49) Interview with P.H.Ravikumar, MD & CEO, NCDEX

Managing director and CEO of NCDEX says he holds India's policymakers responsible for curbing trading in agricultural commodities.

National Commodity and Derivatives Exchange Ltd (NCDEX), which ruled commodities trading in India in 2004, is steadily losing ground to its peer Multi Commodity Exchange Ltd (MCX).

In 2005, both exchanges were in a close battle for market share bragging rights but, by the end of 2006, MCX surged ahead. And, by the end of 2007, NCDEX’s market share has dropped to less than 25% and just around one-third of MCX’s share. Trading volumes at the exchange are down by 50% as agricultural commodity traders migrate in droves to stock markets. Amid changes in executive ranks, NCDEX was buffeted by rumours that P.H. Ravikumar, managing director and CEO of the exchange, is on his way out.

An unfazed Ravikumar says he holds India’s policymakers responsible for curbing trading in agricultural commodities. In a free-wheeling interview with Mint, he unfolds his plans to reposition NCDEX by cutting down the share of agri commodities trade on the exchange and focusing on energy and metals trade. Edited excerpts:

So, have you quit?

If you’re sure that I have quit, please tell me where am I going. I am tired of telling people that I have not quit. Why should I quit?

The exchange is not doing well…

I agree on this. The past year has been very difficult and each month was worse than the previous month, but things will change. In January 2007, there was a ban on trading of pulses—urad and tur. In February, wheat and rice trading was banned. Then, between March and May, there was a steep increase in margin of all major agricultural commodities.

We impose margins on traders to protect the exchange from any default from either side—the buyer and the seller. The quantum of margin is dependent on the volatility in the prices of a particular commodity. If we were charging, say, 10% margin on any commodity, an additional 10-15% margin was imposed. Trading in all major agri commodities, such as pepper, jeera, chana, guar gam witnessed a higher margin requirement.

Who did this?

These were regulatory measures, driven by policy concerns. A section of the policymakers felt that we were driving the prices up and the margins were hiked to curb the level of trading in exchanges. When the margins are high, it becomes unattractive for the participants to take fresh positions. So, commodity traders started moving out of the market and getting into stocks and real estates where returns are high.

Another offshoot of this is the sudden appearance of dabba trade in commodities. Dabba trade is an unofficial market that runs parallel to the exchange. Traders started working outside the exchanges to avoid the higher margin requirement.