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Multi Commodity Exchange of India Ltd
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Ladies and gentlemen, good day, and welcome to the MCX Q1 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. P.S. Reddy, MD and CEO. Thank you, and over to you, sir.
Yes. Thank you. Thank you so much. And let me welcome again the analysts for this Q1 call. And thank you for showing interest and faith in the company as usual. And we'll continue to strive to do better each quarter, given the constraints whatever we have it. Let me explain, as it happened in the last time, the peak margin is the circular of peak margin is impacting the ADT, as you all know that. Now that it has become 75%. Now the final one will come on 1st of September when the 100% peak margin has to be collected by the member of forecast. And incidentally, we have done an analysis of the impact over -- I mean, how it works pre-imposition of the peak margin and post-imposition of within each phases that is when we introduced 25%, 50% and now 75%. If you see the impact from Phase 0 to Phase 3 so far, it's almost fall about to 21%. And most of the impact was felt in the phase -- between Phase 1 to Phase 2. Now in Phase 3, the impact is about 3%. That's the way it is. So we are at this phase. So we lost about 20% plus -- 20.65%, that's what it shows, we lost ADT. Another good thought of it is, which we all look at -- we must look at it is, the top 15 losers of the exchange or the traders, about INR 10,000 crores they lost and top 15 gainers have got another INR 5,000 crores. So that leaves little over INR 5,000 crores is the loss. So it's not that it has impacted everybody. There are some who gains, there are some who loss. I'm sure the system is the traders and the investors are getting used to this peak margin circular. And that's why in this quarter, rather in this third phase, the impact is about 3% to 4%. So not much has been felt. And hopefully, going forward also, we will see that kind of impact. The second point, which we should also look at is, most of the impact that has been felt is some of the traders, okay, who are regional players, okay? It's not so much of the national players. And the gain that have come, has come from those national players who are offering retail services. So as a result, our UCC numbers also are not substantially impacted. When I say substantially impact, UCCs till the unit client code traded from April to July, I mean, whatever the time period that we covered, maybe until 23rd of July or whatever it is, it's about 2,46,600 UCCs, against in the corresponding period last year, 2,36,000, okay? So UCCs are increasing, but the substantial increase has come in the options contract, okay? So options volumes are also going up that you're seeing. And currently, in the month of July, it's almost all INR 4,800 crores. But in the quarter, we have about INR 2,000 crores. 1 minute I will tell you. Yes. We -- yes, we have about INR 1,900 crores, the notional turnover. The -- another important thing that I would like to inform is, that last time I informed that we have extended the, what we call zero tariff period on option contracts till 30th of September. Now we have decided we will start charging from 1st of October, and we have already issued a circular. The transaction fees will be on a notional premium annual -- I mean, daily premium of INR 5 crores. There will be INR 50 per INR 1 lakh -- INR 50 per INR 1 lakh premium up to INR 5 crores. And it's the -- if it exceeds beyond that, there will be INR 40. So that will be an incremental much like your income tax slabs. So you will charge up to INR 5 crores at the rate of INR 50 per INR 1 lakh premium and over and above INR 40. So this is something that we have come across. The number that we are coming across is the notional ADT to the premium, the ratio is about 1.5%, okay? So if it is INR 1,000 crores and 1.5% of it happens to be the premium. And then this kind of calculations will fall in place. This is one important development that we have. Then comes to the -- we have also introduced just recently the Silver Mini contract, options contract, which we are aware -- which you are all available -- aware of it. Another one is the gross margin benefit has been extended. Just from today onwards, we got SEBI's approval and gross margin benefit on index futures versus the underlying in the commodities futures. And if one has got a contrapositions between the 2, they will get the cost margin benefit. So that is also implemented from today. So these are the important developments I thought I should share with you. And as we go along, I will ask -- I mean people can ask questions. And I would like to inform -- I will hand it over to Mr. Bolar if he has got few more submissions to make.
Thank you, Mr. Reddy. As we have declared our financials, you would have seen that in spite of the challenging time, we have been able to maintain our profit as well as the top line as compared to the last March quarter, and we have been able to control our expenses. The net-net rate fees were flat. These have been tough times, but we've been able to keep our costs flat. We'll go into details as in when you ask questions. Thank you.
