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Edited Transcript of MCX.NSE earnings conference call or presentation 30-Jan-20 1:30pm GMT

Q3 2020 Multi Commodity Exchange of India Ltd Earnings Call

Mumbai Feb 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Multi Commodity Exchange of India Ltd earnings conference call or presentation Thursday, January 30, 2020 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Padala Subbi Reddy

Multi Commodity Exchange of India Limited - MD, CEO & Additional Director

* Satyajeet Bolar;Vice President, Finance & Accounts

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Conference Call Participants

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* Amit Chandra;SBI Securities;Analyst

* Anand Bhavnani;Unifi Capital;Analyst

* Dhwanil Desai

Turtle Capital Investment Ltd - Founder

* Haresh Mehta;BNP Paribas;Analyst

* Kunal Thanvi

Banyan Tree Advisors Pvt. Ltd - Equity Research Analyst

* Nikhil Upadhyay;Securities Investment Management;Analyst

* Prashant Tiwari

SBICAP Securities Ltd., Research Division - Research Analyst

* Subramanian Iyer

Morgan Stanley, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Multi Commodity Exchange of India Limited Q3 FY '20 Earnings Conference Call. (Operator Instructions)

Please note that this conference is being recorded. I now hand the conference over to Mr. P.S. Reddy, Managing Director and Chief Executive Officer. Thank you, and over to you, Mr. Reddy.

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [2]

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Thank you. Good evening, everybody. I welcome you to this third quarter call. And with me, Mr. Bolar, who looks after as Interim CEO -- as CFO, looks after the finance and accounts; and we have the company's (inaudible) and the Compliance Officer; and we have Mr. Praveen D. who looks after the Investor Relations.

The numbers you must have already downloaded from the BSE website, and we also put it on our website. And I will just give you how we have traveled this quarter in terms of business numbers.

If you look at our average daily turnover, the average daily turnover is INR 31,336 crores average daily turnover as compared to the corresponding quarter of the last year INR 27,037 crores. Okay?

Now this big jump has taken place, but then as compared to the second quarter, where the ADT was INR 34,526 crores. So the as such -- the average daily turnover has come down. That's the reason why you will see our revenue sale taken about a 10% dip as compared to the last quarter. But as compared to the corresponding quarter last year, obviously, there is a jump in it.

Similarly, if you see the number of the trading days, the number of trading days are 64 in this quarter and it was 65 in the last quarter and in the corresponding period in the last year where it was 63 days. So even the number of trading days also impact. One day lost means almost all about INR 30,000 plus crores is lost, which means, again, if you calculate about, not two sided turnover, for which we charge because our charges are about INR 250 -- or INR 253. If we take it per crore, so much revenue is lost and so much ADT is lost.

Similarly, the half days are also there. And half day, not full trade trading sessions. There were 3 last time and this time. So there, we had clocked average daily turnover of INR 19,150 crores in the last quarter, and in the current quarter, it's about INR 17,828 crores.

And yes, coupled with this, our prices are, to some extent, especially, the crude prices are linked in LME. And if there are more holidays because of the Christmas or otherwise in U.S. markets are closed, then that will also impact, even if we are working in that -- on those days. And of course, there are very few days of the trend, but then nonetheless, it impacted us.

The -- otherwise, the good trend that is happening is, we have been adding or rather activating a decent number of unique client codes. So they're trading actively, and we are getting almost a 25% additional turnover contributed by the new clients or activated clients. When I say new clients, who have never traded in the current year, they could have been registered last year or they could be absolutely new to the system. So they may have registered only this time.

And so that is something which is happening, and we are very happy that, that growth is making us work for more -- harder in that area, and we will be doing that any case.

And the numbers -- with regard to the numbers, Mr. Bolar will speak. Before that, I want to tell you few developments that have taken place in this area.

The basis that we have taken is, we want to start our own brand building. Currently, we say when it comes to metals, only the LME brands have improved. We are seeing -- in addition to LME brands, if there are domestic brands without compromising on the chemistry of the metal, if we are able to introduce them, probably, we will be giving -- we will be increasing the scope for domestic players also to come on to platform. So we'll be starting with lead and the particular -- what should I say, the process is on. And once we admit them, probably, we'll issue a new circular informing them then which contract month it will be accepted as deliverable quantity, and we'll be doing it in other metals as well. This is one.

Second one is the -- government has recently come out with an India new delivery standard for domestic gold. As of now, if you know that only LBMA-approved metals are deliverable on our -- gold is deliverable, or silver, for that matter, is deliverable on our on our platform. And in the coming months, we will also be admitting refiners -- domestic refiners who meet certain network criteria, who will be able to do certain bank guarantees of their metals refined in their refineries, gold and silver. We will be accepting them as a deliverable.

