Multi Commodity Exchange of India Ltd
NSE:MCX

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Multi Commodity Exchange of India Ltd
NSE:MCX
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Price: 6 422.6 INR -0.66% Market Closed
Market Cap: 327.5B INR
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Earnings Call Transcript

Earnings Call Transcript
2023-Q2

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Operator

Ladies and gentlemen, good day and welcome to the Multi Commodity Exchange of India Limited Q2 FY '23 Earnings Conference Call.

[Operator Instructions] On the call, we have Mr. P. S. Reddy, MD and CEO; Mr. Manoj Jain, Chief Operating Officer; Mr. Satyajeet Bolar, Chief Financial Officer; Mr. Praveen DG, Head Chief Risk Officer.

I now hand the conference over to Mr. P. S. Reddy. Thank you, and over to you, sir.

P
P. Reddy
executive

Thank you, Mr. Seagal. Thank you for the introduction. I think this quarter, thanks to options, we have done well. I must accept that. And although there is a small dip in the volumes of the futures, the options have picked up substantially well, and hope that we will be able to do better in the coming quarters and maybe when we introduce more and more contracts also that should help us to meet our expectations.

I think I'll leave the floor open for questions and answers. Please ask the people to ask questions.

Operator

[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital.

M
Mohit Kumar
analyst

Congratulations on a very, very quarter and excellent set of numbers. The question is on the delivery platform of TCS…

Operator

Sorry to interrupt you, Mr. Kumar. The audio is still breaking from your line. Request you to please be in a network area.

M
Mohit Kumar
analyst

I'll get back in the queue. Sorry.

Operator

We'll take the next question from the line of Devesh Agarwal from IIFL.

D
Devesh Agarwal
analyst

Congratulations on good set of numbers. 2 questions from my side. Firstly, wanted to know the status on the transition to the new platform. So where are we on that?

P
P. Reddy
executive

What is the next question?

D
Devesh Agarwal
analyst

And the second question is, sir, we know that you have extended the contract with 63 Moons for a quarter. So what are the commercials around this for the extension of the contract with 63 Moons?

P
P. Reddy
executive

Okay. As far as TCS platform is concerned, we have already started the, what we call, UAT, and we are planning to launch next month, the mock as well as the parallel runs. And so hopefully -- and that's what our plan is, that's what our desire is. By the end of this quarter we should be able to go live is what our expectation is.

As regards to the spend on the 63 Moons, I don't think we'll be able to reveal the commercials, but it is exorbitant. That's all I can say.

D
Devesh Agarwal
analyst

Okay. And in terms of, sir, the new additions to the platform, be it your changes in the monthly option gold contracts that you were planning to do, as well as a gold spot exchange, all of this will be post the transition to the new platform?

P
P. Reddy
executive

Absolutely right. So all of this will be post-go-live, that's right. The impact of the extension will be felt in the next quarter, of course. That's obviously.

Operator

The next question is from the line of Avinash Singh from Emkay Global.

A
Avinash Singh
analyst

Two questions from my end. Firstly, if you can give some breakup of the operating revenue in terms of projects and charges on futures and option and other fee and related incomes, so if some further breakup of operating revenue? That's number one.

Number 2, if we see us closely, I mean, a large part of growth has been driven by all your -- a huge surge in options in a energy and in gas and crude. Now how do you see this? I mean, how much of that is kind of structural in nature or how much profit can be attributed to maybe increased volatility around energy in this, I mean, in this geopolitical development? So these are my 2 questions.

P
P. Reddy
executive

Okay. I will answer the second question first. In fact, volatility is deepening, which runs any contract for that matter. Now whether sometimes it is the energy product, sometimes it is the gold-silver, and still sometime maybe metals. So I can't say that whether there is any structural weakness or strength in it. I mean, it is the characteristic of the market, we must accept it. Maybe currently it is the energy which is substantially driving it, be that so. But it is the volatility which drives all commodity markets, so, so are we. So I will not be able to say that quarter-to-quarter it is a structural change. No, it's not a structural change that is the inherent characteristic of the market.

As regards to the contribution of futures versus options, we got about in futures, we got about INR 62 crores in September quarter; and options, we got about INR 43 crores, that's what it is.

A
Avinash Singh
analyst

Okay. And the rest of INR 20-odd crores would be from membership fee and other fees?

S
Satyajeet Bolar
executive

Membership fee and if you are looking at the consolidated -- yes, it includes the Clearing Corporation part. If you're looking at a standalone, it includes membership and others, connectivity charges.

