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Multi Commodity Exchange of India Ltd
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Can deliver on the exchange. MMTC-PAMP has significantly ramped up the deliveries on the exchange throughout the year, and we'll continue to see that business growing as we go ahead. More importantly, in our cotton business, we have Vardhman textiles and some of the other leading firms in India participating in the contract. As we've always maintained, availability and participation of the physical value chain is one of the integral part and the most important part of the commodities derivative.Last quarter, we launched our brass contract. Very happy to report that in the first month of trading, the contract has been doing roughly about 300 lots. And as we are now entering into the last day of trading, we have deliveries coming in as well. This marks an important development, because deliverable contracts: a, we believe is the way forward and that's being sort of collaborated by the regulator stance even in the equities market. So we will see more focus on deliverable contracts in this segment. And the fact that we will be able to have good experience of developing and delivering deliverable contracts in the metal space should help us going forward as well. So the brass event was a unique contract, is the first time that is a composite alloy being traded. It's the first time brass itself is being traded, and it is the first time a nonferrous metal has been delivered in India.In terms of the regulatory developments, I think there are 2, which are very important from our perspective. The first and foremost was the fact that SEBI has now allowed the liquidity enhancement scheme or measures for boosting liquidity in the commodities market. This is a big development because FMC, which was the earlier regulator and in the earlier years for SEBI as well, liquidity enhancement was something, which was not allowed. We have been -- we've just launched our liquidity enhancement scheme. It's been 3 days of trading under that scheme. The initial response has been extremely good. We continue to monitor what's happening in liquidity enhancement, and we believe that will really help us make the gold contract very liquid. Most important -- and there is a gold options contract. Most importantly, we are in discussions with SEBI and very hopeful that very soon we will have more contracts to trade in the options space.Let me just take, therefore, a little bit to say what we see our focus to be in the next 3 to 6 months. And I am breaking it into 2 parts, because there's been the annual, sort of results call. I will talk about, sort of what's the full year focus but also what's the near-term focus, especially because there is a lot of attention to the October event where we will have the universal exchange regime kicking in. For the first 6 months, which is the time we believe we have the 4 other exchanges will come into the commodity space, our focus will be to make sure that options, which is a contract, which we believe will add significantly to the volumes and in some ways to the revenue as well, will be something that we will focus on. So first step would be to get more contracts launched. We have applied for crude, zinc, silver and copper, and we're hopeful that at least 2 of these will come through in the next couple of days. We're also very confident that all the 7 contracts of MCX, which are eligible under the current SEBI regulations for being offered under the options platform, will be up and trading in the first half. Add to this, the focus that we have to the liquidity enhancement scheme on making the gold options contract very liquid. We believe in the first 6 months, we will be able to deliver a full suite of options for our investors and that will enable us to create a product that we can then use for adding to our revenues in the second half of this year.In terms of commodities and commodity-related launches in the futures platform, our focus will be twofold. First, we will continue to look at some niche areas, and seed products, which have not yet been announced or not yet been offered in the Indian market till date. And see if those can be offered in the next 6 to 9 months. The second focus, as I mentioned earlier in the call, will be to see how some of our contracts can also be made deliverable, or some of the deliverable contracts can have better reach, especially given that the GST regime is helping us in terms of making sure that deliveries can now happen pan India. So those would be the 2 focus areas from a business perspective for the exchange.Last year, I had mentioned that internally we had changed some of our [ PRAs ] for the organization and for the senior members of the team. We had introduced 3 critical numbers, and we are doing very well on at least 2 of them and pretty good on the third one. So the 3 numbers that we had introduced internally were: first on education and outreach. Very happy to report that for the financial year, which is '17, '18, the total number of programs and the total number of man-hours of training that we have done is more than double of what we did in the previous year, and we have a similar target for this year as well. Second, the number of corporate hedgers that we have in every contract, we had targeted anywhere between a 10% to a 50% growth in each of these contracts. And again, very happy to report that last year, we achieved in all these parameters. Some of the large names I've already mentioned in the call, but we're very happy to share other details if required by any of the investors. The third number where our growth is a little less than what we wanted to do, but still extremely encouraging is in terms of expanding the actual market. So this is in terms of the unique investors or as we call the unique client codes that trade on the exchange. We have registered more than 10% growth in the last year, but that's the number that we would like to grow even more this year. So those would be 3 different sort of ways of expanding the market and that will be the third focus of MCX in the coming years. Last, but not least, and Sanjay is with me on the call, our CFO, and I am sure you will have questions so we can take that more. But last quarter we had mentioned that we had a slightly less-than-expected other income on account of some blip in the other -- in the treasury income that as a strategy, we are moving away from long-dated instruments in our portfolio, and we hope to see the full benefit of that coming through by the end of this calendar year. So those are some of the highlights that we are looking to do in terms of managing MCX better. And I would just conclude by saying that, our commitment to giving investors a good return is also reflected in the fact that we have -- the board has accepted a recommendation, and we are recommending a dividend of INR 17 per share, which we believe is something that the investors should hopefully like. With that, I think I'll finish my initial comments, and very happy to take questions hereon. Over to the moderator again.