Again, chemistry is not compromised and there will be negative tolerance for any kind of metal being there in that particular -- in that particular bracket which is not -- which is acceptable, okay? That's the way we're looking at it.

And apart from it, yes, the cotton contract, although, the cotton season has started late because of the prolonging rains and prolonged monsoons and there's a lot of not good quality contracts -- cotton was coming into our warehouses. And now in the month of January, we have seen a very good pickup. Almost 1.5 lakh bales are starting to go down and almost 2 lakh [metric] bales are already has been created in the exchange.

And we have also filed for index futures with SEBI in the last month. And while we have done the filing, we have also done extensive marketing in the form of awareness. A lot of players, different segment of players, not only algo players and regular -- retail investor category players and mutual funds, AAFs, PMS and even the algo software developers we have engaged with to know what are the nuances of this product and how they should develop and what should -- they should take care and what kind of advantage that will take. And as soon as the government permits or the city permits, we will be launching them. So we are already in that sense.

The other development that has taken place recently is the options, on the underlying -- options on the underlying -- on goods. So you don't have to have a successful futures contract. Currently, all options are getting at their expiry delivered into -- I mean, converted into a futures contract. Then along with the futures contract expiry, the contract gets expired.

Now you don't have to have them getting converted into futures contract. It will be directly converted into a deliverable contract in (inaudible). And although, SEBI said that, but at the same time, SEBI also has mandated you must have both the contracts. Only if you have both the contracts, that is futures contract as well as options contract, which is deliverable on the underlying growth. So not necessarily falling into the futures contract -- converted into futures contract. Only then they will be permitting it.

And one important, again, contract that we are looking at is cotton. And we have submitted, now that we will be -- we will be filing for cotton also. And these are the major developments.

And if there is anything more, probably, during the questions-and-answers, I will be answering.

Now I will ask Mr. Bolar to respond on the financials.

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Satyajeet Bolar;Vice President, Finance & Accounts, [3]

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Good evening, everyone.

I hope you have been able to see our results on the website. They've uploaded it on our website as well as BSE website. So you can notice that as compared to December '18 we have shown a -- we have been flat. But as compared to September '19, there's been a fall in our top line. So basically, the fall in the top line has been constituted by a fall in this transactional charges. Around 8% fall in other income, that is mainly our treasury income by, around 10%. And in the last quarter, we also had an insurance claim, which we are taking, which has booked as income. So that amounts to -- substantial amount that constituted 4% of our top line for September 2019. So these are the 3 main reasons.

And the fall in treasury income, I'd like to repeat, I mean, is basically on account of mark-to-mark. So we have got a substantial amount of investments that we've made over a period of time in tax free bonds as well as some investments in mutual funds -- mutual funds too. But we have taken a big hit in our tax free bonds valuation because we've booked substantial income and notional income in June as well as September, but unfortunately, because of the Reserve Bank of India December Policy, that said -- kept it at fall. So that affected our valuation, and we had to take a beating in the [first 9 months].

But now the valuation has improved marginally. So hopefully, as we go forward, which hopefully we don't get unexpected surprises day after tomorrow, hopefully, things will be better on the (inaudible) side.

The expenses. As Mr. Reddy, we have been able to control our expenses. You'd have seen there's hardly any increase in expenses. In fact, in many line items, we have reduced the expenses. And we have been able to take advantage of the MAT -- we've been able to utilize MAT credit during the quarter. And there was also a provision of tax, which we had made earlier -- in earlier year for March '19, which we have been able to take advantage of and reverse it.

The net-net. Our net profit is INR 56 crores as compared to INR 71 crores profit.

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [4]

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Anything else? I think now it is done. Probably, you can open for a question-and-answer.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

The first question is from the line of Kunal Thanvi from Banyan Tree Advisors.

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Kunal Thanvi, Banyan Tree Advisors Pvt. Ltd - Equity Research Analyst [2]

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Yes, so we talked about new unique client codes that have been added and the additional turnover that came in. So can you elaborate on that? What are the channels through which we are getting these new clients? Is it through the new banking subsidiary channel that you were looking to explore? Can you just elaborate on the same?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [3]

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See, the banking channel is not fully activated. So full potential has not as yet tapped, I would say. Not even full -- even not half is not even tapped. So we are waiting there to see more great numbers. But then, otherwise also, the physical market players are coming in, and our interactions with various associations, some of these advertisement recently you've seen on the base metals advertisement, and a lot of calls are coming. We have also picked up the top 1,000 companies -- listed companies, and then found who are using metals and all that stuff. We have written to them. And the inquiries are coming.