Operator

The next question is from the line of Nikhil Abhyankar from DAM Capital.

N
Nikhil Abhyankar
analyst

I would like to go back to the 63 Moons contract. So assuming that we do the same volumes as you did in this quarter, can you just give a rough estimate as to what will be the impact on our EBITDA for the next quarter, and how confident are we?

P
P. Reddy
executive

I will not be able to give those numbers, please. I mean that is as good as telling me what the commercials are.

N
Nikhil Abhyankar
analyst

Okay. And sir, how confident are we of going live by end of Q3 with the new platform?

P
P. Reddy
executive

Yes. Confidence level is high. God forbid if some unforeseen thing happens, we can't say. But I think we are on the path to make it live. That's what we are fully determined to make it happen. That's what our all teams are working towards that.

N
Nikhil Abhyankar
analyst

Okay. Sir, my next question is about the higher other income as compared to the last quarter. It is somewhere around INR 18 crores as compared to INR 9 crores last quarter. So do you think this level is sustainable going forward? And also, we've got a lower tax expense this quarter. So any reason specific reason for it? And what will be the tax rate for the entire year?

P
P. Reddy
executive

See, we are moving more towards our portfolio in the YTM, yield-to-maturity kind of range. So we are moving more to this some of the perpetual bond, some of them into the State Development Loans of the Category 1 kind of states, Gujarat, Maharashtra kind of things we are doing it. So there it is -- the returns are very high as compared to what the other money markets are -- other short-term funds are yielding. So that is having, you will see that kind of, what you call, impact. And if this interest rate started -- yields have started going up in the last quarter -- in the current quarter, from sometime June, July onwards it started. So we are accordingly taking advantage of the market.

S
Satyajeet Bolar
executive

And the tax rate would be like this -- taxes on as per the INDAs, it's on the budget. So it should be on these levels. And once we go live with the CDP project, then we'll also get the benefit of the depreciation, which we have not yet factored that.

N
Nikhil Abhyankar
analyst

Okay. So should we estimate somewhere around 20%, 22% tax rate?

S
Satyajeet Bolar
executive

Yes. Maybe around 23% would be right.

N
Nikhil Abhyankar
analyst

23%, okay. So I've got just 1 more question. I was just going through the Annual Report. So over there, earlier you mentioned that we have got 20% stake in the new spot gold exchange in the GIFT City. But I think it has been reduced to around 14%. Any specific reason for that?

P
P. Reddy
executive

See, the investments are being made in tranches. Sometimes, we have -- 1 get delayed and we got delayed, and we've made it up in the sense that -- it is that accounting entry, so by 31st March we couldn't make it, but then in the April we have made it. So now currently it is 20%.

Operator

Thank. The next question is from the line of Prayesh Jain from Motilal Oswal Financial Services.

P
Prayesh Jain
analyst

First of all, wish everybody a very happy Diwali and a Happy New Year. And secondly, congratulations on great set of numbers. First question is on the crude oil part, wherein in the previous quarter, you had mentioned that the regulator is definitely considering something related to the SGF and margin aspects. So any further developments there?

P
P. Reddy
executive

On the SGF, no further developments, because it is still RMRC meeting in SEBI is yet to take place. Unless that is done, this issue will be kept pending, let's wait.

P
Prayesh Jain
analyst

Okay. Secondly on EGR, BSE has received an approval. What's the status with MCX?

P
P. Reddy
executive

So see, as I told you, we are not comparing with anyone. I think they have gone ahead, let them go ahead. And we have our own assessment of this market, our own assessment of it. As we've said, the domestic spot exchanges, gold exchange will start doing better or well only if there is a GST consideration for the first depositor. Now just to launch and then make that we are the first, it's fine, I have no problem. We are the first or second is not important. Once we launch, it should be successful. That's what it is. So we will do it once our TCS platform is stable and once we bowl our one CDP, then we will focus on this part.

P
Prayesh Jain
analyst

Okay. Sir, third question is on this TCS again. In case if we are not able to implement the, what you say, platform by December, does the current extension of 63 Moons allow you to further extend it by another quarter?

P
P. Reddy
executive

We don't know. I don't know, because this is hypothetical at this point in time and so I shouldn't be telling, you know. I mean all alternatives are possible, that's the way I see that. I'm not ruling out anything.

Operator

The next question is from the line of Amit Chandra from HDFC Securities.

