Multi Commodity Exchange of India Limited (MCX) Earnings Call Transcript & Summary

Good afternoon, everyone. We have on call with us Mr. P.S. Reddy, Managing Director and Chief Executive Officer; Mr. Satyajeet Bolar, Chief Financial Officer; and Mr. Praveen DG, Head of Investor Relations. For your information, as a reminder, I think you have been informed before, but just to reiterate, this call is being recorded and will be available on our website shortly. I will hand it over to you, sir.

Yes. Good afternoon, Mr. Rishit and Amar. Welcome to this call. Please, you are not new to this industry or new to this company, please go ahead and ask questions. Kindly put on your camera so that we will -- interaction will be better.

Sure, sure. Just give me one second. Am I audible?

Yes, you are audible. Who are the 3 others who are -- okay, okay.

Okay. So this is Rishit. I think -- so I have 2 of my colleagues who joined the meeting. Mr. Samir Rachh, he is a -- and Mr. Amar, both of them are senior fund managers. Samir, I don't know if you want to introduce.

Yes, Hi, sir. My name is Samir. I manage Nippon India's small cap fund, and we have gathered long-term service initiates.

Yes. Thank you. Yes, go ahead.

Rishit, you, go ahead.

Okay. Sure. So I think, sir, first of all, thank you for sort of giving us time for the meeting. Just a couple of things, right? We wanted to start with essentially on the business front, right? If you could just help us understand the developments over the last 3 to 6 months from a volume and a regulatory standpoint? And how do you see the business shaping in the next, let's say, 3 to 6 months? And then we'll have questions around the newer products and what additions we will be doing from a business perspective.

Yes. In the last quarter and maybe 2 quarters, you've seen the peak margin effect has really disturbed us a lot, unsettled it. A lot of representatives have gone to the SEBI. And I think only on 11th of May or so, a small dispensation has come where the -- there is no change in the open interest during the day. Whatever is the margin that is paid at the beginning of the day is good enough. They don't need to keep adjusting or charging as per the mark-to-market during the day -- intraday. So that is good for hedges, especially that they don't need to worry about the position being repriced every now and then, and that's what the important development is. Only just recently it happened. The second thing is, yes, we have been saying that FIIs should be permitted to trade in this also. There are arbitrage opportunities. And they are doing it in equities, why not do it here. And that is something we are very loud and clear. And I think SEBI has come out with a consultation paper. And that is also, I think, the next Board meeting, it will be placed before SEBI. That's what our expectation is, may likely to happen. And that is one part of it. There is another one which SEBI has come out with is the client level margining should be reported to the exchange. So the exchange will have a visibility as to which client has paid how much, what he paid, what he did not paid, et cetera. So that has already been implemented. It was to be implemented from December sometime. And that's been pushed to the, I think, 2nd May, we have implemented from May this month, early this month. A part of it will come maybe 2 months down the line in August. So that is another development that has taken place. So these are the major, what we call, regulatory changes that have happened. As regards to the market volatility point of view, that nickel contract difficult -- in London Metal Exchange has really disturbed us. In fact, it has a weight of 26% in our index -- metal index contract. Now, I mean no trading is taking place neither in nickel, which is a stand-alone contract, nor in the indices. So that has really disrupted and we are making effort to revive with how best we can do it, we're looking at it. But then that has left a scar at point in time in those 2 contracts. Yes, you have seen probably we have captured at the right time, the options movement I think in the last quarter, not last quarter, I mean maybe in the third quarter onwards, it started picking up, and we have also started charging transaction fees. So those 2 quarters together have brought out about INR 32 crores of revenue only in options. And hopefully, we will do better as we go along. So these are the major developments that have taken place. As I see, options contract is clocking almost INR 20,000 crores ADT, and the futures is about INR 25,000 crores. While there is a thought on -- view that maybe options is cannibalizing the futures, but my answer is, there will be some shift in it, but it's not a cannibalization. I'm sure even the option writers need to cover their positions because the losses are unlimited for option writers. So they will definitely go to the futures counters and then hedge, okay? So that is something which we are seeing it happening so because most of the option writers happen to be prop traders and algo players, these are the ones. So they must be doing between the 2 counters. Then the third -- one more development -- regulatory development is that in what we call, options on index futures is also permitted, that is the ultimate thing. But because of these option contracts are -- what you call index futures contracts are not being well disturbed because of this, we're not thinking at this point in time. Let us first grow the options as such we have, and then we will see the rest of new products.

Just a couple of questions on this, right? If you could just -- so on the peak margin piece, so now they've allowed that whatever is the existing cash, which is available, they are allowed to sort of use that for sort of taking additional positions. Is that what it is come on 11th of May?

