MCX: Retaining Monopoly in Commodities Market?

Multi Commodity Exchange of India (MCX) is the leading commodities exchange in India that offers online trading, clearing and settlement of commodity futures transactions by providing a platform for price discovery and risk management. It received permanent recognition from the Government of India on 26 September, 2003. Then, the company started its operations in November 2003 under the regulatory framework of Forward Markets Commission (FMC).

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MCX facilitates trading in futures based on contract specifications and provides a diverse range of bullion, ferrous and non-ferrous metals, energy, weather and a number of agricultural commodities. From September 2015, Securities and Exchange Board of India (SEBI) regulates MCX, after the merger of FMC and SEBI.

MCX has a user- friendly and scalable technology framework that facilitates real-time data-feed on trading prices, trading volume and other information on the commodity futures contracts traded on MCX. Also, the company has an extensive national reach, with 688 registered members and 54,471 Authorized Persons through 27, 74,349 terminals with its presence in around 1,041 cities and towns across India as on 30 June 2020.

(A) Journey of MCX


  • Multi Commodity Exchange of India Ltd incorporated in 2002 for setting up a nationwide online multi-commodity marketplace.


  • MCX entered into a license agreement with London Metal Exchange.


  • Forged Product Licensing agreement with New York Mercantile Exchange (CME Group).


  • MCX became a member of the International Organization of Securities Commissions.

2013: NSEL Scam/Jignesh Shah Scam:

Jignesh Shah, the founder of NSEL (National Spot Exchange Ltd) and MCX and co- founder of FTIL was arrested by the Mumbai Police on 7 May 2014 for assisting NSEL defaulters in money laundering. But on 22 August 2014, he was granted bail by Bombay High Court as there was no money trail to Jignesh Shah.

In December of 2013, the Forwards Market Commission declared Shah unfit to hold any position at the MCX exchange. This is because, as per FMA, he was the highest beneficiary of this scam. As a result, Mr. Shah stepped down from the board of MCX in 2013.

Then in 2014, FMC asked FTIL to bring down its shareholding in MCX from 26% to 2%. It directed that neither Shah nor any company he controlled, should hold shares in any exchange in excess of the threshold limit of the total paid-up equity capital.


  • MCX signed MOU with CME Group.


  • Launched first-ever Gold Options contract on futures in India.


  • Launched Options contract in Crude Oil, Silver, Copper and Zinc.
  • Launched first-ever Brass futures contract in the world.
  • MCX’s wholly-owned subsidiary – MCXCCL received recognition to act as a Clearing Corporation and commenced operations from September 03, 2018.
  • Became a member of the World Federation of Exchanges.


  • Launched an Index Series "iCOMDEX" that gives information on market movements in key commodities traded on MCX and consists of composite, sectoral (bullion & metal) and single commodity ER indices.
  • Conversion of all MCX Base Metals futures contracts to delivery-based settlement mode from Both-options settlement mode from March 2019 and onwards.
  • Introduced 1 gram delivery based Gold Petal Contract.
  • MCX also signed MOU with Zhengzhou Commodity Exchange.
  • Further, Launched Kapas Contract.


  • Conversion of Silver Mini (5 kg) & Micro (1 kg) into delivery based contracts.
  • Also, launched of deliverable 'Option in goods' with Gold 100 grams and Silver 5 kg as underlying.

(B) Shareholding Pattern of MCX

MCX detailed research report with details of shareholding pattern
MCX detailed research report with details of major shareholders

(C) Executive Management of MCX

(i) Mr. Saurabh Chandra - Chairman

Mr Saurabh joined MCX on 3 July 2016. He holds Bachelor's Degree from Indian Institute of Technology, Kanpur. Also, he is an IAS Officer (1978-2015) - Batch of Uttar Pradesh Cadre. He has been Former Secretary to the Ministry of Petroleum & Gas, Former Secretary in the Department of Industrial Policy and Promotion, Also, he worked in the Ministry of Finance, Ministry of Commerce & Industry, Ministry of Chemicals & Fertilizers - in the Government of India. His age is 54 years.