Obviously, there are -- a lot of interest got generated. So -- and also, the member brokers themselves are actively involved in this engagement. So if we -- first, what to call -- first door knock is made by us. And then later on, we ask the member brokers to pursue with the clients. So that's happening. That's what the success that we have seen.

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Kunal Thanvi, Banyan Tree Advisors Pvt. Ltd - Equity Research Analyst [4]

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So basically, it is the captive member brokers who are helping us getting the clients, right? So it's not because of the banking channel. That is yet to be fully tapped?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [5]

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That's right, that's right.

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Kunal Thanvi, Banyan Tree Advisors Pvt. Ltd - Equity Research Analyst [6]

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And on the same lines, so we were talking with ICICI Securities, right? So have they come onboard now?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [7]

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I think they are putting the proper infrastructure in place. I think a new product set has been appointed for ICICI Securities for commodities. So designated exclusively for commodities. So we are touch basing with them. And then I'm sure they will do it in this quarter. That's what my confidence is.

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Kunal Thanvi, Banyan Tree Advisors Pvt. Ltd - Equity Research Analyst [8]

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Sure. On the last call, we talked about some custodian issues, which were restricting mutual fund gains in participation. So has that been solved out now?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [9]

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Yes. So 2 custodians have been authorized to do the -- this one -- provide services: one is Deutsche Bank -- I'm sorry, Deutsche Bank; the other one is the (inaudible). And both have been permitted to provide, but in limited sense. In the sense, they may not be able to do it in agri commodities, and they will not be able to do, as of now, even in metals also.

So other than that, maybe if we launch index futures, they'll be able to settle the trades, they will be able to settle gold -- this one. And of course, crude is (inaudible) settled contract, they can participate in crude.

So we are also looking -- mutual funds to now pick up the thread from here and then start participating in it. And we are looking for a lot of multi-asset funds to come into this fold.

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Kunal Thanvi, Banyan Tree Advisors Pvt. Ltd - Equity Research Analyst [10]

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So till now, have we seen some players coming in and starting trading with us?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [11]

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Yes. AAFs and PMS have started already, and we are waiting for mutual funds to start.

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Kunal Thanvi, Banyan Tree Advisors Pvt. Ltd - Equity Research Analyst [12]

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Sure, okay. And I had this question on indices. So when you say you'll be launching indices now, so I was under the impression that we have already launched that indices. Can you clarify how -- where is the construct now?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [13]

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Launching the indices means not the index construction per se. Index construction has already been done, okay? Contract out of that index construction is to be -- requires SEBI's approval, okay?

So index futures is a contract, which we are planning to launch. It is a future, the contract.

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Kunal Thanvi, Banyan Tree Advisors Pvt. Ltd - Equity Research Analyst [14]

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Okay, sure. So any light on base metals. Now after the composite conversion, we have seen a dip in the volumes. So is there any pick up there? And what we are doing to make sure that we get our earlier volumes again?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [15]

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Well, it's -- we are trying our best in this regard. Yes, there is a dip in about almost 30%, 35% of the volumes have been shaved off. And -- but then, there are some big contracts, like your copper and nickel, where we are reasonably okay, doing well. And it's aluminum and -- aluminum, zinc and lead are these 3 ones which are not doing so well. And that's where we are looking at introducing maybe little modifications to the contract. Also, we may do it. So that will also bring in some kind of serious players into it.

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Kunal Thanvi, Banyan Tree Advisors Pvt. Ltd - Equity Research Analyst [16]

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Sure, sure. And we just talked about Indian Gold Standard, right? Like we said, these refiners -- refining gold would also come under the exchange platform. So there was this news article which talked about the fact that the trading on gold could expand by 40%. So is that number right? Or how you guys -- how you look at that number, particularly?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [17]

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See. We never put any numbers for these -- what is called -- what should I say, optimistic ventures or activity. And it's not safe to say that 40% or 4% or whatever it is. But I'm sure, definitely, out of maybe 4,000 tons of gold that is getting -- every year getting utilized, maybe 800 tons or 1,000 tons is the -- 1,100 tons, if I'm not wrong 1,100 tons, and about 400 and odd tons is imported. And that remaining is domestic gold. And then in terms of processing, scrap is getting reprocessed. Some of the temporary jewelery is getting reprocessed.

