Financial Technologies

In 2008, I wrote to you emphasising the value vested in your Company,
 Financial Technologies (India) Ltd.  (FTIL), and how it is creating a
 world of opportunities. As we complete another successful year, I would
 like to acknowledge your unflinching trust and support which fueled
 FTILs achievements, and give you an insight into your Companys
 accomplishments and the new opportunities that are becoming visible on
 the horizon.
 
 The year 2008-09 saw global financial markets facing new challenges
 fraught with a new genre of complexities.  This resulted in global
 institutions being forced to re-assess the risk-reward matrix, and
 rebuild business models to be more robust and capable of withstanding
 the test of time.
 
 Our vision of transforming markets by creating tech-centric exchange
 trading platforms that offer a transparent pricing mechanism was
 vindicated as global institutions fell prey to counterparty risks
 associated with non-transparent products traded off-exchanges.
 
 THE FUTURE OF FINANCIAL MARKETS
 
 As global financial markets witness a sea change, innovation will
 remain a key determinant of sustainable growth. Your Company believes
 that the future of financial markets will stand on four pillars of
 innovation: products, market structure, technology, and regulation.
 
 These four pillars need to evolve from an open competitive environment
 spanning the entire spectrum of products and services. Building on
 these four pillars, we will transform economies, empower masses, change
 lives, and create immense depth in the financial ecosystem.
 
 Convergence of value across asset classes and geographies through
 modern tech-centric financial markets will be the cornerstone for
 effective and efficient risk management.  This will minimise price
 volatility and enhance value creation over time.
 
 Despite the current trade contraction, the multiple forces of
 globalisation will continue to integrate economies and reshape the
 world economic order. Cross-listing, cross- clearing of products,
 global accessibility, cross-margining, technology intensive trading,
 and leveraging across time zones will foster fund flows and liquidity.
 
 Change always demands fresh thought. Market reforms will nvolve
 strengthened capital requirements for complex financial instruments and
 derivatives, stringent new rating norms without any conflicts of
 interest, .greater transparency and strict adherence to disclosure
 norms by all financial players and counterparties. These will become
 the essentials for all financial markets globally. 
 
 In April 2009, heads of nations at G-20 Summit in London highlighted
 some of these measures for the future of financial markets.
 
 While we are moving towards a robust regulatory regime, we need to be
 wary of over-regulation, as it might become a deterrent for growth. The
 September 2008 report, titled A Hundred Small Steps, by the
 Committee on Financial Sector Reforms (CFSR) headed by Professor
 Raghuram G Rajan, under the aegis of the Planning Commission,
 corroborates this belief and cautions, .strict regulations on
 participation are no guarantee that risks are contained, in fact they
 may create additional sources of risk,
 
 CONNECTING MARKETS THROUGH
 
 EXCHANGES
 
 As the world gets flatter, markets will be better connected.  Global
 operations and network of exchanges will bring to your Company
 economies of scale, and enable it to manage and mitigate global risks
 on a real-time basis.
 
 Your Company believes that exchange-traded products provide inherent
 advantages over off-exchange or over-the- counter (OTC) products. The
 former offer mark-to-market valuation, clearing house guarantee,
 fungibility, lower impact cost, and higher liquidity—all without any
 associated counterparty risk.  They are transparent and operate under
 proven regulatory supervision. Your Company has leveraged these
 advantages of exchange traded products and has built value for all its
 stakeholders by creating new exchanges, new markets, new products and
 investing in strategic geographies while focusing on promoting an
 interconnected and sophisticated marketplace, True value ensues when we
 build on the four pillars of innovation, and create a trading platform
 which  can cater to the needs of all market participants.  Your
 Company strives to do exactly this.
 
 Financial markets are increasingly underpinned by technology that
 creates, integrates, innovates, drives, and makes markets more
 accessible to everyone.  Exchanges based on such technology offer
 transaction platforms that are fast, secure, transparent, and
 regulated.
 
 We, at Financial Technologies, see new opportunities in creating wel!
 regulated and efficient tech-centric exchanges across multiple asset
 classes, spanning the emerging markets from Africa to Asia.  These
 markets will transform emerging economies through real-time integration
 with global financial centers, efficient price discovery, and more
 accurate risk mitigation.
 
