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

First of all, thanks for taking out time. We have the entire team. [ Teleses ] on the call. Sir, you're on mute.

Are you able to hear me?

Yes. We're able to hear you. Good afternoon, Mr. [ Tenish ]

Thank you so much for your time. And obviously, all of us have been through a fairly challenging year, I'm sure for you as well in the last few quarters. And large events [indiscernible] [ sectors ] are definitely not easy and [challenging]. We wanted to really get a sense of the comfort of your team and your processes which are built around enabling this completion. And what I'm calling to you, like you have mentioned, I think in the call and all that by October, we should be around the -- be comfortable around that. But could you give us some granular understanding as to what are the things which are in your control, which you are executing and we are very confident about [indiscernible] getting it done. And are there some elements which are not totally in your control with -- which has been creating the problem in the last couple of times when we have [indiscernible]. We just wanted to understand the technology piece behind this and [indiscernible] from you. I thought I'll start off with the most important question, and I think this must be in [ will be ] taking most of your time as well. So happy to hear your response.

Thank you, Mr [ Tanesh ]. More than anybody else, I am the most disappointed for not being able to do the transition because I have been, what we call, have been positive about this transition happening. And the last time was -- I would say almost a 99.99% kind of thing. Yes, there are challenges. I know that, not that we are not aware of those challenges, but then we wanted to manage those challenges while we are -- trading is on. But then certain things have not gone well with the -- some of the stakeholders of the system. I'd like cancellation of some [indiscernible] on account of some technology issues especially some databases cash or which it took time for us to restore. So well, we have the vendor support, yet it took some time. So that is one reason kind of thing. Secondly, we had to fine tune the [indiscernible] processes. The window that is available for us is [all like] to market is just 6 hours. [ Markets ] are open till 11:30, 12 midnight. And then again, morning by 6:00, if you give it, then obviously, you will be there at 9:00 to start the trading. So we couldn't do that a good number of days because the, some of the databases are failing, and they are fixing and then running it. And then at the end, it was going through, but then that is where the time is being consumed. So we couldn't obviously start the trading by 9:00, but probably we could have started trading late if that was the price that we were to make. So these are the issues that had discussed that. Of course, some more functional issues are there. We were also saying that, yes, we will see whether there is any workaround and we can work with that. Just to give you a notice and move to -- for an extension. As I said, again, compliances also in terms of audits, et cetera, could not have been completed with a team reports that was sent. So unless we get a case put, obviously, we will not be able to go forward. Yes, the kind of business takes -- can see different from few technology taking an approach to this kind of project. So we couldn't move forward. So now that we have spent a month into it, yes, many issues. So we have got control of it, and that those are all got fixed. Now the [indiscernible] reasonably good in the sense we have almost all able to grow on most of the days by 637,739 a month. So the point I make is that [indiscernible] is good enough now? We are still refining it some of the processes, some of the batch processing where some are failing, some of are failing. They need to be founder -- fundamental [ solution PC team ] is working on that. So that the time lost in the [indiscernible] will be reduced substantially. So that refinement is going on. Although we have not declared [mock] to the members for participation. But on a daily basis, we are running the trading with full capacity. When I say full capacity, what are the current volumes that we have? We use a trade generator and then the generator that much trading volume. So that system is withstanding the kind of load that is expected to. Look, that includes in a variety of contracts and variety for instruments that we have. So -- and again, even the [ mock ] system where we are running is nothing but the live [ bidding ] system going to be. It would still be coal like we call it as [ mock ] trading system, but then once we go live, and that is [indiscernible]. So that the numbers need not find the data being inconsistent are the last minute you migrate data, then they will find, oh, [indiscernible] my uses are not there or some users are not there. So in fact, we have already done on maybe 4, 5 occasions in the past also when we ran the [ mock ] session almost [ 30 plus ], but some of them sessions with almost a live data because we had a [Friday] trading is done, then we copied that data. World [indiscernible] online trading -- trade processing that data, that is. Then that data we have migrated into the to the [ mock ] system because when we go live, actually, that is what is going to happen, the Friday, in a Thursday, whatever is the time that the life position is still appropriate to this new system and then start trading. So we have given that members in the past and [indiscernible] we have started trading also. And remember for what trading or sending so that we will also be able to verify whether all the online data has been properly transferred or not, whether all the, what you call the, rights and what are the privileges that are given to various users are properly populated or not. I hope that it is properly transferred to the respective client account et cetera, et cetera. So we will continue to do that. So far, we have done almost 61 data migrations. We have created golden copies of that. And we'll continue to do that before we go live. We plan to do as many times as we can. While Tata data, maybe while Friday data, may not be able to do -- may not be able to do it even a time, at least somewhere in the middle of the week, we can take that data and then that goes as to the live data, we will give it to the -- for verification. So we are working towards this one in objective to go live at the earliest, not expanding the time that we have it, but we don't want to look at that time frame. And it's important is the store the confidence of all our stakeholders, having what we call having not been able to achieve price, I would say.

