In a first, MCX lists two domestic refiners for gold delivery

Multi Commodity Exchange of India Ltd. (MCX), the country’s largest commodity exchange, recently empanelled two refineries in Uttarkhand –MD Overseas and Kundan Care Products — to deliver domestically refined gold on its platform. This is expected to facilitate the expansion of the organised bullion trade in the country, and enhance transparency of the same. Shivanshu Mehta, Head – Bullion, MCX, talks about the significance of this development and shares his vision for MCX in this decade in a conversation with Suneeta Kaul.

Q: MCX has empanelled two Indian refineries to deliver domestically-refined gold on its platform. What is the significance of this move? Can we see this as a step in the right direction in the context of Aatmanirbhar Bharat?

A: As the leading Exchange for bullion, it is incumbent upon us to constantly strive to benefit India’s bullion and jewellery industry. Our benchmark gold and silver contracts not only act as a domestic price reference for India, but are also used by the value-chain participants for risk management and delivery. MCX has seen more than 119 tons of gold and more than 3500 tons of silver delivered via the Exchange mechanism.

Thus far, the bullion bars of London Bullion Market Association (LBMA)-accredited refiners, along with Emirates Gold, were deliverable on the Exchange.However, in pursuit of the Aatmanirbhar Bharat mission, MCX has embarked upon the path of recognizing domestic bullion refiners for good delivery of gold on the Exchange platform.

Acceptance of gold bars refined by the empanelled domestic refiners will now begin for delivery on the Exchange platform. This will facilitate expansion of the organized bullion trade in the country and enhance transparency, as well as self-reliance.

With the BIS notifying the India Good Delivery Standard for bullion bars, the IS 17278 in January 2020, the quality and technical parameters became clearly defined. Further, MCX introduced the comprehensive MCX Good Delivery Norms for BIS Standard gold and silveraround this Standard.

These good delivery norms have been designed on par with international benchmarks, and they cover the basic eligibility criteria, technical qualification audits, financial audits, continuous compliance requirements,and responsible sourcing guidelinesthat are aligned with the OECD norms.

The applicant refiners were put through stringent audits and tests as part of the screening process defined in the aforesaid good delivery norms. From the first set of applications, the refiners who cleared the Exchange-set criteria and met all conditions of the audits were added to the good delivery list for the Gold Mini (100 gram) futures and options contracts, as per the circular issued on February 4, 2021.

This move will serve to drive market efficiencies by reducing price disparities and bringing more locally available/recycled gold of exchange grade into the Exchange eco-system. Local refiners will be able to discover and realise the prevailing transparent and fair prices of Exchange contracts. This will also deepen the open interest and make the order books even more robust and liquid.

As we await greater institutional participation in the domestic bullion industry, as well as commodity derivatives, this will add to the suitability of our contracts to enable the same.

Q: When will more domestic refineries be added to the list?

A: MCX is in receipt of applications from most leading domestic refiners. However, the refiners who meet basic eligibility criteria will first undergo a screening process of a financial, as well as a technical, nature, including audits and their refining and assaying ability, as per IS 1418. The ones that meet such conditions to the satisfaction of the MCX Bullion Refiners Empanelment Committee will be recommended for addition to the good delivery list from time to time. This is subject to their meeting the continuous compliance requirements on an ongoing basis.

Q: What steps can be taken to facilitate the expansion of the organized bullion trade?

 A: Apart from the good delivery list expansion, MCX has also taken the lead in product design innovation to create organised ways to invest in gold and silver as an asset class.

Our recent product innovation, the MCX Gold Petal contract, is the world’s first-ever and only deliverable one-gram gold contract. It is built on the corner stone of systematic investment, electronic accumulation, quality assurance and ease of delivery, backed by deep and liquid order books.

This product captures the imagination of a fast-emerging new-age retail clientele, with an evolving view on gold as an investment asset. It is designed to cater to the organized retail investor demand by providing a Systematic Investment Plan (SIP) type of flexibility. The coins can be held and accumulated in the electronic holding format, enabled via our COMRIS system. This newly-designed contract saw successful delivery of about 32.5 kg (32570 coins) since its launch in October 2019.

Since each 999-purity coin comes with an individual assay certificate, quality assurance is a given. The key advantages are the convenience of transaction and the liquidity of the Exchange platform. The making charge of Rs 100 per coin, being separate from the traded price and being known upfront, adds fairness and transparency to the pricing.

Similarly, we have launched deliverable silver contracts with silver 1 kg bar as the delivery unit. Since their launch in February last year, more than 32 tons of silver bars of one kg have been delivered via these contracts. This, again, is a step towards creating products for organised retail demand.

Our gold options on futures provide retail jewellers an excellent method to protect their margins from the downside price risk. This instrument creates efficient use of capital with a one-time payment of premium.

Our recent launch of the Indices segment was accepted widely by the market. The BULLDEX, an excess returns precious metals index that includes gold and silver futures in the ratio of about two is to one, has seen significant turnover and participation from all sections of market participants.

The BULLDEX fills the need gap of a portfolio-based product for investors by providing a sectoral exposure for diversification.

Q:What is your vision for the MCX bullion portfolio for this decade?

A: Our bullion contracts witness the participation of bullion importers, traders and jewellers for hedging, as well as delivery. This is seeing a broader increase by way of small and medium jewellers from across cities and towns of India becoming part of the Exchange eco-system.

We will see further integration of spot and futures markets across the country, via our One Nation-One Price model.

The recent regulatory permissions for Options and Indices have paved the way for expansion of the bullion derivatives segment. Further, it is expected that the Mutual Funds, including ETFs based on precious metal derivatives, would gain traction.

As and when the industry sees bullion banks becoming active in the domestic bullion market, exchanges can play an important role, bringing the required liquidity for efficient hedging and delivery of bullion.

MCX is part of a consortium that proposes to set up an International Bullion (Spot) Exchange in Gujarat International Finance Tec-city (GIFT city). This will help India become a price-setter for gold in the international market.

Courtesy: Retail Jeweller India News Service