NSE considers launching new products to bolster commodities market

Addressing a media roundtable, he said the NSE is currently focusing on non-agricultural products for trading on its commodity exchange because such products offer greater certainty

The National Stock Exchange (NSE) is seeking to expand its commodities segment by launching new products after examining the performance of energy, base metals, and bullion, an official of the domestic equity benchmark said on Friday.

 

The NSE will focus on non-agri commodities for trading on its commodity exchange as they offer certainty, and may not foray into agricultural commodities in haste.

 

Sriram Krishnan, Chief Business Development Officer at the NSE, told journalists that the Securities and Exchange Board of India (SEBI) had approved more than 100 items and the stock exchange would want to expand the market by launching these new products at some point in the future.

 

 

These non-agricultural commodities particularly include products from three categories - energy contracts (such as WTI crude oil and natural gas), bullion, and base metals.

 

“In agricultural commodities, the government sometimes intervenes and cancels trades on certain contracts, creating disruption. Also, the risk is very different in the case of agricultural commodities. You need a very different kind of capability to deal with perishable commodities. So, we will not go there at least till we succeed in other areas,” the officer said.

 

The charges for trading at the commodities market at the NSE are much lower than those at the Multi-Commodity Exchange (MCX) in options and futures, incentivising the market players to trade at the NSE and helping increase the participation, Krishnan said.

 

He said the quantum of India’s commodities market on stock exchanges will have to rise if the country aspires to become a developed country and a $10 trillion economy in the next ten years.

 

Elaborating on the importance of a developed commodity market in India, he said that it will help in job creation and support the livelihoods of many people just like the equity market, despite the country being a slightly late entrant to this market.

 

“If our economy has to become a $10 trillion economy, we will have to do many more things. We have a very big equity and equity derivatives market. The one missing building block in this whole thing today, as far as India’s GDP is concerned, is a large enough commodities market," he said.

 

The commodities market is currently very tiny and not in sync with India's aspirations to become a $10 trillion economy, he said. "So, that is one area where we think a lot of work needs to be done,”  Krishnan said.

 

Krishnan also noted that the size of the commodities market in the advanced economies was roughly 5-6 times the size of the equity market, unlike India, where it remains a fraction of the size of its equity market.

 

“It is our desire that India eventually becomes a price maker (of some commodities) at some point in time, given how much we consume. If we have to become a developed country, we have to become a price maker in some areas. That is only possible if you have a large enough commodities market,” he added.

 

Krishnan also said that there was a need for process simplification and increased awareness for the NSE’s Social Stock Exchange to gain traction and expand. “You can give a donation today via only one payment gateway. We have to make it broad-based by bringing in open architecture, just like we have it here on platforms like Zerodha and Groww,” he said.