SEBI allows the reintroduction of mini contracts in Non-Precio | DM Stocks

SEBI allows the reintroduction of mini contracts in Non-Precious Metal - Positive for MCX as it could lead to a 7-8% increase in Futures ADTO

SEBI has now allowed exchanges (incl MCX) to reintroduce multiple contracts (esp. Mini Contracts) in non-precious metals (i.e., other than gold & silver) such as Base Metal (Aluminum, Copper, Lead and Nickel, and Zinc) and Crude.
(https://www.sebi.gov.in/legal/circulars/jan-2023/allowing-stock-exchanges-to-launch-multiple-contracts-on-the-same-commodity-in-commodity-derivatives-segment_67220.html)

SEBI asked commodity derivative exchanges incl. MCX to discontinue multiple contracts in non-precious metals (Base Metal and Crude) from Jan-2020 onwards.

The change in the stance of SEBI is to increase the participation of investors and to cater to all value chain participants (after a representation from all exchanges)

The change in stance shall come into force from immediate effect.

This is significantly positive for MCX. Mini contracts before it got discontinued in Jan-2020 contributed ~25% of total base metals futures ADTO and ~15-20% of Crude futures ADTO.

Arbitragers who were very active in mini contracts (before Jan-20) due to potential price difference trade in mini contracts vs. main contracts are expected to increase activity in the commodity derivate market and increase overall ADTO.

Base Metal in 9MFY23 and FY22 contributed 16% and 22% respectively of total futures ADTO, while Crude contributed in 9MFY23 and FY22 contributed 17% and 16% respectively of total futures ADTO.

The reintroduction of mini contracts by MCX in non-precious metal should increase overall futures ADTO by ~7-8%. MCX can also introduce mini contracts in Options which shall further add to overall ADTO.

However, the technology transition from 63 Moons to TCS could potentially be a hindrance to re-introduce mini contracts on an immediate basis for MCX.

Regards, Sanketh/ Arjun, Spark Institutional Equities.