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Multi Commodity Exchange of India Ltd
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Ladies and gentlemen, good day, and welcome to Multi Commodity Exchange of India Limited Q4 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. P.S. Reddy, MD and CEO, MCX. Thank you, and over to you, Mr. Reddy.
Yes. Thank you. Thank you, Mr. Neerav, and welcome to all of you for participating in this call. I'm P.S. Reddy, MD and CEO. With me, Mr. Satyajeet Bolar is our CFO in this conference; and Mr. Praveen D.G. who looks after to the Investor Relations; so is Mr. Vijay Iyer.Let me take you through a few numbers, especially the business for the entire financial year that we had. The year, we had about INR 31,404 crores ADT, as against last year INR 32,550 crores ADT. So we are almost all there. Yes, maybe INR 1,000 crores less per day kind of thing. And that is reflected in our operational income, as you can see that.We had also this year about 254 trading days as against 258 trading days last year. Having said this, let me also say that the total clients traded in this current financial year has increased by 14%. Last year, we had Unique Client Code, what I'm talking about is the 4 lakh are the ones which were traded last financial year. This year, we have 4,57,000 this year, we have traded. So that's a decent progress given the kind of challenges we have faced in the first quarter. You are all aware, first quarter our numbers were very depressing. The situation was like that. And the trading -- number of full trading days were also substantially reduced because of COVID. And we have recovered from that and we have come a long way. Thanks to our all stakeholders who have supported us through this difficult time.The number of Unique Client Code traded on a -- average clients traded on a daily basis has just marginally increased on a daily basis last year -- I'm sorry, it has come down. It's about 62,000 we used to have, and now we had only 55,000 clients who have traded. Again, the crude oil negative pricing in the month of April has impacted for a long time, and it dragged our revenue substantially. It's only sometime in the month of December we have recovered from that onslaught of the negative pricing. And still, we couldn't recover because the margins are at 20% as against, maybe internationally, it's about 10% to 15%, of course, depending on the volatility in the stock.These are the 2 numbers -- these are the few numbers that I have. But thanks to the COVID, new ways of living, new ways of learning to -- I mean to do business has come, and our expenses have been brought down. That's where Mr. Bolar will say, will explain to you. So something which we could control. If I have no control on the top line, at least, I should have control on these costs so that we will be able to do justice for the booking.Then you have some of the numbers, concentration of members to total turnover. Last year, we had about top 10 accounted for 52.38%; and this financial year, we have almost like 60%. This concentration has increased primarily due to algo players coming in and some of the smaller players or maybe some of the players who have a retail base has -- have gone out because of this, again, crude oil negative pricing. There is a huge client, what you call, reduction in that crude oil contract. But otherwise, other contracts are reasonably doing well. So this is something which concentration has increased. And we are working on it. We are making plans to bring back some of these members, some of their associated persons into the trading system. This is one part of it.And there is also, obviously, as I said, algo players concentration has increased. It was '19/'20, we had 37.15%. Now in 2021, we have 41% algo players concentration. And new algo players are also coming. At this point in time, they have not taken membership, but they have come via a big broker. It's an international reputed firm. And still some more are waiting to join in the current financial year.This being what I said and the mobile trading, this also shows that the more and more people are participating -- in the retail participation, this can be one indicator. In '19/'20, 20% -- 21% rather over has come through the mobile trading. The turnover has come through. And in the 2021, we had 27% transactions have come through the mobile trading.Again, the new clients who have joined this year have contributed almost all about 24% to the -- our ADT. That's a good number as against last year, where about 18% have contributed. That's a good progress that we got. These are the numbers that I wanted to give you. Now over to Mr. Bolar, who will be speaking on the financial results. Yes, Mr. Bolar.