[Operator Instructions] The first question is from the line of [ Ritesh Chada ] from Lucky Investment Managers.
Sir, just referring to your presentation, which you've posted on the exchange, Slide 6. There are these bubble chart where you have put up in the total commodity derivative versus GDP of a country. Now do you consider it to be a case where there is an opportunity when you are showing this bubble chart? Or possibly that when I look at countries like Australia or Malaysia, and I look at vis-a-vis India, then we are where we are. And hence the volume growth factor for which you said there are 3 drivers, the overall growth in your business will be mirroring the GDP growth. So if you go develop something slightly more on the bigger landscape in the space.
So thanks, [ Ritesh ] I think the way we look at this is, for us, we are trying to define what the opportunity is and what the growth is. And therefore, if your question is, do I look more from the larger bubbles and say that is the opportunity, or do I compare myself with smaller bubbles and say, we are already there? Our firm belief is that the larger bubble really represents the opportunity. The reason I say this is because, as we have been talking in all of our previous quarters as well, India does not still have a lot of factors, which are there in some of the other bubbles that you see. We do not have institutional investors, we do not have bank participation, we do not have products such as index. And in terms of the culture, I think hedging is something, which is still to catch up in India. So to us, those 4 pillars of growth, we've spoken about them quite a few times, but those really represent the reason why we believe that the larger bubbles are something that is an aspirational thing. And we think India will move in that direction. So that would be my answer to your view on whether you should look at the larger bubbles or the smaller ones.
When you are comparing with other countries, even those countries like Malaysia and all do not have hedging and institutional participation? Or they have hedging, institutional participation, despite which they are at this half a time GDP?
So I'm not a full country expert but with my limited exposure of Malaysia, I can say a few things. One, they are a much smaller economy. Second, in terms of the amount of commodities, which they really have, it's much more in terms of agri-commodities that their turnover is today. Their big turnover is actually driven by palm oil and rubber. So I think, again, that's the reason I would just say India has got a much bigger potential than comparable countries in that bubble size at least.
No problem. I just have 2 more questions. On the drivers for growth, you said there are 3: one is options, one is new folios, and what is the third one?
So I think I just segregate this. On the drivers for growth, as an exchange, we believe there are 4 drivers for growth for this business. The drivers for growth in this business are new products that is options, and later, we hope it will be indexes. The second driver for growth is participants. We have just seen some discussions around institutional investors, but that we believe is the second pillar of growth for this market. The third driver for growth is distribution. That has been enabled by the regulators by allowing bank subsidiaries to come in and by allowing brokerages to combine their entities across commodities and other asset classes. And the last driver for growth will be the increase of hedging as an activity or increase of hedging as a risk mitigation factor. So those are the 4 drivers of growth. What I mentioned earlier was that for the key result areas of my senior management team in addition to pure turnover or revenue, which everybody looks at, are costs, which also we look at traditionally. We introduced 3 other factors. And those were around investor outreach, which was through programs and training numbers. The second was UCC, which is a unique client code that trade on the exchange. And third was corporate hedgers, which is the -- hedgers who participate and give long-term liquidity to us. So those are the 2 different ways of what I mentioned earlier.
Okay. And just one last question. On the expense side, last year, there was a lot of volatility for the last couple of years. Now when you are reporting FY '18, are these kind of the expense line now we should start looking, because there was hardly any inflation at least this year? So some color on the expense line, which are variable? How do you see it moving, which are fixed? What portion is fixed, and how do you see it moving?
Okay. So I think, [ Ritesh ] we've mentioned this on our previous calls and let me just clarify. So if you look at the way we put our results on the stock exchange, and if you look at those, we have 6 lines of expense in that. Last year, we had total expenditure of INR 198.58 crores. This year, we're at INR 204.68 crores. All of this, as you can see, line number b, c -- b and...
Just a minute sir. I'm looking at your presentation, Slide 17, which says INR 188 crores of total expenditure, consolidated. Employee INR 68 crores and other operating expenses INR 119.77 crores.
Okay, okay. So I think you are referring to the reason that, that...
Yes, yes, yes.
