By putting the technical issues around Multi Commodity Exchange's new trading, and clearing and settlement, platform, earlier set to go live on Oct 3, before its technical advisory committee the Securities and Exchange Board of India may has rightly played it safe.
Such a vetting of a new system of a market infrastructure institution is perhaps a first, but is welcome if the additional scrutiny in the case of MCX helps in mitigating the inherent risks of a complete switch to a new technology platform from an existing one. The exchange has a 98% turnover share in commodity derivatives market in the country, which means any problem in its systems can have wide ramifications.
MCX's existing trading and clearing technology system is that of 63 Moons Technologies, formerly Financial Technologies (India), which was a promoter entity till around 2013, while the new technology system has been developed by Tata Consultancy Services.
SEBI, on Sep 29, wrote to MCX to put the go-live of the new platform in abeyance. SEBI had received a letter from an investor body, Chennai Financial Markets and Accountability, demanding a parallel run of the new and old technology platforms by MCX for a minimum period of one year. The investor body had earlier filed writ petitions in the same matter before the Madras High Court which were still pending for disposal.
SEBI forwarded this letter to MCX and asked the exchange to respond to the issues raised by the investor body, which will then be discussed by a technical advisory committee in a meeting "which would be held shortly."
The issue of whether a stock exchange or a commodity derivatives exchange should run two different technology platforms in parallel in a live environment is a vexatious one given the enormous volume of orders and transactions that will have to pass through and get cleared and settled on two platforms simultaneously.
SEBI's technical advisory committee, comprising of five Indian Institute of Technology professors and directors, and two other persons, will be better placed to take a call on the technological challenges involved in the switch in technology platform by MCX.
But SEBI will also have to weigh in on non-technology implications, including the costs incurred due to a delay. MCX's new technology platform was originally slated to go live in Jul 2022 and is already delayed by 14-15 months.
It has had to pay 63 Moons Technologies for continuing the usage of its trading and settlement technology software along with support services. From October 2022 to Dec 2023 the costs have added to around 3.47 bln rupees or around 690 mln rupees per quarter. This makes up for around half of the exchange's quarterly revenue run rate.
MCX is listed on the stock exchanges, and under its current shareholding structure, the entire 100% holding is held by public shareholders with institutional investors holding around 80% and balance by retail investors. Its shareholders have already got hit by the financial implications of the delays so far.
Currently, SEBI's regulations and circulars are silent on whether a market infrastructure institution such as a stock exchange, clearing corporation, and a depository, is required to take prior regulatory approval with regard to their choice of technology platforms.
The MCX situation is therefore a challenge for
SEBI. But the sooner the regulator takes a call the better it will be for the
entire commodity derivatives market and its market participants.