No, no. What I mean is, earlier, what happened is, let us say I bought 100 barrels of crude oil yesterday, and I paid fully margin, okay? The crude oil prices have gone up today. Even if there is no additional position that I have taken, even if I have not traded today, that 100 barrels is, again, priced as per today's this one. Margins are calculated and margin then called for. Now actually, this 100 barrels anyway at the end of the day, it will go from a M2M calculation, goes under M2M calculation, next day morning, I have to pay the loss or profit. So they don't need to do this kind of thing intraday. Let us say, intraday prices have gone up, subsequently, it goes down. But still, it has gone up, so I have to put in the money as per the previous circular. Now it is not required.

Okay. So the intraday settlement is not essentially -- it will come back to the regular agreement that we used to look at in the business earlier, right?

As I explained, that is the way it is. So if you have not paid it during the day, whatever open interest you had at the beginning of the day, that much margin is good enough. That's it.

Understood. Okay. Perfect. The second, on the institutional trading, right, is there a time line do you expect when this will get resolved, as you know the SEBI will take it up? Or do you think this could be a long run process?

See, there are 2 -- because your question needs to be bifurcated into 2; one is institutional brokers participating, that's one part of it; second, institutions themselves taking position, like mutual funds or category A of investors taking position. I mean participating or FIAs participating, okay. So as regards to this part of it, the mutual funds participation, I mean 4 of them have started participating. Of course, you yourself is one. And delivery-related issues are there because of the GST, et cetera. And we are dealing with that. We are discussing with the mutual fund industry that we have requested them that adequate focus is not given on these commodities market. So we told them to constitute maybe a working committee, you have so many committees there for equities, but you don't have one for commodities. So that commodity markets focused committee is constituted, we will be able to come and then handhold them, and then a lot of questions will be addressed, okay. The processes will be addressed because when we met some of the fund houses, there are a lot of doubts are there. All that gets passed out. Secondly, we have written to SEBI. For example, the silver contracts. Silver ETF is not permitted, thanks to Mr. Dhawan and others, we all have worked on that. And then the silver contract, SEBI said you must take the standard weight of 30 kgs, but silver bars don't come in like gold bar exactly 30 kgs. It may go -- it has a tolerance limit, 2.5% up, down, whatever it is. So that is the way that the stock is delivered on the exchange also. So we are telling them if somebody participates on the exchange, the mutual funds, they shouldn't face this problem because they are violating the SEBI regulation, circular. So we have addressed the comprehensive letter to SEBI, and SEBI has given it to the industry to respond, and then maybe participation can be increased. Then this is one part of it. We have also shown to some of the arbitrage fund houses, some of the big mutual funds are there, where in the last 3 years, we have generated the data how in certain times where the -- it's good for them to participate and then take delivery, and then maybe the next month, they can give up delivery. So that will help them next up, with 12%, 13% interest rate on that, cash-and-carry arbitrage opportunities. So the arbitrage funds also can take advantage of the commodity exchange market. Coming back to the institutional brokers, there are currently 5 of them are participating, and we expect -- I mean, ICICI has grown substantially, and so is Kotak is doing very well. And others are at the nascent stage, I would say. And we expect HDFC Securities to do better maybe in the second half of the year by the time their application will be launched, whatever that they are working on. And I'm sure they will onboard the clients for online trading. But ICICI Securities has grown very rapidly on the exchange.

Okay. Understood. Okay, okay. Fair enough.

Okay. So one thing on these changes -- margin changes, which you have suggested -- is my voice clear?

Yes.

So do you think we'll go -- these changes are enough for us to go back to our older volumes? Or something more needs to be done?

I have -- see, SEBI is not in a mood to lower some of these margins, okay, peak margins and et cetera, because almost all 30, 31 defaults have taken place in the market over the last 2 years. So primarily the brokers didn't take enough margins from the clients and clients don't pay then brokers default, they use somebody else's funds that whoever credit balance. That is the reason why this problem has taken place in the market. So SEBI may not -- and even our market also now adjusted to it. We have to live with it now that it is done. It's a kind of done deal now. I don't think our market is expecting any, what we call, further modification or lowering of these margins. So if people find -- investors find it's a challenge, probably options is one thing that they can actively look at it, and that's how we are marketing also, that's it.

Right. And sir, secondly, like still like if I look at overall commodity basket, the amount of trading which is happening in India and as well trading which is happening outside India, and so the government is focusing on all this Aatma Nirbhar Bharat, et cetera. So are any more reforms or any steps are expected, which can like increase the trading in India? Do you expect any more steps on government to encourage domestic trading?