A
Amit Chandra
analyst

Sir, my question is on the concentration that is there in the options trading. So 95% is from the crude and natural gas. So don't you think that, as you have mentioned in the previous question also, don't you think it's a risk, wherein other contracts are not picking up or is it structural by any chance or is it structured in that way that we are focusing more on these 2 contracts? And in terms of pipelines, which other contracts are in the pipeline, which we have to launch?

P
P. Reddy
executive

Okay. Is it a risk? Obviously, concentration is a risk. That is true with other leading exchanges where they have only 1 single product, maybe index options or something like that and maybe energy exchange has got only the electricity. But that -- I mean it comes with that structure itself. I mean investors have accepted, yes, it is like this. And as I told you, volatility drives the market. You have seen last year in '21-'22 also the gold and silver markets have -- those products have done exceedingly well. And this time it is doing energy. Sometimes it could be metals also. So I think we are not worried on that. There is no competition. The point is between India, there is no competition. But if somebody wants to trade in these products, they come to the exchange only. I can understand this concentration may be at risk if there is competition.

A
Amit Chandra
analyst

And sir, in terms of this participants who are trading, so have we seen substantial increase in retail participation, especially in options or is it the structure is similar to what there is in futures or is it substantially different from what it is in futures?

P
P. Reddy
executive

No, we have seen a good great number of investors participating in terms of trading UCCs. Till this end of this quarter, in this current financial year, we have 374,000 UCCs have participated as against corresponding period last year 313,000 UCCs or 314,000, a little less than 314,000 UCCs last year. And so that's the big number. And if you see Q2 to Q2 comparison, last year July-September, it was 219,000 total futures from the options. And this year in Q2, it's a 291,000. So I mean, that's the way it is.

A
Amit Chandra
analyst

And sir, my last question is on the technology part. So you mentioned that next month we are going to start with mock trading on the new platform. So it's mostly end of November. So you have only 1 month, which is December, to transition from old to new. So don't you think that like 1 month is very less time to do all the testing? Because as you mentioned that we only had 3 months of extension. So like beyond that, maybe we have not thought of that or there is no clarity on that at this point, so your thoughts on that. And also how is the attrition in the internal IT team has been over the last, say, like, 6 months? Has it gone up like significantly in the last 6 months?

P
P. Reddy
executive

Coming back to the -- I said next month doesn't mean next month-end, okay? So you are presuming that it is next month-end kind of thing and then only 1 month is available. It could be, well, in the beginning of the first week of the next month also. So that is the way -- we are conscious of the time limit. That is why we are trying to make it live as early as possible and make it, I mean, mock runs also as early as possible. And I mean this is the topmost priority of the management. There is nothing else. Let me tell you.

And on the second question that -- attrition, I think, it has tapered off now in the current -- in this quarter, I would say. But yes, in the previous quarters, it was on the higher side. But now it is tapered off.

Operator

The next question is from the line of [ Sumit Arora from SmartRun Capital ].

U
Unknown Analyst

Sir, first, if you can just help me understand few things, what's the cash today we have on books, firstly? Secondly, sir, I just beg my ignorance, but I'm pretty new to your company. So I'll just ask you a few things. So sir, basically, if you can help me understand that you said the operating revenue was about INR 60 crores for futures and about INR 40 crores for options and INR 20 crores was the others.

So can you please help me understand that since the options is the new part, so how do you basically see this evolving? Because normally options are very well traded all over the world in terms of volume. So how do you basically see this INR 40 crore kind of options shaping up? Thirdly, I read somewhere that SEBI may soon allow FIIs to start trading commodities. So has that already been allowed or that has not been allowed as yet, sir?

P
P. Reddy
executive

I will take the second question, the third question, how does the options will shape up, option revenue, because currently it is INR 60 crores versus INR 40 crores kind of thing you're saying it. What I understand is that options are the future for that, for that matter for all products, maybe. We are gradually introducing more and more products and which one will pick up fast and then which one will pick up steady as it is currently happening in the crude LNG, and I think it all depends on the volatility and the margining system. And the margins are under the underlying features of -- underlying futures, the margins are very high, whereas options it is very less. That is the reason why it is darling of the market. And I think as we go along, we will see some kind of traction in other products and options will also start picking up. And the realization rate is also good in the case of options, better than what we keep assuming that -- keep saying that 1/3 of the -- options give 1/3 revenue as equivalent to the futures, that's what I said. But that realization is better than what we have been presuming yet.