All that will come into the system once we permit, okay?

As you said, my desires or the team at MCX desires that every gold shop should be displaying the MCX gold price, not anything else. That's the kind of target that we have.

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Operator [18]

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(Operator Instructions)

Next question is from the line of Dhwanil Desai from Turtle Capital Investments.

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Dhwanil Desai, Turtle Capital Investment Ltd - Founder [19]

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Sir, congratulations on a good set of numbers. Sir, 2 questions. So one question -- first question is on the -- now there is a permission to launch options, which doesn't dissolve into futures. So how do you see that changing the marketplace for the options? Because in options, our ramp-up has not been as desired in spite of what the LME market put up in the last few years. So what is your view in terms of how would it expand the market? That is my first question.

And second question is, in terms of launching this contract with respect to the standards, which are Indian, do we need to take specific permission from SEBI and any other organization to launch this contract? If you can elaborate on that.

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [20]

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Which contract?

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Dhwanil Desai, Turtle Capital Investment Ltd - Founder [21]

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The gold contract which are with standards of the Indian...

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [22]

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That are refined by the Indian refiners? Okay.

Now with respect to first question, our hunch is that a successful futures contract can only if they -- if I have a successful futures contract, then a successful options contract which does not devolve on the futures contract, but then it can directly devolve into the underlying commodity [and we'll see], okay, as well.

And -- but in a plain vanilla futures contract -- I'm sorry, an options contract, which does not -- without any support with the futures contract may not do well, okay? This is one understanding because even the option writers need some hedging tools. They will not be having anything. That's one fear that we have it.

So since we have already good futures contracts, we will be able to launch on them the options, which are devolving in the underlying commodities.

Now look at gold. Today, gold, we will not be able to -- the -- it's a bimonthly contract. The option that we have introduced is only one option, and that is on a bimonthly contract. So the premium happens to be a very big number.

Now the players are not able to pay us so much of a premium, but we have a monthly -- we have a 100-gram contract, we have an 8-gram contract. But -- so such kind of products can be -- where options can be introduced. That's the way we are looking at it.

Now coming back to your second question -- coming back to your second question, we don't need any permission from anybody because the -- without changing any contract specifications, I'm only saying that these are the, what to call, approved producers whose are manufacturers, whose material allowed to be delivered. I just need to add one more name to that. So this is a part of the contract specification, which is approved by SEBI earlier.

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Operator [23]

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(Operator Instructions)

Next question is from the line of Nikhil Upadhyay from Securities Investment Management.

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Nikhil Upadhyay;Securities Investment Management;Analyst, [24]

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Congratulations on good set of numbers. 2 questions, sir. One is, recently, there was this SEBI announcement regarding the enhancement of margins as the volatility increases. So do you see any impact of debt on our underlying business?

And secondly, in terms of the new products. So we have been working on this electricity future contracts and the gas exchange. So if you can just update us on where are we on those 2 products? And will we be able to launch them in time? Or what's the update there?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [25]

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Sure, sure. See, the volatility is the hallmark of this industry or this exchange anyway. Without volatility, there won't be any business. If volatility is there, you need higher margins anyway, okay?

So recently, without even SEBI circular being in place, we have increased 2% margins in gold as well as our crude, which are our 2 major products, which are contributing maybe 80% of our turnover.

Yet, the volumes have not decreased. So safety is important. Investors also understand that we are not penalizing them in that sense.

And they know that SEBI circular has come, this additional 2%, which we have imposed, need not be retained and then SEBI [Foreign Language]. That's the way it is.

Now on the -- on the...

Okay. On the new products, electricity futures. Again, the matter is between the regulators before Supreme Court. Supreme Court has to pass the content terms and then approve the order. Then the rest of the regulatory work will start on the electricity futures.

Then comes to the -- the gas spot market. And there's a lot of -- I don't use the word noise, but then there's a lot of excitement, I would say, around the spot gas project. But then without GST should be sorted out, without, what to call, gas grid is being, what we call, segregated or hand off, I don't think these things will happen soon, very soon.

So let's see because as we -- our job and our objective is to keep ourselves geared up to seize any opportunity that comes in our way, and we will not miss any opportunity.

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Nikhil Upadhyay;Securities Investment Management;Analyst, [26]

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Just, if I may, one more question, which I want to ask? This -- the Indian refinery gold contract, I think, the similar contract NFC had also launched and there was some news item in August or September about they are trying to tap this market. So are they a competition to us in any sense on this? Or...