Thank you, Mr. Reddy, and good evening. As I have already published the financials. You would have seen it. There will be a lot of queries, I'm sure. Just wanted to touch base at our top line for the full financial year. There's a drop of INR 9 crores, mainly on account -- if you have also have examined our quarterly results, so mainly as our income from other sources, which consists of treasury income. Because of the volatility in the debt market, which was -- which fluctuated substantially during the quarter, we have been able to book around INR 11 crores as compared to around INR 20 crores, INR 23 crores that we generally book. But on the flip side, as Mr. Reddy said, we have been able to keep our expenses under control and arrested. So our direct expenses also, we have been able to recover, about INR 10 crores operational; and other expenses, we have been able to recover INR 4 crores. This is in addition to the provision that we made for the CSR because the government has changed the mandate for CSR in January '21, in which they've mandated that they have to make provision for CSR expenses that -- of earlier years, in case there's any unspent amount. So the -- our CSR committee met and sanctioned the amount. But unfortunately, because of COVID, everything could not be dispersed. Most of it could not be disbursed, but we made an additional provision of around INR 4.14 crores, to be precise, in the month -- in the quarter ended March '21. So this was a major reason for the expenses to be -- there's a slight quarter-on-quarter operational expenses has shown an increase in that. But the biggest hit is because we took a hit of INR 15 crores on quarter-on-quarter on account of the taxation.When I -- when we met last time in December, I had mentioned that we were advised that we have to take the -- the tax calculations would be based on the budget. So when we did the budget working for the whole year and the income tax, taxable income for the whole year compared it with the budget, and there's a provision that we made. So we have a taxable income as per the Income Tax Act, but it was a MAT entitlement. So because of that, we took a credit, and they were a credit of INR 4 crores.So when we closed the year, unfortunately, when the figures -- I mean we actually closed the year in March, so there's a turnaround of INR 11 crores in the income tax. So there's basically a hit of INR 15 crores that we took on a quarter-to-quarter on the income tax figure. Otherwise, on an annual basis, we have been flat. I mean in spite of the COVID situation and other trying times that you have all gone through, as Mr. Reddy said, we've been able to control our expenses. A lot of the expenses have been controlled under traveling, advertisement. We have stopped advertising in the print media, under his guidance and now mainly into digital and electronics. So print medias has stopped to a large extent. And all other expenses, wherever we could, we have reduced it. So there's a big fall in the expense part.Yes. I'll be happy to take detailed questions on our financials. Yes. And tax, as I have mentioned, so this is, as I mentioned earlier, that the main reason for the tax was in December when we closed, we had a MAT entitlement, which resulted in a credit of INR 4.5 crores. And when we closed March, for the whole financial year, because the tax plan -- the tax calculation was done for the whole financial year, there's not only a tax -- under the normal tax also, we have been able to utilize the MAT credit of INR 8 crores. So last time, I said in '19 -- when we closed financials of March '19, we had a MAT credit of INR 20 crores. So out of that INR 20 crores, we have been able to utilize INR 8 crores. Yes. And the average rate of tax is around 18.62%, which we have been consistently saying, it is around 19% to 20%. So this year also, it's around 18.62%. Thank you.
Mr. Neerav, yes, open for questions, please.
[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital Advisors.
Yes. Sir, 2 questions, sir. Firstly, you said that your operating expenses are in control. How much of that is sustainable? Or do you think this will increase as we go forward in FY '22?
Yes. If you look at our operating expenses, one is the employee cost. So the employee cost would remain -- I mean obviously, we will have to invest on employees, so that would be the -- this year also, we should remember that we had the negative pricing. On that -- because of the negative pricing, we had an additional expense of almost INR 2 crores for -- on legal and professional. So hopefully, going forward, we would not have that expense. And we have been able to substantially save on traveling, which I assume, would continue because of the COVID situation, advertisement, business promotion. So I have a feeling, one, if we change the way we conduct our business, so probably these expenses would be -- going forward also, we'll be able to contain them, reduce them. Yes.
What is the update on the trading software, which was -- is there any update which you can share?
Yes, sure. I mean we have gone ahead with TCS, you are aware of it. And we have drawn out the milestones for 3 drops, essentially 3 deliveries, which will happen. And those ones will be completed as we planned. And we are looking at going live sometime in the month of July. And that is what at this point in time. Our contract is there till September '22. And so far, the progress has been very good, satisfactory, put it that way.
Is there any change in our cost items, cost line items under the new contract?
Should be, my view, but then immediately it doesn't because maybe some depreciation will also take place on the assets that we buy. And over a period of time, maybe 3 to 5 years' time, it should change the way that we are accounting for these expenses.
Yes. Because what we said in -- we'll be employing additional staff from our side for IT. So those expenses would go up. But once we go live and we are able to amortize what we can, then the useful life of the -- that -- the useful life will be amortized. But I think the running costs would be drastically reduced.
Reduced substantially. Yes.
Okay. So your running costs will go down, but amortization will go up. Am I right in saying that?
