MCX to enter global league with IPO

Commodity exchanges have come of age. Mumbai-based MCX’s decision to file for an IPO marks India’s entry into an exclusive global club of listed exchanges, whose members include biggies like the Chicago Mercantile Exchange, the Chicago Board of Trade and Euronext-Liffe and Bursa (Malaysia). As exchanges guard street credibility with their lives, opening themselves up for even more stringent public scrutiny only adds to trader trust.

Though MCX is already a demutualised exchange, it will now be opening itself to even more regulation by getting listed. MCX will be regulated both, by the Forward Markets Commission, which is the commodity trading regulator, and Sebi, which keeps an eye on India’s 10,000 listed companies.
Once the MCX IPO is through, the exchange would be listed on both, the NSE and the BSE. But even though the NSE has a 2% stake in the company, it is unlikely to create any conflicts of interest between its roles as shareholder and regulator of MCX.

Experts say the matter has been investigated and settled more than 20 years ago. “The Kania committee in India, which included renowned names like justices MH Kania, M N Chandurkar and YH Malegam deliberated on these issues and that it would be desirable for a demutualised stock exchange to list its shares on itself or on any other stock exchange,” said an observer.

More importantly, as the seventh largest exchange in the world, NSE itself has sufficient credibility and effective regulatory mechanisms in place to deal with such potential conflicts. “When NYSE, LSE and NASDAQ can be self-listed and be trusted by their regulator to manage a conflict situation of 100%, we see no reason why the same cannot be replicated in India as well,” he added.

Companies that promoted NSE and on its board of directors are also listed on it. NSE had had no problems till now in regulating them as it does any other company. “There is no reason to believe that any information sent by MCX to NSE and BSE will be released to the public only by the BSE and not by the NSE due to conflict of interest. After all, the promoters of NSE are already being regulated by NSE for the last 10 years,” said an industry observer.

Getting listed is also unlikely to create any conflict of interest within MCX itself. While it will continue to act as regulator of the trading on its platform, it will simultaneously further shareholder value by improving business prospects.

“When MCX is listed on the NSE and the BSE, they will only regulate MCX only as a company for its financial performance as per the listing agreement. The NSE and the BSE will have nothing to do with the trading on MCX,” said an analyst here.

“If MCX as a corporate has gone in for voluntarily listing, then it displays its readiness for greater scrutiny and compliance, which could have easily been avoided by just avoiding listing,” he added.