We'll keep it open for question and answers some more time. Is that fine?
[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital.
Congratulations on a decent set of numbers. Sir, I have 2 questions. First is on gross margin. How do you think that gross margin is going to impact our volumes in the sense peak margin, of course, is affected negatively? But how much do you compensate, to an extent? That's my first question.
Go ahead. Ask the second question also. I will answer that.
Second question, sir, on the crude margin, which are roughly, say around 20% right now. I think earlier it used to be 6%, 7%. Can we expect this margin to go down in the next few months?
Okay. It's done?
Yes.
Okay. See the gross margin benefit, otherwise is available on other products, okay? This is with respect to indices -- index futures versus the -- that is BULLDEX and METLDEX versus the underlying commodities. So how does it affect? We are expecting our BULLDEX and METLDEX turnovers to increase when we -- we have also applied for the energy index to SEBI. If that also get -- start getting traded, then that will also get the same benefit. So it is index futures versus the underlying commodities. And does it help in increasing the turnover? Definitely, it will help. Margins will be lowered to that extent.
Understood. So expecting higher volumes in the indices. Am I right, sir?
Yes, we are expecting that. That's what.
On the crude margin, sir? Crude margin?
Yes. On the crude margin, currently we have to keep at this level only. But we are hopeful that we'll be able to further lower it. And there are a lot of nitty-gritty involved in terms of stress test results and stress test takes into account 15 years of volatility and the prices into account. And the worst effect of that price point is the negative pricing. Otherwise, the stress test results would definitely show a comfortable margin. And we have to consider even those extreme scenarios also. And we -- it is under discussion, either our FGF should be substantially increased to reduce our margins on crude oil or the margins have to be -- or SEBI has to relax the conditions with respect to the stress test calculations, or we have to maintain higher margins as and when the open interest increases in the contract, then we need to increase the margins. But we are working out on alternative, let us see how it works. But our intent and interest is all the time to reduce the margin on crude oil. It is too heavy and we all acknowledge that. And we will be able to reduce it. That's what my appositive sense is.
One more question if I may squeeze in. So what's the -- MoU with EEX, so what is this MoU? And how closer we are to launching this electricity contract? Let's say, if you could get a Supreme Court order, let's say, next 1 month, where -- can we see the electricity derivative contract by next couple -- let's say, after the order in a couple of months? Is that understanding right?
Yes. See, with EEX, it's more exchange of information, exchange of knowledge, and knock their door when we need some clarifications or how you handle a particular situation, et cetera. This is more to do with that. But our contracts will be settled based on the IEX prices, our domestic energy leader, IEX. And we work on deals closing prices. That is what we have already entered into agreement. This is one part of it. We have been doing extensively notwithstanding pending in the Supreme Court the awareness programs with every stakeholder. As a part of that, we have organized recently also some awareness with the -- with some senior officials of some of these things, some of these institutions. And even EEX has also conducted a 2-day workshop including to our official, SEBI officials and the CERC, and it's all learning for us. And we are there, our contract has been filed with SEBI almost 6 months ago, if I'm not mistaken. And it is still -- or even more than that. It is just waiting for the Supreme Court order to come. And we are also making effort, filing some kind of application to activate that, I mean, to get the order out at the earliest. That's the way it is.
Understood. Best of luck.
[Operator Instructions] The next question is from the line of Rohit Balakrishnan from ithought Portfolio Management.
Sir, my -- I have just 1 question. So this -- I just wanted to understand a bit more about this software that you're building given the contract with TCS. So just wanted to underline, there is a note mentioned here. So can you just explain a bit there is some dispute and just wanted to understand when the go date that you were expecting? Earlier, I think it was September of next year if my memory serves right. So can you just help me understand what is the issue here? And is there any chance of this sort of not going through?