Yes. Because whatever is the project cost, the project cost, we like to amortize it because the technology being so -- it gets developed. I mean it keeps changing so frequently that, I mean, we'd like to keep it at a reasonable rate and amortize it over 6 to 8 years. So obviously, there would be some increase in amortization cost.
Understood, sir. And sir, in FY '22, which are the products you think you will be introduced and which are the growth drivers you're looking forward to? That's my last question.
Yes. But our main flagship contracts will continue to do well, and we are trying to deepen those product lines also. There's no doubt about it. And we will be launching a few more products, especially our contract BULLDEX and METLDEX just last year, sometime in October -- August. We launched in October, we launched METLDEX. Now they have seen good traction. They're doing well. And from 1st April onwards, we started charging also on the transaction fees. And we expect these products to do well in the current financial year. And this is one important thing. And we will also be introducing some more products subject to regulatory approval. One is the aluminum alloy and then other one is the steel rebars. And let us see. Once we get the necessary approvals, then we will be able to launch before the September this year. These are the lines of business that we are looking at it.
[Operator Instructions] The next question is from the line of Ansuman Deb from ICICI Securities.
Yes. So I have 2 questions. One is regarding the volumes that we saw from the 1st of March, since the upfront margin norm increased. So if you could tell us the impact of this increase in upfront margin norms, if any, in the MCX volume because we have not seen similar impact in the equity markets in a big way. That is one question. And second is the spot gold exchange that is being talked about, and there is a consultation paper also, which has been initiated. So MCX -- what can be the opportunity for MCX? And if there is somebody else who operates that spot exchange, what will be the impact on our future volumes? These are the 2 questions.
Sure. Sure. On the peak margin, yes, it did have impact in the month of March when it went up to 50%. Our ADT must be knowing about INR 26,000 crores. And in the month of April, we have seen about INR 25,000 crores. But then May is seeing definitely a better growth. Yes, other things being equal, the peak margin did impact our volumes, okay? No doubt about it. And we did represent to SEBI, looking at the commodities markets are in nascent stage they should consider the development of this market, and the impact that it's causing on the liquidity and the depth in the market. That is one part of it, okay? And probably, we have also seen so many -- introduction of so many regulatory changes, market also takes time to adjust to that. That is another way of looking at things. So it -- but the peak margin effect has not fully come because only 50% is implemented. Another 25% will become operative, if there is no change in the SEBI regulations from 1st of July. And again -- no, 1st of June. And then again, another 25% from 1st of September. So as it unfolds, we have to discover this impact of it. That's the way I am looking at it. But we are trying to reach out to a lot of hedges and other participants in the market to deepen it, and also bring in the necessary liquidity. We have also requested SEBI to look at relaxation for the FII participation in the exchange-traded contracts. That's one area which we are looking at it. Unlike currency market, you have maybe up to some 100 million-or-so. They have not required to have any exposure to currency, they are allowed to trade. So a similar request has been made. We should allow FIIs up to some point without there being any exposure in the underlying commodity, should be allowed to participate. That is true for EFEs also, eligible foreign -- eligible foreign entities, EFEs. So the SEBI is examining it. Let us see what changes will come through those regulatory changes. What will happen, I do not. But then let us expect that. That's one part of it.Then comes to the spot gold exchange. The way that it has been constructed is that the spot exchange will -- may operate within the steel exchange as a part of the segment or it would be a separate exchange. And that is a concept paper that is being floated. At the same time, these gold transacts, spot exchange transactions will happen via a depository receipts. In the sense, the gold will be deposited in the vault, against which a electronic receipt will be created. Those receipts will be traded in the securities market in -- on the exchanges as if they are deliverable contracts. Of course, they are, but then physical delivery will not take place on the exchange platform. Will it have any impact? My answer is it will only help us to grow, increase our networking effects, will have a better impact on the exchange business rather than any negative impact.Yes, technology is an issue. That is where we are trying to work out, how soon we can have that technology put in place, especially when we are changing over our vendor, public services. These are all the challenges that at this point in time, we are dealing with. But I am confident, okay, that we will be able to launch once our platform to deal with this is ready. Thank you.
Sir, one continuation on that part. Is that -- so what you need to say is that if we have a separate spot exchange, let's say, it is jointly run by the exchanges or some other exchange running it, it normally should not have an impact on our future volumes that we have. Am I...
Absolutely. Absolutely. Absolutely. That is our understanding.
