An IT-powered (ex)change

Employing a robust and scalable IT infrastructure has enabled the Multi Commodity Exchange of India to evolve with changes in the market while growing at a healthy pace. by Soutiman Das Gupta and Newly Paul

Joseph Massey

When it was established in February 2003, the Multi Commodity Exchange of India (MCX) faced a huge challenge in terms of setting up its IT infrastructure. The infrastructure had to be scalable, reliable and easy to upgrade since the exchange was the only commodity exchange in the country. Providing online trading in multiple commodity segments ranging from agriculture to energy, MCX’ IT infrastructure also needed to be cost-effective.

To manage its growing business efficiently, MCX deployed an IT infrastructure which could scale up seamlessly. The IT infrastructure helped it to maintain its competitiveness. After appropriate IT deployments, MCX has been able to conduct business smoothly, and manage its members efficiently.

In The Beginning

The Indian commodities market comprises over 30 major markets and 7,500 mandis. It offers huge potential to market players. Keeping this in mind, the Government of India mandated the creation of MCX—an independent, nation-wide commodity exchange—to facilitate online trading, for clearing and settlement operations for trading in commodity futures, and to ensure an efficient, profitable business for its members. MCX was also expected to establish an effective pricing platform for the various commodities in the market.

With these objectives in mind, MCX was formed with plans to go live in November 2003, nine months after its launch. Headquartered in Mumbai, the commodity categories that MCX deals in range from agricultural commodities (such as pulses, oils & oilseeds) to bullion, and from metals and energy to spices.

According to Joseph Massey, MCX’ Deputy Managing Director, “MCX is the only exchange in India to have tied up with the Baltic Exchange in London, and the Tokyo Commodity Exchange in Japan. Similarly, MCX is the only commodity exchange in India to offer commodities such as crude oil, gold and silver which have international references.”

Business and IT Needs

Originally, MCX started with three commodities and a VSAT link. With time, the volume of trade increased. In November 2003, MCX had 150 members, and offices in 25 centres. Today the exchange has offices in over 500 cities, more than 5,000 trader workstations, and enjoys a membership of about 900-odd firms. In the beginning, MCX’ trade volumes used to be in the range of Rs 10 crore to Rs 15 crore a day, but it recently clocked a turnover of Rs 4,211 crore in a single day. “On an average, MCX does business to the extent of Rs 2,000 crore daily,” informs Massey.

These figures could not have been achieved without the deployment of an appropriate IT infrastructure. MCX’ business vision was to set up the exchange with a focus on making profit. The plan included setting up a corporate structure, where the ownership would be separate from management operations, and ensuring a level-playing field for all members. MCX aimed to be a world-class organisation. It was therefore essential for all its members to understand technology along with the functioning of the futures market.

MCX needed IT infrastructure with optimal TCO and the potential to scale up seamlessly as per its growing business needs. It also needed to be fault-tolerant, capable of supporting a high volume of market participation, support access through various mechanisms such as VSATs, PSTN lines, Internet and VPN connectivity, and be customisation-friendly.

Getting IT Right

The setting-up of its IT infrastructure was not without challenges. According to Massey, “The biggest IT-related challenge arose from the commodities market being located in rural and semi-urban areas, where people were not tech-savvy.”

To make members conversant with the futures market, MCX created teams that concentrated on the physical market players. The focus of these teams was to explain technology to the members and work in a structured manner. For the securities market, MCX published research reports and explanatory notes to help them understand the commodities market.

Initially, considerable handholding was required, and the MCX team had to create a technology that would be perceived by its members as simple. Special training sessions were conducted for members, where representatives were given a crash course in operations and support, followed by hands-on training.

A CD explaining the system was also given to trainees. The aim of the training sessions was to make trainees understand key features of the systems meant for their daily use.

Changing The IT Infrastructure

As it grew, MCX had to upgrade its IT infrastructure. It evolved from its dedicated VSAT connectivity to fixed leased lines, and from there to Internet connectivity. Earlier, its disaster recovery involved offline backups; today it has online backups in addition to two levels of data backup.

The company is also in the process of creating a disaster recovery site so that in case of a disaster, the backup site takes over operations automatically. MCX uses Stratus servers for hosting the core trading application, and HCL Comnet is its network service provider.

The exchange has entered into an alliance with Financial Technologies India Limited (FTIL) as its technology partner because it felt that FTIL had the required technical and domain expertise to provide high transaction-density solutions for online trading and risk management. (FTIL was also the promoter of MCX along with various nationalised banks and financial institutions.)

FTIL handles mission-critical transaction technologies for equities, derivatives, foreign exchange, commodities and fixed-income markets. The solution deployed by MCX is based on FTIL infrastructure and is known as the Exchange Technology Framework. It comprises the Central Matching Engine, Risk Management System, Order Management System, Broadcast Engine, Clearing and Settlement System, and Trader Workstation.

As MCX deals with the commodities market, which is sensitive to price-moving parameters, its IT infrastructure must enable it to be compliant with regulations of the Forward Markets Commission. The IT set-up of MCX has therefore been upgraded to enable MCX to report online to the regulator on a daily basis.

Infrastructure Blueprint

According to Massey, the unique feature of MCX’ IT infrastructure is the new generation trade execution system. “Apart from supporting multiple environments and technologies with resilience, it also keeps costs to the minimum, and is easily deployable,” he states.

The solution deployed at MCX is distributed across two functional units—Real-Time Trading System and Clearing and Settlement System —which have been set up using FTIL’s core products, DOME and e-Commex. The former is a real-time matching platform for exchanges, while the latter is a clearing and settlement system for commodities.

While designing the IT infrastructure, several factors were considered. Redundancy and ease of use were assured; maintenance, upkeep and support were centralised; and a simple plug-and-play solution at the client’s end was provided.

“We spent a considerable amount of time understanding the rural market, where the understanding of technology was minimal and the support system negligible. Each component of the solution was designed in accordance with the ecosystem, and the most user-friendly and economical features were implemented in the solution,” informs Massey.

Proof Of The Pudding

The core trading technologies and applications set up with FTIL’s help were scalable and easily deployable, and enabled MCX to start business within seven months of receiving the mandate from the government.

In addition to being cost-efficient and competitive, FTIL’s deployment of Intel Xeon processor-based servers to run a trading application developed in-house has added to the reliability of the overall solution. The biggest advantage is that the solution enables quick customisation and deployment, ensuring profitability and competitiveness.

The Future

MCX is entering a consolidative and expansive phase, where business is expected to increase at a rapid pace. Members, having understood the working of the markets, will now spend time building the franchisee network. The introduction of new commodities in the market will ensure geographical expansion and have an impact on turnover.

“Keeping in mind the rate at which business is growing, by year-end we could do business of Rs 6,000 crore on an average day,” opines an optimistic Massey. With such a robust and scalable IT infrastructure in place, this should not be difficult for MCX.

soutimand@networkmagazineindia.com
newlypaul@networkmagazineindia.com