Okay, fine. So now if you look at these 2 lines, you probably need to look at it with what we've put out on the BSE side as well. But just to give you a flavor, out of this INR 198 crores last year, INR 47 crores was coming from what we call purely variable expenses. And in addition to that, there is regulatory expenses, which are not generally too variable, but can change if the regulations change. So if you look at that number, that number has gone up by about INR 2.4 crores over this year. And that's because in terms of the mix of our products, we have more in terms of energy and metals as compared to bullion, and we pay licensing fees for energy and metals. Secondly, during this year, regulatory expenses went up. So on IPF and ISF, the total contribution has gone up by more than INR 3 crores in this year. And those are the 2 lines of expense, which went up. In spite of those 2 lines going up, our total expense has otherwise stayed flat for all the other lines. So for you to look at it, I think the way to look at this expense would be, look at the expenditure on the software support, product license fees, regulatory fees et cetera. Last year, it was roughly about INR 51 crores, giving us a total of other expenses, which is employee plus everything else that we do in the exchange at about INR 147.7 crores -- 147.3 crores, this year that expense has remained flat. We are committed to keeping this number within a 3% growth year-on-year. So even though we delivered flat for this year, our commitment is that we'll remain within 3%. So whatever we have in terms of increase in manpower expenditure, which happens because you have inflation, you are paying increments, you are paying more. For all of that, we will take care but not letting this grow at more than 3%.
To just clarify, you said employee plus expenditure other than variable should grow at 3%?
Less than 3%.
Less than 3%. In which part -- in other operating expenses, you segregated as a portion, which is variable, which is at about INR 47 crores plus some regulatory expense. And the portion other than that, is what is fixed in nature in which you gave up a INR 51 crore breakup as products like software et cetera, et cetera charges. Can you just -- given that variable, what is the total regulatory spend that you did for FY '18? So that it clears everything actually.
So our regulatory expenditure for last financial year was INR 4.17 crores. And for the latest [ recognize ] a -- FY '17, '18 is INR 7.49 crores.
The next question is from the line of Gautam Chhaochharia from UBS.
So couple of questions. One is with liquidity on this facility. What is the plan for that incomes of cost and the mechanism, the number of providers?
Gautam, thank you for that compliment, and let be come to the LES. So the LES is -- as approved by SEBI, we can offer it mainly and only for enhancing market-making, which essentially means that you're improving the liquidity and you are improving the -- you're tightening the spreads that anybody sees when you're trading on the Street. There is no facility allowed and we are happy at that for really rewarding just [ build ] turnover. So that will -- key features of the liquidity enhancement scheme. The initial idea Gautam, is to offer this for a period of 6 months. The reason we're doing this for 6 months is that 2, 3 parts. One, we were hoping to start it in April. We started in April, we wanted to do it initial beginning of April, we started in the last week. But we didn't want to have this expenditure going more than the first half of the year. Second, like I said, as a strategy, we want to use the 6 months to build options as a platform. And we believe having one very, very liquid contract and launching all the others in parallel will be a part of our strategy. And third, from overall expense perspective, we believe that was sort of number that we could afford. In terms of what we have, I think we're looking to -- the overall commitment to the market is that we'll pay a fee of INR 60 lakhs per month. So it's INR 3.6 crores that we have committed just now. But again, this is not going out as a cash payout. This goes as a offset to the revenue that we get from the same participant in all the other fees that the participant is paying. So it's a rebate of fees that is going out to the market makers, and it's not a cash payout to these people.
And given the last month's change, which is going to happen around with the mutual fund being allowed? Or will it happen earlier and in the meantime will the mutual funds be allowed?
So on that one, I think it's really -- something, which we keep saying, I know it's a little repetitive that we think it's going to happen anytime soon. But that's the reality is that, I think all consultation we think is over. We've had multiple rounds with the regulators in terms of feedback as well from various sections of the market for what should happen for both mutual fund and PMS. You are right. The feedback is that the reason why AIF has really not come into the market is that there are some enabling sort of provisions on the custodial regulations, which need to be ironed out. Given that, that is necessary for both mutual funds and PMS as well, we think it will happen in tandem and not necessarily before that. So that's something where the opening up of more AIFs will probably happen alongside when mutual fund and PMS come in.
The next question is from the line of Ashish Sharma from ENAM Asset Management.
First, just one question on the average realization for this quarter. Seeing that the ADV (sic) [ ADT ] was up 20%, but despite that the revenue growth was only 13%. So some color on that. And the big event, which we are anticipating on October in terms of universal exchanges. So during that time, do we see the pricing power, I mean remain for MCX? Do we need to pass on some sort of a benefit? So this is first question. Second would be on options, option pricing. When -- do we see, second half of FY '19, will there be a situation where -- when all the products are launched, and will we be able to price options in the second half? So these are the 2 questions, Sir.