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [27]

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See, it's not going to be a separate contract. Okay, if I'm seeing the quality and the characteristics of that metal is the same as LBMA, why shouldn't it be delivered against the other contracts. So we are going to introduce in the same contract. We are not -- we are not going to say that it will be a separate contract, okay?

But we will be giving an adequate notice to the market. So we are already in a driving contract as we use liquidity. And the same month, we will introduce it.

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Operator [28]

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Next question is from the line of Anand Bhavnani from Unifi Capital.

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Anand Bhavnani;Unifi Capital;Analyst, [29]

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Mr. Reddy, I have 2 questions. On that gold contract that you're discussing, Indian refinery, you'll have 2 then parallel contracts? Or it will be replacing the existing contract?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [30]

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No. Nothing will replaced. I'm saying LBMA metal is identical to the Indian refinery's metal, those who are tooled by us, period. So when you buy some gold on the MCX platform and take delivery, you might get it from any of these maybe 20 metal producers. I'm just giving you a number. I don't -- I'm not saying that it maybe LBMA approved vendor, plus the Indian refiner.

And the all Indian refiners will not be on panel, please appreciate because we are very cautious about it. We have put a very high watermark for them to qualify to be in this -- to come on this platform.

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Anand Bhavnani;Unifi Capital;Analyst, [31]

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Sure. And can you give us a sense of how much volumes incremental can come because of this particular move? Any -- some estimation ballpark if all remains the same such as [buybacks]. How much potential volume gains? Is it like an incremental 5%, 10%? Or it's of the magnitude of doubling?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [32]

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They are all meant for KRAs for my people who have been given targets who fought for a public tool. Not to share with public, okay? I will not answer...

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Anand Bhavnani;Unifi Capital;Analyst, [33]

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Perfect, sir. My second question is mainly based on margins, and we have incremental higher amount of money from the brokers. The interest income on that is entirely ours. In no circumstances we are like entitled or required to kind of share the interest income on the margins. Is that a fair assumption?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [34]

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No. You are right. That's a fair assumption, but materiality is equally important. About 95% or 98% of the margins are in the form of bank guarantee, okay? And the others come as the fixed deposits, which are -- (inaudible) created in serve of the clearing cost ratio. Then that gives hardly any cash with that. That's it.

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Anand Bhavnani;Unifi Capital;Analyst, [35]

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Okay. So will you make obligations which increase on our balance sheet? You might see higher liabilities from the deposits made by brokers. We don't earn commensurate higher interest income?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [36]

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No. Interest income doesn't compare so much.

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Satyajeet Bolar;Vice President, Finance & Accounts, [37]

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Yes, I'm just clarifying. Only the cash component is reflected in our consolidated balance sheet. So it's members margin. And it is then reflected -- it's then as per SEBI guideline,

The clearing corporation can invest only in liquid schemes or overnight schemes or in fixed deposits or in government treasury bonds.

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [38]

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There's hardly any number. I mean, that's not a number.

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Satyajeet Bolar;Vice President, Finance & Accounts, [39]

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So there's a limitation on ways that an investor gets funds.

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Operator [40]

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Next question is from the line of Prashant Tiwari SBICAP Securities.

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Prashant Tiwari, SBICAP Securities Ltd., Research Division - Research Analyst [41]

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Yes. Sir, I want to understand is the mutual fund participation and AAFs, PMS. Whatever the new thing is happening, is -- that is stripped down, what is the basic amount of growth that you expect from the business?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [42]

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Come again, please?

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Prashant Tiwari, SBICAP Securities Ltd., Research Division - Research Analyst [43]

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What is the basic amount of growth coming from maybe volatility or addition of unique client codes that you see for next year or the years after that? The basic growth in value traded on the exchange, what would be the growth that you expect?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [44]

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So again, as I said that I'm not giving any numbers out there because I'm only seeing what drives my business and these are all the factors which can drive. And as and when we get from any particular segment, we are telling the market this segment is getting active.

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Prashant Tiwari, SBICAP Securities Ltd., Research Division - Research Analyst [45]

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Okay. So in that case, does the addition of the institutional participation changes your expectation of growth by double or something? Or is it a piecemeal change?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [46]

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Again, I'm not commenting about your question, whether it was double, or triple or anything about that. ROI will definitely increase. That is open interest will substantially increase. With the open interest being high, more and more participants will come.

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Prashant Tiwari, SBICAP Securities Ltd., Research Division - Research Analyst [47]

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And can you please just repeat that unique client code number, that addition that you have done in this year?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [48]

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Yes. Only growth, I said. 25% growth business has come from new clients. ADT has come -- 25% of the ADT in this quarter has come from this one, new clients.