See, first, I mean, it's my personal view, government or the SEBI regulators should have a dedicated plan to grow the commodities markets to the level that they are looking forward to. Like abrupt disruption of contracts or suspension of contracts daily shaken the faith of some of the participants. We were doing in crude oil contract -- crude palm oil contract, we are doing very good, almost all INR 300 crores to INR 400 crores ADT, and abruptly they have suspended it. Although 98.5% of the crude oil is imported and Bursa Malaysia is the price setter for these kind of commodities. But we lost, that's the way it is. Without much understanding, whether MCX price -- I mean whether the MCX is the one which is leading for the rise in prices of crude oil or not, without understanding it, it has been suspended. So it's a pain point for us. So we are -- you're right, we need to -- our volumes are not as big as it ought to have been. That is one area of reform that we need to look at. Another one is even the companies themselves are hedging it in international markets because they have the liquidity, big ones, actually. And they don't look at the MCX kind of platforms. So what we are positioning is our platform should cater to the smaller players, medium players, who may not have a foreign currency exposure or any kind of thing or they don't have any exports, et cetera. At least they can look at domestic market and then hedge on the expense platform. But the hedging concept itself has not sunken as yet in their mind. So a lot of education is something which is currently happening. And they don't consider the physical book as well as the financial book together when they are calculating their hedge position. So if there is a price on MCX has gone down, and the physical market position may have in profit, then they should -- they don't consider that -- they incurred loss here and then they incurred profit there and why did I hedge it. If I have not done that, then I would have benefited is the kind of thing. But hedge itself is a zero in some ways in that sense. And so a lot of education is needed, and we are working with this Institute of Company Secretary, chartered accountants, et cetera, because that is where the CA professionals and the CFOs are sitting, and I think they need to understand how the hedge works.

Yes. So basically still understanding of commodities in the minds of regulator and all this much lesser than what it is desired. And you will have to continue to do hard work till you get the endpoint and all the right policies.

Yes. Yes. That's right.

Okay. And sir, one last thing. So you mentioned about HDFC, ICICI and all those, so is there any room for us to like the encouragement of this newer online brokerages like Zerodha and all that. Like if they increase their participation, will it make a significant difference?

The biggest broker at this point for us also is Zerodha. Zerodha, Angel, they all have, all their retailers, they kept it open for anybody to come. That's why there's no problem. They're doing...

Okay. Fine. Rishit, over to you.

Okay. So just continuing on Samir sir's point, right, how do you see the overall volumes shaping up, let's say, over the next, let's say, 3 to 5 years across contracts? If you could just provide us an understanding because some of these regulations will take time to sink in. Some of the additional work that you're doing, it will also take time to sort of shape up into adding more liquidity on the platform, right?

Yes. See, with the regulations being what they are, assuming that it will only be tighter and tighter, but not lessened, okay? Given the existing regulatory framework, if greater participation come from institutions, that is one positive thing that we can expect it. But these institutions bring in open interest but not liquidity. In the sense, when I say, what we call, the turnover, not ADT so much, okay, so -- but then retail participation is a must, but there is also a fear that whether the brokers are misselling the products, derivative products to the broker, that is true with not just commodities, but even equities also. So one is the greater participation. Second is greater number of contracts that we have proposed to introduce. So new contracts is what we are looking at it. And each one incrementally adds some value to the basket that we are looking at it. And the third set is the reach of the platform. I think that is one thing we are working with member brokers so that they will expand to some of the sub brokers and other set who may not be participating at this point in time, but our efforts are to make them also come in. So greater participation is another thing we are looking at. And a lot of small players also have come, by the way. And last year, I mean, one major international player was there this year, another player has joined or even last year itself toward the last quarter he joined. And this year, one more international algo player has joined. So I think it will increase liquidity in that sense.

Okay. Understood. And is there a volume expectation that you think this can bring in all of these things?

I can't give you a number at this time. But definitely, I mean we have our own plans. I mean targets are also given to me as -- for the next financial year. So to be fair for some...

So we can assume what we've seen in the past in more of let's say, block of period, that is something that we can replicate in the mid-teens or slightly higher in that is something that we can do or...

What you have seen is the actuals. But what targets are given also are pretty high.

Okay. Okay. Understood. And just one more thing that I wanted to sort of check. On the nickel metallurgy that serves cost, what would be the size of the volumes that you will end up sort of closing this quarter? And do you think that -- I mean prices we have updated now, right?

About INR 5,000 crores ADT we have lost. From 7th March onwards, almost all INR 2,000 crores ADT we have lost. Last financial year, we had INR 1,600-odd...

1,700.