Okay. So I think on your question on realization, yes, while the ADT movement was in the range of 16%, 17%, the realization has gone down by about INR 0.04. So that is because as we have clearer structure in terms of pricing, the growth has been larger with some of the larger players, which leads us to a lower realization. So that's the simple answer on why realization has gone down and that's why your sequential change in revenue was not completely reflecting the ADT change. In terms of your question around what would happen post units of exchange coming in, so few things that we are anticipating, we're looking at. First, like I said, we believe that pricing in itself has never been the reason why liquidity has moved in India. There have been 2 examples. I think we've had in this market, we've had in the equities, where there was a sustained liquidity enhancement for a couple of years, but liquidity did not move from one exchange to the other. In our own case, as some of you would recollect, just in the aftermath of both CTT being introduced and when we went through a little bit of a crisis in terms of management change in MCX, there was this very, very 1-plus year of sustained price drop by the rival exchanges, but we didn't lose liquidity. So clearly, pricing is not the reason why liquidity moves in this market. We believe liquidity will remain as long as our products remain relevant, as long as we have the physical participation. Most importantly, as long as our technology stays at the same level that it is today. With all of this, do we expect that we will have to drop prices? I think too early to say. Yes, there will be pressure, and we will have to see how we respond at that point of time. So we won't be able to commit to anything just now, but yes, we will have to wait and watch and see how we respond if -- when there is too much of a pricing pressure from the rival exchanges.
Sure. And second would be on options, sir?
Can you just repeat the options question? My apology.
So we will be launching all the option products in the first half, but do we see some bit of pricing benefit also coming in the second half? Or do we see benefits of option pricing when we start charging the same to the customers? Some benefit trickling in second half, or is it FY '20 event?
So I think our current plan is to have charging coming in, in the second half of this year. One of the reasons we're pushing so hard to get all the volumes up in this first half is that we want to use that as a leverage to really get people to trade and create the liquidity that we want in these contracts. So our communication, our messaging with our members has been along the same lines that we want to make sure that first volumes build up and then only we start looking at charging. And that sort of is in line with our 6-month plan to build the volumes and then look at revenues coming in from the second half of this year.
The next question is from the line of Lancelot D Cunha from ValueX Advisors.
You know a little bit more on the universal exchange coming through. Do you see that those members of MCX who are also members of GST, NSE or the other exchanges who introduce commodities, begin to look at the option of saying, "Look I am getting everything with an exchange. I have multiple exchange memberships. Can I give up memberships?" Is that a likely scenario? And how do you see -- what is your strategy to meet the kind of competition that you may expect?
So if you look at the way trading volumes are in the current market, roughly about 150 members really grew maybe about 90%, 95% of the volumes in both the equity segment and the commodity segment. I'm really going to look at these 2 segments, because those are the critical and the big ones. Out of these 150 members, 112 members already have, what I would call, a membership within a group company in both equities and commodities. And about 37, 38 members are really stand-alone. So these are people who are either pure play commodities or pure play equities. Within these 112 members, we of course are in touch with all 150, but for these 112 members, at this point of time, the top 80%, 85% of the volume comes from, again, another 75 members who all have plans and they've already in some way or the other combined their memberships or are in the process of doing so. The reason I thought I'd give you this full detail is to give you a flavor that in our opinion, more than 60% to 70% of the market of what is the people who contribute to the volumes, would already be having their memberships under a single entity. So all the benefits that one was looking for, which is to not pay -- have 2 compliance themes, not have two different company secretaries, not have 2 infrastructures because you're running 2 entities, et cetera. All those benefits will already accrue to our members even when they maintain memberships with multiple exchanges. Secondly, from an end investor perspective, all these exchanges are already offering what people generally refer to as the fungibility of margin or the easiest movement of margin. Plus the fact that their technology is all indicated, so if you're an end investor with a company, which has memberships across multiple exchanges, you can now have after movement of capital and you can see everything on 1 screen. So end investors have no reason to ask for the move of liquidity. When you're the broker yourself, your costs, or your incremental costs are very, very marginal or it's not negligible, and against that you're seeing the benefit of having liquidity in one exchange. To the last point, which somebody may think of, essentially if I am having a membership of one exchange and I wanted to flip my margin as a broker from a segment to another segment, how much time does it take me? As we've mentioned in our previous calls, we've also now implemented that within 30 minutes -- so if you're a member of MCX, you are trading -- you believe for some reason today that the volatility in commodities is going to be low, and, therefore, you want to move your margins from MCX to another exchange. We have already implemented a process by which you can take your margins back in 30 minutes. So we are now almost real time. This is what the other exchanges are doing as well. So from a movement of margin perspective, which is the only real benefit that you get, if you are trading everything on one exchange, that time limit is also now shrunk to 30 minutes. With all of this, I don't think there is much of a compulsion for a broker to really start looking at giving up a membership, because the costs are actually very negligible as compared to the benefit of liquidity.