 THE YEAR UNDER REVIEW
 
 The year gone by has opened up new vistas for your Company, FTIL, and
 its group companies. Some of the key milestones are given below:
 
 - In December 2008, Financial Technologies Group acquired a 60% stake
 in Bourse Africa spot and derivatives multi-asset exchange for trading
 in commodities, currencies and bonds. It will have a pan-African
 presence through a hub and spoke model. BA is accredited to Botswana
 International Financial Services Centre (IFSC) and supported by a
 world-class regulatory framework of the Non-Bank Financial Institutions
 Regulatory Authority (NBFIRA)
 
 - In January 2009, FTIL received the regulatory nod from the Central
 Bank of Bahrain to launch the Bahrain Financial Exchange (BFX)—the
 first-of-its- kind exchange in the Middle East—to offer a platform to
 trade in equities, commodities, bonds, currencies and Islamic finance
 instruments, or Sharia-compiiant products.
 
 - Global Board of Trade (GBOT), Mauritius, a multi- asset derivatives
 exchange is ready to go live turnover of Rs 149 billion in FY 08-09, a
 rise of 45% y-o-y.
 
 - MCX was ranked the fourth-largest commodity exchange in Asia by
 Futures Industry Association (FIA), Washington DC, It is also the
 seventh- largest commodity exchange In the world
 
 - MCX, in August 2008, became the first Indian commodity exchange to
 receive membership of the International Organization of Securities
 Commission (IOSCO).
 
 - MCX Stock Exchange, which commenced operations in October 2008, has
 already established itself as the leading exchange in the currency
 derivatives segment, with around 50% market share (as on March 2009)
 and daily average volume of 261,820 contracts valued at Rs 13 billion,
 
 - MCX Stock Exchange has initiated its - divestment process to meet
 regulatory guideline on shareholding in exchanges. The Exchange has
 already placed its equity through primary and secondary market
 placements to a clutch of Indian banks and financial institutions,
 respectively.
 
 - National Spot Exchange Ltd, (NSEL), Indias first spot commodity
 exchange, went live on 15,h October 2008.
 
 - National Bulk Handling Corporation (NBHC) has 437 warehouses and 25
 quality assurance laboratories. Additionally, the Company has managed
 over 5,000 storage facilities with close to 6.5 million MT stock of
 agri-commodities (cumulative) under collateral management with 31
 leading public and private sector banks in India.  The Company has also
 facilitated over 70,000 iWaratats? ,[pooeft7!Lc .fivsmop Jiavjiatiiavs
 to dsto worth over Rs 75 billion with an asset base of over Rs 108
 billion
 
 - Indian Energy Exchange (IEX), promoted jointly with PTC India and
 other industry partners, has traded 2.6 million contracts valued at Rs
 19.51 billion as on 31s March 2009, since it went live in June 2008.
 
 - Dubai Gold and Commodities Exchange (DGCX) traded 1.03 million
 contracts during the period FY 08-09. More than 2.9 million contracts
 with a value of over US$ 119 billion have been traded since the
 exchange went live in 2005
 
 - Singapore Mercantile Exchange (SMX) is preparing to be a trading hub
 for precious metals, base metals, energy, and agricultural commodities,
 in addition to trading in cross-currency derivatives, carbon credits,
 and commodity indices
 
 - atom technologies, the revolutionary mobile transaction platform,
 completed successfu transactions worth Rs 5.5 billion by 31s March
 2009, and added clients including Tata Sky, ICICI Prudential, Cinemax,
 Fame Cinemas and Living Media. In August 2008, atom technologies became
 Indias first and only end-to-end m-payment service provider to receive
 the Visa Payment Application Best Practices (PABP) certification.
 
 - TickerPlant, the financial information services venture offering
 real-time market data and news has added important clients such as Axis
 Bank, IDBI, DCB, Times of India, Yahoo, GE Shipping, Thomas Cook, TATA
 Communications, and Reliance Capital, among others
 
 - MCX Stock Exchange Clearing Corporation started operations in the
 first guarter of 2009, to provide clearing services along with
 counterparty guarantee. With 57 clearing members, including banks and
 large corporate members, the new venture clears trades of over 400
 members
 
 UNLOCKING VALUE
 
 During fiscal 2008-09, your Companys financial performance was very
 encouraging. Financial Technologies has been among a select few listed
 companies to maintain its track record of rewarding its shareholders by
 paying out a handsome dividend of Rs 10 per share on Rs 2 paid up
 eguity (500%) for the year under review. Your Companys standalone
 financials are as follows:
 
 - Standalone operating revenue increased by 143% to Rs 3,343 million
 for the year ended 31st March 2009 as compared to Rs 1,376 million in
 FY 2007-08.
 