INR 1,700 crores, something of the that kind. I do have it. INR 1,700 crores, but now it is -- yes. For the entire year, the average ADT was INR 1,700 crores last year.

Okay. Okay. Perfect. And all of that will come realizing this quarter. I think -- sorry, go ahead.

Once the war is -- war comes to an end, hopefully, probably the supplies also increase, your international supplies, automatically the uncertainty will be done away with because Russia is a major supplier also in this.

Okay. Understood. And any steps that you think the regulators -- obviously, you've touched upon this with one of the guys, right? But are they taking any additional steps to sort of improve the liquidity on the platform? Or essentially, I think regulations keeps getting tighter over time and I mean...

See, we are looking at -- we are looking to regulators for one dispensation. Now currently, we have an SGF cover of 2 -- INR 525 crores, okay? And of course, there's only one way at this point in time. Any contribution that you make because of stress test outcomes, and it will go into it, even if the stress test outcome stones requirement of SGF, still we can't take it back. What we have asked SEBI is, you please give us the dispensation, where I will dynamically contribute more to the fund and reduce margins. And if there is any -- if there's no volatility and can reduce the margin, I can withdraw my SGF, then I will withdraw. So for example, currently in crude oil, the margins are 20% to 22%. Now so much margin cover is not required. But the moment I reduce the -- to 10% or 11%, then to that extent, the SGF requirement goes up. Now if it goes up, and it's a permanent going -- permanently going out of my books, which we don't want. So what we have requested SEBI is give us that freedom, we will reduce the margins, contribute more to SGF. And once the volatility comes down, probably I am allowed to withdraw also, if it is not impacting the SGF. That's the way we suggested. I think they are examining it, that will help us in reducing margins further.

Okay. Sir during -- so basically, during times of lower volatility, it can just help you sort of have a lower margin requirement and that should still not impact us? And then just help us in terms of...

Stress test results take into account about 15 years of volatility. So the negative pricing has substantially impacted the -- those results.

Those results, okay. Understood. Again, any time line on when this can happen? Again, these things should be pretty quicker. I mean do you think that SEBI would just end up taking a lot more time instead of...

There is -- all these things go before the Risk Management Committee, RMRC is there, Risk Management and Review Committee, that meets -- maybe a yearly maybe 3, 4 meetings are held. And maybe in the next 3 months' time, it should be settled, put it that way.

Okay. Understood. And any additional stuff that we can take from our sites to lower margin requirements? Or this is pretty much only sort of way where you can push it?

I think the margins at this point in time will remain like this. And as I said, only if we contribute to SGF, we can reduce the margins.

Okay. And just on the institution participation in the banking distribution, while you touched on it, right, when do you expect, that is, HDFC or some of the other banks to start growing in terms of volumes materially? Today, obviously they are very small. But -- and how do you see them to be a part of your overall volume share about a year or 2 from now?

They should be the top contributors in terms of bringing the retail investors or -- I mean, much the way that they are doing it in equities. So I think they cannot handle the scale unless they have a technology platform in place. And I understand that their platform will be there by the end of second quarter. So I think thereafter, we can see a good growth. As I said, ICICI Securities is already doing a good job. It's growing.

Okay. Understood. Just sort of shifting gears and moving a little more to the senior hiring, right? You've talked about some of the senior hiring that you've done in the last, let's say, 6 to 8 months, right? Could you just help us understand what roles have we added and the realignment that we've done with the CEO position?

Okay. See, we have hired 1 Chief Operating Officer, okay? And so that is very much needed. Substantially, I'm tied up in this much of the daily routine and regulatory compliance requirement work. So that is one hiring that has taken place. The second one is, there are 2 CTOs we have hired in, out of one is it -- I mean, whichever way you call it, but Chief Digital Officer, Chief Technology Officer, because we have so many systems. One is the CDP, that is commodity derivatives platforms, which TCS is working. It requires a full fledge full-time CTO dedicated to that to happen. So that is one person. Another one is we have so many critical peripheral systems and daily operations also to be looked after, the existing system. And we need to focus on the gold spot exchange also. That also has to be parallelly done. So we have hired in another person to look after these functionalities. So that's the way it happened.

Okay, okay. Understood. Just coming back to the volume piece, right? I think -- so when you touched upon this, that look, options are essentially not cannibalizing, right? But if you look at the futures volumes, they remain range bound between around INR 250 billion ADT of around SEBI long time, right? Anything that you think can be constraining that apart from the couple of issues that you mentioned? Or it's just more to do with that options is another area and people are shifting there and doing more?