Okay. And one more thing, sir. Regarding the variable costs that you mentioned some time back, in the March session, you said it will go -- it will definitely go down, [indiscernible] so in that the EBITDA would have an uplift and the PAT maybe -- I'm saying that EBITDA wise it will go up, right? That is what you meant to say?
That's what we expect.
Yes, that's right. Once a new system is put into place, that is our clear understanding. Yes.
Right. And sir, in this -- just last question in the kind of soft gold thing, can't TCS do the same thing or we need to fresh -- float a fresh tender or fresh somebody for...
I'm sorry?
For the spot software -- spot -- for gold spot, if you were to apply to SEBI to do a spot thing because we are one of the -- we have the right to win also over there. Over there, can't TCS do the same thing?
Yes. TCS also has a platform. In fact, as a part of our contract TCS has also platform. But then what is the time it takes to put that in place is the major question. Isn't it? So when we floated the RFP, we have said we need the following products also be available. But again, some customization will be involved integrating with the existing platform because this is a futures platform that will be a spot platform used on the T plus 2 basis that deliveries will happen, okay? And the settlement process will be different out there. So TCS can do it. But whether they will be able to do it in 10 months, 12 months or 24 months, is a challenge. That is what. And currently, our focus and attention is the CDP main platform. And we want to -- we do not want to disrupt that. That's come what may, we would like to do a good job out there.
Right, sir. Right. And sir, in terms of spot management of spot exchange rate, are we better placed than our peers in terms of spot commodities?
See, it is too speculative to say that. I would not like that. But then we already have a connect to the physical market to a great extent. So we would be able to leverage that. That's the way I would like to put it.
The next question is from the line of Ravi Naredi from Naredi Investments.
Sir, what is liability of INR 342 crore, we have reduced this year in current financial liability? Earlier, it was INR 759 crore, now it is INR 407 crore. Yes.
As part of our clearing operation, we get a lot of margins. So the margins are collected in the form of collaterals as well as in cash. So during this financial year, as compared to March '20, there's been a reduction in the cash margins of around INR 350 crore to INR 400 crore. But earlier we -- out of the total margin, we used to get around 93% in collateral, now it is around 88% in collaterals. So that is the basic difference in March '21 and March '20.
And sir, since our currency market is now vanished, so any efforts are we are doing to revive that currency market again for the MCX platform?
I'm not able to understand because we were never in currency in that sense as MCX.
MCX were doing currency before, I think, you acquired? I think is the old reason.
The MCX SX, that's a different company altogether.
Yes, yes, yes. So any plans you've got there?
We have no relationship.
No, no. Yes, yes, it is okay. But any plan to revise -- currency market to start at MCX platform?
As of now, we don't have. And we -- first, for anything, you need technology. Technology is the backbone of this business. So let's have a hold on that, then we will do that. Whatever plans we can think of...
You have TCS with you, then what is the upgrade of technology? He can best provide the technology in the world now.
No, absolutely right. But first, we need to cross that first -- make that -- take that first step. We need to do that. So once we deploy it in live here, then we will think of all those plans we could...
Sir, anything in your mind or Board's mind to start or nothing yet present?
As of now, there's nothing on our drawing table.
The next question is from the line of Susmit Patodia from Motilal Oswal Asset Management.
Sir, just to clarify, I'm sorry, on the TCS contract again. So it's very clear that it is a buy contract, it's not a subscription contract. And you will only pay them some maintenance or support charges every year, correct?
Yes. See, the way it is. It is about 1 plus 5 years. And we will pay as long as you continue to pay the AMC, then it's a perpetual license.
Okay. And if nothing is linked to your turnover or your top line, the AMC is already fixed?
Nothing. Nothing. Nothing. Yes, AMC is fixed and then the annual increase in the AMC is also fixed. It's very nominal.
Okay. And you will be -- and what would be the outlay at the beginning? Is that a number that we can disclose?
I think the contractual terms do not allow us to disclose the -- that numbers in terms of...
Okay. Okay. Okay. Got it. And my second question is, if you can just tell us, as the margin requirement increases, it also adds to your own cash balance, which you can gain other income from. Correct?
No, no. Margins can be paid even using the bank guarantees, et cetera. So not necessarily in the form of cash.
Okay. So what percentage of the margins in the new regime is coming from noninterest earning assets?
That's what we said. Last year, it was -- 88% was in noninterest earning assets, now it is 95% is in noninterest earning assets. Although the margin has increased, in fact -- how much it was? Yes, it's almost -- more or less, the same last year also INR 5,500 crores approximately. So the margin amounts remain the same, but the composition altered.