Okay. I think there is some kind of misunderstanding, at least going by understanding of the question with you. And there's no dispute with TCS. TCS thing is going on, and that is to develop a commodity derivatives platform, which we are currently having with our vendor 63 Moons, which the contract ends in sometime in September next year. Okay? So that is just one part of it, it's happening. That's not the issue. There's no dispute at all on that, okay? The issue related to the PESB, which is where a spot contract was -- spot platform development contract was awarded. And the ask and then what is delivered is not up to the mark. And then I mean this is not completely developed, put it that way. And that is where our dispute -- as disputes [ areas ] and some payment has been withheld. And that is where they went to Singapore International Arbitration. And it's almost all in the finalization stage, I would say that. And definitely, we'll be able to close it by the end of September. We service the -- as far as the dispute is concerned and approaching the contract with PESB is concerned. And the -- essentially, I mean, the way that we have been guided by the lawyers is that better to settle it because, one, is that there's a lot of legal expense involved in Singapore Arbitration. Even if you're award then exhibition you have to go to London. And then again, we don't know fully the financial worthiness of the opposite party and then spending money on that is another kind of big question mark. But we will take over the code and then see there is another assessment will be done by our SCT, who will look at the code. And then whether additional resources have to be given, not given, or is it worth developing to further enhance it for the spot platform. That's it. These 2 are separate. One is to resolve the dispute, another is whether we can use the code or not is a different topic. So that is the issue currently, and we are handling that part as explained.
Understood. No, sorry, sir, I misread it. I remember [indiscernible] so I understand. Sir, other question that I had is, I mean in terms of the spot exchange on gold. So any update on that side? I think that we have come out with some draft paper also. So just wanted to get your views, any update on that and do you feel -- do you think [indiscernible]?
See, the -- on the domestic gold spot exchange, yes, it was put up for the public comments with SEBI and everybody has given their comments. And SEBI called for the working group meeting where we are also part of it. And the thought process that is there is whether you should do it in the same exchange as a segment or you should do it in the existing segment, or you should do as a separate exchange, completely a different exchange, so that it will have its own regulatory framework. Need not be coupled with the existing regulatory framework of -- in the equity markets or in the commodity market. Because every commodity requires certain breathing space, and for it to develop and then foster. So spot exchanges are new to us in that sense. So they need to have a different treatment in terms of regulatory architecture and all that. So this is the -- broadly speaking, this is not the discussion that went into and probably no final decision is taken. That is the way it is. Unless the regulatory structure is finalized, we will not be able to comment further on it the way forward.
[Operator Instructions] The next question is from the line of Aman Shah from Jeetay Investments.
Sir, my question is on deliverable metal contracts. When we started, there was an increase in the tonnage that we were delivering. In FY '21, we see a decrease over FY '20, as well as in Q1, there has been a flattish delivery of metal contracts. Can you please highlight what's the reason where we're not seeing an increased traction or into delivery of this or contracts?
See, as you understand, that I will -- let me see this. The delivery percentage -- I mean in the futures market, especially the platform, not mainly intended to have a delivery. Deliveries are last resort, okay? Because we expect the prices to converge with the spot prices, that is why we keep the threat of delivery is always there for the people who -- maybe who recklessly trade, maybe that fear will be there. And that is the reason why delivery thing has been kept. Having said this, we are increasing, especially in the metal contracts, increasing the number of delivery centers. But there are -- it has got both sides to it. One is that -- our contracts are seller contracts -- so deliveries since is at the seller's center. And the buyer have no option. He has to take delivery if he has to do it. If he doesn't close this contract, the buyer, then he will end up getting delivery maybe at any of the centers. So to mitigate that risk, on the one hand, we wanted to increase the -- increase the number of delivery centers. Now we have seen Raipur, okay? We have made Raipur as the additional delivery center for aluminum. We have seen 6,500 tonnes of metal that was delivered in the month of, I think, April, May. I don't exactly remember. Or May, maybe, okay? It was delivered. The point I'm making is the -- if you add more delivery centers, the players who are in that region will start joining it. But because of the uncertainty, some buyers may be exempted. So both sides it is there. So we are looking at what we call a swap kind of a window, where people do not want and they can always swap it with the location where they would like to have the delivery or give the delivery which they -- where they don't want. This is one part of it, but it's under development. This, I think, last time also I said that. But you require some IT development, that's what the relevant response is. But another important thing is the GST. The more we increase the number of delivery centers, there are also the people who are supposed to be training in this contract must be have in deliveries -- what GST registration in their respective states. This issue has been flagged off at the highest level in the Finance Ministry and Central Board of Indirect Taxes and SEBI and our exchanges. And the CPA, there was a discussion on this, how to resolve it, what is our ask. Our ask is very clear. We want IGST to be replacing the CGST, GST so multiple registrations would not be requiring it. Second, as long as they are in a demat form in the part of ComRIS then ideally, that should not be covered at all because their metal doesn't move anywhere. Metal is just lying there. It's like a security in that sense. And securities in demat are not covered. That's the kind of response we are giving doing it. But in a worst-case scenario, there are people who do not require GST registration. But for the sake of this particular taking delivery are doing financial arbitrages who buy in this month and then deliver in the next month, they have to take unnecessary delivery. Then we are looking at another model where is a designated entity model, who will be registering in the respective states wherever the warehouses are going to be located. And this designated entity will have a subledger maintaining their profiles and then giving credit, debit whatever that needs to be done. It requires some changes in the ad. So we have already flagged it off and taken it up. And this is the status at this point in time. And this is the reason also why some of the deliveries are lower. But that should not be the reason for us not to expand the number of delivery centers. We would like to do that. And at the same time, introduce this swap model, which will immediately address some of the concerns. I hope I answered your question.