Okay. And do you see more members coming on? Are you taking more members in your exchange, the commodity exchange?
Yes. So I can share with you some numbers. We've been getting new members through the last year. I think in terms of the number of members that we added, I would just put it that every quarter, we probably add about 10 new members. We added about 14 new members. Of course, some of them are coming in because they have consolidating memberships, and therefore, maybe sometimes, for a small period, have memberships in 2 entities. So they're taking an additional 1 with us. But absolutely new members, people who are not in this ecosystem ever, I think we are still adding at the rate of about 5 every quarter.
The next question is from the line of Nimit Shah from ICICI Securities.
Sir, this was regarding when RBI circular had come regarding, disallowing gold, gems and precious stones on the international exchanges. So just wanted to share -- just wanted your views about the corporates, which are doing international hedging. How do they look at this circular? And whether GIFT City is a better option for them after this circular is in place?
So I think, Nimit, we'll break your question -- and thanks for the compliments, Nimit. We'll break your question into maybe 2 or -- 2 parts. First, the RBI circular has a sunset date, I think, which is 30th June, if I'm not mistaken. And therefore, we should see the behavioral change only from the first -- next quarter. In terms of the larger corporates, which are already hedging with us, yes, we're in discussion with them. The good thing as we see is that we are also making our options contract more liquid and, therefore, we should be able to attract them to the Indian exchanges a little bit more. Having said that, I think we will still take this with a little bit of a caution, because the reason why a lot of the corporates were hedging overseas was fundamentally due to the longer tenor that they are able to get when they are hedging overseas, and not so much the liquidity. Because liquidity in India is actually very comparable in the short-term. So until we get institutional investors and institutional investors plus the hedges together create enough demand in the long tenor, and the long tenor becomes more liquid in MCX, I think it will not be prudent to expect too many volumes to shift. But yes, we do expect a little positive impact. To your next question, I still think when it comes to GIFT City, it is a fundamental question that we are trying to answer as to what is the real benefit of somebody trading in GIFT City. If you are a trader, if you are a person who has got [ attorney ] or such trading requirements, the lack of any transactional cost is maybe you're reason, but then you need liquidity in GIFT City. If you are a hedger, you're really looking to a very, very long-term liquid contract and that really doesn't exist in GIFT City today. So again, I won't think that the corporates who are not being allowed to go overseas will start looking at GIFT City just because of that.
Okay, okay. Sir, but any interactions with the corporates [ entering ] team? So I think the circular was out, I think 1 month back, a couple of days back. And you rightly pointed out that it has a sunset date of 30th June. But has your business development team tried to reach out to those guys? And whether they're looking now at the domestic platform aggressively?
So I'll, again, give this in 2 parts, Nimit. We have a set of corporates who hedge with us and we believe they are the similar set of corporates who use international exchanges. That said, we are absolutely in touch with, we've shared the names in the past as well. The larger players like Titan, Kalyan, et cetera are on this exchange. The bigger issue, I think, in India still is that we still have a lot corporates who just do not yet hedge their exposure, and that is a challenge. So if they have not been doing that locally, they've not been doing that internationally as well. So we believe the largest challenge for us is to really get the large corporate jewelers to start hedging more. In terms of moving their volumes, we are in discussion, while I won't promise that it is going to lead to a big upsurge in the July quarter. Not at least the current indications on that.
Sure. And sir, another question is that a lot of jewelers have been using this gold on lease for their hedging requirements. So how do you see this like, because they consider this gold on lease as a better instrument for hedging, rather than hedging on the exchange platform?
So again, Nimit, that's a reality that the gold on lease is a better option, because essentially somebody has been hedging and taking that cost somewhere. When it is still being passed on to the final investor, but I think people just prefer to take that because they're not directly doing their hedging themselves. So to the extent, the gold on lease is available, a lot of jewelers take that benefit. I think we've heard this, but I won't be in a position to comment in a very strong way that there is also a view within the jewelry segment that the gold on lease is a benefit, which is available only to select jewelers. Does not come through to everybody, and therefore there is a view to have a relook at that product itself. But yes, if you are availing gold on lease, it's something where you don't pay for it, or at least you don't think you pay for it. And therefore, it's something, which competes with direct hedging.
The next question is from the line of Anand Bhavnani from Sameeksha Capital.