Right. Right. And sir, my last question is if can give us an update on what about the banking channel that has been much lower than one would have imagined, the pick up there? So what is stopping them? Is there an API issue? I mean just give us some details?
See, often, we come to -- we get to know that one is that -- okay, put it this way. There are 3 parts to it, like one is the speculators and arbitrages and other one is the hedgers who -- and maybe somebody who takes delivery also. Here, the challenges of the GST for many of them, even if somebody wants to take a delivery and then keep it and then -- as a financial player, if they are earning good amount of interest, [Foreign Language] then they would like to participate. But then they need to have a GST registration the moment it takes delivery. And even for those who have already have a registration, there are issues which are related to GST because they may not have registrations in various states where we have delivery centers, okay? And that's the another challenge. So these are the ones we are trying to resolve, and we approached the government to make all transactions on the exchange as IGST transactions, unless both buyer and seller are on the -- in the same state. So -- but then that addresses only those ones who have GST registration. But a lot of others do not have, but still desire to do this and trade. But we have another alternative, which we are proposing now, we talked through, and we discussed with tax consultant and took their approval also on the draft note. As we are collecting STT, CTTRO, stamp duty, et cetera, maybe whether the clearing corporation can transpose itself in this place and see whether we can do something there subject to government's approval, of course. So we are looking at -- we are trying with various ideas. And PMS participation is also, to that extent, got restricted because, again, the same reason. If the PMS has to hold in the individual account, the delivery of stock that they're getting it, then each one should have a GST registration. That's a challenge. So let's look at it. Let us see how we will be able to break this deadlock or break this barrier but all that I can say is some of the banks, for example, ICICI, just today I learned that they have launched their mobile app, okay? So we are looking at where our retail participants can come using these kind of devices. But the same way, what happened in equities? Today, we are not in any way close to the equity markets development. So these are all -- products are introduced by the -- these bank broking houses, probably greater participation will come.
The next question is from the line of [ Amit Khaitan from Nirmal Bang Securities ].
This is Amit from Liberum Capital. Sir, my question is around -- 2 questions. One is on the technology side, again. So if -- I understand you can't disclose the absolute amount. But could you give a sense of -- and the annual, what you call, running cost, right? If I understand correctly, is around INR 50 crores per year-on-your software charges. What could be the savings there on an annual basis once the new software is -- new platform is implemented?
It's substantially -- you understand the substantially lower. That's how way I say, substantially lower.
But like you can't put some figure around it, maybe it is -- from INR 50 crores, it will come down to what INR 30 crores?
No, even much less. Okay. Much less.
Got it. Got it. Okay. And second question is around -- so if I look at your value participation, data that you shared on the exchange, the participation by hedgers is very small. So what steps are you taking to deepen this end of the market? And why aren't large corporates, say, hedging on your exchange versus international exchange? Like I want to understand what's preventing them from hedging on MCX? Is it liquidity? Is it some regulatory issue?
Yes. It's a good question. I'll tell you why, one is that see the credit lines that are available, the brokers are in for it in international markets, here it is a challenge, okay? And the brokers are not able to do that. Maybe even if there is a credit line avail, the tripartite kind of agreements are not permitted, where broker will also ensure that the client doesn't default for the securities, the money that he has taken. Second part of it, which is equally important is, here you are to -- on a day-to-day basis, you have to do the, okay? In those -- again, because of these credit lines, that issue does arise. You pay -- you invest in a contract and then forget about it. Maybe as your inventory requirements are call for it, you will keep juggling that number of contract that you buy or sell and all that stuff. But then that challenge is not there because broker takes care of it using that kind of credit line at the MTMs. Maybe the company may be giving just one collateral, that's all, in the form of whatever bank guarantee or whatever that they need to give.Another important thing, which we also have learnt is that some of them want to have a dollar-denominated contracts. And ours is a denominated. We do explain that even the currency risk is also taken care of it because we have a rupee-denominated contract. But there point of -- you should leave it to the choice of the investor, whether they want to have it in the dollar or dollar-denominated hedging or they want to do it another leg of currency risk mitigation, or they may not do it at all, the currency risk. They may not see any problem out there. So the bigger organizations are going for that. Third, which is equally important, is the foreign contracts do not have as