this is a game changing move by SEBI. When we look at who will come into the markets, we are not necessarily talking about the same FIIs because the underlying rules do not stipulate that the people who will be allowed to trade on the Indian commodity derivatives market are those who have exposure to India. So it is not the same FIIs that trade today, who are mainly financial players but rather the physical players who have an exposure to India. This means a slew of new commodities will now be traded in India. That would be a big game changer in the long run for the commodity derivatives market.


So you are saying that this will bring in more liquidity and help in making markets efficient but why when do you think this will start as fresh guidelines will again be issued soon along with the KYC norms for FPIs too?

I would not hazard a guess. We will have to wait for the fresh guidelines on the FPI norms but there is a rider that Sebi will be coming out with more guidelines on how they will be allowed to trade, which are the brokers that will be allowed to open their accounts. We can expect that in the next one to two months, we can expect the detailed guidelines. By the end of this calendar year, some of these people will start trading in India.

The maximum volumes in commodities market is in crude, gold and silver, These are the global commodities and FPIs, FIIs or any institution have an option of taking exposure in these underlying internationally also. What would change for them if MCX also comes with an option that they can trade over there?

They should look at two sets of commodities. One, commodities that are purely trading in international prices today and where the market is being discovered globally. In that sense, maybe some of the metal and energy products may not attract immediate volumes, but even if you take bullion where there is a price discovery happening outside of India, we are seeing two things now; one, India is looking to create a domestic viable spot market in the bullion, second, there is a duty element which creates a differential between the international pricing and the local pricing.

So, anybody who is internationally an importer of Indian jewellery, would want to hedge, based on prices which are prevalent in Indian and not necessarily prices prevailing elsewhere. That is only for some of the global commodities. When we talk of commodities where India is a predominant exporter and one of the largest producers, mentha oil and cotton come to mind. India is among biggest players in the global market in these commodities.

Those are the commodities where access to foreign players will make the markets much more liquid and increase the volumes in those commodities.