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Prashant Tiwari, SBICAP Securities Ltd., Research Division - Research Analyst [49]

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Okay. 25% of ADT...

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [50]

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Yes.

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Operator [51]

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Next question is from the line of [Ankit Shah] from Stock Access.

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [52]

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And just one more clarification before you ask the question. Even the number -- even the unique clients codes traded last year -- the entire last year have been surpassed in the 9 months itself. So that's another number you can take it. How much is the number, I will not be able to disclose. But whatever is achieved in 9 months current year has already been achieved -- surpassing the entire last year's numbers, unique client codes.

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Unidentified Analyst, [53]

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Yes. So I would like to understand, do you see any supply disruption due to Chinese market being impacted due to this wider spread out? Or how much of the base metals are we importing from China?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [54]

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Well, if you look at our -- the recent numbers, which we published in various newspapers (inaudible), the Economic Times, especially. They bought 50,000 tons, 51,000 tons around has been delivered over 9 months because this contract has become a deliverable contract only in the last 9 months. We started with aluminum, next zinc, and like that, we went on copper, et cetera, et cetera.

And we are yet to see the ramp up in these numbers. The only point that we want to tell even the domestic producers and -- as well as the international producers is really the market which you can take opportunity. And if you think that the prices are better for you, you can dump it on this.

Another number I can give you, another statistics, I would say, data point I can give you is that almost from 10 countries, okay, we had seen stocks coming in various metals, of course, base metals. So you can see that.

And will it affect the virus -- will it affect? My answer is no because we have not received any metal from China so far.

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Operator [55]

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Next question is from the line of Amit Chandra from SBI Securities.

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Amit Chandra;SBI Securities;Analyst, [56]

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Sir, my question is on the open interest that we have in gold. So has it increased from the last quarter? And what is the physical delivery in the gold that you have seen?

And overall, in the physical delivery, what kind of gold we are seeing in terms of the amount of physical delivery (inaudible)? And what's your view on that? Would there be increase in this overall physical delivery system? Are we going to see increased participation or anything for the gold deliveries?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [57]

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Sorry, the second part of it, I did not understand. But the first one, I will clarify. I don't know whether it answers the second question also, whatever you had in mind.

In the -- in the last 9 months, we have delivered 9 tons of gold, and we had an open interest of -- average open interest, daily -- average daily open interest is -- one minute -- this one, yes, we had [31 tons] daily open interest average.

And the last -- corresponding last year it was about 14 tons. So that's the kind of number of growth we have seen it.

And as of the second -- Q2 this year, it's about 29 tons, 29.5 tons. And it is less, but then there's a reason. There was a tax tweaking has happened as a result of which, there will be a huge delivery on the exchange platform also. Almost all 5 tons of gold was delivered in the month of August. And that is included in this last quarter.

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Amit Chandra;SBI Securities;Analyst, [58]

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Okay. (inaudible). There is already open interest on a quarter-on-quarter basis (inaudible). Some income and lease or you see the increased participation in UCC and/or numbers. And it isn't just offsetting that?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [59]

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No. You see, the UCCs have been increasing it and there's no doubt about it, and we are also engaging one-on-one with national, what should I say, gold jewelers. We've got a Pan-India presence. And they will not come all of them. Some of them are now heading the risk management departments and systems in putting in place. And once that is done, you will find a lot of them participating on this platform. This is why it will increase.

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Amit Chandra;SBI Securities;Analyst, [60]

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And on the concentration of the top 10 numbers, has the competition decreased with the increase in the client codes that you are [seeing]. How has been return there in terms of the top line concentration to volumes?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [61]

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Yes. There will be some decrease. I would not say decrease, maybe interest rate distribution may be happening. The top 10 numbers will continue to have the same. But #1 may not be having as much as #2. I know as it was there earlier, that's the way.

So #2s or #5 broker maybe having a little more. So you move up the chain, it's like that. Distribution is happening.

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Amit Chandra;SBI Securities;Analyst, [62]

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My last question is on the tax rates, over the taxes lowered this quarter. So what will the normalized taxes? And also dropping the (inaudible) cost, so what we are taking on (inaudible) and what is the outlook for the cost going forward?

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Satyajeet Bolar;Vice President, Finance & Accounts, [63]

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On the tax rate, our effective tax is around 17% on -- between 15% to 17% every quarter. But this year, this quarter, we were able to take advantage of the MAT credit. We were able to utilize a part of the MAT credit. Also, we have made excess provision in an earlier year, that is in March '19, which we took the benefit of now. That's why the tax effective rate is -- was in the range of around -- a bit more than 5%.