much liquidity as we expected. Obviously, liquidity cannot be provided by the exchange as such. We can provide a platform. We can provide a robust risk management system, and then do the participants to trade -- expect the participant to trade. Here, I would like to highlight. Government has band, RBI, these gold to be hedged in overseas markets. As a result, the whole business has shifted on to the exchange platform, and that's why it's doing well. I'm not -- although it is my ask or it is my desire, we are not saying that it's such a restrictive practice we adopted. But at the same time, we would like the corporations to take a serious look at it, how to develop the domestic industry? But notwithstanding the participation of these people, still we are able to attract the MSMEs, medium and small players. Essentially because, yes, a, our contract size is maybe 1/10 of what is being traded in international markets. So it suits their requirements. And second is that they may not have the access to the foreign currency, et cetera, where they will be able to dabble in international markets, so they are able to do that business in the domestic market. But at the same time, if we bring in these smaller players -- as we grow bigger and bigger, we will definitely have the benefit of their participation, and the pool -- liquidity pool will increase on the exchange platform. But one important thing, which also you need to bear in mind is some of the bigger players, okay, who have LME registered, for example, metal brands, they are already trading on the exchange platform. They look at it as a last resort. If they think that -- if they have to clear the month-end stocks, okay, which are lying on that and MCX price is good, they simply sell the contract and then deliver the metal, and it happened many times. So it's not that they are not doing it. They're doing it very selectively, I would say. And there should be an opportunity for them to do it. That's the way they are doing it. But yes, hedging, they have not used it in the way that I desire and I hope. And we have been engaging with them all along. And one -- I would say, one reason or the other, I will -- in whichever way you call it, one reason or the other, they are not doing it, bigger players. This is my submission. But again, I have said earlier, before -- in another -- some time ago, that we have made a representation to FIIs who can become a financial player, increase the depth in the market. And similarly, EFEs without exposure. Today, London or CME, wherever the players are playing, they don't have -- the players do not have exposure in London or in Britain or in U.S. They have in some other countries. Still they are permitted to hedge in those markets. Similarly, Indian regulators also, we desire them to permit these EFEs and others without exposure also, they should be able to participate, then the debt will increase. Thank you. I hope I've answered.
The next question is from the line of Karthik from Investec India.
One question which I had was our...
Karthik, sorry to interrupt you. May I request you to speak over the handset, please?
Yes. Is this better?
Yes, sir, go ahead.
Okay. Our options market share in bullion has actually gone down, and we see that BSE has been doing well. Any reason why?
In fact -- yes, you see, the options turnover on the exchange platform on MCX and the open interest that is with the exchange versus the turnover of whatever it is you are talking about and the open interest. Without open interest, creating any amount of turnover is no meaning. Let's understand that is the way we do -- the business works. Now we have, at times, even 3 tonne or 5 tonne, or what we call, open interest, even with whatever turnover that we have it. And there, you can count on kgs, okay 20 kgs, 30 kgs, even less than that. So INR 3,000 crores is the turnover, name sake, but the open interest is 20 kgs, 30 kgs. Our sales, maybe INR 400 crores turnover, but you have an open interest of 4 tonnes, 5 tonnes. So it makes a great difference.
Fair enough, sir. I was just double-checking that. Secondly, in general, the auction business hasn't taken off as much as one would have anticipated, especially equity options do so well in India. With the recent regulatory changes in terms of also, options haven't taken up as much. Any understanding there? What's going on?
Yes. By and large, these are -- you're right, these are retail products and some of our contracts, especially for gold, for example, 1 kilo gold, and what's the value of it and the premium of it, itself is substantially high. And the tenure is also long because it's a 2-month contract. So as such, the premium paid is substantially high. We expect these option contracts to be more of a retail products than for any hedges or big corporates or anybody who are in this business. So we need to bring down the cost of premium -- the premium costs. And unless we reduce the contracts, it will not happen. And that's why we are introducing other products. And then we would like to launch maybe -- again, it depends on some of the technological changes that are happening. On 100-gram gold that we have contract, if option is launched, option on features we would like to launch, not on option on goods, and probably it may find some traction.
[Operator Instructions] The next question is from the line of Deepan Shankar from Trustline Holdings Portfolio.
So firstly, are we expecting steep volume decline when the final phase of peak margin procurements implemented in 1st September? And are we seeing trend of retail investors shifting more towards options in that case?