So I would say other way, it remained range bound even when options were not there, okay. When options were not well, because option is an additional thing that has come. If you see ever since crude oil went into the negative, the entire crude contract was -- did not contribute anything in that sense, hardly anything. And NG also didn't do much well. But the gold has picked up and silver has picked up in the '20-'21, and it has done better. But options started contributing only in the year '21-'22. So if you see our volumes, almost all INR 31,000 crores in '19-'20, another INR 30,000 crores, INR 31,000 crores in '20-'21. And '21-'22, that's where we have taken a dip of about INR 26,000 crores -- INR 25,000 crores, INR 26,000 crores is what we had seen it. And again, it's primarily because of the peak margin circular and effect of it. So coming back to this one, it is not that the options growth which has led to this kind of reversal.

Okay. And usually, from, let's say, revenue perspective, right, how lucrative is options? Typically, is it that 2 or 3 options is equivalent to how much we make in 1 futures contract? And that's sort of math sort of to state, right?

I mean, as I have been explaining, it's about 3x of volume of options is equivalent to 1 time of futures volume. That's the way it is. But in fact, realization rate was better. In fact, it is almost 40% contributed, okay?

Okay. Understood. And just within the newer products, right, I think we've talked about power derivatives, we've talked about the domestic spot gold exchange, right? One, what is the opportunity that we see from these products? And second is, what are the challenges that can come up in terms of trading volumes?

Sorry, I didn't get it.

So the newer products, I'm talking about the newer products, one is power derivatives, I think that we've talked about in the past. And the second is the domestic spot gold exchange, right? So I mean...

Yes, yes. See, it's not just the electricity futures contract that I'm talking about. We have also received the contract approval for option -- monthly options on bimonthly futures contract, which is currently existing in the gold 1 KG. So that will reduce the, what you call, premium, okay, and the tenure of the contract to 1 month. So greater participation will come into the contract, is our view. And that will also help us increasing the volumes. When it comes to the electricity futures, a lot of work has been done across the sector, and we have onboarded a lot of, what you call, discoms and gencos. There are many in the private also and traders, and they're all waiting when we would be launching it. In fact, the spot market volatility is more because there's no futures market. Had there been futures market, they would have hedged their risk looking at the kind of volatility that they have seen in the spot exchanges seller, IEX, they would have hedged it and this kind of -- I mean they would not have incurred any losses. Some of them are incurring because there's a cap of -- INR 12 has been set as a cap on IEX DAM price for 1 kilowatt hour. I think that's the dampener. So everybody is looking forward to MCX launching the contract. Once we get the approval, probably I'm looking at by August, we should be able to get it. Then thereafter, we will about 2 months -- 2 to 3 months' time, we will launching it. This is one part of it. We also look at the steel rebar contract. I think it's on the verge of getting the approval. Once that comes, that is -- that one, we will be launching also. And the aluminum alloy is another one. Maybe before I speak in the next, what we call, con call, we should be able to get those approvals in place. So they will definitely add to the volumes. And I can't give you any figure because we have again internal targets have been set and we are working on that.

Okay. But sir on the Steel Rebar and aluminum alloy, they could be sizable given that we've got a domestic produce and market as well, right? Over time, if they can be significantly large in size from a volume perspective or do you think that's essentially the only way to look at it?

You're right, it's going to be a very big contract. I mean -- I did. Again, I will repeat. Provided the participants, participants essentially mean the hedges of the consumers, producers and other value chain partners consider hedging is essential for them to mitigate the price risk. And as long as they don't think that historically, also they're managing, they will continue to manage, we will have a problem. Probably once this -- a platform like MCX offers hedging facility, even the government will not give in their contracts, that if there is a price range of more than so much percentage, we'll compensate for these or that kind of price rise. There such kind of standard clauses are there. All will go away because they will expect these contractors to hedge on the exchange and then secure their prices.

And from, let's say -- so you talked about Steel Rebar, which -- any time line on when that can happen, on what steel and aluminum contracts?

See, I expect the contract to be -- I mean approval to come in the next month or so. So then thereafter we will prepare the ground for launching.

So I think we've got a couple of things coming in the next couple of month or quarters, right, in the next 1 or 2 quarters.

That's right.

Potentially, which should move volumes to a very different level, let's say, over the 6 months to a 1-year period.

Not day 1.

Yes. No, no. Obviously over a 6 months to a year period, right?

Yes.

I mean, typically in your experience, how long do you think that some of these things can take time to scale up to a decent sizable volumes for us?

See, again, volatility contributes a lot in making the contracts a grand success. So now the steel prices are really shooting up or really volatile, maybe the steel contract will see good volumes. That's what my hope is. And when it comes to maybe the aluminum alloy, which is used as a wheel base for the automobile industry, it will take time, maybe for that. But yes, Steel Rebar, it should.