Sir, in January 2018, there were some draft regulations. Are they on hedging of commodity prices on overseas markets? Now if I've understood correctly, and there was a proposal to incentivize domestic hedging of commodities but are we kind of -- haven't done anything on that front? So how is the MCX taking this forward -- this discussion forward? Is there any room for us to have a regulatory and a level, certain amount of like hedging by bigger [ place happens ] in India with incentivized volumes?
So I think our view is that we should not use a regulatory arbitrage to create more volumes for the market, because at the end of day, if you force an investor to part hedge in India, and part hedge overseas, which that investor is doing more by force and not really by choice, you're creating an inefficiency for the investor. And at MCX, I don't think our objective is to really create an inconvenience for a investor. So as much as you would've loved to have a regulatory mandate for people to hedge domestically, that's not something we are lobbying for. Our view is that in India, at this point of time, people just don't hedge enough of both corporates of small as well as large size corporates. And that is something that we are moving towards. So if you ask me, between asking regulators to create a mandatory cap for hedging in India versus taking the regulatory help and working on sort of the LODR regulations, which came in 2 years back, where SEBI required all listed companies to declare the amount of exposures they have on commodities and how much of that is hedged. We would work with SEBI with the CA Institute, with the CS Institute to see that, that sort of a regulation is implemented with much more rigor, and that sort of regulation is now followed by everybody. So that people actually look at hedging as a very serious activity. That itself will lead to longer-term growth for MCX. We are not keen on trying to create an artificial sort of cap, which will force people because that is inefficient for the end investor.
Okay. And sir, secondly, it's a bit more of a technical question. We have a mandatory has [indiscernible] . So how does it in general impact our financials? And does it in any way affect our profitability we reported currently?
So I think this quarter results should give you a direct answer to that question. Because essentially what the CCL does is it shrinks [ excess ] capital and it creates a separate entity, which does all the activities. We have consistently maintained till the last year that when this becomes operational, we will move existing people who will go into the clearing corporation. We will not be hiring any incremental staff because we don't need any. We do not need any incremental technology, because our technology is completely capable and enabled. So costs, there will be no increase. When it comes to capital, all that is going to happen is again some part of capital will move from the parent to the subsidiary and get utilized for that. As you can see from the consolidated numbers as well as the breakup between stand-alone and CCL, we've already moved about INR 150 of capital into the CCL. And yet, as you would've seen, it hasn't really resulted in any impact. Because again, whatever is the free capital is used and deployed in the same way, under the same norms and, therefore, it does not lead to any dilution of income as well at a consolidated level.
And sir, lastly. I might have missed this, but if you can help me understand. Our other income pool [indiscernible] volatile. So last quarter rate was INR 13.8 crores, we add this quarter it's INR 34 [indiscernible]. So what's [indiscernible] bond means for us third quarter, and then last quarter it fell. But this quarter it has bounced back but bond yields have remained broadly the same.
Sanjay, our CFO is here, and maybe Sanjay can explain that better than me.
So if you look at the bond yields, in the last quarter it actually jumped, if you compare it with 1st October to 31st December. There was a very sharp rally. But if you compare 1st January to 31st March, it does remain almost flat. So this is our number if the yields remain flat and this is what you will see quarter-on-quarter.
So there is mark-to-market losses, which we didn't see and then in the absence of mark-to-market losses [indiscernible] ?
That's correct.
[Operator Instructions] The next question is from the line of Milind Doshi, he is an individual investor.
Mrugank, I have these questions. One is what is the strategy to grow volume, because if I see the overall volume have remained flat in now since past 3 years. So what would be our strategy to grow overall volumes? Because otherwise, the revenues are trending on the same path.
So Milind, I think in terms of volumes, there is a 3-point strategy as far as MCX is concerned: The first is to get more participation and that participation comes through more members, through more active clients, through more members trading. All of this is both the distribution and investor link, we have mentioned that in multiple points today as well that we will continue to work towards integration of our members across commodities and equities. We will work towards getting the bank subsidiaries to now start distributing, and we will work toward expanding the overall pie. The second way of actually getting more volumes is through better products and more products. Options will help us in the first half, but we will continue to work with the regulators and make sure that we can get indices introduced hopefully within this financial year. So that it adds to our product portfolio. Last but not the least, and that is something, which is taking time but we believe will add in the longer term is the new class of investors, which is institutional participation, and that's the third way of increasing volumes. From an exchange perspective, we make sure that the exchange focus remains on core activities such as building and expanding new products, going after more distribution, getting more clients onboarded, because all of these will finally end up getting more volumes.
Okay. Any update on gold volumes? I mean where do you see these headed? Stabilized year or?
