We met with Mr Mrugank Paranjape, CEO of MCX, to discuss (i) recent and upcoming regulatory changes that would mark the introduction of new products, participants and opportunities for exchanges and (ii) MCX's strategy and positioning to capitalize on these opportunities. Key takeaways:

Multiple avenues for growth

• Opportunity for MCX would come from [1] introduction of derivative products, [2] market opening up to new participants and [3] asset classes opening up to all exchanges.
• The Securities and Exchange Board of India (SEBI) has been following the above order in its regulatory reforms, with the most recent one being allowing of options and releasing the guidelines with respect to the product design and risk management framework in its circular dated 13 June 2017.

• Now that the guidelines have been laid out,  MCX cited that options can be expected to start trading from August 2017.
• Options would be permitted on those commodities that are among the top five futures contracts in terms of total trading turnover value over the previous 12 months, and their ADT would need to be at least INR2b for agricultural commodities and INR10b for others. Initially, on a pilot basis, each exchange shall be allowed to launch options only on one commodity post the approval of the SEBI.
• MCX currently has nine commodities that meet the minimum ADT requirement. With the passage of time, it will apply for more approvals for the commencement of options trading.
• The only area that now needs more clarity is the taxation on options. The Central Board of Direct Taxes (CBDT) is expected to notify on this point soon since the SEBI circular for implementation has already seen the light of the day.

• SEBI-governed entities (e.g. mutual funds) are expected to be allowed to trade commodities first; others (e.g. foreign investors) should gradually follow suit.
• While timelines are currently unclear, the approval for mutual funds seems to be the nearest, given the recent progress in discussions between the AMFI and the SEBI. Approval for FPIs and banks, however, may be further away.
• Discussions between MCX and mutual funds have been boosting confidence around a pick-up in volumes,  given the potential diversification that commodities offer.