And the third thing is the FII participation, the regulations are out. But still, I mean, this is our understanding of it. If they want to participate without any delivery being taken or any kind of such thing, they should be able to participate well in time now itself. But if they want to participate in terms of cash and carry arbitrage opportunity, if they want to take advantage of, probably they need a GST registration, et cetera, which again is a challenging thing for them. And then probably, they need to have a custodian also in place, if they want to trade in such kind of strategies. Maybe we have to wait and see. But again, as I said, our focus this quarter is not acquisition of more clients, it becomes fine, but our focus is on technology. I think we want to make it live come what may at any cost, the CDP, Commodity Derivatives Platform live. That's what our ambition is.

And regards to the cash, the first one.

S
Satyajeet Bolar
executive

Yes. Our own cash in our books is around INR 900 crores. This excludes all the margin money and other money the Clearing Corporation gets. Our net worth is INR 900 crores, which is represented in cash.

U
Unknown Analyst

Okay. Perfect. And one more thing, if I may ask you, may I, sir?

P
P. Reddy
executive

Yes, please.

U
Unknown Analyst

Okay. First of all, basically if you can help please understand that today how many products are we offering and of the revenue? Can you give the top 10 products, I mean, if by the revenue we offer? And how many more products or commodities are we going to introduce going ahead?

P
P. Reddy
executive

No, 2 energy stocks, and then 2 of the bullion, that's 4; and then 5, base metals. These are the ones which accounts for the maximum, that's the weighting.

U
Unknown Analyst

And are we introducing more, I mean, products or commodities or whatever?

P
P. Reddy
executive

Yes, we are there in the pipeline. We will do that. Electricity is one such product, yes.

Operator

Thank you. The next question is from the line of Subramanian Iyer from Morgan Stanley.

S
Subramanian Iyer
analyst

Congrats on a good quarter. So I had 3 questions. The question is that it's more related to the operating revenue breakup. So you mentioned about other revenues being about INR 20 crores. So if you could give some more color here on what's changing here? Because in the first 3 quarters of the last year, we had this number around INR 13 crores odd. The last 2 quarters, it's been around INR 16 crores, and now there has been a good jump to INR 20 crores. So if you can provide some more color on this, on what's the composition and what's moving here? That's the first question.

The second question is about product dynamics. So we are seeing a good pickup in options with respect to crude oil, but we have not seen a pickup in options with respect to gold and silver, which are more dominant in futures, whereas basically crude is not doing that well in future. So if you can explain some product dynamics here on why this differentiation? And if at all that can be something that can shift in the future from futures to options, why would that happen? And the last question is, it's more about the investment book. So you mentioned that you are moving to YTN investments. Do you have an option of essentially not marking to market instruments that are designated to be held-to-maturity, so thereby eliminating the volatility in your P&L? That's the third one that I wanted to understand, yes.

P
P. Reddy
executive

Okay. See the second question, I will answer first. See, you're right that crude oil, thanks to the high margins that have been imposed. Then investors found an alternative way of taking advantage of the volatility in the product. So they moved over to the options. And in a similar way, even the NG has also picked up. But that's not true with gold, okay, like gold and silver. So just what we are doing it. My hunch is that it will be high margin costs which have led to this kind of shift. But having got used to that kind of shift, whether they will move back to the futures, if the margins are reduced, I'm not too sure about it. I will not be able to predict that. And if there is any other reason that could make them to take a decide, make them to move out to the futures, I think we have to wait and see on that part of it.

Now the other products, obviously, as we entered in the gold also, we are planning to introduce on a monthly options contract, probably that will reduce the tenure of the contract also. You need to look at that part as well. If the tenure is also high and then the contract value itself is also very high, obviously that will keep the participants out. And hopefully, if we make it a monthly contract, that will be brought down by off. Premium will be brought down, so that will make it attractive. So essentially, it is the cost of trading, whether it'd be the premium, be that margin, which will drive -- make the people to choose the product.

Then the first one, of course, is regarding the breakup of it, the other income breakup. We will tell you. The last question, again, related to the, whether HTM, I think, that is we have changed the policy of our investment policy. There we mentioned that all these instruments can be kept under held-to-maturity.

S
Satyajeet Bolar
executive

As we explained in the earlier -- in the July call that we are moving into held-to-maturity category of investments of bonds. So we are amortizing this over the length of the instrument, and we have invested a substantial amount in state development loans as well as in perpetual bonds, which -- in primary as well as in the secondary markets during this quarter. So all of these instruments are held under held-to-maturity. So we will not be capturing any impact of the mark-to-mark.

