The Multi Commodity Exchange of India Ltd., the world’s biggest bullion bourse, tumbled by the daily limit for the second day amid concern that suspension of trading at an exchange founded by its parent will hurt earnings.
MCX, backed by NYSE Euronext, crashed 20 percent to 409.65 rupees at 12:01 p.m. in Mumbai, the lowest level since it began trading in March last year. The stock has lost 42 percent of its value this week. Financial Technologies (India) Ltd., which owns 26 percent in MCX, lost 15 percent to 163.4 rupees, after plunging 65 percent yesterday.
The National Spot Exchange Ltd., India’s biggest platform for trading physical commodities, halted some contracts after the government on July 14 stopped the bourse from starting new obligations until further notice. NSEL is a unit of Financial Technologies, which owns 26 percent of MCX. Reliance Capital Asset Management Ltd., the nation’s second-biggest mutual fund, sold 1.19 million shares of Financial Technologies yesterday, according to exchange filings.
“Investors are selling shares of any company associated with the promoter group,” Paras Bothra, vice-president for equity research at Ashika Stock Broking Ltd., said in a phone interview from Kolkata. “The group’s credibility has been impacted severely. It’s natural that if one of its exchanges has such a deep problem, and that too a regulatory one, it will hurt the earnings and revenue of MCX.”
NSEL’s trade suspension will not impact the operations and financials of MCX as they are two separate entities, Shreekant Javalgekar, MCX’s managing director said by e-mail yesterday. The Mumbai-based exchange is the world’s biggest platform for silver and gold futures, and second-largest for copper and natural gas, according to its website.
“There’s no fallout on the futures market, which is better regulated,” Kishore Narne, head of commodity & currency with Motilal Oswal Commodity Broker Pvt. “There’s no financial risk per se because of traders trading on both the exchanges.” NSEL provides an electronic platform for farmers and traders to buy and sell commodities with compulsory delivery. The bourse dealt in 41 farm commodities, three precious metals, eight metals, one energy and 7 electronically-traded contracts, according to NSEL’s website.
The Forward Markets Commission, which regulates commodity futures, has asked NSEL to submit a report on how it plans to honor settlement obligations to clients and brokers, Chairman Ramesh Abhishek said in an interview to CNBC-TV18 channel. The exchange has 62 billion rupees of goods in its warehouses and liabilities of 54 billion rupees, he said. “The exchange is confident of settling all obligations and we don’t have any apprehensions about defaults at this point in time,” Abhishek told the channel.
NSEL accounted for more than 98 percent of the country’s electronic spot market in commodities before the suspension, according to its website. Physical raw-material bourses operate separately from futures exchanges in India.
Source: Bullion Bulletin