So if you see our quarterly numbers, the gold volumes have contributed probably the least in terms of the growth that we have seen between the last quarter to this quarter. But overall gold itself has actually gone up slightly. And I'm seeing this trend now continue. So between Q3 FY '17, '18, to Q4, gold volumes went up by about INR 700 crores. Between the last quarter to just what we're seeing as a trend, in April the volumes are up another INR 700 crores to INR 800 crores. So clearly, gold is coming back, which is very, very heartening thing for us. And again, at the cost of being repetitive, gold options is something where once people trade -- a lot of people do have trading strategies, which are delta hedging strategies. As all of you would know, the government has actually reduced the taxes, which somebody has to pay when you exercise an option and convert that into the futures at the end of the expiry of the contract. That big reduction in tax will hopefully add to people employing such strategies and that in itself will also add to the volumes in the underlying future. So to your point, we believe there will be better sort of volumes coming in gold as we go forward.
Okay. And the last question from my side is our employee cost has gone down quarter-on-quarter by around INR 1.1 crores. So any specific reason for that? And whether this will be the cost for the next year?
So the employee cost went down because, as we have mentioned in the last couple of calls, we do have -- we have introduced a variable pay plan. And as part of that plan, we accrue for the number. On a full year basis, we realize that we are not going to really have the same profitability as last year, because of which we reduced the accruals that we do for the variable pay. Having said that, I think the number will be back to what it was in the first half of this previous year. So we will start accruing again, because we do hope to achieve the full numbers for this financial year.
The next question is from the line of Abhijit Das from Kotak Securities.
Sir, first question is on latency. Just wanted to check if you published that number for MCX, and how does that compare with other exchanges? And secondly on this, do you think it is a source of competitive advantage, and can you sort of link this with your proposition on collocation services? Are they -- are you allowed to oppose it right now? And how do you see it shaping up?
So I think you had multiple parts to your question. Let me just see if I get all of them. First and foremost, latency numbers, we will be publishing them. Our intention is to do that somewhere by the end of first half. We will try and do it by the end of this quarter as well if possible. But you should see us publishing latency numbers somewhere between July to September this year. We will publish them on similar lines that you see them from the other exchanges. So that -- hopefully I've answered your first question. In terms of monitoring, of course, we monitor latencies, and I would like to assure you that the numbers that we see today are very, very comparable to what we see in other exchanges. Just to make sure that we all get latency correct, I think the way latency is and should be measured is it is the time taken for a execution to happen and it is measured from the time a order lands on what we generally refer to as the [ Knox ] of the exchange and comes back as the [ Mux ] of the exchange. Now this is what the latency is. Globally, we understand that this number is in the range of 150 to 200 microseconds, and that's what you see in Indian exchanges as well. MCX will come and -- at various numbers, but we are very confident that we're in the same range. To the second question, therefore on collocation, I think it has 2 or 3 parts. First, the regulation today is very clear. Collocation is not allowed in commodity exchanges and therefore as and when other exchanges are allowed to offer commodity as a class, we believe the same regulation should -- will apply. Again, what collocation does is not so much of a difference to this part of the latency. What -- again, as I was mentioning, as a member, you have your service, which then send their orders, which land up at the [ Mux ] of the exchange. Collocation really helps you to cut down this latency. Today, in an exchange like MCX, when you are coming from outside our building and your orders are coming through in that route, you probably have a latency of 300 to 500 microseconds. Once you get collocation, that numbers falls to 3 microseconds. But again, to us, it's a little academic discussion at this point of time, given that collocation is not allowed in commodity exchanges. It's not.
Okay, so the second question was on the institutional participation. You mentioned that there is some regulations around custody rules, which need to be changed for the institutional participation to start kicking in. So just wanted your thoughts on how the regulation changes are shaping up right now? And what are the key sort of impediments in that particular regulation, which is not allowing institutional participation right now?
So I think fairly complex question, Abhijit. Happy to also take this bilaterally, but for the benefit of everybody, I can just class -- clarify it in 2 or 3 parts. From an institutional participation perspective, today in the equity markets, there is a specific exemption given that you do not need to appoint a custodian for the purpose of derivative participation. And that you can use what are called clearing numbers directly. So if you are an institutional participant, while it is mandatory to have a custodian for every other aspect of your asset class, that mandatory requirement does not exist for equity derivatives. This specific exemption is not available for commodity derivatives yet. So there are 2 ways to go about it, I would assume, will either change the custodial regulation to say that it is not mandatory to have a custodian for commodity derivatives, or you'll say that you are allowed to do commodity derivatives but upon the clearing number. So that's my understanding of where the difference exist. And that's what we're looking for from the regulator, clarify and then enable institutional participation.
