India’s leading agriculture commodity exchange, the National Commodity & Derivatives Exchange (NCDEX), has decided to acquire around a 20 per cent stake in a new commodities and financial derivatives exchange being set up in Sri Lanka, subject to regulatory and governmental approvals.
The move aims to deepen NCDEX’s footprint in the financial ecosystem of its neighbouring country.
The new exchange, being promoted in Sri Lanka by the Colombo Stock Exchange (CSE), will be called CSEDEX and focus on commodity and financial derivatives.
Currently, Sri Lanka does not have any exchange for either commodity or financial derivatives.
Sources said that if approved, this could be one of the rare instances of an Indian commodity exchange directly acquiring a stake in an overseas exchange, though there have been previous collaborations and partnerships between Indian bourses and foreign exchanges.
“Under a memorandum of understanding (MoU) that we signed with CSE a few months ago, NCDEX has agreed to build the new exchange, CSEDEX, by providing technical support, expertise in product development, and other services under a build-operate-transfer model.
In return, our board has approved an investment of 70 million Lankan rupees (around Rs 24 crore) to acquire a 20 per cent stake in the new exchange and a board representation, subject to all necessary approvals,” NCDEX managing director and chief executive officer Arun Raste told Business Standard.
The Securities and Exchange Commission (SEC) of Sri Lanka, equivalent to India’s Securities and Exchange Board of India (Sebi), had issued a request for proposal inviting entities to invest in the new commodities and derivatives exchange. NCDEX has decided to bid in response.
Raste said that following board approval, NCDEX will approach Sebi, the Ministry of External Affairs, and the Department of Economic Affairs to obtain formal approval to proceed with the proposal.
The plan also requires approval from the Sri Lankan government and SEC, as it constitutes foreign direct investment.
“This fits perfectly into our strategy to expand into equities,” he added.
Earlier this year, NCDEX signed an MoU with CSE to establish a comprehensive framework for commodities and derivatives trading in
Sri Lanka.
Historically, Indian exchanges have faced stiff competition abroad. Around 2018, the National Stock Exchange attempted to acquire a sizeable stake in Bangladesh’s Dhaka Stock Exchange but was outbid by a consortium of Chinese exchanges.
In subsequent years, Chinese firms have aggressively sought stakes in derivatives exchanges in Pakistan, Nepal, and Myanmar.
Some experts said that India’s efforts have often lacked nimbleness and political will.
“When we signed the MoU with CSE last year, there were neither regulatory concerns, nor were there any red flags from the government regarding providing human expertise in product development, training, process setup, rules structuring, and technical assistance.
"Now, with India-Sri Lanka relations on the upswing, political hurdles should not be an issue,” Raste said.
Sri Lanka is a prominent South Asian player in tea, rubber, coconut, and spices.
NCDEX, India’s leading commodities exchange, was incorporated on April 23, 2003, as a public limited company and commenced operations on December 15, 2003, as a recognised association under the Forward Contracts (Regulation) Act, 1952.
From September 2015, it became a recognised stock exchange under the Securities Contracts (Regulation) Act, 1956, regulated by Sebi.
The exchange suffered a major setback after the central government suspended derivatives trading in paddy (non-basmati), wheat, chana, mustard seed and derivatives, soybean and derivatives, crude palm oil, and moong.
Reports indicate that the suspended commodities accounted for nearly 70 per cent of the exchange’s volumes. The suspension remains in effect, despite studies suggesting it has been counterproductive.
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