 - Total income* for the year ended 31s1 March 2009 grew by 116% to Rs
 4,994 million as compared to Rs 2,311 million for the year ended 31st
 March 2008.
 
 - EBITDA* went up by 92% to Rs 2,655 million for the year ended 31st
 March 2009 as compared to Rs 1,384 million for the year ended 31s1
 March 2008.
 
 - EBITDA margin* of 53% for FY2008-09.
 
 - PBT* was up by 106% to Rs 2,581 million for the year ended 31st March
 2009 as compared to Rs 1,252 million for the year ended 31s March
 2008.
 
 - PAT* was up by 113% to Rs 2,065 million for the year ended 31s1 March
 2009 as compared to Rs 970 million for the year ended 31s1 March 2008.
 
 *excluding profit on sale of shares
 
 CONSISTENT VALUE GENERATOR
 
 Your Company has been rated among the top five investor-friendly
 companies based on shareholder returns by Business World magazine
 
 FOUNDATION FOR A GLOBAL CORPORATION
 
 The Financial Technologies Group has set up a strong foundation to be
 one of the fastest growing global corporations in the business of
 exchanges and financial ecosystem. Some of the threads that bind the
 self-fueling business model of the Group are
 
 - Operates and manages the worlds largest exchange network of 10
 exchanges supported by 6 ecosystem ventures, and is the market deader
 in front-end exchange technology.
 
 - Human resource base of over 3,000 highly qualified employees across
 the Group.
 
 - Over 60 experts comprising the whos who of the industry serve as
 Members of the Board, Advisory Board, and Management. These doyens are
 armed with years of experience and expertise.
 
 - Infrastructure comprising two office towers and measuring more than
 320,000 sq ft with state- of-the-art facilities to support the Groups
 growth
 
 - Alliances with over 12 international exchanges and 18 domestic trade
 associations enable collaboration aimed at developing joint products
 and indices for the Asian and African markets, besides conducting joint
 research, and developing educational and awareness programs
 
 - Multiple product IPs providing end-to-end solution offerings for all
 market participants
 
 - Blue-chip domestic and international institutional investors with
 more than 30% stake in the shareholding structure.
 
 - A diverse and vibrant market participant community with over 4,000
 members in India, more than 1,000 institutions including top 30 banks.
 
 - ODIN™, FTILs flagship product for brokerage solutions, has over 80%
 market share with more than 350,000 trading licenses
 
 The Group is recognised as a global leader in establishing green field
 exchanges and related technology, and ecosystem ventures that are
 leading in their respective markets, as shown in the table:
 
 NEW CHALLENGES, NEW OPPORTUNITIES
 
 The Financial Technologies Groups vision is to continue to build a
 strong and. profitable network of exchanges; to expand and provide
 liquidity and risk management solutions to the developing and emerging
 economies; and identify national and regional markets for its products
 
 The Groups domain expertise will enable it to introduce trading in new
 asset classes on its efficient tech-centric exchange platforms in
 different regions As a part of the market structure  innovation, the 
 Group vigorously pursues its avowed mission of increasing access to
 markets by creating and operating exchanges that cater to the needs of
 the micro, small and medium enterprise (MSME) segment of the economy.
 
 The Group develops efficient markets in diversified asset classes such
 as equities, interest-rate derivatives, credit default swaps,
 cross-currency derivatives, bonds, etc., depending on the regulatory
 framework of respective countries. It will continue to tap new
 opportunities to develop such markets
 
 In India, today, the bond market is still at an incipient stage. The
 Raghuram Committee report of September 2008 validates the case for
 development of the bond market in India, It recommends, A corporate
 bond market could serve as a useful buffer between financial
 institutions and be an important source of stability in the current
 environment,
 
 THE INDIA MODEL
 
 It is precisely with the view to develop financial inclusion within
 India that FTIL and MCX have promoted a new-generation stock exchange,
 MCX Stock Exchange, which currently offers currency derivatives
 trading, and is poised to offer eguity, exchange-traded interest rate
 derivatives and other exchange-traded financial products. The new
 Exchange has sought the regulators permission to facilitate trade in
 equity (cash and F&O) and interest rate derivatives. Going forward, MCX
 Stock Exchange will also bring in innovations to offer a platform for
 SMEs, and introduce new equity and debt market products. MCX
 StockExchange has already initiated its demutualisation process by
 offering equity participation to strategic investors including leading
 domestic and international institutions, banks and stock exchanges
 
 Even the well-established segment of equity presents immense
 opportunities. Today, only about 1-1,5% of the population holds demat
 accounts, of which about 600,000 are active market participants on a
 given day, representing only about 0,06% of the population. In the
 developed nations, this number is as high as 30%-40%.
 