(ii) Mr. P.S. Reddy - MD & CEO

Mr Reddy joined MCX in May 2019. Previously, he held the position of MD & CEO of CDSL & SEBI did not approve . He also worked with BSE for 18 years. By qualification, he did B.A., Economics, Andhra University, Visakhapatnam, India & Master of Arts, Economics, University of Hyderabad.

His remuneration for FY20 amounted to Rs. 1.96 crore which is 0.52% of the total revenue & 0.83% of the PAT.

(D) Business Segments of MCX

MCX detailed research report with details of business segments

MCX derives its revenues from Transaction Fees, Admission Fees, Annual Subscription Fees, Warehouse Income, Data Feed Income, Terminal Charges and Connectivity Income.

As BSE is for trading for shares, MCX is for the trading of commodities. The commodities include gold, silver & other precious metals along with agricultural commodities like cotton, coffee etc. Just as share certificates can be traded in equity markets, similarly, commodities can be traded in commodity markets called the MCX trading. Commodities are mostly bought & sold in what we call a futures transaction.

Benefits to Small Commodity Producers

The MCX Trading benefits the farmers/producers of commodities, because they get better prices for their produce. With an organized MCX Trading market & terminals everywhere, the producers now know what the market prices for their commodities are. Hence, they have a better negotiating power with the middleman. With the MCX Trading, it is now more profitable to produce commodities.

(E) Commodity wise Revenue of MCX

Detailed commodity wise revenue classification

Bullion & Energy segments contribute 78-80% of the Revenue of company.

Bullion: Gold, Gold Mini, Gold Guinea, Gold Petal, Silver, Silver Mini, Silver Micro.

Base Metals: Aluminium, Copper, Lead, Nickel, Zinc. Aluminium contributes ~1% of total revenue, Lead ~2%, Nickel ~5%, Zinc ~5% and copper ~5% of the total revenue of MCX.

Energy: Crude Oil and Natural Gas.

Agricultural Commodities: Black Pepper, Cardamom, Castor Seed, Cotton, Crude Palm Oil, Kapas, Mentha Oil and RBD Palmolein.

(F) Operational Parameters

Revenue of MCX is dependent on volume & prices of commodities traded on the exchange. Volatility in commodity prices results in increase/decrease in the volume of transactions & thus impacts the revenue.

(i) Volume of Contracts

MCX detailed research report with details of volume of commodities contracts executed

(ii) Average Daily Turnover of MCX

The average daily turnover of futures is an important parameter to see performance of MCX. In the FY20, ADTO of MCX increased by 26% from the previous year.

Growth of average daily turnover

(iii) Market Share of MCX

Despite the recent entry of Bombay Stock Exchange and National Stock Exchange of India in the commodity derivatives space, MCX continues to enjoy a majority market share. As on 30 June 2020, the Market Share of MCX is 96.7% in terms of the value of commodity futures contracts traded in Q-1 of FY21. Market Share in options trading is almost 100%.

MCX detailed research report with details of growth of market share

NCDEX - National Commodity and Derivatives Exchange

(iv) Market Share in Key Segments of MCX

MCX detailed research report with details of commodity wise market share

(G) Key Financial Parameters

The financial performance of MCX improved over last 3 years.

(i) Net Sales

MCX growth of net sales

(ii) Profit After Tax

MCX growth of earnings

(iii) Free Cash Flow

MCX growth of free cash flow

The company increased its free cash flow in last 3 years which is a key factor.

(iv) ROE

ROE expansion from 8-9% to 14% in FY20.

MCX detailed research report with growth of ROE

(v) ROCE

Impressive ROCE expansion from 9.76% to 15.85% in FY20.

MCX detailed research report with details of growth of ROCE

(vi) PBIDT Margin

Operating margin has remained stable over last 10 years.

MCX EBITDA margin growth

(vi) PAT Margin

MCX detailed research report with details of PAT growth

(vii) MCX Dividend Payout Ratio

MCX dividend payout increase

(H) Cost Structure

MCX cost structure FY20

The management is focusing to control costs of employee benefits including board meetings expenses & also marketing, business promotion & advertisement expenses.

(I) Major Revenue & Market Share Impacting Factors

(i) Volumes & Price Volatility

The revenue of MCX is mainly dependent on commodity market sentiments. The price volatility results in increase or decrease in volume of commodities traded.