If this all the [indiscernible] working in defensive, you have some [indiscernible] that selectively some vendor-supported problems like you mentioned or [indiscernible] that's all behind us. Those kinds of things are behind us. And there is good support and cooperation of all the vendors you require to make this happen.

There's no problem on that part of it. But obviously, the most important when there is a partner in this technology. [indiscernible] and they have to fix it when they are already problems online and -- and that's the way at this point.

So just one thing, right, whether in terms of the transition, is there a blessing or is there anything to do with 63 [ moves ] that they could get involved or unless and until some credible piece that you are to provide that is required in this transition or this is something that we can manage independently with TCS about 63 [indiscernible] entirely in the future.

Yes. It is an independent exercise. So in that sense, data migration has been done for almost all 15, 20 years of the whole data into the data warehouse system and all that. Without any involvement. Because in an audit also to verify whether the data migrates to be install in place or not and KPMG engines, and they are verifying it. So that we have done it successfully. So it is between [ NCX] TCS and the system scheme.

In the maintaining , you talked about on [indiscernible] is that sort of largely behind us now? Or that's still happening with some improved efficiency now? I mean [indiscernible] -- as we speak right now, what are the issues that are still pending before you start pushing mocks to the member of brokerage?

See, the [indiscernible], as I said, bad schedule certain are some -- or some kinds of, what you call some update, not take place, maybe so they have to be corrected and then move forward. And yes, they are getting fixed. That's where we have put a tight scheduler and the scheduler [one-sit ] and the [indiscernible] session is something sales don't buy for that and then move forward, make sure that is an important process that we have to run through or it can be [ bypassed ] it may not happen in day-to-day situation, some certain activities happen only on certain days. So that kind of thing has to happen. That's the way that restrictions are. And similarly, second certain processes need not be done sequentially. And like some file generation can happen much and what are to be given to the members can be given much earlier than, what they may have planned currently. So they are being removed from the scheduler and then put it as a separate process. I mean when I say loosely speaking [indiscernible], what I mean is that can be run independent of the other [indiscernible] processes. So that member will have the files by 3 a.m. in the morning. So some obligations have to come only after it has to be done sequentially. But trade and [ autofills ] can go well after the -- I mean, soon after the closure of the market. So like that, they are identified, those things are being done now. And I think growth that will further give some more time for us to reduce the timeline. We would like to have complete these things as early as possible so that what for any reason 1 day, we miss it, then we will have more time for us to fix it and then move forward. That's the case.

So should we review the other issues that were even at the end of the last month, right, at the end of June, right? We spent about a month already. I think it doesn't look like most -- some of these issues were also there in the last months, sir, as well, right? I mean what's changed in this one month because all I'm trying to understand is the progress. Is there a visible progress that we can see with [indiscernible] which gives us some guidance part towards October, September, October, where we managed to get the transition or we'll still be talking [indiscernible] information?

As I said, today, as we are speaking, we are able to get the system by 637 kind of thing. So that was not there. We had about [indiscernible] Sometimes to tell the members system is available from 9 o'clock onwards. Where we used to declare market [ selective-driven ]. So that is not there.

Okay. So that's one of the progress that we would have done in the...

Very important for us because for us to start market at 9 o'clock mine, it's very important.

Okay. Now incrementally from year on, like you -- I think you mentioned on the call that September, October, one of the deadlines. Again, I see it's a noncommitted data, but I'm just trying to make sense, is there a view that things were on the way they are, that looks realistic or that still looks like a little bit of a [ fetch ]? Believe it or not [indiscernible] yet.

I mean we are planning definitely this month only, the mocks are for the number of [ brokers ]. We have not announced the date, but we will be -- its members.

I'm now on September, October, [indiscernible] realistic now or do you [indiscernible].

I said that last time itself, we plan to go live, then why not this time? That's the way it is.

Let me just check with my colleagues if they have question on this one.

Yes, good afternoon. Thank you for this introduction. Am I audible?

Okay. Good afternoon, Sahmar.

Thank you for all you -- some of these points that you have shared with us. And I have just one question, and please pardon us for sort of changes, but this was sort of a key point, [indiscernible] briefly touched this, but I still wanted to get some clarity, for the transitions to complete or successfully conclude, do you lead cooperation of 63 [moves] in any way?

[indiscernible].

Okay. Thank you.

For the, transition, right, for that. I think so you have seen in the past 2 -- you call to -- [indiscernible] Is the new higher, you've talked about it, obviously, that the new [ higher ] is done and you're rating -- is there a timeline? And is that from a process perspective, is that an [ woven ] with the [ COB ] within [ CROB ] sort of inducted into the organization? Is there a clarity on the timeline because I think that we take a few [ when ] from a [ transition effective ] for us to monitor as well.