 India has immense potential, and to tap it, we intend to develop a new
 India Model, Even if we can mobilise just 10% (US$ 30 billion) of
 the current household savings of US$ 305 billion and channelise it into
 equities, bonds, currencies, and commodities markets, it will greatly
 augment the Indian economy and enhance the returns on our citizens
 savings. If we can succeed in routing these domestic savings to
 corporate growth, it will reduce Indias dependence on foreign
 investments for capital mobilisation, We. also see India graduating to
 the status of an international financial powerhouse; a place where
 multinational companies can look to raise capital or use as a hub for
 their regional capital deployment, ndia has the potential to become an
 exporter of capital rather than an importer,
 
 At the same time, we as a nation need not have any fear about foreign
 investments. As the Raghuram Committee report says, The primary lesson
 of the Asian financial crisis is not that foreign capital or financial
 markets are destabilising, but that poor governance, poor risk
 management, asset liability mismatches, inadequate disclosure,
 excessive related party transactions, and murky bankruptcy laws, make
 an economic system prone to crisis.
 
 The Indian economy is breathing again. Riding on the back of resilient
 domestic demand, the Indian economy recorded a better than expected
 growth rate of about 6% in the fourth quarter of 2008-09.  The economy
 grew by an aggregate of 6.7% for the fiscal 2008-09. Formation of the
 new government at the Centre has boosted the confidence level of
 industries, and with falling interest rates, controlled inflationary
 pressures, thrust on rural development and the infrastructure sector
 getting the attention it deserves, there is a new-found optimism on the
 economic outlook and the future of financial markets in India. The
 Economic Survey, released in July 2009, projects Indias GDP growth at
 an average 9% per annum for the next few years.
 
 GLOBAL REACH
 
 Likewise, your Company will innovate to create the ideal business model
 to establish deeper financial markets and ecosystems in geographies
 ranging from Africa to Asia, We have conducted in-depth market studies
 for each of these geographies, and are looking at more such prospective
 markets where FTIL could successfully invest to create new-age
 financial markets. A case in point is Bourse Africa, which will operate
 on a hub and spoke model, with Botswana as the hub and spokes reaching
 out to 50 African nations. We intend to tap the huge potential for
 creating new exchanges (markets), establish an efficient price
 discovery mechanism for resources originating in Africa, and last but
 not the least, increase the financial depth of the markets and unlock
 intrinsic value which remains latent in the underdeveloped
 socio-economic pyramid of the region.
 
 The year 2009-10 will be a defining year, for the Group as we get ready
 to go live with SMX, GBOT, Bourse Africa, and BFX, We will continue to
 execute and scale the FTIL technology business, as well as scale MCX,
 MCX Stock Exchange, and NBHC to the next level of growth, while also
 focusing on making our other ventures more profitable. FTIL believes in
 spawning and incubating new exchanges in newer markets. I am sure the
 year ahead will see value being generated from our new exchanges; value
 in profit and value from the ever widening participatory base as the
 Groups exchanges continue to bring markets to the masses and
 benefits to all stakeholders, FTIL strives to master scalability and
 end-to-end integration across the entire value chain of a transaction
 lifecycle, Your Company possesses deep domain knowledge on exchanges,
 governance and transaction technologies. The experience of our
 leadership team, Board of Directors, and Advisory Boards is remarkable.
 FTIL has broadbased expertise in setting up and operating
 next-generation financial markets globally.  This, coupled with our
 global partnerships and strategic alliances, will take us far in our
 journey across continents.
 
 Yes, the road ahead is challenging. However, you can be rest assured as
 the direction forward is well charted by your Company. The roadmap is
 to create a sustainable business strategy that continually generates
 value while consolidating Financial Technologies as a truly global
 institution.
 
 Lets take this journey together to shape the future of financial
 markets.
 
                                                    Jignesh Shah
                                            Chairman & Group CEO