On your second question with regard to other income, so the other income includes mainly treasury, as well as during the quarter we had informed the market that we have an arrangement with Citycon Stock Exchange, in which we give them -- we've been providing technical services. So we have been able to book -- we have booked -- we have provided services and we have booked certain income on the services that we have provided to Citycon Stock Exchange.

Operator

The next question is from the line of Lavanya Tottala from UBS.

L
Lavanya Tottala
analyst

Congratulations on good set of numbers. And I just want to understand in continuation to earlier question that in options, is there any difference in participants who trade gold and silver as compared to crude and natural gas, because there the members are already comfortable with options, but gold is not yet. So is there any difference in the set of participants who trade in different products? And also, within crude, do you see higher preference for short durations like 1 month contracts over 2 months, because the premium will be lower there?

P
P. Reddy
executive

Yes, in crude, anyway it's a monthly contract. So as such, the premium will be lower, okay? And -- but the contracts are also not very big as compared to the gold. Today you have about INR 50 lakhs 1 kg this one. So that's very high. And so, yes, is there any difference in the participation? There are many common, no doubt about it. But as I told you, for those ones who are day traders or some of them who want to take advantage of volatility, they look at deploying, let's say, INR 1 lakh in gold and how much money they can make versus deploying the same INR 1 lakh in crude oil, how much more money or how much more contract they can take and then benefit it. So that is how the comparison they do it. Obviously, the fund requirement will increase when it comes to the gold and whereas when it comes to the crude oil and natural gas, it is less. So it's pure economics of it, nothing beyond.

L
Lavanya Tottala
analyst

Okay. Got it. And just a or clarification, sir. Crude, we have only monthly contracts, there is no 2-month contract?

P
P. Reddy
executive

Yes, there is no bi-monthly contract.

L
Lavanya Tottala
analyst

Okay. Got it. And can you help me with this revenue split for the last quarter in terms of options, futures and the membership fee, sir?

S
Satyajeet Bolar
executive

Yes. During the quarter, the September quarter, we won INR 64 crores from futures, INR 43 crores from options.

L
Lavanya Tottala
analyst

I mean, Q1 last year.

S
Satyajeet Bolar
executive

Q1 was INR 66 crores in futures, INR 27 crores in option. Yes. And then INR 2 crores would be for the membership and another INR 2 crore for connectivity.

L
Lavanya Tottala
analyst

Got it. And lastly, sir, after launching the -- I mean, after we shift to the new platform, TCS, what will be the timing that you would be looking at launching the new products like the monthly gold options which you are looking at, what would be the time line after shifting to the TCS that you will be launching the new products?

P
P. Reddy
executive

As far as possible, we would like to launch in the first quarter only. That is within 3 months of the launch.

Operator

The next question is from the line of Ansuman Deb from ICICI Securities.

A
Ansuman Deb
analyst

I have 2 questions. One is on the proportion of your UCCs who are using options. You kind of indicated that number. If you can share the penetration of options within your universe as of now? That is one. And secondly, sir, I just wanted to understand that in your contracts with TCS, is there any punitive cause of delay or any accountability in terms of from the TCS side in terms of being delayed or…

P
P. Reddy
executive

Yes. I think it's already there. There is a penalty clause is there. But every clause has got its own limitations, you know. You can't take care of the entire contract value, isn't it, in any contracts. You know that. There is a penalty clause, no doubt about it, okay? Now this is one part of it. In terms of UCC, you're asking in the futures, you have a total of 236,000 are getting traded, okay? 236,900 are trading. And in options, about 213,000 are trading. Now, the unique between the 2 are 374,000. Is that clear?

A
Ansuman Deb
analyst

Yes. Again, just to be clear that the -- so basically, the entire universe with trading futures is also trading more or less options as of…

P
P. Reddy
executive

Not necessary. Not necessary. That's what I am saying. We can't draw that number comparison and then deduct it and then you can't be aware of this. That could be a separate set. This could be a separate set. That's why I'm saying 374,000 is the unique.

A
Ansuman Deb
analyst

Okay, sir. I'll sort it out and try to figure it out. No problem.

Operator

The next question is from the line of Bharat Agarwal, an individual investor.

U
Unknown Attendee

Sir, just a question, so the -- in the revenue breakup, there is income from margin money. Just wanted a brief detail about the same line item.