Sir, 1 question on this. I hope I'm audible.

Yes, you are.

So we have seen unprecedented volatility across commodities this year in recent times, basically. So is this not a perfect time for us to educate the market and explain them benefits of doing that and maybe the readiness on the part of users to use it as a hedging mechanism can be really high. I mean, there cannot be better time than this time.

Absolutely right. Absolutely. The parallelly, activity is on. We conducted 1,200-plus programs, evidence programs last year. So more are on. In fact, on a one-to-one basis, also, we are doing it. And with the help of SEBI also to MSMEs also, we are conducting it. So it's a constant endeavor, that's happening, you're right.

So basically, you think the fruits of our hard work will be like visible on volumes because now maybe there is more readiness on the part of users.

That's right. It should be, should be.

Right. And sir, a little long-term question. So despite all our hard work, I think overall, like commodity exchange is still perhaps at a nascent stage compared to its potential kind of. So what all needs to be done for really -- like set us on a really high growth path because I think there's huge amount of things to be done yet. And we are still in very nascent stage.

You're right, you're right. See, Mr. Rishit has asked earlier, what do we do about it? As I said, government should have a focus on it, first of all. SEBI should see that, yes, this is the road map, and these are the milestones, and I will achieve this. And that vision document is not there currently today. And we are treating the commodity market on par with the equity markets because the players being the same, applying the same rules of the game. And there's no nurturing or encouragement, that's what my view is. And we wanted a different treatment or dispensation for the commodity markets. I think that will help us in growing faster.

So basically, government has to maybe within under SEBI itself, maybe create a separate department for commodities, who can understand the requirement of commodities in much better way and not trading in the same way that you guys are trading today?

It is here. But then, like member brokers, okay, everybody will have same network, everybody will be in the same regulatory game. Our -- the peak margin is a classic example. Something has gone down in the equity markets and then you apply it in commodity markets, and we work late into the night till 11:30 and 12:00. And we said that after 5:00, banks also don't transfer the funds. Even if this is RTGS, they, I think, beyond 7:00, some INR 10 lakhs or something is what is limit some banks have got put. And how do we manage those things? So they don't depreciate, all those.

So maybe over the longer term, maybe like this is a constraint that players in the equity market and players in the commodity markets are safe. And if we can create an entirely new ecosystem of players, specialized players in commodities who kind of -- who understands and like give a treatment, which is much better. That should be the long-term answer, is this correct?

That's right, that's right, that's right. I mean, for example, the banks are allowed to take, I mean, positions in equity -- the derivatives, but not here. Banks are not allowed to participate. And FIA's are not allowed to participate. I mean, why it takes so much time.

So sir, within the ministry -- which is the ministry which deals with all this like...

Finance. See, there is a commodities provision is also there in Ministry of Finance.

Are they sensitive enough to the requirement of commodity market or do you think...

They are, they are sensitive. I'm not saying that. But then priorities keep changing. That is the reason why the focus is not there. But yes, we will -- I mean, we have to drive it. I must accept that also. And let us see how do we grow in this part.

Rishit, over to you.

Just my last question on the business...

Rishit?

Yes.

Can I go? I have just 1 or 2 questions.

Yes, yes. Go please.

Just 2 questions. So one is that you mentioned, you talked about lower participation by actual user industries or rather corporates in the domestic commodity exchanges. And you also mentioned that institutions typically bring in higher open interest but not necessarily the trading volume already or ADT. Globally, be it on Chinese exchanges or American exchanges, typically, what is the role or size of non-investor kind of participants, those who are not arbitrageurs or...

Value chain participants, you call them, VCPs, value chain participants.

Yes. Usually, they come out with -- like CFTC comes out with a card report on a weekly basis, but the pattern remains the same. Because hedger generally, he won't do any intraday trading. So whether it is an Indian or whether it is overseas player, generally, hedges all contribute to open interest not to the volume. But you require a blend of both speculators as well as the hedgers. So that is how the price gets discovered and that is where risk gets transferred from one individual to the other one.

Okay. And secondly, again, a very 60,000 foot kind of question, but what we saw in China was, Chinese commodity exchanges sort of excluding in their volumes as things started happening more domestically there instead of hedging happening in overseas markets, so particularly Western world markets. I understand that what you have been saying about regulators in India who sort of are probably not yet giving a separate look at commodities that it deserves. But without that happening, do you think our volumes can scale up as sort of manufacturing starts picking up, we start doing more PLI and those kinds of things? Or does this require some kind of regulatory push, some restrictions on overseas hedging, only then can our domestic volumes go the way Chinese exchanges have gone?