Okay. Okay. That was quite the insightful, sir. And just thought like with hedges, corporate hedges coming more onto our platform. The deliveries would also tend to increase. You highlighted the reasons why there are some issues that are still there. Can you highlight something on the hedges side? Like, where are we in that journey on hedging or hedges coming onto our platform, sir?
Yes. I think I do not have immediately the numbers, but in hedges participation has been increasing in all these contracts. I don't have it, but then that is for sure, that's so much I can say this. Hedges participation has been increasing. And it has been also displayed on website also, if I'm not mistaken. I have individual commodity-wise numbers, but then that is not appropriate for me to disclose anyway. But yes, hedges participation has been increasing. That's all I can say.
The next question is from the line of Lavanya Tottala from UBS.
So it will be really helpful if you can help us understand the impact of this peak margin on the options volumes. So option volumes increased significantly. And I mean, at each stage, whenever the peak margin has been increased. So how do you see this go ahead and I mean in September, then it will be 100%. Would it increase more? How do you see this, any impact analysis on option volumes?
But you're absolutely right that volumes have started increasing there. But as I told you, it just happened in the month of July, it has become INR 5,000 crores, almost INR 4,980 crores or so. And for the entire quarter, it is almost all INR 1,900 crores. 1 minute. Yes. Yes. Sorry. Yes, it is INR 1,900 crores, okay? And so it is for me -- it is too early for me to say that peak margins had helped, but the indication suggests that, that is the route that they are taking. But at the same time, if you see the composition of the -- this particular growth, a substantial part is in the crude oil. So where the margins are almost at 23%, 20% plus, of course, 3% is additional margin. And in the month of -- I mean, in all these months, it is the crude oil which is doing very well in options. And in the month of July, almost INR 3,800 crores is the crude oil composition and rest are still smaller. Of course, gold and silver also there. So we are looking at diversifying into it. But since crude oil contribution in futures is less, I'm sure the -- in addition to the peak margins, probably this particular higher margins in the crude oil is helping us to diversify our -- or diversify the investors to get into the options. That's the way it is.
Okay. Got it. So is it fair to assume that when crude margins reduced to normal levels in the futures, the relevant option volumes might reduce? And is there a possibility or?
Not necessary. Not necessary. Not necessary. In fact, going forward, everybody says that index options is something which has to be the highest, the volumes. But then as of now, we are -- index futures itself, we are about INR 300-odd crores. So we are trying to ramp up that because they are all cash settled. The beauty of it is cash-settled contracts. Okay.
So as we started talking about index futures, what do you see the drivers which are needed for the volumes to pick up? So though there are cash settles, still the volumes are hovering around the similar levels over the past few months. So do you see anything is hindering the volumes or any other requirements that people are looking for trading? So what is that can drive index futures more?
No. See, volatility is -- I mean, whenever volatility is there, and I think we have seen good amount of volumes in this, along with the underlying commodities. Now that gross margin benefit has come, I'm sure that will also -- that will help in increasing the volumes in the index futures. That's what we are looking at.
The next question is from the line of [indiscernible] Narayan from Spark Capital.
My question is on -- just want to understand what is the impact of this gross cost margin benefit on our overall ADT or in terms of liquidity. Can you quantify that?