P
P. Reddy
executive

So income from margin money is essentially the cash deposited by them, we earn some interest. That's all it is. And it will be in a money market…

S
Satyajeet Bolar
executive

It is consolidated. It is managed by MCXCCL. And the investments are made as per the SEBI guidelines. It's only in liquid overnight and fixed deposits.

U
Unknown Attendee

And what would be the amount right now, the marginal amount?

S
Satyajeet Bolar
executive

At 30th September, we had around INR 1,000 crores in cash.

U
Unknown Attendee

INR 1,000 crore, okay. And what is the payment that is related to 63 Moons in H1 FY '23, so far basically?

P
P. Reddy
executive

Yes, H1 it will be -- obviously, as per the previous contract agreement, that was almost…

S
Satyajeet Bolar
executive

Around INR 28 crores.

U
Unknown Attendee

INR 28 crores, okay. And what's the top 10 concentration right now?

P
P. Reddy
executive

Sorry?

U
Unknown Attendee

Top 10 concentration by traders.

S
Satyajeet Bolar
executive

One minute. Yes, I think, top 10 accounts for the same like last quarter, 66%.

Operator

The next question is from the line of Rajesh Mehta, an individual investor.

U
Unknown Attendee

Sir, my question is on the technology platform, and 2 questions. Sir, the first one is on the -- there's a lot of market speculation on the quantum of amount that you paid to 63 Moons is maybe a multiple times of what our quarterly payout are. And if that is the case, sir, do you think that next quarter's profits would be materially impacted all things equal? That's the first one.

And the second one is on the TCS delivery. Sir, as per the last conference call, if I am right, they were supposed to deliver the entire product suite by end of September and then only mock testing would have been pending. But they have not yet delivered the entire product suite. So what is the confidence that they will be able to deliver it by November and then the testing can go ahead and then we'll be able to launch on 1st January, before 1st January?

P
P. Reddy
executive

Okay. The first question -- first, whether, as I said, the charges are exorbitant. Whether it will impact the next quarter? I think if other things being equal, obviously it will impact.

Now the other part of it is what is the confidence level? As I said, we are already doing the UAT and it is progressing and we are keeping track of it. And day by day, we are able to see some good results out of it. And let us see, as I said, these are all options are kept open. And we must make it live and it is kind of management's commitment, do or die kind of situation. We would like to make it go live. That is a commitment from all sides. That's the way it is at this point.

U
Unknown Attendee

Sir, just 1 follow-up. Sir, in the light of things, would it have been better to have a slightly longer extension than just 3 months? I mean, given that TCS has been at it for 2 years and hasn't yet delivered the product suite for MCX, just wanted to know your perspective on.

P
P. Reddy
executive

I think all dimensions have discussed. I think accordingly, this was the best possible exchange we could have under these circumstances.

Operator

The next question is from the line of Harish Iyer, an individual investor.

U
Unknown Attendee

Sir, my question is, again, pertaining to TCS contract. And sir, what we have seen even internationally when someone replaces the vendor, they run the systems parallelly for good amount of time, so that exchange avoids any failure in the future. I completely get your intention, sir, that you want to move to a new platform. But sir, doesn't that risk MCX for any future failure, since you will have a very short amount of time to move to a new platform and we don't have running parallelly so far even for a quarter?

P
P. Reddy
executive

Well, we need to make an assessment risk versus the action that we have to incur also. Of course, we are -- we will take a careful assessment of the situation as we go along and how stable it is. And obviously, TCS will be giving L1, L2, L3 all supports they are giving it, and we're doing a proper assessment and we will be running the parallel runs also. And depending on the quality of the parallel run, quality of the mock run, we will take this call.

U
Unknown Attendee

And sir, 1 more question, I understand and what have said, obviously, you cannot appreciate the confidentiality terms and you cannot quote it. But sir -- and also considering that you, as you said, you have to measure it risk versus everything. And if we have to extend these contracts, would that mean that the FY '23 profitability would materially get impacted, everything remains same, sir?

P
P. Reddy
executive

We don't know at what price they will extend or -- I mean this is all hypothetical question, isn't it? I don't know what offer they will give. And so how I may say whether it will impact or does not impact.

Operator

The next question is from the line of Nikhil Abhyankar from DAM Capital.

N
Nikhil Abhyankar
analyst

Thanks a lot for the opportunity again, sir. Sir, you mentioned that there is a penal clause associated with the TCS contract. So can you just mention the quantum of that contract, quantum of the penalty?