Yes. For an inorganic growth of that kind, we'll use the wording the inorganic growth, I think regulatory barriers for hedging overseas is needed. And we have approached RBI, as they did it in the case of gold, they should do for other metals and others also. But they are reluctant. Not only they are reluctant, even this some of the domestic major industries are also reluctant. Simple answer -- I mean, simple reason. See, the domestic industries in our market, they have some degree of monopoly and control, okay? There is a brand that they are building, around that they are making the price and that may be superior, that price, although the quality remains on par with other brands, okay? Now we are playing a spoilsport in the entire game. Now on MCX, you buy or sell any commodity. And as long as it meets the standards, it is agnostic, whether it is delivered by Hindalco, Vedanta or still a small time player in some corner in Timbuktu or wherever it is. So they don't appreciate this. Now -- so there is a resistance also for we doing it. And you would be surprised to know in our metal contracts, we have made additional delivery centers. And some of these guys sit in the product advisory companies. They resist on additional delivery centers. Now what we did in the case of aluminum, I will give you a classic example, we moved our delivery center to Raipur. I mean, we have others, Thane and other places for all these years. But Raipur happened to be a very close to the production center because Eastern belt is the major aluminum producing, especially Odisha, okay? Raipur is a distribution center. So as a result, what happened is NALCO has no interest in any of these politics for them to meet the monthly targets and, et cetera. So NALCO started delivering the metal on the exchange platform. And now as a result, people find if there is an opportunity of buying the metal on the MCX, they take the -- they buy it and then take delivery from Raipur and it suited them. So other players started falling in place, okay? So even others also started selling. If the MCX price is better, then why they resist. They should immediately sell it, and that's happening for zinc also for us. So the -- I mean they have to -- they take time to accept MCX, okay, the big players. And as I said, they have built their own barriers to protect them. Those barriers are being brought down.

Just one thing, why -- if you were -- sorry, I missed the last 10, 20 seconds. Why would the larger players restrict it from having MCX essentially?

See, there, they command price, okay, because they have a brand building, okay? I mean it may happen for the Steel Rebar also, I can tell you that, okay? That's why we are very careful in choosing what grade we will choose and who are our players who can deliver on the exchange platform. Today, I am just giving you an example, it may not be true, okay? You have Jindal Steel, Tata Steel, so if they command a premium. If you go and then may ask the market, I want a Tata Steel Rebar of 10 mm or 12 mm, as you know the price that is quoted by maybe Murugan Steel or somebody else, I'm just saying, giving an example, maybe they may give INR 2, INR 10 cheaper. And -- but that kind of thing will go away once the platform is there because what I guarantee is the quality of metal, who made, who delivered is immaterial to you as a buyer, isn't it? So that premium will be lost. We are agnostic to who manufactures.

Then they could end up losing that premium that they charge at the same time that they had...

That's right.

Okay. Okay. Understood. And just one last question on the business before we move to some of the expense bit side. What are the education efforts that we usually do to sort of educate the end users, right? I mean how -- why this is needed, et cetera. I mean what kind of education efforts and what kind of cost do we incur for doing this?

See, almost all the education expenses are incurred from IPF, investor protection fund or Investor Services Fund. So that's a separate fund, and it doesn't go reflect in our books so much, okay? And only the -- our travel cost, if there is anything, are expenses of the employees to that extent will be incurred. But otherwise, the other expenses, if we have to book a hall or conduct a program, all that kind of will go from that. Anything further you want to add?

I think even now we do have a blend of both the things. We do the webinar, at the same time, we also carry out some physical seminars also. So that way, it is like it is -- sometimes it is going to be very cost effective, and we could be able to reach out to many people. And in other cases, it is like we sometimes take the local -- not local, what I can say the industry experts or something so that they can also go and they can also endorse how our -- how the products can be used. So all these things happen. So we conduct different variants of programs.

Okay. Okay. And just the last 2 questions from my side, right? I think on the software migration, right, you're sort of now switching to TCS. One, when is that likely to happen? Second, is bulk of the cost already booked in FY '22? Or do you think that some of the costs will also come in FY '23? And then going forward, how will it -- will it be -- I would assume it will be earning accretive for us, but if you could just help us understand how much cost savings will that sort of shift bring in?

Yes. Bulk of the costs will be booked in current financial year, no doubt about it, because before we go live, we have to do all that. And already some has been reflected, that is maybe by and large the hardware part of it. And the next question is, yes, we plan to go live sometime toward the end of August, early September. And I mean we are really working hard towards that date to be firm. And let us see how we process it, and that's where we are working at this point in time. I keep my fingers crossed, but then we are hopeful that TCS will deliver it. It is being monitored at the highest level in TCS also, the project input position.