See, just -- as I said, the gross margin benefit is, start giving today onwards, okay? So we've got the -- what to call, approval and then started only today. So it's just too early for me to say anything. But then it will definitely benefit.
Okay. Okay. Sir, and on the contract with TCS, even that is starting only from September or we have already seen some benefit in this quarter. Can you comment on that?
It's a huge platform. There are 3 stages of development and then drops, we call them. The first drop has been delivered, testing is going on. There will be a second drop and there will be a third drop. Then after the third drop, the parallel runs will be done with the member brokers. And also the mock testings will also be conducted about 3 months or so, each one of them. So we have already issued circulars to member brokers. These are the APIs to integrate with the TCS system. And almost all 300 member brokers we have interacted, they all are fine with that because T7 platform is already being used by BSE and some of them are -- I mean, broker -- many of the member brokers have used these APIs. So that's the way it is. The impact, I don't know in what sense, financial impact, have we paid anything, all that kind of thing. I think there are milestones that are given in the contract. Accordingly, we will be paying.
Okay. So TCS platform will be completely used from this September. I mean, right, sir?
No, no, no. Not that September. As I told you, it is -- that is -- see, you have an agreement with 63 Moons till next year, September. I'm saying next year September, it will be implemented.
The next question is from the line of Vineet Maloo from Birla Sun Life.
Sir, I just wanted to understand your investment book. What is the composition of the investment book and how should we expect your other income to move based on that? Could you throw some light on the investment book composition, please?
Thanks. So we have a large chunk of our investments in mutual fund. And our Investment Committee has proactively reduced the exposure to the basically into short-term, ultra short-term funds. That is one. We also have some investments in tax rebound and on some perpetual bonds. So this is how it goes. And perpetual bonds are accounted under the amortized method of accounting when the others is -- I mean, we don't have a choice. It's under the fair value. So you -- I mean, you are aware that debt markets are volatile, but hopefully, they will be able to -- I mean, that is what we hear. And whenever we need experts from your industry, they keep guiding us that they expect RBI to keep rates at least for this financial year -- till this calendar year. So hopefully, we should be able to maintain the same level going forward. But we are into, as I said, ultra short-term funds, maybe chunk of our investment will be...
Right. Sir, how big is the tax-free bond portion?
Tax-free bond, it's around -- a bit less than -- around 6% to 7% of our total investment.
Okay. Okay. So that is a volatile component, right? Because short-term and ultra short-term funds and perhaps, as you said, is amortized. So they are not the volatile components.
But even -- I mean, in the mutual funds, there would be some -- some movement would be there, isn't it?
Yes. But since they are on the lower end of the curb, it won't be that much. I understand that, yes.
Yes. I think you're right.
Okay. Sir, should we understand that current level of other income is the one that should not fluctuate too much, right?
I hope so. I mean, again, it depends on the underlying , isn't it? On the interest rate, what it was in June. June was -- interest rates were better. I mean, when we closed June, it was around 6.03 or something -- 6.05. Now it is 6.13, 6.16, the tenure.
Right. No, I understand. Because of those interest rate changes there might be changes of fair value, right? There's no component of large unrealized gain or anything that you can have going ahead, right, by booking some profit, I mean nothing like. Because anyway, everything is fair value now, almost.
That's right. That's right.
Okay. Okay. Understood that. Sir, my second question is on income tax. Can you just explain what is the income tax benefit that you are currently enjoying and for how long will it last?
As I mentioned earlier, we have some -- our tax rebound, obviously, the interest is exempt. Also, we had some -- brought forward long-term capital gains and losses, which we would, during the year, exhaust. And so going -- and we also have a MAT credit balance of around INR 12 crores in our books, okay? So once we exhaust the MAT credit, then we'll go back, we'll use a normal income tax rate of 22% plus surcharge. And hopefully, that would be from next financial year. I mean, from the way things are moving, maybe some next financial year. But this year, I'm using the budgeted rate as per the Indian accounting standards. And whatever changes I have to do, I'll do it in the March quarter. So it would be more or less of this rate. And in March, we will -- I will take a final call on income tax.