Okay. On the [ CTO ], I must say that the Board way back in maybe '21 itself when [indiscernible] we were hiring, or '22 maybe, I don't remember, but when we were hiring new one, you said that we should hire to so that one will remain as aback up to the other. That's how Mr. -- the current [team] CTO, who is acting [indiscernible], [indiscernible] at that point in. So the projects should not suffer that the old spirit behind it was. Similarly, for the current [indiscernible] also, all the interviews and shortlisting already been done. We will soon close that also. It's already done kind of technology [ company ] is also finalized. On the CRO, I think once the CRO joins then only we can announce to the market, obviously, we are currently working somewhere, so we can't [announce] at the meeting.

The way I understand or the way we understand is looking for CTO would be critical from a [indiscernible] [ tech CTO ] would be critical from an audit perspective, in terms of checks and balances with respect to what the requirements are, et cetera, right? So for us, that becomes those two important events, which helps us track their induction into the organization and they'll obviously take their own time to get things for it out right. [indiscernible] Obviously, I'm not looking to the name. I'm just trying to understand the timeline, I think maybe both of them will be declaring about a 3 months time to give a notice and all that kind of thing. So that's the way it is. I'm sure we should be able to onboard the CRO by 10, by October. But not by October, by [ now ] it should be able to. And also say this current CRO is also there. It's not that, gave themselves or heads of departments for a long time in this organization. So they are very much aware of [indiscernible] not that they are not aware of. So yes, I think that's the requirement, which we have to fulfill that what we are using.

Because the -- is there a risk that can come in by November, you could just also end up December is going to close. Is there a [indiscernible].

I don't see any risk out there for me. It's not a risk.

Okay. And maybe wouldn't it be best to just elevate the existing [ license ] when I mean, we can take care of the position themselves?

I know that [ item ] was made, but there are certain issues. So I can't speak up now, and that's why we couldn't do that.

Okay. I think that's all I had on that take. I'll just check if everyone has anything on that transition. Otherwise, we just have a couple of ways to make questions from a business perspective, and I think that's pretty much it. So I'll go in terms of the business now. In terms of -- from a business perspective, right? I think there was -- I think there been 2, 3 orders as we said that look, both Jan '24, I think some contracts would not be allowed. Just if you could help us elaborate on what did they sort of indicate? And is there any risk that you would see because of this?

See, the contracts that are required from the -- I mean what are contracts that are needed and which are active in the market, they have already been launched, and they are already there. And we should be able to implement it any way much earlier and we should be able to launch other contracts also as we move forward. Even if we launch them, they are all liquid only. You have seen that only for the two contracts are at -- so there's no impending danger for me at this point in time.

Okay. The other thing on gold options, right, because that's, I think, one of the contracts that we were expecting to launch after the tech transition, right? Is that correct? Gold [ mine ] sites.

Yes.

So just on that -- from our [indiscernible] view on [indiscernible] how you think about it. When I look at futures, obviously, gold is like [ 50%, 60% ] of the volume range. How optimistic would you be on that particular contract, some on growth, volume perspective, would you be equally optimistic as the way you've seen crude kind of picking up? Or is there a different attitude that we should know from a business product perspective that you can highlight.

See, in the case of crude, the options are much more actually traded than the underlying because the margins on the underlying are very high and almost all the 40% of the margins. So that's a very -- that's not a small sum. Although the contract size is not very big in the case of growth, okay? Now when it comes to the gold, so that's whyin crude is the options are very actively getting traded. When it comes to the gold, at this point in time that monthly options are not available. Options are bi-monthly. The underlying contract, which is itself is also bi-monthly, although the margins are about 12%. The contract value is almost all 55 lakhs. 1 lakh is on 1 kg of gold, so 55 lakhs or 50 lakh for [indiscernible] is depending on the value. So that's pretty big. And bi-monthly option means the premium will be, to that extent, tenure being longer, it will be expensive. So my view is, although the margins are not high because the contract value [sales] is very high, the options to pick up is my understanding -- monthly options to pick up.

So no, that's what to maintain. So then to the extent, I think this will be one of the key points, one that transition that is part rather that I think there's a fair to think of it. The other things that I want to understand of the index that is [indiscernible] options possibly. Index derivatives from a future perspective has not picked up because that was one of the more promising contracts for us as well,. Is there a reason why from a product perspective has not picked up anything, areas that you can highlight. What has changed or options in the key [ piece ] there in which one to launches where things can pick up from that perspective?

