MCX announces pay cuts for senior staff, junior officials’ increments on hold

June 01
20:04 2020

Multi Commodity Exchange of India (MCX) on June 1 decided to implement salary cuts for its senior staff and put some junior officials’ increments on hold. The exchange is taking a slew of measures to reduce cost including re-negotiation with vendors and reduction in sitting fees for directors, sources said.

MCX announced its results for the quarter ended March 2020 on Saturday. Its full-year net profit rose by 52.46 percent to Rs 208.52 crore and sales rose by 24.16 percent at Rs 370.44 crore, compared with Rs 298.35 crore last year. However, net profit declined 2.19 percent to Rs 57.15 crore in the quarter ended March 2020 as against Rs 58.43 crore during the previous quarter ended March 2019.

“The results announced by MCX for the year ended March 31, 2020, are stellar, but I am sceptical about FY 20-21. The crude oil volatility and volumes added to the sheen in the last quarter, but the fracas due to the negative settlement price has resulted in much lower volumes and reduced participation,” a market expert noted.

According to an exchange official who spoke on condition of anonymity, MCX’s cost-cutting initiatives include “reducing

board-related expenses and slashing business promotion and advertisement expenses”.

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This time, the exchange reduced dividend percentage drastically compared to the previous year. The dividend payout was 73 percent on a standalone basis, which was 90.08 percent last year.

A high net worth investor told Moneycontrol, “Most HNI investors are not happy with this payout. The company has not laid out any major plan of deployment of money in the next one year. High dividend is the only major attraction of these companies”.

“MCX is cautious about their revenue due to slump in participation of brokers in the crude oil segment, which is nearly 30-35 percent of their total turnover. On the other hand, other exchanges are also trying to grab this opportunity. They are offering brent crude which is used physically also in the country, whereas MCX offers WTI crude which is used for trading purpose only,” said another market source.

“The negative settlement price for the MCX crude oil contract, which is a globally referenced contract, may have surprised and shocked quite a few people. But this was not outside the realm of possibilities since CME had already announced on April 15, 2020, that they are calibrating their trading systems to allow them to trade at negative values. Something like this was anticipated due to the sudden glut at Cushing, Oklahoma.” said market veteran and practising counsel Chirag M. Shah.

Shah remains cynical about the growth prospects of exchange-traded derivatives for a few quarters. He believes that trade disputes due to this disruption will rise and enforcing of contracts is going to become more difficult. “There is another problem for financial markets. In a bear market, where significant price correction has already happened, where participation is already tepid, even if the same quantities or lots are traded, the Average Daily Turnover Value (ADTV) will be lower and as a consequence, incomes of exchanges, as well as other intermediaries, will be subdued to that extent since their fees are ad valorem,” he observed.

MCX has more than 95 percent market share in the non-agri segment. The reduction in salaries may upset the morale of employees as the exchange has cash in books and no serious competition in the near future.

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