MCX may skip to TCS’ platform before Dec

“The exchange will try and migrate to the new vendor’s platform before the contract with the existing vendor ends in December,” he said. An added dimension, he said, was that notwithstanding the migration before or during the tenure of the contract, MCX is obliged to pay 63 Moons the entire sum of ₹250 crore for the extension of its services.

Queried on this, an MCX spokesperson cited its filing of June end to the stock exchanges which described the reason for the extension.

“…..to ensure all Stakeholders are better prepared to migrate to the new Commodity Derivatives Platform and to ensure necessary compliances, the Company was obligated and has decided to extend the support services being rendered by its existing software vendor, 63 Moons Technologies Ltd for six months, being the minimum period offered by the vendor, beginning from 01st July 2023 at a consideration of ₹125 crores per quarter,” MCX said in the filing. MCX had to pay 63 Moons Technologies a whopping ₹125 crore per quarter for extending its tech contract at the end of June for six months from ₹81 crore per quarter earlier. To put it in context, the cost for the latest extension almost works out to ₹130 crore net profit MCX posted for FY23. The frequent extensions, given TCS’ domain expertise, have confounded certain market participants, who said off the record that the latest mock trials went off smoothly.

“There wasn’t any problem during the mock trials, trading was smooth,” said a broker who participated in the mock runs conducted by MCX. A query to TCS for their comment on the delay of the platform rollout remained unanswered. However, another person aware of the development said, “TCS’ software platform is ready and can be rolled out anytime. There is no issue from its end.”The contract with TCS includes a penalty clause for any delay from its end. However, the person cited above said this clause hadn’t kicked in “because there was no delay from TCS’ end.”

A query to the Securities and Exchange Board of India (Sebi) on the delay also went unanswered. A person privy to the development said, Sebi has no say in the commercial aspects of these operations. “Sebi’s emphasis is on stability and reliability of the systems so that one doesn’t experience glitches or performance issues. However, the regulator doesn’t decide on which software an MII (market infrastructure institutions) should buy and which it shouldn’t.”

The MCX contract with vendor 63 Moons, which was renegotiated in September 2014 following a scam at the latter’s subsidiary, was to end in September 2022. The company signed up TCS to replace its existing vendor in September 2021. But, delays in migrating to the new platform by October last year meant that MCX had to enter into successive extensions with its existing vendor.

With every extension, MCX’s cost has escalated. MCX forked out ₹60 crore for the first quarterly extension from October to December last year. This was four times the annual ₹60 crore it paid 63 Moons until the expiration of the contract in September 2022.

By end-December 2022, MCX again announced it was extending the contract with 63 Moons for another six months through June 2023, this time at ₹81 crore per quarter. But, at the end of mock trials by June, MCX announced it was extending 63 Moons’ contract for a further six months through December at a cost of ₹125 crore per quarter.

“The extensions have cast a huge cost burden on the country’s largest commodity bourse,” said Rajesh Palviya, derivatives and technical head at Axis Securities. “The MCX stock has recovered from the drubbing following the extension announcement, and the Street has priced in the worst. But, if the exchange doesn’t migrate after the latest extension, it could begin to bleed.”

The stock, which closed at ₹1,642.3 on 28 June, plunged 9% to hit a low of ₹1,492 on 4 July. It recovered to close at ₹1,579.50 on Tuesday.

MCX was founded by 63 Moons (erstwhile Financial Technologies) 20 years ago and began operations in 2003. It went on to become the country’s largest commodities exchange a few years later, specialised in offering metals and energy derivatives contracts. It listed in 2012. It was an associate company of 63 Moons which held 26% of its equity.

63 Moons was forced to sell its stake in MCX after a scam erupted in its subsidiary spot exchange NSEL in 2013. Part of its stake was sold to Kotak Mahindra Bank, which its single largest shareholder with 15% in the bourse. FPIs held 26.95% and mutual funds 33.95% as of March end.

Updated: 11 Jul 2023, 11:02 PM IST