Arun Raste, Chief Executive Officer of the National Commodity and Derivatives Exchange (NCDEX) on Equity Expansion
As the NCDEX looks to diversify its offerings into equities, Raste explained that the core segment of commodities, particularly agri-commodities, has experienced significant volatility. This instability is largely attributed to external factors such as wars, weather conditions, and government decisions, with persistent bans impacting the market over the past 15 to 20 years.
Recent financial losses, with 70 percent of NCDEX’s business affected, prompted the exchange to explore options beyond traditional agri-commodities. Raste noted, “We needed to diversify and looked at particular commodities that were not pinching housewives’ wallets,” emphasizing the difficulty of finding such commodities in the current market. Alternative offerings like carbon credits and weather derivatives were also considered, but these are deemed futuristic in the Indian context. NCDEX has signed memorandums of understanding with the India Meteorological Department for data and IIT Mumbai for product models, with plans to introduce rainfall and temperature indices by the next monsoon.
Addressing the timing for this expansion amid regulatory scrutiny from the Securities and Exchange Board of India (SEBI), Raste stated, “We want to continue growing commodities, but since it’s a smaller market, cost-effective options are limited.” He believes equities present considerable growth opportunities due to the expanding market. Raste acknowledged ongoing speculation regarding changes to expiry dates but indicated that NCDEX’s motives are broader than this single aspect. The aim is to attract a wider investor base, particularly from tier 3 and 4 towns.
The CEO remarked on the likelihood of new exchanges emerging given strict SEBI regulations that prevent markets from having dominant shareholders, meaning existing exchanges need to capture new segments. When seeking funding for this diversification, Raste found investors receptive due to NCDEX’s established reputation for technology, compliance, and credibility.
Observing potential challenges, Raste noted NCDEX’s preparedness to adapt to the equities market, including establishing a listing department and developing IT infrastructure. He explained, “We have been following the same compliance and risk regulations that apply to stock exchanges.”
When discussing NCDEX’s positioning against dominant players like the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), Raste highlighted NCDEX’s unique access to investors in less urbanized areas. He projected that capturing just 1 percent of the market share across equities and commodities could lead to profitability. Within three years, he suggested, NCDEX could be ready for an initial public offering, contingent on shareholder interests.
As for the timeline for final approvals and subsequent launches, NCDEX is in the process of enhancing infrastructure and securing the necessary manpower. Raste confirmed that binding offers have been received to raise approximately ₹770 crores, pending approval from shareholders at the annual general meeting scheduled for September 25. The CEO anticipates SEBI’s final approval in the coming months, with hopes to be operational by next year.
Regarding progress on SEBI’s requirements, Raste revealed, “The SEBI approval outlined a few directional expectations.” He emphasized the alignment of these expectations with NCDEX’s vision for a broad, inclusive market. Key tasks include strengthening the commodities derivatives division and investing in technology and operational risks before launching equity products. The exchange plans to expand its workforce from the current 235 employees to accommodate new departments and functions, including listing compliance, algorithm trading facilities, and investor services.
In summary, as NCDEX prepares to enter the equities market, Raste remains focused on leveraging the exchange’s agricultural commodity roots while expanding into new financial territories.
