MCX to Sever Ties with 63 Moons Technologies, Celebrates Potential Cost Savings

MCX to Sever Ties with 63 Moons Technologies, Celebrates Potential Cost Savings
MCX to Sever Ties with 63 Moons Technologies, Celebrates Potential Cost Savings
MCX to Sever Ties with 63 Moons Technologies, Celebrates Potential Cost Savings
MCX to Sever Ties with 63 Moons Technologies, Celebrates Potential Cost Savings

MCX to Sever Ties with 63 Moons Technologies, Celebrates Potential Cost Savings

MCX to Sever Ties with 63 Moons Technologies, Celebrates Potential Cost Savings

Breaking Free from 63 Moons Technologies

After a year of enduring costly extensions, MCX, India’s largest commodity derivatives exchange, is finally ready to part ways with its former anchor shareholder, 63 Moons Technologies Ltd. This separation involves a pivotal technology platform crucial for running its operations, including trading, clearing, and settlements.

Investor Optimism Spurs Stock Surge

On Monday, MCX’s stock achieved a remarkable milestone by reaching a 52-week high, and investors couldn’t be happier. This surge in the stock price was a direct response to the promising news, as investors anticipated significant cost savings from the impending separation.

Embracing a New Technology Partner

MCX made an announcement on September 19th through a circular that it intends to migrate to the new Commodity Derivatives Platform (CDP) developed by Tata Consultancy Services (TCS) by the end of September, pending necessary compliance and approvals. While the initial announcement had a modest impact, the market’s reaction on Monday was quite the opposite. The stock soared by 9.45% to reach a 52-week high of ₹1,952.20 before closing at ₹1,902.30, marking a 6.7% gain.

Siddhartha Khemka, Head of Research at Motilal Oswal Financial Services, expressed, “This was much-anticipated and much-awaited news.” He further noted that the market gave the stock a resounding vote of confidence as MCX embarks on a new era of growth, coupled with substantial cost savings.

Escaping the Burden of Extension Costs

The cost of extension had been a significant burden for MCX, with expenses for the current year alone totaling ₹412 crore (₹162 crore in H1 and ₹250 crore in H2). This was a stark increase from the approximately ₹60 crore annual expenses prior to the termination of the technology agreement with 63 Moons, formerly known as Financial Technologies India Ltd, in September 2022.

To provide perspective, MCX’s net profit for FY23 amounted to ₹149 crore, while the total extension costs reached ₹472 crore. Rajesh Palviya, Derivatives and Technical Head of Axis Securities, affirmed that trials have been successful, and MCX is poised to migrate to the new platform by month’s end. He also suggested that the stock could reach ₹2,100 in the short term, driven by cost savings and an expected surge in exchange turnover.

MCX’s Journey and Its New Dawn

Founded by 63 Moons 20 years ago, MCX commenced operations in 2003 and quickly rose to become India’s largest commodities exchange, specializing in metals and energy derivatives contracts. The exchange, listed in 2012, was an associate company of 63 Moons, which held a 26% equity stake. However, following the 2013 scandal at its subsidiary spot exchange NSEL, 63 Moons was compelled to divest its stake in MCX. A portion of the stake was acquired by Kotak Mahindra Bank, now MCX’s single largest shareholder with a 15% ownership.

MCX currently commands a 96% share in the commodity derivatives segment, boasting an average daily turnover of approximately ₹80,000 crore. It is renowned for its expertise in metals and energy commodity derivatives, with companies like Titan Co. Ltd utilizing the exchange for hedging gold exposure. Competitors in this domain include NCDEX, primarily a farm derivatives exchange, as well as NSE and BSE. MCX’s trading hours extend from 9 am to 11:30 pm, catering to the diverse needs of market participants.

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