MCX Cuts Transaction Charges

Multi Commodity Exchange of India (MCX) is the largest commodity exchange in India with market share of around 87%. In a recent development, MCX focusing on futures trading in commodities has cut the transaction charges on futures of all commodities. 

The reason for this move can be attributed to the falling volumes. The volumes at the MCX fell by 39% to Rs 76 trillion in the first ten months of the fiscal 2013-14. This was mainly due to losing investors confidence in the exchange after the payment crisis at National Spot Exchange India (NSEL) and also due to restrictions on import of gold. To revive the investors’ confidence the exchange decided to reduce the transaction charges on agricultural and non-agricultural commodities contracts.

The biggest commodity exchange in terms of volume MCX has cut transaction charges on futures contract to Rs 2.10 from the earlier Rs 2.5 for every Rs 1 lakh of turnover for members generating an average daily turnover of up to Rs 350 crore. The investors generating more than Rs 350 crore as daily turnover will have to pay Rs 1.40 for each Rs 1 lakh of turnover. This is a good move by the exchange because this is going to reduce the cost of transaction and this will help traders to make multiple transactions on the exchange. 

On the agri-commodity the exchange said that the agricultural commodities members will have to pay a transaction charge of 75 paisa for each Rs 1 lakh of turnover up to monthly average daily turnover of Rs 20 crore. On the above of Rs 20 crore the members will have to pay 50 paisa  for each Rs 1 lakh of turnover. Earlier the members generating monthly average daily turnover volume up to 250 crore paid a transaction charge of Rs 2.50 for every Rs 1 lakh of turnover for both agricultural and non-agricultural commodities. They had to pay Rs 1.25 per Rs 1 lakh on incremental turnover between Rs 250 crore to Rs 1000 crore while on turnover of more than Rs 1000 crore they used to give Rs 1 per Rs 1 lakh.

The leading commodity exchanges MCX and NCDEX (National Commodity & Derivatives Exchange) which accounts around 95% of the commodity futures trading business in India seem to be in race to shore up the volumes by reducing the transaction charges. The comex started reducing transaction charges when the Forward Contract Commission (FMC) has allowed on February 18 2014 to introduce differential transaction charges for the members. 

Earlier to MCX, NCDEX has reduced the transaction charges. NCDEX divided commodities traded into list A and B. Members trading in list A would pay fees of Rs 1.95 for every Rs 1 lakh of turnover for monthly average daily turnover up to Rs 200 crore and if the monthly average daily traded value increased to Rs 200 crore the transaction fee charged would be Rs 1.30.

The exchanges are trying to cut their charges in the category where they are weak. For example, NCDEX has reduced transaction charges in Non-agricultural commodities. In non-agricultural commodities MCX accounted for about 90% of the business. So from this we can say that if any trader trades more than 350 crore on monthly average daily turnover will be able to reduce the transaction  cost if he is trading through NCDEX in non agri-commodity. These measures are mainly to increase the volumes.

But just reducing the transaction charges will not help the exchanges to increase the volume. Trader will also be looking at spread, liquidity and many other issues before shifting any business from one exchange to another. MCX is best poised to benefit from the reduction in transaction charges due to leadership position and due to superior technology.