We did find -- of course, we did find some kind of traction in options due to the peak margin being imposed. But I can't say anything at this point in time. If the peak margins are increased to its fullest extent, what happens to the turnover and the client base? My view is people do get adjusted, and I think they got adjusted because already it is 50%. And we don't fear any kind of decline or, put it that way, any steep decline in business. But at the same time, we are trying to see how we can mitigate the margin pressure on the member brokers. In fact, we have also suggested -- we have also given a suggestion where the intraday contracts may attract a lower margin, the day and open interest positions may attract a higher-margin because the overnight risk when the markets are closed and then other markets are open, they attract a higher-margin so that it will take care of the overnight risk. But the intraday contracts can have volatility-based margins. So let us see. Some of these proposals will defined response -- favorable response, I'm sure we will be able to attract these issues.
So even if there is impact, it could be short term, but over long term, these things could be adjusted, right assumption, sir?
Absolutely. Absolutely.
The next question is from the line of Devesh Agarwal from IIFL Securities.
Firstly, again, happening on this new margin rules, so clearly, there was an impact in March. But could you give some idea in terms of within the mix, how it was -- whether the impact was much more for retail investor or the trade for a sharper decline? So some idea on that account. And then it has come back in May, what has actually driven, which segment of investors have driven back?
No. Obviously, it is -- it will be more on the retailers rather than the algo players or proprietary traders, okay? And -- but then as you see the numbers, again, in the month of May, the numbers are looking good, okay? So far, the ADT, maybe first few days of ADT, in the month of May is 31,000. Yes, April is bad with 25,000. And other things being equal, they will impact the peak margin. But if other things also play on the favorable side to offset the peak margin impact, then we don't need to worry about this aspect at all.
Okay. And sir, on the new software, you said the implementation is likely by July. I just -- is it -- about '21 or '22?
'22. Our contract is there till '22 September.
Okay. So from July '22 onwards, you will be migrated to the new software?
Yes, that's what I was...
The next question is from the line of [ Arun Kumar from Aerial Capital Group ].Next question is from the line of [ Neetajali ], an individual Investor.
I have 2 questions. Where are we on electricity futures? And what are the products are we planning in the coming days? And second one, what response or what traction are you seeing from bank subsidiaries eligible for commodity trading?
Yes. Yes. On the electricity features, we have already submitted the proposal to SEBI. And as I said, still the matter is in the Supreme Court. Unless the Supreme court passes an order, the consent order that we have been filed, I don't think we will be able to launch the contract because we don't have any approval as yet. Now the -- meanwhile, whatever is the background work that needs to be done, we have already done that. We are also engaged with market participants, engaging them with -- engaging them to understand the contract specifications, and how they can benefit from this contract. Also -- we have also conducted a lot of webinars with international players also, and it has received a good response. So this is the way that electricity features contract has done so far. I mean this is just lying there. In fact, we have made a presentation to the regulators also.On the subsidiaries of the banks, I've already said in the beginning of my, this one, the -- some of them have seen a very good traction. As against Q3, Q4, it got developed -- doubled, some of them. And as you said that even today, I learned that ICICI Securities has launched a mobile app, and some more are going to do that. And -- but am I satisfied? My answer is no. Let's be very candid about this. There's a long way to go. As I said, some of the concerns related to GST are coming in the way for them to sell it aggressively to the retail investors, and that's a challenge. It's not that equity shares would, open a DEMAT account, it goes and then lies there. No. Here is a different kind of animal altogether. Even if it lies in the comm risk, which is a DEMAT account, but still, the material is lying in the warehouse for which owner is identified and that owner should have the GST registration. This is a major challenge.
And any new products we are planning this financial year?
Any?
New products we are launching this financial year?
Yes. I've -- probably you must have joined late, but then I have said that we are also planning to launch aluminum alloy contract, planning to launch a steel long bars, again, subject to regulatory approvals.
[Operator Instructions] The next question is from the line of Amit Chandra from ICICI Securities (sic) [ HDFC Securities ].
This is Amit Chandra from HDFC Securities. Sir, In your initial remarks, you mentioned that the algo volume, the contribution is at 40%. And if I see that is 40% -- more or less 46% last year. So it has been coming down. So is the increase in margins, the, like, reason for that? Or if you see any other reason to it? And also, in terms of the index contracts, the volume there is not picking up and also the share of the institution participation in the overall volume mix is even less than 1%. So when we will see traction in this segment? And also, I know you mentioned that you started charging for the index contracts. So is the rate or slab structure the same as the or is it different?