Yes. Currently, we have only index features and we launched all the three and then they are doing well, thanks to the nickel contract [indiscernible] for the entire material indexes almost all INR 300 crores, INR 200 crores, INR 300 crores. So it is clocking in much of that. And [indiscernible] what is doing, again, about INR 30 crores, INR 40 crores, INR 50 crores, maybe sometimes INR 70 crores, INR 80 crores of seeing it. Yes, it is a disappointment for us also at this point. We are not focused so much on it. I think some -- whenever there is a what you call a dampener that came in the form of nickel and other things, people have withdrawn from almost all those contracts. I think we'll relaunch these things once we index is reconstructed. We've already done that. We were to remove nickel,...

Nickel has been already been removed. But more than that, it is like we are waiting for the transition...

Transition to take place. And thereafter, they will launch the contract.

But we need INR 1,000 crores, so [indiscernible] that's not requirement, Is it okay for the index [indiscernible] you can look at that at the time. But let me migrate safely to a new technology platform, then all these things will come to our mind. And at this point in time, our focus is only this technology, technology, technology, nothing else.

No, I think [indiscernible] for a really long time. I know you've been struggling through that, I think, but hopefully, we'll get there sooner. Just one couple of last questions, premium to [ national ] turnover in general has come down in the last, I think, 3, 2 or 3 or quarters, right? Can you just help us understand this -- I mean, what sort of impact this ratio because it obviously helps us to revenues in a fair bit of premium [indiscernible]. Give us sense us understand what typical impact? I mean, what is the key on several -- so remember here.

So generally multiple factors impact this premium to turnover ratio. You can look at like if market is growing larger and larger, and you can affect that liquidity also will spread over multiple strikes and even into the deeper into the deeper out of the money kind of contract. So you can see that as the markets go bigger than others, somewhere it can stabilize, okay, initially because the contracts stated could have been only limited to the money and deep in the money kind of contract. But during that time, naturally, you will be getting a better premium to turnover ratio. But as the market progress, you can see there, there could be but taking it is too premature to come out or arrive at any given number as far because the market just started emerging options just to last 2 to 3 years. I think we have to wait and we have to see it.

Okay. Currently, I think it is about around 1.5% -- 1 point -- how much. [ 1.9% ] is the premium to the turnover rate. And it may keep going down also. But then as far as our market -- our turnover is concerned, it cannot go down below INR 40 per [ INR 1 lakh ], that's the way our category. We don't [ last ] also when we are not intended to create.

So then in that case, we should have been the bottom now?

As we said, it all depends on where the volume is coming from. If it is out of the money option contracts, then it will still go down. [indiscernible] In the money, it will be more explanation to that.

Okay. The other thing is from a -- just one last question from a product perspective. Is it part of the weekly option? Do you have something in equity and volumes were [ equity ] Is there a part or something that you will have to do after the transition and then you want to run something that [indiscernible]? What you can contribute for the [indiscernible].

As on the transition to happen, thereof only all these will happen is our job is to protect the existing products and make sure that they grow. And I think we will look at the new ones as we go along once this is behind us.

But weekly options are a possibility, no doubt about it.

Just one last question from a participation perspective. Typically, what portion of the volume will be from the top 10 out of 20 members. Is there a number? Because what I'm trying to understand is that how increasing participation is coming from the retail because that's one of the sort of opportunities that we can play with, right? Because for us, the participation is really small. [ CTO ], like you mentioned, is really small items that can grow multifold over the next, let's say, 3 to 5 years. Some of participation that you can share, which will be useful for us to ensure that.

Well, in terms of revenues, I don't think I will be able to contribute because when you look at the top 10 members, how much they are contributing to the turnover, I can say, out of which some will be a retail brokers also. Not all of them are all go players. So of 10 accounts for about 60% of the -- how much is [indiscernible] 56 or 66 [indiscernible]...

Don't have the right number, but that is what we have been telling earlier.

How much? Dealing the public demand. So it's up 63%.

Okay. 63%. [indiscernible] some of them include your members who are [ catching ] to the retail industry. Okay. And in general from a [ UTC ] perspective, at least the numbers seen a decent amount of uptick in the last year, 1.5 years, right? Is potentially because the retail participation has increased well and you think this is broadly at a trend that can continue -- just your views on what are we doing incrementally.

My Expectations this retail participation should continue and will continue. I think a smaller contract is a key for their greater participation. Over [indiscernible] some of them did come back, but then it will take time for us to bring back all of them. And there are like your nickel and copper, still there are no smaller contracts introduced. In fact, copper was doing well at this point in time, so is the nickel and our request for [ swallow ] contracts in this is also -- is funding with the regulator for this situation.

So, I think -- let me just get if any of my team members have questions. Perfect. Thank you so much for your time. I think that is all we had. But [indiscernible], we hope this transition gets behind us and it is we get to focus on the business because I know how a couple of good things that you can do around the contract that you mentioned about, but all of the energy is sort of getting better in doing where we are standing right now. So that's how we [indiscernible].

Thank you. Thank you.