BSE may launch gold, silver futures contracts soon; what’s at stake for MCX?

The actual impact of BSE's offerings will be driven by factors such as market acceptability, competition from MCX, and general market conditions.

When one door closes, another opens, so goes the saying. The door has not shut yet, but the BSE already appears to be prying open the next. The market is abuzz with chatter that Asia's oldest bourse is set to launch gold and silver futures contracts.

When contacted, a BSE spokesperson refused to comment on the matter.

Market experts say the foray into gold and silvers appears logical considering that the SEBI working committee on equity derivatives has proposed measures to curb participation of amateur individuals in options trading.

The proposals include one weekly option contract per exchange and a four to sixfold hike in minimum contract value. If implemented, the new rules are expected to hit BSE's derivatives segment, which has been seeing a steady increase in its market share.

The BSE launching the contracts could have an impact on bullion market-leader MCX’s market share and volumes, according to analysts. How far-reaching the impact could be depends entirely on the BSE’s execution, launch strategy, and strategy to lure traders away from the MCX.

According to Bhavik Patel, Senior Commodities Analyst, Tradebulls Securities, “The impact on MCX’s market share with launch of Gold/Silver contracts in BSE will be negligible. Even NSE has not been able to capture any market share from MCX, as commodity traders tend to stick to their preferred platforms for trading.”

In a contrasting opinion, Aamir Makda, Commodity & Currency Analyst, Choice Broking, said the BSE's foray into the gold and silver markets has the potential to significantly boost its revenue and overall volume.

“If SEBI's suggestions for single weekly expiry and lot size increases are put in place, growth in the commodity futures may accelerate even further. However, the actual impact will be driven by factors such as market acceptability, competition from MCX, and general market conditions,” he added.

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NSE’s foray into commodities

If history is anything to go by, the BSE might face an uphill battle in attracting traders. Last year, the NSE extended its crude offerings by introducing options contracts on underlying WTI crude oil and natural gas futures from October 9.

However, the nation’s largest exchange was unable to entice energy commodity traders away from the MCX, which held a 99.99 percent market share.

For the first quarter of FY25, the NSE’s Crude Oil Futures see an Average Daily Turnover of around Rs 39 lakhs, as compared to Rs 2,300 crore in the MCX.

“The product offerings of MCX and NSE in the Crude segment are relatively similar, limiting the scope of significant market shifts,” noted Aamir Makda.

How can MCX retain users?

If BSE does launch silver and gold contracts, the MCX has a multitude of options to retain users. First, depending on the scale of BSE’s services, the exchange could choose not to act if it felt like volumes would see a marginal impact.

If their market share diminishes, Aamir Makda suggested that the MCX could introduce new and innovative products such as Options in Bullion Indices or weekly expiry in F&O of Bullions, which will help to attract new traders along with retention of existing ones.

MCX may also look into the direction of competitive transaction charges, margin requirements and brokerage fees to attract cost-conscious traders.

A statement that most experts concurred with is that the MCX could open its wallet a little to invest in an upgraded, improved trading platform, one hopefully free of glitches. “We have seen a couple of instances of glitches from the MCX in the recent past which have upset the investors. The BSE may lead this as its key differentiator,” said Bhavik Patel.

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