The company achieved about 57% year-on-year growth in the number of contracts traded. Even though most of the commodity prices remained range bound during the year. The market share remained almost at same level at 84% as for FY15.


Further in FY17, MCX market share expanded to 90.37%. Even though the volume of contracts reduced by 5.13%. The major factors for volatility include prolonged strike by jewelers, continuously depressed prices of many commodities, uncertainties in physical commodity markets following demonetisation.


During FY18, the volume of commodities traded fell during first 3 quarters & recovered only during 4th quarter of FY18. The decline in prices of most commodities ended during the year. Crude Oil prices rose by about 40% during the year. Base metals touched multi year highs due to tight supply on account of environmental concerns in China & Philippines. The overall volumes mainly hit by Bullion segment. Volume of contracts traded on MCX fell by about 8%. On the other hand, the company maintained its market share at 89.58%.


The average daily turnover increased by around 21%. On the other hand volumes increased by 20%. The market share increased to 91.6%. The major growth driving factors include recovery in base metals as well as bullion & most significantly, crude oil volumes.


The year witnessed improved financial & operational performance with average daily turnover increase by 26.42%. Also, volumes increased by 20%. Moreover, the market share in futures trading enhanced to 94.01% & 100% in options trading. Apart from base metals, all commodities traded were in rising mode.

(ii) Growth boosted by Products Launch

New product launches by MCX each year contribute in expansion in volumes as well as financial performance. On products front, in FY19, SEBI permitted Options on commodity futures, MCX launched Options trading on the futures of Silver, Zinc, Copper & Crude oil in 2018-19, in addition to Gold options launched in 2017-18. As participation in these products gained traction, it evinced participation interest from hedgers, due to simplicity of participation & straightforwardness of exposure which is similar to a ‘price insurance’.

Currently, MCX does not levy any fee for option trading contributing around 4% of overall turnover.

Also during FY19, MCX launched Base Metals contracts that are compulsory delivery based & benchmarked on the domestic metal prices, paving the way for the Indian metal prices to be discovered in a transparent manner, discounting for both international & domestic fundamentals. Besides, aimed at further expanding the gold contracts’ footprint in India, MCX added 5 more locations to the list of additional delivery centres for gold & gold mini contracts in addition to the existing 3 locations.

Most recently, MCX got SEBI's permission to launch future trading in ICOMDEX Bullion (based on gold and silver price) & ICOMDEX Base Metals (based on five metals – copper, aluminium, lead,
nickel and zinc) indices. Future trading in indices shall also make commodities market, place of interest to institutional participants, which would translate into healthy revenue & PAT growth.

(iii) SEBI's regulatory improvements

In the past, SEBI brought many improvements to promote participation in the commodities market. Thus, various SEBI improvements bring several opportunities for MCX for new products & segments launch. In FY18, Category III Alternative Investment Funds (AIFs) were allowed to trade in commodities market. Also, Banks were allowed to become Professional Clearing Members (PCM), while their subsidiaries were allowed to offer broking services in commodity derivatives.

Similarly, in FY19, SEBI permitted Options on commodity futures.

Moreover, SEBI allowed bank subsidiaries to offer commodity derivatives to clients, mutual funds, alternative investment funds (AIF) and portfolio management services (PMS) permitted to trade in commodity derivatives. Institutional participation, though gradual, is a big positive as globally institutional clients contributes ~50% of derivative volume.

(iv) Enhancing Market Share despite Competition

MCX gained market share even in the worst market conditions. Also, there appeared no impact when SEBI permitted other exchanges i.e. NSE & BSE to trade commodities. Even though the exchanges promoted no transaction fee on trading, but MCX retained market share. Thus, proving that it is difficult to shift trading volumes based on lower pricing.

(J) Opportunities

(i) Increase in participants categories

Volume increase is expected with institutional participation. Apart from Mutual funds & PMS, In October 2018, Eligible Foreign Entities (EFEs), who have exposure to Indian physical commodity markets, have been permitted to trade in Indian Commodity Exchanges. EFEs among the European importers of Indian commodities can thus hedge their exposures in Indian commodity markets on MCX in a cost effective manner.

