‘Market momentum and investor interest are at unprecedented levels, making this the opportune moment.’
Illustration: Uttam Ghosh for Rediff
National Commodity and Derivatives Exchange (NCDEX) is gearing up for its next big leap — a foray into equities.
The exchange, which is currently laying the groundwork, plans to launch equity trading by August next year.
To fuel this diversification, Managing Director and Chief Executive Officer Arun Raste says NCDEX aims to raise over Rs 500 crore for offering both cash equities and derivatives.
In a telephonic interview with Khushboo Tiwari/Business Standard, Raste outlines the strategy, funding plans, and vision behind NCDEX’s entry into the equity markets.
What made NCDEX decide to foray into equities?
Our analysis revealed a unique opportunity. According to Securities and Exchange Board of India (Sebi) regulations, we are a stock exchange — though currently the smallest, we’re fully compliant and match the biggest players in risk management and systems.
Another crucial factor was the ban on certain commodities. Two decades ago, India and China were at par in this space; now, the Chinese exchange is a hundred times larger.
In India, government agencies don’t participate in commodities trading, making the exchange heavily reliant on private sector involvement.
Physical market players have shown limited interest in commodities and derivatives, resulting in volatility.
To counter this, we identified equities as the ideal avenue for growth.
Why do you think now is the right time?
Just last year, about 23 million new equity investors entered the market. In five years, the participant base has doubled.
With India’s expanding demographic, there’s ample room for new entrants.
Market momentum and investor interest are at unprecedented levels, making this the opportune moment.
What conditions has Sebi set?
Sebi has directed us to further strengthen the commodity market, and we’ll submit our plan in the next three months.
We are also required to focus not just on derivatives, but on cash as well, similar to how BSE succeeded.
We’re prepared to offer both cash and derivatives, leveraging our strong expertise.
Sebi also mandates investment in technology and human resources — we will form a listing department, upgrade our data centre for colocation, and utilise existing clearing corporations, thanks to interoperability provisions.
Technology negotiations with LSEG are under way.
What are your fundraising plans?
We already count institutional investors such as Life Insurance Corporation (LIC), National Bank for Agriculture and Rural Development (Nabard), and Punjab National Bank among our backers.
We aim to raise Rs 500-600 crore from high net worth individuals (HNIs), private equity players, and brokers.
Institutional investor stakes will decrease post fundraising.
By the end of this month, we will finalise new investors and subsequently seek shareholder approval.
Funds raised will be dedicated to the equities business, with our existing balance sheet continuing to support manpower, expertise, and some brokerage operations.
When do you plan to start equity operations?
If all proceeds smoothly, we expect Sebi’s final approval by the financial year-end and hope to launch by August next year.
Companies listed on NSE and BSE will be eligible for listing and trading on our exchange.
We’ll prioritise the cash market, rolling out derivatives once the data and products are robust.
What will be your USP? How will you compete with the largest exchange?
Our strength is our rural focus — our clientele is not city-based but comes from ‘Bharat’.
Only 16 per cent of India currently invests in equities, leaving massive untapped potential in Tier III, IV, and V towns.
Many of our over 200 brokers already operate in equities and derivatives; we’ll onboard more and target brokers who left when certain commodities were banned.
For brokers already dealing in commodities, we’ll provide a seamless equities experience on the same platform.
What are your views on retail losses in the derivatives segment?
In agricultural derivatives, there are no retail losses, so I am satisfied. For equities, we remain vigilant. As a first-level regulator, exchanges mirror the regulator’s concerns.
Investor education is essential — my role is to inform investors about risks and benefits.
The regulator is taking steps to educate; ultimately, investors must understand safe instruments and act wisely.
How do you see recent curbs by the regulator on futures and options (F&O) speculation?
We urge investors to make informed decisions — speculation should be based on study, not chance. We want genuine investors, not gamblers.
Steady, patient investing yields returns over time, not instant gains. Our message is: avoid greed and invest wisely.
How do you view regulatory risk, given that revenue streams depend on regulatory decisions?
We have faced such risks in commodities before and are well-prepared, building these caveats into our business model.
How will you gain traction in the cash and derivatives segment?
We’ll onboard companies already listed on other exchanges. For derivatives, Sebi requires a broad-based index with 25-50 constituents, not sectoral indices.
Contributions to the Settlement Guarantee Fund will be volume-based. We also plan to partner with mutual funds.
Will you need to rename the exchange?
We haven’t finalised anything yet but may consider an option to shorten the name, akin to what BSE did.
Feature Presentation: Aslam Hunani/Rediff