Sriram Krishnan, Chief Business Development Officer of NSE discussed the challenges faced so far and the way forward with CNBC-TV18.
This is the verbatim transcript of the interview.
Q: The NSE has completed one year in commodities and how would you look at the year gone by? How has been the response for the products launched?
A: If I look back, the one year that we have gone through has been really, really satisfying. I say that because commodities is a difficult segment for members to get enabled, for them to invest in, getting those lease lines to enable connectivity, because co-location is not permitted in commodities. So, it’s taken each member about five to six weeks to get those lease lines, to get connected, to get their front office and back office ready for trading NSE commodities, and then to finally get the algo certification done, approvals done, and then go live.
It has been a bit of a stretch, but we are overwhelmed and really, really grateful for the kind of support we’ve seen from the ecosystem. The ecosystem players acknowledge that there is enough place for multiple exchanges to offer commodity products, and I think that’s why they have invested and got ready to trade to offer NSE commodities to customers.
Q: What are you looking forward to, in sense of commodities, what is NSE planning are there any new launches at the pipeline?
A: The one year has been a period of getting ready for the ecosystem, and in terms of certain milestones that we have seen in NSE commodities, we have seen intraday open interest, peaking at about 600,000 barrels. We have seen more than a billion barrels being traded in the last one year. About 240 members have got set up already and live on NSE commodities, and I think more and more volumes are building up with each passing day.
In times to come, we will certainly look to bring new products. I think it’s time for us to look at the list of products enabled by the regulators, to get the market feedback on which could be the best products for India in the next phase. In phase one, the focus was on energy products, but in phase two, we will broad-based this a bit and see what the market requires, and very happy to support the market in every possible way.
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Q: While the last one year has been very volatile for commodities, it is said that we are into a structural bull run for commodities. You talked about the volumes to us. Are you also now looking at metals, energy, any agriculture, commodities that has been on your list that you would introduce on the exchange going forward?
A: If you look at the way the economy is shaping up, and various sectors are gearing up in the next several years, there’s going to be a huge demand or a huge level of growth that we can expect to see in multiple sectors, and many of these sectors are, in fact, dependent on good oil and natural gas. For example, you take plastic or you take petrochemicals, or you take rubber or tyre manufacturing, aviation fuel, petroleum as the country is consuming more and more cars, automobiles and so on, I think there’s going to be a definitive demand for crude oil and natural gas. So that was the motivation for us to come out with the energy products first.
But I think in times to come many more sectors are going to grow, and they will require hedging options. At the moment, a lot of hedging happens outside the country. It’s going to be our objective to make hedging options possible on the Indian exchange itself, which is the NSE. So that’s the motivation for us to get into this space and see what the market requires us to do next.
Q: Also want to know what are the conversations with regulators at this point in time. As you said, you want to grow the ecosystem of commodities within India, grow it as an asset class as well. So, what is it that is being talked about, and what is the plan for the years to come?
A: We want to make it a really, really big segment. If you look at other countries, the developed countries, in particular, commodities is a really large segment, sometimes larger than the equity space. In India, unfortunately, that’s not yet the case, and that is why we think there is a big opportunity for us to expand this segment and expand the market and benefit the market participants in terms of efficient hedging solutions on the Indian exchanges itself.
So that’s more to be the discussion with regulators on how we can contribute to the growth of the ecosystem in the commodity space, and how NSE, with its vast experience and equity derivatives can not only replicate the technology, but also offer margin efficiency and bring in innovation into commodities too. That is going to be the theme of the discussions we get that.
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