Part 1 of this series can be accessed here.
Ignorance or arrogance? What exactly is the MCX messaging?
As of the writing of this part, I am yet to get a response from either MCX or the regulator SEBI. One thing is for sure – the statements of the current CEO, Mr. P S Reddy are sometimes reeking of ignorance and at other times, of arrogance. Want specific examples? Here is one for ignorance…
Ignorance – New platform announcement
The new platform was to have gone live by April 2022. TCS, the new technology provider, was given the contract in Feb 2021[1]. Does TCS have a proven product in the market? The answer is a big No. Consultants turning into product manufacturers is a tricky path. MCX should have not even finalized TCS since they have no proven track record. So, it is easy to conclude that TCS is doing “guinea pig” experiments on MCX data and learning (and getting paid) for it. When April came along and the software was not ready, Reddy said it will be, by August 2022. Was he not aware that even after the product is deemed “ready”, at least six months of running ops in parallel with the current vendor’s software is a minimum to iron out any kinks? Now the window has moved to December 2022[2].
Arrogance – Brazen it out
According to the letter written by CFMA, Reddy is blithely assuming that MCX has a perpetual license and that the product can run without any support from the current vendor, 63 moons. MCX now handles not just Gold but also Energy (Crude, Natural Gas, etc.) and this is certainly going to be the main player, going forward. When we are talking trading of Rs.60,000-70,000 crores every trading day, it is essential that a dedicated team be there to support it. Remember, Software is never done; there is always one more bug to fix.
In another instance, Mr. Reddy made false statements before its members regarding software from a company called PSEB. PSEB had sued MCX, and the case was taken into arbitration by PSEB and MCX had to settle it out of court[3]. The order was placed in 2018 and the company, PSEB delivered software that was of no use to MCX and they wrote off the expenses[4]. Was he trying to brazen it out, hoping the questions would stop? In this case, it did not – SEBI has issued a Show Cause notice to MCX[5].
No product, no support then how will MCX run?
Is MCX trying to fly blind? Media sources indicate that TCS is nowhere close to delivering the fully functionally tested software and MCX does not have a software maintenance contract with the existing vendor 63 moons, come 2023. How will they manage if there are snags? What is the mitigation plan in case there is a disaster?
Sources say that MCX has approached the regulator for permission to take support of technology of other exchanges. This, if given, would make SEBI an accomplice in what is a dubious practice – one never shares one’s secrets with one’s competitors. Remember NSE is a direct competitor to MCX and NSCCL to MCXCCL.
Was the intent always to use the NSE platform?
With TCS unable to deliver fully functionally tested software (they never had one in the first place when they were awarded the order!) MCX reached out to its direct competitor NSE, for tech support[6]. I have never heard of such a bizarre thing! Unless the intent of MCX is to somehow do a merger with NSE and continue to list the combined company under its ticker (hence NSE would have done a Reverse Merger with MCX).
Doing a Reverse Merger would benefit NSE immensely. There are many politicians of various hues, whose money is locked up here and they can unlock it and depart for sunny shores of tax havens that do not have an extradition treaty with India. All these activities are in the knowledge of many insiders and MCX share price movements, in times when it hit a rough patch, are yelling at some insider being at work.
Conclusion
SEBI must step in here and ensure that the MCX trades continue to function smoothly. What MCX is trying to do is somehow create a situation from which there is only one way out – a merger. This suits NSE just fine since it wants to cleanse itself of all its past sins. This is where SEBI’s loyalty will be tested. SEBI’s reason for existence is to ensure that the shareholders’ rights are protected and a fair and transparent marketplace is available for stocks to do true price discovery. Will it?
Reference:
[1] TCS to replace 63 moons as MCX’s tech vendor – Feb 05, 2022, ET
[2] TCS’ new trading software to take at least 3 to 4 months to complete, says MCX – Sep 27, 2022, Gadgets Now
[3] Madras HC to hear plea against MCX payments to London firm on March 8 – Feb 27, 2022, The Hindu Business line
[4] MCX writes off ‘useless’ ₹20.43-cr software from London firm – May 17, 2022, The Hindu Business line
[5] SEBI issues notice to MCX on software payments matter; exchange likely to settle case – Nov 14, 2022, The Hindu Business line
[6] MCX in talks with NSE for tech support – Sep 22, 2022, The Hindu Business line
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