Okay. So just to clarify. So a custodian within the whole value chain, to what extent does it add to the costs or create the problem for institutional participation?
So I am not the expert on custodial cost anymore. But from my past history, I can tell you that if you take the gold ETS, which is a relevant example, because that is where we expect institutional participation to come in quickly, if you are engaging a custodian, today, you probably pay 20 to 40 basis points to your custodian in terms of your overall fees. And that is something, which is an incremental cost, which you would probably not pay if you were not using a custodian.
The next question is a follow-up from the line of Anand Bhavnani from Sameeksha Capital.
Sir, you mentioned about the liquidity enhancement scheme for options. Can you just help us understand what's the current direct contract on option and the possibility for this contract? And at what level will this liquidity enhancement scheme [indiscernible] ?
So I think, currently, in the first 3 days of the liquidity enhancement scheme, we are already seeing the volumes touch about INR 500 crores of notional. When you're comparing a notional-to-notional number, our stated goal is that we want to achieve a notional-to-notional number of equivalents. So if gold futures -- or the 1kg gold futures, if it is clocking, say INR 2,000 crores, options should reach at least INR 1,500 crores for us to think that it has reached critical mass. So those are the 2 numbers that I think would be important in terms of seeing how it is. From a timing perspective, we're looking to do this for about 6 months, because that's the time we believe it will need for us to make sure that the entire options portfolio is liquid enough.
And for index derivatives, can you help us understand what speed we are in and when can these things -- the contract can be listed and get traded?
I'm sorry, Anand, your question wasn't clear. Your line was a bit broken.
So on index derivatives, at what stage you are planning for the eventual trading of the contract have you reached? And how long would it still take for us to have the contract in play?
Okay. So from an exchange perspective, we've been ready for quite some time. As you would know MCX has been publishing an index, which is a multi-commodity index for more than 8 years. We also have [ technical ] indices, which we've been publishing for 8 years. So as -- if anybody wants to back test any data, et cetera, all of it is available for 8 years. Secondly, we did a tie-up with Thomson Reuters, which enables us to a, use their methodology, their governance and their distribution. And second, allows us to reach institutional investors, probably immediately as soon as the regulators get in, allow index-based trading. The last point of course, is when will that happen? We believe in terms of the overall discussion, it's fiscal '18, '19 discussion, which will certify definitely within the next 12 months. That's our plan -- our view.
Okay. Any particular reason why it's taking a while for regulators to come back and kind of approve this?
I would be the wrong person to answer for the regulator, but I would have to say that the regulators have looked at introducing many of the changes in a serious manner. And I think options being done in fiscal '17, '18, it's logical to look at index in '18, '19.
We'll take our last question from the line of [indiscernible] from Fortress Group.
I'm looking at Slide #4 of your presentation, where you have mentioned gold ADTs. So initially in Q1 FY '17, we used to do around INR 5,000, INR 6,000 crores for the quarter. Even the percentage share, we used to -- I am seeing at 21% and 25%, and gradually after demonetization, even the absolute number as well as the share has decreased. So I was thinking maybe demonetization is almost a year behind us. And the organized shares should have increased in gold.
So a couple of things. One, yes, the numbers demonstrate that bullion as a share of our business has reduced. We have said that as well in our call today a couple of times. Demonetization was probably not the only event impacting the bullion industry. That was followed by a long period of uncertainty on GST. That was followed by a long period of uncertainty on the division in the PMLA norms. So the way we see it, a huge -- probably 12-month period where the bullion industry was going through uncertainty. And that's why the volumes remain disbursed throughout calendar 2017. As we can see, calendar 2018 is already turning out to be more promising. Like we mentioned, we've seen INR 800 crores -- roughly INR 700 crores increase in the first quarter of this year -- calendar this year. April is looking even slightly better. So both these together gives us the hope, but also the confidence that bullion will probably increase more in the quarters to come.
So should I assume FY '19, the absolute numbers to increase a bit?
Look, I'm not an analyst with any expertise on commodities. But yes, you have the numbers for you to make a guess.
Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Mrugank Paranjape for closing comments.
So again, thanks, everyone. From MCX perspective, I would like to thank all of you, thank all our investors for their support. From MCX perspective, we remain committed to some of the things that we have stated. And these are mainly in terms of making sure that we expand this market with -- on the basis of distribution, on the basis of products and on the basis of participants. And we absolutely remain committed and have a good control on our fixed cost so that we can deliver greater operating leverage to all of you. With that, thank you again, and we'll be in touch as always.
Thank you. On behalf of Multi Commodity Exchange of India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.