Understood. Understood. Sir, my last question is to Mr. Reddy. So regarding the delivery of contract, right? So you were talking about, sir, about not increasing number of delivery centers, which helps in that. And obviously, once you have a network, then all the swaps are possible that you were talking about. So can you just talk about what is your plan in terms of adding the number of delivery centers, what kind of CapEx, et cetera, it takes from our side? Can you just throw some light on that area, please?
I'm sorry, I didn't get to -- what kind of? CapEx?
8Yes, what is the plan in terms of ramping up number of delivery centers? And what kind of CapEx, if at all, it takes from our side from MCX side, yes.
There's no CapEx involved in it. And CCL simply hires warehouse service provider. You have a Steinweg, you have Yamada, you have Origo or -- whatever, those whoever is -- player is willing to do that. And we hire them and then they open that center there. That's the way it is. And there's no CapEx involved. And we have already announced by way of circular. For Zinc, we have Kolkata is been identified as additional delivery center because a lot of galvanizing part -- Zinc is using galvanizing industry and a lot of industries are up there. So that is one area. We have looked at it. For nickel, we have made the additionally delivery center in Chennai, because Nickle is entirely imported material. We have one in Thane and the other one will be in Chennai. And the third is Lead. We have opened one more delivery center -- we'll be opening in up north because there are a lot of battery manufacturers are there or the inverter manufacturers are there, and they will also be using this product. So we need to look at either producer-centric or consumer-centric, that kind of approach is what we are looking at it. To mitigate the -- what to call risk of buyers getting delivery elsewhere, we are going to introduce the swap facility also. So we are working parallelly on all these things. So it should increase the participation on the exchange platform, especially the hedges.
The next question is from the line of Haresh Mehta from BNP Paribas.
Sorry if I missed early part of the conversation. Sir, last month, there was a news in media article that SEBI may open up with commodity future for FPI, any development there, sir, can you help us to understand at what stage it is currently and by when you expect?
No. All that I can say is that MCX facilitated a meeting with the FPIs or FIs and some of the EFEs, eligible foreign entities. And this is a very good participation, almost all about 59, 60 people have attended and -- all put together, of course. And they have given their inputs, what kind of relaxations are needed. They are not too big a number to begin with. But at the same time, they want -- the concessions that they have asked is much the same as what they have been in currency or equities in terms of registration requirements, in terms of open interest, okay, what is kept or whether they need to have what you call -- they should have hedged underlying commodity in India. That's the kind of one requirement for FPEs to participate. They have said that that's not the case anywhere in the world, okay? And you may have a hedge position in India, but still you go and then hedge in LME. Isn't that's what many people are doing it. So it's in material where they have it. It should not be linked to that. And similarly, in currency, about up to 100 million, there's no such requirement exposure to any of the currencies. So a similar kind of benefit should be given. So this is being debated and discussed, and I'm sure a consolidated view will be taken by SEBI, keeping all stakeholder interest.
Any time line, any deadline, SEBI had given for this? When you expect this to happen?
Obviously, we cannot -- they say that they will give it, but they will do it. That's the way my sense is. I'm sure they are equally responsible for developing this market model.
Right. Sir, my second question is with regard to -- can you just help us to understand how much percentage of volume is coming through online -- I mean, algochannel of total volume?
Yes. It remained around 45. Yes, 45, it remained there.
40%, 45%. Okay.
45%. 45%.
45%. Okay. Sure.
[Operator Instructions] The next question is from the line of Sri Karthik from Investec.
Few questions. Our average realization has been declining on a Y-o-Y basis. So what's leading to this decline? Is it the product mix or the mix change in terms of the participants?
See, we have 2 tariffs. I mean 2 tariff slabs, okay? And if the concentration increases, obviously, the people will move into a higher slab. So obviously, the average realization will come down. But here, I think this quarter, it has improved. That's what...
Frequency is, on a Y-o-Y basis, is down. So I'm trying to understand why on a Y-o-Y basis, reduced?
See, generally, if you notice, on a Y-on-Y basis, when the volumes are low, the realization is better.
Correct.
So that's why when you compare it to June '20, if you recollect June '20 was a bad quarter for us because of the lockdown and mandated trading hours. So it was a bad quarter for us. But this is a normal -- I mean, we are in a normal situation. And compared to March, the second and third, there's an improvement in the second and third decimal.
Okay. Secondly, the status of your electricity derivatives product launch?
