MCX switches to uniform F&O transaction fees; share rises to an all-time high

The Multi Commodity Exchange of India (MCX) has announced a revision in transaction fees for futures and options contracts, effective October 1, 2024. The commodity exchange has set a fixed transaction fee of ₹2.10 per lakh of turnover for futures contracts and ₹41.80 per lakh of premium turnover for options contracts, as per the exchange’s circular. This change replaces the previous slab-based transaction fee structure with a uniform transaction fee structure, following the July guidelines from the Securities and Exchange Board of India (SEBI).

Following the announcement, MCX shares surged 3% on the NSE, hitting an all-time high of ₹6,035.45 on Wednesday. The stock is currently trading at ₹5,887.05, up 0.3%, outperforming the benchmark NIFTY 500, which is down 0.32% at 24,312.75. As of today, MCX’s market capitalisation stands at ₹30,023 crore.

“Members shall ensure that the Exchange transaction fees, if recovered from the end client should be True to Label, i.e. the fees levied on the end client by members shall not exceed the exact amount as charged by the Exchange to the member,” the circular says.

The new fee structure ensures that fees charged to end clients by members cannot exceed the exact amount levied by the exchange. It replaces the existing slab-based system, where fees vary based on trading volume or activity. This change removes any advantages previously afforded to larger or more active members.

The revision in transaction fees comes over two months after the Securities and Exchange Board of India mandated a uniform flat fee structure for all market infrastructure institutions (MIIs), ensuring that fees are transparent and uniform for all market participants, including brokers, regardless of their size, and reducing potential costs for clients.

In its July directive, the market regulator raised concerns about the transparency of the slab-based fee system, highlighting that it could result in clients being charged more than the actual fees collected by MIIs.

Additionally, SEBI had proposed additional measures to strengthen market stability, including increasing minimum contract sizes, upfront collection of option premiums, intraday position limit monitoring, strike price rationalisation, removal of calendar spread benefits on expiry day, and higher margins for options nearing expiry. These measures were introduced to protect investors and promote stability in derivative markets, though these may impact leverage and profitability for retail traders.

While MCX has revised its transaction fees for derivative contracts, exchanges like NSE have yet to implement a uniform fee structure. Currently, NSE uses a six-tier slab system to determine transaction charges on brokerages. Under the slab system, the transaction fees reduce further as the cumulative trading value rises.

As per the quarterly report of MCX, the total traded clients in futures and options rose by 6.4%, with 5.67 lakh clients in the first quarter that ended on June 30, 2024, compared to 5.33 lakh in the previous quarter and 3.9 lakh in Q1 FY 23-24. MCX currently holds a 97.84% market share in commodity futures. The average daily turnover (ADT) of commodity futures surged by 48% in Q1 FY 24-25 to ₹25,985 crore, compared to ₹17,558 crore in Q4 FY 23-24. Notional ADT of options grew by 29.12% to ₹1.47 lakh crore from ₹1.14 lakh crore. The combined ADT for futures and options increased by 31.64%, reaching ₹1.72 lakh crore.

The exchange reported a 26% rise in profit after tax (PAT) for the quarter ending June 30, 2024, reaching ₹111 crore, up from ₹88 crore in the previous quarter. Total income for the same period increased by 27% to ₹253 crore from ₹199 crore, while operating income rose by 29% to ₹234 crore from ₹181 crore. EBITDA grew to ₹151 crore from ₹120 crore, with an EBITDA margin of 60%.