Yes. The last question first. So the rate is the same. There's no change in it, okay? On the algo players, in fact, as I said, '19/'20, it was 37.15% and -- average, this across various quarters. And current year, it is 41%, okay, algo players. So that is the way it is. So peak margin is not adversely affected. In the sense, the algo players are there and maybe some of the retail players have gone up, and that is the way this has impacted. That's why the market -- the percent has also gone up. That's the way I read. And the third question is?
On the index -- index contracts volume not picking up and the institution participation?
No index contracts did pick up. In fact, the -- as I speak -- this month, so far, we have about INR 400 crores ADT. And you can ask, are you satisfied? The answer is no, okay? As I said, we are expecting what we call gross margin benefit between this particular contract and the underlying assets, okay? If you have a contra positions in both the contracts, underlying position -- underlying contracts as well as in the index features, you should get the benefit. That's one part of it. Second, we have already reached, in some cases, some instances are there, where the individual contract size has a lot -- I mean the position limits are already touched. So we have appealed to SEBI to relax those individual, what we call, contract position limits. So if position limits are relaxed, obviously, some more positions these clients will be able to take. It's like that. So...
Okay. And on the institution participation, sir?
Yes. On the mutual funds, I think, as I said the last time, I think was 3 -- 4 of them are there. And so at this point in time there are only 4. We are also pitching for Silver ETFs to be permitted in the industry, so that they will be able to hold them using the silver contracts on the exchange platform. And let us see. That's one thing that should be able to, again, bring in more volumes. But institutional participation, as I've already said also, the FIIs -- we made a presentation, a detailed presentation. Recently organized, a week ago or so, where the EFEs, the FIIs, PMS, NRIs, they all -- almost all about 60 people have gathered around the table and SEBI officials were present. And they presented what are the issues that they are -- challenges they are facing, and what is the remedial measures that they are asking for? So it's been already given. I'm sure SEBI is going to consider it favorably in the light of development that they are -- I mean they wanted the market to grow substantially. I'm sure they will look at the same development path as they did in the case of equities.
The next question is from the line of Ravi Purohit from SiMPL.
Sir, most of my questions have been answered. Just wanted to kind of check one thing. You had mentioned that started charging for index contracts or option contracts from this this...
The index future contract, index futures.
Index future contract. The options are still not charging?
No, no. Options, we charge only on the premium. The INR 1,000 crores is this premium would be hardly anything.
Right. Right. Right. Okay. And sir, any thoughts on increased participation in the indices because if, let's say, earlier, there were a lot of transactions happening where the delivery was made mandatory. But now when you trade on indices, there is no delivery -- there is no concept of delivery. So there was a lot of speculative interest, so to speak. Have you seen any shift in that category?
See, index futures, as I said, it just started last year, maybe just 6 months old contract, I would say. And the volume is -- in the month of May is about INR 400 crores. And the 2/3 of it is BULLDEX and 1/3 is METLDEX. And it will take some time to get this traction.
Okay. So I was just thinking since there is no mandatory -- there is no pressure for any one to take delivery. Last year, I think we had a lot of issues in margins, mandatory delivery in certain contracts. And so therefore, this kind of becomes an interesting instrument to kind of...
That is the selling point of this contract.
The next question is from the line of [ Rajesh Chaudhary from Zenith ].
Yes. My question has been answered.
The next question is from the line of Siddhant Dand from Goodwill Warehousing.
I just wanted to clarify on the question that was asked before on the options contract traded on the competitor's exchange. So -- but if you see, we are not getting any volume over there. Very negligible volume in it compared to our competitor. So end of the day, even turnover will matter over there, right? Because of the liquidity, we'll see shift in clients. So have you been seeing that?
See, I think more than anybody else, we track on a daily basis -- and right daily, on an hourly basis. And you should see, maybe on any trading day, what is the top 10 brokers who is doing what, okay? Whether any trading taking place? You just see that. Then probably offline, we can catch up on it and how to analyze that volume.
Ladies and gentlemen, that will be the last question for today. I will now hand the conference over to Mr. Reddy for closing comments.
Thank you for your -- sparing your time. And we hope, and we will be able to do well in the coming quarters and coming years. And notwithstanding these challenges that we are facing, we will also see what are the other areas which we can improve and then develop and bring in greater participation to this platform. Thanks to all of you once again for participating.
Thank you very much. On behalf of Multi Commodity Exchange of India Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.