Improved liquidity and diverse participation, including that by hedgers & financial institutions, strengthens the price discovery and risk management processes of the Exchange platform. This also makes hedging cost effective through reduction in impact cost of trading on the Exchange.

In FY 20, 2,15,000 Unique Client’s codes are traded as compared to 2,21,000 UCC in 2018-19. Management is focusing on agri-market as only 10,800 UCC are traded and looking for increase in the number of UCC in the coming years.

(ii) Launching delivery-based Base Metal contracts

MCX has launched deliverable Base Metal contracts. These contracts are settled based on the domestic polled spot prices, against the earlier practice of following international prices. This initiative will lead to discover the Indian market prices for metals in a transparent manner. Metals volume will rise gradually when trades get used to the physical delivery mechanism.

(iii) Reach & Alliances

MCX continues to have strategic alliances with leading National and International exchanges like Indian Bullion and Jewelers Association, Indian Cotton Federation, IMC Chamber of Commerce and Industry, CME group, London Metal exchange for improved practices & information.

With 692 registered members and 54,900 authorised persons across 1010 cities and towns in India (as on 31 March 2020), MCX has an extensive national presence.

Moreover, MCX holds a strong market holding from past many years. This makes MCX at a better position to grab market opportunities & introduce newer products/segments.

(K) Risks & Concerns

(i) Competition

Till now, MCX faced no impact of entry of NSE & BSE in commodities trading. But, still the exchanges hold very vast client base & are market leaders in equities. Thus, competition risk is still there.

(ii) Negative Crude Prices

Few court cases have been filed against MCX & SEBI by traders and brokers for suffering losses due to this global crash in crude’s prices. MCX has also filed an appeal in the Supreme Court to consolidate all the petitions that are filed across the country. Company may have threat of arising liabilities in future as the after-effect of these cases.

(iii) Volatility

MCX derives its revenue from Transaction Fees on the basis of future contracts traded on the Exchange. Therefore, fall in the prices of commodities decline the value and volume of the traded contracts and have a direct impact on the exchange’s earning.

(iv) Global Factors

Various domestic and the global economic conditions affect India’s commodity derivatives market. Thus, company’s operations are also impacted by the events such as the country’s industrial growth, global financial crisis, recession, inflation etc.

(v) Statutory Costs

The imposition of Commodity Transaction Tax on the sales of non- agricultural commodity futures contracts led to decline in the volumes traded on MCX’s trading platform, as compared to the volumes seen in pre - Commodity Transaction Tax period.

(vi) Regulatory Risk

Changes in laws, regulations, policies taxation etc. also have direct impact on the operation of MCX & may affect the economic prospects for market inter-mediation.

Covid-19 Impact

  • COVID-19 crisis led global demand crash in storage capacities for Crude Oil which led to fall in prices. As a result, MCX April Crude Oil contract was settled at negative price. This negative pricing has adversely affected the sentiments of traders.
  • Due to restricted trading hours during lockdown period, Average daily Turnover slipped to Rs.15, 658 crore in April 2020 as compared to Rs.26, 356 crore in April 2019.
  • After restoration of normal trading hours for non-agricultural commodities from 9 a.m. to 11.30 p.m. from April 23, 2020, the ADT recovered to Rs 23,765 crore during May ’20 vis-à-vis Rs 27,252 crore in May 19.
  • Disruptions in the physical market of commodities and to logistics infrastructure during lockdown had adversely affected availability of labour and spot prices, and impacted warehousing operations.
  • MCX focuses to implement cost control measures to retain its margins.

(L) MCX Valuation

  • Market Cap of MCX as on 4 September 2020 = Rs. 8,227.57 crore
  • Total Cash & Investments as on 31 March 2020 amount to Rs. 2,015 crore.
  • The Return on capital employed of MCX remained between 9-12% over last 5 years. ROCE expanded in FY20 to 15.85% which is a positive factor.
  • The company's earning growth expanded in last 2 years. Growth for FY19 is 35% & then in FY20 is 62%.
  • Trailing P/E estimated = 33.01
  • Trailing EV/EBITDA = 24.82 (Enterprise Value/EBITDA)
  • Earnings Yield = 4% which is low at current level.
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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications. 

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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