P
P. Reddy
executive

No, I will not be able to. That's what I'm saying, these are confidential terms. How can we disclose it? It's not.

N
Nikhil Abhyankar
analyst

Okay, sir. And if at all, if you have any accrued revenue through it, so when will we start booking it?

P
P. Reddy
executive

Come again.

S
Satyajeet Bolar
executive

I didn't get it. We didn't get your question.

N
Nikhil Abhyankar
analyst

These penalties, when will we start booking these penalties, if there are any?

P
P. Reddy
executive

See, probably instead of paying them -- because the payments have not made to TCS as yet. They are all in tranches and depending on the milestones. So as and when a milestone is achieved, before releasing the payment, probably we will be deducting it. I mean, I don't know. That is -- we have to look into the terms of the contract and then accordingly do it.

Operator

The next question is from the line of Sanketh Godha from Spark Capital.

S
Sanketh Godha
analyst

Sir, can you just give us the margin difference in options market in absolute percentage terms -- in options market versus the futures market for crude, gold? And within futures, how the margins are different between crude and the other products, just to understand how this huge differential is leading to crude volumes to do so well? That's my first question, sir.

P
P. Reddy
executive

See, in crude oil, for example -- futures, the underlying margin is currently about 30%, 35%. And when the last 5 days delivery comes, every day, 5 -- 5 percentage points it will increase, so, 30, 35; 40, 45; 50, 55. It can go up to 55 percentage. Now in gold, currently I think 12% or so -- again, and the last 5 days, it will -- delivery period, it will increase by another 25%. Now these are all the futures activities.

When it comes to options, the option writer will have a different -- obviously, the same margins will be applicable for option writer, because he's taking exposure to deliver the underlying commodities. So -- but whereas option vertical buyer, neither put option or call option, he has only option. So he will pay the premium. Now how much premium he pays and is -- it all depends on whether it is in the money or out of the money or at the money kind of options. That is the way it is. And it varies from product to product.

S
Sanketh Godha
analyst

Got it, sir. And the second question just wanted to understand is that if I look at historical data, the premium to turnover ratio if I want to calculate in options market, it used to hover in the range of 1-1.5 percentage till '21. And this number suddenly has gone up to 2.3 in FY '22, now it is in the range of 2.5 percentage, 2.6 percentage. Sir, just trying to understand the risk, that this number, if it goes back to 1.4, 1.5 kind of a number, what likely impact it will be or what is leading to the number to be so high around 2.5, 2.6 compared to historical cost around 1.4, 1.5, sir?

P
P. Reddy
executive

See if the options are traded out of far away from out of the money, obviously the premium will be less. If it is closer to the money or in the money fee or around that, then obviously premium has to be paid more. So since our charges, transaction charges are based on premium, the premium if it is high, then obviously our transaction charges will be high. Now that's where we said in the earlier, sometime ago that we have estimated it to be getting as the revenue of the futures transaction. It is precisely based on that kind of conservative estimate 1%, 1.5%. But we are able to see better premiums. So obviously, our transactions options are more trading at the money, in the money or near the money, the kind of thing, but not far away from the money. That's the reason.

S
Sanketh Godha
analyst

Sir, you have clearly seen a structural shift among the participants previously when options were not charging, but people used to trade far from the month contract. And now they are trading closer to the month contract, that's like a structural shift and therefore this number will remain about 2%, 2.5% forever going ahead?

P
P. Reddy
executive

I think it is too hasty for me to make that comment that we have made any structural shift. We have to wait and see. And this is just 1 year old in that sense the options charging has started last year September, October. And it is too early for me to say anything on that.

S
Sanketh Godha
analyst

Got it, sir. And like future yields, which is INR 2.07, so the option yield will be closer to INR 4.20 to INR 4.30, sir?

P
P. Reddy
executive

I didn't understand. Options, we are charging about average INR 45 for INR 1 lakh of premium. That is the fee that we are using.

S
Sanketh Godha
analyst

Yes. Okay. Got it. And last one, the investment book breakup, if you can give how much is in SDL or held-to-maturity securities? You said that cash on investments on the book is around INR 900 crores. And can you give the breakup of INR 900 crores into YTM kind of a bond versus last year and whether there is further more scope to increase it to YTM ones?

S
Satyajeet Bolar
executive

So as I mentioned, total corpus is around INR 900 crores. We have around 45% in perpetual bond and state development bond. And we also have around 5% in ETF, which are maturing in April '23, Bharat Bond. So the balance is short-term, which we are reviewing on a regular basis. And as and when we get opportunities, we are moving it to FDLs.