I think I have explained. I have the -- we are yet to get the Supreme Court permission. In the sense, it's nothing to do with our contract assets, but it is overall the dispute between SEBI and CERC that is being decided. That is yet to come out, the outcome, we are waiting for that.
Sure, sir. And if you could tell us what is the shareholder cash on balance sheet currently?
Yes. So when we come and when we look at it on a stand-alone, we have around INR 1,200 crores of cash. Consolidated around INR 1,700 crores.
Sir, that would include the...
Consolidated included the margin money. So it's around INR 1,200 crores.
Yes. And this would include SGS and IPF also in it?
No, no, no. It doesn't include that.
Okay. And then any regulatory capital required in terms of what you need to keep to ensure for the exchange license?
See, we need to strengthen our SGF definitely, okay? Why we need to strengthen it? If you don't strengthen it and then if the stress tests results shows that we need to have so much of SGF, then you -- either you increase the SGF cover or increase the margin so that somewhere you should get the cover such as SGF -- I mean, stress test results are matched with that number. So obviously, it's good to have maybe -- SGF will increase it. And if that is increased, then you lower the margins and then earn a higher maybe in ADT, and that may result in higher volume -- I mean, higher revenue. And maybe the interest that you are earning may be compensated, whatever you are doing it -- more than compensated otherwise.
The next question is from the line of Devesh from IIFL Securities.
If you could share an update on institutional participation as well as bank subsidiary, where are they in terms of rolling out?
One bank subsidiary is moving aggressively, and we are getting good volumes month after month. And the others are just there, wherever they are, that part is unfortunately, they are not moving. And again, peak margins have further distributed them from going any further. And -- but one bank subsidiary, I mean, one bank is moving very aggressively. That's a good point of it. That's good to note. On the other institutions, mutual fund setters, that's also very encouraging. And mutual funds are participating very actively in this particular -- I mean, in our context, that's the way I see. I think some more reforms may come. I don't know when they will come. But we are working on it. That's all in terms of institutional participation. That's the way I would like to resolve my comments on this. Nothing more on this.
Okay. Sir, can you identify the banks that you said is doing well?
ICICI Securities.
ICICI Securities. Okay. Understood. And in terms of the index derivative, this gross margin in, although you indicated that directionally, it is positive for the volumes, is there any number that you could share there over the next 12 months?
No, no. I never give. Sorry. That's not correct. I will not be able to give, yes.
No problem. No worries, sir. And sir, on TCS software thing, any incremental numbers that you could share in terms of what could be the cost that you are looking at or is there more crystallization of savings from the software expenses?
No. In terms of -- we know the numbers in terms of crystallization and all that. But then it's not proper for us to disclose any of them because there are contractual obligations on our part not to disclose the number. But as and when we start incurring expenditure, I'm sure in each of the quarter, you will come to know of it, what we have paid and all that kind of thing. You will know the amount that we are incurring.
Okay. And sir, when we see your UCC numbers, the one that you disclosed in the presentation, I think that is close to 7 million. But I think the UCCs that are traded in last 1 year, I think that number is very small compared to the UCC numbers that -- total UCC numbers. So we are seeing a significant increase in total UCCs, but not in the UCC which have traded. So why is this a disconnect? And do you think that UCC that have traded will grow in coming quarters?
Yes. Good question. In the sense that brokers now consolidating their, what to call, memberships. So earlier, they had one for equity, one for commodities and maybe for each extent they may have had one. And with this consolidation, they are able to -- when they are onboarding their clients, they are onboarding across all exchanges. So the number they will upload that information and then UCC get uploaded. And so the client is ready to trade. So it is for the broker to -- just to what to call, educate him and do what he wants to do on this platform. So it's because of that reason, the UCC's account activation -- not activation, the number of UCCs uploaded are increasing. But activation, the clients who are trading, will remain depending on the kind of effort they are putting the member brokers. Is that clear?
Yes. But any direction, sir, you think this traded numbers will also see a growth in coming quarters or difficult to say that?
If I'm not mistaken, I said that till last year, corresponding period, May, that is from April to July, July 23 or whatever it is, both futures and options were about 2,36,000 UCC have traded. Until now, in the current year, 2,46,000 plus have traded. So there is 10,000 more UCCs traded in this 4 months' time additionally. But not that we are satisfied about it. But the regulatory framework is getting tightened, that's the another reason why we need to -- I mean, we are lagging behind in that sense of the term. We're not able to get more UCCs activated.