And what kind of sort of cost savings that we see compared to where -- from the earlier vendor?

Presently, we pay a fixed cost as well as variable contract charges to our presence vendor. Going forward, post October '22, the first year after we go live, we will be under warranty. So there won't be any AMC that we'll have to pay to TCS. Also from year 1, that is from '23 onwards, we'll be paying an AMC to TCS. That has already been crystallize, it's a single-digit amount. And there will also be certain AMC that we will be paying to the hardware vendors, right, for the servers and hardware. Also, there will be certain software expenses that we'd keep incurring on the operational part, operating softwares for leaner -- any other. So on a net-net, if we are growing, it will only contribute to our EBITDA. Also, I forgot to mention that we'd be incurring -- charging depreciation on the new platform. So that would come in as an additional charge from October onwards.

So maybe in FY '23, it would not be basically higher amortization. But I think starting FY '24, is it sort of safe to assume that it will be earnings accretive?

Start from the amortization or start once we start putting it to use, isn't it? So that would be from October 2022.

No, no, what I'm saying is that once we shift to the newer vendor, right, will it be earnings accretive in the sense that the current vendor cost versus when you look at TCS cost, it would start to be earnings accretive starting FY '24 onwards, right? It will be lower...

Yes, it should be because we only be paying any variable costs.

And it will only be the AMC that you will be paying, right?

Correct.

What's the amount of savings, sir, you are looking at?

I won't be able to quantify it at this point of time. But as I mentioned we'll be paying only variable cost to the vendor based on our transaction.

Okay. So that's why as the volume goes up, this is on fixed cost, more or less, so that full benefit will come. Okay.

And sir, just one question on this. So the fixed cost to develop the software, you will probably amortize it in 3, 4, 5 years. Thereafter, there won't be any large CapEx of this kind. It will be more very -- it will be just -- I mean, amortization will stop and -- it will be only annual sort of AMC and maybe some modular CapEx. Is that right understanding? So real benefit will come in after 4, 5 years, is that understanding right?

To a large extent, yes.

So yes, because of the -- I mean, instead of in the form of payments, it will go as a depreciation, good amount of money. And once that is done, probably you'll see accretions thereafter, substantially.

But depreciation would be there, maybe for 5 years or longer than that?

7 to 8 years.

At least 8 years. It should be there, at least 8 years. It should be beneficial to the P&L, isn't it? We can't keep it for 4 years then only it...

Sir, one last question from my side. What is the use of surplus cash? I think today, I think what from a PI perspective, it would be roughly about 40% to 50% is what we pay out, right, or slightly more than that. But I think given that no incremental CapEx is required and we generate a healthy cash, right, what will be the incremental use? Would you look to consider a special dividend or something of that sort or...

See, even we too would like to give it away because we are not able to gain enough written and it is dragging our PI, et cetera. But the point is SEBI is yet to decide on permitting co-location. So some investment will be required if you decide to have co-location. Number two, that we are planning also, again, it's -- we wanted to have a coal spot exchange. Now it may require some amount of investment. Similarly, maybe some other exchange, if you wanted to have, we should be able to do that. And apart from these requirements, the -- I mean, we would like to contribute to SGF. As I told you, dynamically, we want to put money and then withdraw and then reduce margins, all that we want to do it. So we need to have some fair amount of money to do that play. And if businesses keep growing bigger and bigger, even SGF requirements also grows. And we want business to grow, isn't it, anyway. So that fund is required. We are not able to assess it too many -- today as to how much more you need it at this point in time. But even if -- yes, I mean, Mr. Bolar should be able to tell if any other near future requirements are there? But as far as dividend payout is concerned, as per the policy, we would like to give out the highest. Currently, it is about 75% is what the highest we can pay out, so we are paying at 75%. So that's the way it is. From the accretions -- from the yearly accretions, we are not retaining anything much.

Okay, okay. Fair enough. I think that's all the questions from my side. But if I my colleagues have last final couple of questions, they can go ahead.

One last thing, on competition front, is there any -- are there any new developments?

Now that competition is behind us in that sense, what I mean is that fear of competition is behind us, I don't think anybody can take it whether liquidity from an established exchange. But they're still trying to introduce new products and use their deep pockets to support in the form of market making, et cetera. But so far, they are not successful. And God willing, we will continue to be successful. That's the way it is.

Yes, that's all. That's all from my side also. Thank you very much for your time sir, all of you. Thanks to all of you.

Thank you.

Thank you so much for your time here.

Thank you.