A farmer shovels freshly harvested wheat grain in a storage shed at a farm. (Photographer: Chris Ratcliffe/Bloomberg)

Axis Securities Becomes First Bank-Backed Commodity Derivatives Trading Member Of MCX

The Multi Commodity Exchange Ltd. said that Axis Securities, a subsidiary of Axis Bank Ltd., became the first bank-sponsored commodity derivatives trading member on the bourse.

That comes nearly a year after the Reserve Bank of India in September 2017 allowed banks to provide broking services in commodity derivatives. Other bank-backed brokerages are also in talks with the exchange to launch commodity derivatives trading, a person with knowledge of the matter told BloombergQuint requesting anonymity.

Axis Securities will follow a no-brokerage model to onboard customers, Arun Thukral, the managing director and chief executive officer said in a press conference. Retail investors will be provided guidance and support to prevent unnecessary risks, he added.

The Forward Markets Commission, erstwhile regulator for commodity derivatives, had been making representations since 2002 to allow bank-sponsored brokerages to sell these products. But the RBI was reluctant because of lack of adequate risk management.

Since the merger of Forward Markets Commission with the Securities and Exchange Board of India in September 2015, the market regulator has tightened the risk management measures. This led to the RBI allowing banks to offer commodity derivative products through their subsidiaries dealing in financial products or securities.

This development in the commodity derivatives space created new opportunities for the brokerages. The objective of the financial regulator is to deepen the commodity derivatives market by allowing the entry of bank broking arms.