Going forward on the -- when we come to March, I mean, we'd have, again, personally, we would love to utilize the MAT credit, isn't it? Because then I bring on (inaudible). And then I'd like to go to the lower tax regime that has been announced by the government in October.

So now I'm following the old rates because I've got a MAT credit. The moment I avail my MAT credit, then I'll move to the new rates.

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Amit Chandra;SBI Securities;Analyst, [64]

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Okay. So as of now, how much MAT credit we have in -- by the end of next quarter? Could you clarify?

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Satyajeet Bolar;Vice President, Finance & Accounts, [65]

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I won't be able to quantify it, but we have a substantial amount for us to use the old rates.

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Amit Chandra;SBI Securities;Analyst, [66]

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Okay. And the employee costs?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [67]

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Employee costs are more than stable. You see I repeatedly telling on all calls, my job is to ensure the cost per capital under control. That is something we see in our control, not the top line, especially the revenues. And there are several factors drive the top line.

So if you see the costs, they are, I would say, flat.

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Satyajeet Bolar;Vice President, Finance & Accounts, [68]

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Yes.

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Amit Chandra;SBI Securities;Analyst, [69]

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They are flat Y-o-Y, but sequentially, there's a [40%] decline in employee cost -- employee expense.

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Satyajeet Bolar;Vice President, Finance & Accounts, [70]

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Yes. That is because some of our employees, there was a bit of turning during the last quarter.

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [71]

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No, some of them have resigned and then gone, and we are yet to appoint our new CFO. So that's one cause is they choose it. Some others, some seniors, 1 or 2 have left. Instead of recruiting, we have promoted internal people. So that's -- those things help us.

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Operator [72]

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Next question is from the line of Haresh Mehta from BNP Paribas.

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Haresh Mehta;BNP Paribas;Analyst, [73]

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Yes. I think the most of the question have been answered. Okay. Can you just help me with how many total number of member brokers we have currently? And what was the number last year? What was the change?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [74]

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Yes. By and large, they remained the same. It's about 480, 490 active members -- active members.

And let me -- see, even if there is a change, my suggestion is or my hunch is, it's not -- thanks to any particular problem or whatever it is, some members were consolidating, some members were taking new memberships and then surrendering the old memberships, all that was happening.

So any figure that I give you is not correct. So what is important for you is who are actually logging in daily and then trading. And that number is about 480, 490 around.

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Haresh Mehta;BNP Paribas;Analyst, [75]

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Understood. And one more thing. When you say 25% additional new client, which in this quarter, which contributed in top line, so can you share...

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [76]

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Not top line, I'm sorry. ADT, average daily turnover.

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Haresh Mehta;BNP Paribas;Analyst, [77]

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Sorry, average ADT. So what is the average number of clients which are active in every quarter, generally, the rough average? So you have 100,000 clients. So what is the average number of clients are active in the lead in every quarter?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [78]

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But I'm not giving out numbers. So that is the whole issue. As I said, I have already crossed the whole last year...

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Haresh Mehta;BNP Paribas;Analyst, [79]

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In percentage term in percentage terms.

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [80]

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Do you have the percentage terms number? Readily, I don't have it, that number is not readily available. Probably next time, I'll be able to answer.

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Haresh Mehta;BNP Paribas;Analyst, [81]

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Okay. And one general question. Any key thing which you're expecting from budget, which can drive the commodity derivative volume? Any key things which you're expecting?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [82]

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I think I'm no wiser than you in terms of making predictions. And we all have a wish list, of course. But then I don't know what will be fulfilled, what will not be fulfilled.

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Operator [83]

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Next question is from the line of Kushal Rughani from Credence Wealth Management.

(Operator Instructions)

Due to no response, we'll move onto the next participant.

Next question is from the line of Subramanian Iyer from Morgan Stanley.

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Subramanian Iyer, Morgan Stanley, Research Division - Equity Analyst [84]

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Couple of data questions. So one being, what was the average realization for the quarter? And the second question being, what is the effective tax rate -- what would be the effective tax rate under the new regime?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [85]

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It's INR 2.10 is the average realization.

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Satyajeet Bolar;Vice President, Finance & Accounts, [86]

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As I mentioned earlier, generally, our tax rate was -- effective tax rate was 17 point -- around 17.5%. But this quarter, we were able to utilize MAT credit and also take the credit of the excess tax provision made in the earlier year.

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Subramanian Iyer, Morgan Stanley, Research Division - Equity Analyst [87]

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Okay. So -- I mean, so we should work with around 17% -- from next year?

