Peer to Peer

MCX marches ahead

Nearly four years ago the Indian government mandated that a new commodities exchange needed to be set up in nine months flat. Financial Technologies rose to the challenge and the result was MCX, India’s largest commodities exchange. By Dominic K.

About four years back, the Government of India (GoI) identified the agricultural sector as a thrust area for modernisation and began an initiative to commission an effective nation-wide commodity trading infrastructure. As a key element of this strategy, the Ministry of Consumer Affairs, Food and Public Distribution, envisioned a state-of-the-art nation-wide commodities exchange that would ensure the efficiency of its members by adopting global best practices and technology standards.

The commodities market in India is vast, with over 30 major markets in operation alongside 7,500 smaller, localised markets, commonly known as mandis. The Indian Gross Domestic Product (GDP) is hugely dependent on agrarian commodities.

Multi Commodity Exchange (MCX) of India Ltd was among the first organisations to receive a mandate to commission a nation-wide multi commodity trading platform in February 2003. Hariharan, CTO, FTIL (Financial Technologies India Ltd.) says, “The objective was to set a world class commodity exchange within the set timeline. We had to build the entire system from scratch, including the exchange software. The deadline was challenging, primarily because of the fact that exchange operations had to go live in nine months flat.” With modern exchange operations being technology-centric, MCX management team had intensive discussions on the best possible solution to fulfil its objectives and at the same time successfully comply with the requirements of the ministry.

MCX was a success, and continues to be one. This then is the story of how the exchange was set up in a record nine months.

Enter Financial Technologies

Financial Technologies India Ltd. (FTIL), MCX’s parent company and technology partner, was the first port of call. FTIL delivered the exchange technology framework that supports MCX’s operations. The deployment was on Microsoft’s .NET framework.

The platform was designed to offer a low cost of entry for trading members with high availability and integration supporting pre-trade, trade and post trade data flow. It was crafted to make the incorporation of new functionalities at a future stage without disrupting the daily operations of the exchange. Furthermore, the distributed architecture of the platform ensures that new members can be added to the exchange quickly, easily and without much administrative hassle.

Deployed solutions

The decision to work with FTIL as the technology partner was based upon the latter’s experience in building mission-critical transaction technologies for equities, derivatives, foreign exchange, commodities and fixed income markets. As observed earlier, FTIL used Intel-Microsoft technologies to build the end-to-end MCX trading architecture. In just five months, core trading technologies and applications was developed and deployed to enable mock trading for the first batch of exchange members. Within seven months of the mandate, the new national exchange was fully operational and began executing business transactions.

The solution is based on FTIL’s infrastructure known as the ‘Exchange Technology Framework’ comprising DOME holding components such as the central matching engine, real-time risk management system, order management system, broadcast engine and the Clearing and Settlement System (CnS). Members of the exchange are connected directly to the exchange using Trader Workstation (TWS). The MCX trading platform has been architected with the objective of supporting an environment for load distribution, ensuring that all components can run on a single server or distributed across a number of servers.

Connectivity modes

Members can take advantage of multiple modes of connectivity. The MCX network is spread across India, with over 900 locations connected by satellite and over 800 terrestrial circuits of around 40 Mbps of Internet bandwidth. This includes point-to-point and point-to-multi point connectivity options using multiple service providers such as HCL Comnet for VSATs and MTNL, TTML and BSNL for MPLS based services. Innovative technologies such as secured trading through a mobile phone have enabled the Indian heartland to participate efficiently in the commodities markets which is still missing in the capital markets, which was a forerunner in adopting technology.

Hariharan says “To date FTIL’s trading platform has offered consistent, 99.999 percent availability, and with our architecture it ensures that MCX will maintain its market integrity and reputation for operational excellence in the long term.”

In August 2003, MCX appointed over 100 members across India. These members received extensive training on the use of trading terminals as well as in clearing and settlement procedures. After a rigorous test that went on for eight weeks, MCX’s operations went, live on November 10, 2003, within nine months of the official mandate having been received.

Future-proof

Financial markets, because of their global nature, are constantly evolving. As more exchanges get commissioned within and outside the Indian subcontinent, competition is bound to increase. MCX therefore, should be able to develop and roll out new functionality on-the-fly, based on customer demand. FTIL’s design and platform give MCX the flexibility to introduce new trading functionality and financial instruments on the exchange, efficiently. This should help MCX strengthen its market position and maintain profitability in the long term.