S
Sanketh Godha
analyst

Sir, any cap you have, sir, this 45% can go up to 60% or 70% of the entire cash you hold?

P
P. Reddy
executive

It depends on our liquidity.

S
Sanketh Godha
analyst

Okay. Fine. And last one, sir. Given the mutual funds have started this ETFs, the gold and silver ETFs, have you seen any traction on the exchange because of these ETFs getting launched?

P
P. Reddy
executive

Not as yet.

S
Sanketh Godha
analyst

And what could lead to any increase in the traction, sir? Any reason why it is not picking up?

P
P. Reddy
executive

Well, we are engaging actively with them. There are some structural issues which we have written to the AMFI also to address these issues. They are taking up with SEBI and probably once they address those issues, probably they will be able to participate greater.

Operator

The next question is from the line of Chirag Maroo from KEYNOTE Capital.

C
Chirag Maroo
analyst

Most of my questions are answered. I just have 2 questions for now. The first one is, could you please tell me what is the ballpark figure that you are spending on the software, TCS, and how much of that we have already spent? And my second question is like, we have particular slabs for future contracts, like up to INR 350 crores of contract, you charge about INR 175 and beyond -- beyond INR 350 crores, you charge INR 175, and up to INR 350 crores, you charge up to INR 260. So is there any kind of slabs in option contract?

P
P. Reddy
executive

Yes. Coming back to the second question first, yes, there is a slab as I told you it is about INR 45 -- I mean…

S
Satyajeet Bolar
executive

INR 40 and INR 50.

P
P. Reddy
executive

INR 40 and INR 50. And subject to how much is the premium, we have that. We have 2 slabs in that, 1 minute I'll get you. And then the first question is on the pricing, how much is contract value and other thing. I mean we have been advised strictly not to disclose any of those numbers. But it will be substantially lower than what we have been incurring so far. That's the way it is.

Up to INR 5 crores, it is INR 50. Up to INR 5 crores of premium, it is INR 50 per lakh. And beyond INR 5 crores of premium, it is INR 40. These are the 2 slabs.

Operator

Thank you. The next question is from the line of Prayesh Jain from Motilal Oswal Financial Services.

P
Prayesh Jain
analyst

Firstly, you had mentioned about launching steel contracts. What is the status? Have you have the approvals and we are waiting for the TCS or where are the -- whether it starts right now?

P
P. Reddy
executive

Yes, the approval is not is place as yet. That's where we are waiting for. I think we should be able to get that. Let us see.

P
Prayesh Jain
analyst

And just extending the previous question with regards to the spend on the TCS. If I look at the balance sheet and your intangible assets under development is INR 75 crores. Is it pertaining to TCS and how much of -- what portion of it would have been - INR 75 crore is a number that we have till September?

S
Satyajeet Bolar
executive

See, that's a aggregate amount of what we are spending on our intangible under development.

P
P. Reddy
executive

That includes the hardware also?

P
Prayesh Jain
analyst

No, no, only intangible. But it won't be fair. I mean, we were asking questions left-right in different ways. Please remain update to maintenance.

Operator

We'll take one last question from the line of Harish Iyer, an individual investor.

U
Unknown Attendee

Sir, just want to understand what would be -- we should take as an annualized figure for the other income, considering now we have changed our policy? Because otherwise, every quarter it moves up and down. So is it possible for you to guide that what this change in policy and shift of our portfolio, what would be our annualized other income, sir?

S
Satyajeet Bolar
executive

It won't be appropriate for me to give you an indication, but we have -- as we have mentioned in the call, we are moving towards wherever we can. Mostly we'll be moving to held-to-maturity. But remember, in held-to-maturity, you're only going to get the accrual. So that's a downside, right? If the interest rates start falling in the fourth quarter, then there is nothing that we can -- that we'll be able to record, it will be only the accrual. So that is something that we have to keep in mind.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. P. S. Reddy, for closing comments.

P
P. Reddy
executive

Thanks to all of you, and I think we have done well in terms of numbers. But my top most priority at this point, the entire team at MCX is to make the commodity derivatives platform live, and that's what our single most important target for this quarter. And hopefully, we will be able to make it. That's it. Thank you. Thanks to all of you.

Operator

Thank you. Ladies and gentlemen, on behalf of Multi Commodity Exchange of India Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.