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Satyajeet Bolar;Vice President, Finance & Accounts, [88]

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Yes.

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Subramanian Iyer, Morgan Stanley, Research Division - Equity Analyst [89]

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And if I may add one more question. So you made a comment that basically 25% of the ADT this quarter has come from new clients. So -- this is new clients added over what time frame? And I mean...

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [90]

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When I said new clients, they are not traded in this new -- in this year. See, what we have been doing is, again, as a part of marketing, trying to see our -- scan our database, whether they were ever traded in the past. That's one set of clients.

If they have traded and then remained dormant and then I'll tell brokers to speak to them why they've stopped, what are the reasons. So can we activate them. That is one existing -- that is one existing client database that we have it.

The second one is the ones which we are approaching in the form of invest awareness programs or in the form of associations whom we brief. And totally -- totally new set of clients. Sorry.

Totally new set of clients who have never traded on the exchange platform in the past. So these are the 2 types that we are getting.

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Subramanian Iyer, Morgan Stanley, Research Division - Equity Analyst [91]

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Okay. Because 25% seems like a very substantial number, and we haven't seen that kind of an increase in overall trading volume. So that's why I was a bit unclear on that.

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [92]

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No. But then, these are UCCs who are trading. They could be a small retail investors, they could be big hedgers, okay? All mix, it will be there. So the number, maybe 25% will maybe -- may sound big. But if there are maybe 15, 20 big hedgers are there, that's big enough.

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Operator [93]

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Next question is from the line of Kunal Thanvi from Banyan Tree Advisors.

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Kunal Thanvi, Banyan Tree Advisors Pvt. Ltd - Equity Research Analyst [94]

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So I just wanted to understand any new product that we have in mind that could be launched by the end of this year or early next year?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [95]

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As I said, the list is growing, but then we need to get the approvals from SEBI, okay. And some are already pending. And again, we discussed it in the con call that index futures is one. We're looking for potato contract if they give us permission and -- this one, index future contract and electricity futures is another one.

And we are expecting a lot of things to happen, then only it is contingent upon those things.

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Kunal Thanvi, Banyan Tree Advisors Pvt. Ltd - Equity Research Analyst [96]

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Sure. So on the -- on respect to the electricity futures, there have been (inaudible). So another exchange, the Indian Energy Exchange will be giving permission. So the matter is for you...

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [97]

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That's a spot exchange. It is spot exchange.

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Kunal Thanvi, Banyan Tree Advisors Pvt. Ltd - Equity Research Analyst [98]

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Sure. But yes, there have been talk that they would do futures as well. So can you help us understand how that will work?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [99]

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No. See, as of now, if they are to do futures, they have to set up a separate system and then they have to come under the regulatory purview of SEBI.

Now they may be look -- currently, they have a day-ahead contract mostly, if I'm not mistaken, okay? And that drives a lot of their business. And up to 12 days, I think, it's just spot market contract -- or 11 days, probably. 11 or 12 days, I'm not too sure about that.

But then 11 or 12 days is the futures -- the spot contracts. And beyond that, is the futures contract. Maybe they are looking at moving away from day-ahead to or introduce new contracts in the rest of the week ahead, maybe, or 10 days ahead kind of thing.

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Kunal Thanvi, Banyan Tree Advisors Pvt. Ltd - Equity Research Analyst [100]

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Sure, sure. Makes sense. And last question on employee cost. So we understand that we came out with ESOP the last to last quarter. So how that would impact our employee cost going ahead?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [101]

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There are no more ESOPs now that are -- in all our exercise and then water is left there lapsed. So it's like that.

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Kunal Thanvi, Banyan Tree Advisors Pvt. Ltd - Equity Research Analyst [102]

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So it's gone through the P&L already?

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [103]

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Yes, yes.

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Satyajeet Bolar;Vice President, Finance & Accounts, [104]

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Yes. Yes.

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Operator [105]

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(Operator Instructions)

Ladies and gentlemen, that was the last question for today. I will now hand the conference over to Mr. Reddy for closing comments.

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Padala Subbi Reddy, Multi Commodity Exchange of India Limited - MD, CEO & Additional Director [106]

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Thank you very much. And I know it's a late call, but our Board meeting also has continued for a long time. So that's why it is a late call. And we will try to see that this call is done a little earlier than what we have done it as far as possible. And thank you, everybody, for joining and asking for clarifications. Thank you.

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Operator [107]

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Thank you very much. On behalf of Multi Commodity Exchange of India Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.