Understood. And one final one, sir. What is the expected effective tax rate for the year?
Yes. As I mention, I mean, it will be around 25% -- between 25% and 26%. But going -- we will take a call in March. So this is a budgeted figure. I mean, as when we go to March, we'll be able to crystalize the figure and have it in more effective rate.
Right. But if I'm not wrong, sir, last time, I think on the call, you indicated around 17%, 18%. So...
That was around 19%. So as I said, we're using the budgeted rate, which is around 26%. So we'll continue till December. And then when we come to March, we will -- the effective rate would be -- it would -- we have MAT credit and all that.
So any adjustment will be done in the fourth quarter.
Yes. That's correct.
The next question is from the line of Aditya Guribande from Piper Serica.
Yes. So, sir, I just wanted to understand, we have ADT 21% growth. So why our revenue has declined in spite of volume has increase by 21%? So just wanted to understand that.
No, no, no. I think probably you have not heard me right, but it just 21% fall. That's what we said, not growth. Another peak margin impact, the way that we have explained it, the peak margin, have impacted, I said from the 0 -- P-0, which is the prior to the peak margin imposition, and till now you see there is a 21% fall, of which 17% has taken place in the first and second, say, more majorly in second. Another third one it will happened about 4%, 3% to 4% is what I said.
[Operator Instructions] The next question is from the line of Nilesh Jethani from Envision Capital.
Pardon for the lack of information on the software side. My information on the software side is, I just wanted to understand the new vendor as TCS, so when you pay out the money to the new vendor, so one of the, of course, components would be the software variable fees. One would be the AMC charges. Do we also pay something upfront, the lump sum amount for the development of software?
See, the AMC is also there, but is a very small component of it. As I said last -- maybe in one of the calls, I said it is a single-digit figure. That's what I said. And even the increment -- annual increment is also a single-digit figure. And as regards to the AMC upfront payment, we are not paid anything upfront. There are milestones that are there. As per the milestones, once the delivery comes, then we will pay. That's the way it is.
Okay. Milestone as in, the development of the software?
Yes. Development and delivery also. As I said, when we have done a dropped 1, there will be drop 2, drop 3. And then after that, UAT testing, I mean, the acceptance testing. And then there are parallel runs. And it is divided into multiple milestones.
So when you total this entire milestones, so any rough idea what will be quantum of amount you will be paying upfront? So that amount is supposed to be paid out by at least September of next year. So what would be the outflow in that sense?
The amount would be amortized and then we will have -- the amount that you have mentioned, see, there'll be 2 costs, just to add towards MDs. One will be the CapEx. The other one would be the AMC. So now we are in the stage where the software is being developed. So once the software -- presently, whatever we are incurring would go under capital work in progress. So once we go live in September 22, we will amortize it over a period of 6 years. And then the amortization charge would be related to the P&L, right? And then after a year, that is from September 23, the AMC would kick in because there will be a 1-year warranty. And after that, the AMC would kick in. That's when the AMC will come in. But for the -- for this year, everything would be under CWIP, most of it will come under CWIP until September 22. I hope that answers your query.
Yes. And one last thing. So currently, I believe this software variable fee is around 10.3%, 10.5%. So any guidance on these numbers from the TCS would be 100 to 200 -- was basis lower?
No, no. See, that's where I wanted to say. So currently, we are paying a fixed amount, which is about 10.64 and then under linked to ADT, also there is. So variable fee is also there. As far as TCS is concerned, there's no variable fee. That's the way it is.
Okay. Understood. So that would be saving for us, probably?
Yes.
That was the last question in queue. I would now like to hand the conference back to Mr. P.S. Reddy, MD and CEO, for his closing comments.
Yes. Thanks to all of you for patiently remaining present and listening to the conversation and some of you have asked a very interesting question. But as I always inform you that we work in the best interest of our shareholders, so we will continue to do so. And given the regulators' achievement and other market conditions, I think this is the best we have done. And we will try -- we will continue to improve our working. Thanks to all of you.
Thank you.
Thank you very much. On behalf of Multi Commodity Exchange of India Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.