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Informist, Saturday, Dec. 20, 2025

 

By Pallavi Singhal

 

NEW DELHI – Sri Lanka is looking to set up a commodity derivatives exchange on the lines of India's National Commodity and Derivatives Exchange Ltd., with the Colombo Stock Exchange planning a build–operate–transfer model in partnership with the Indian exchange, Arun Raste, managing director and chief executive officer of NCDEX said.

 

"A request for proposal has been floated by the Securities Exchange Commission of Sri Lanka. The Colombo Stock Exchange has applied in response to that request for proposal and we are partners there," he said.

 

The exchange, he said, has agreed to support the Colombo Stock Exchange in building the platform, providing technology specifications, contract design and training support. "There are a lot of similarities between India and Sri Lanka in terms of commodities-—paddy, edible oils, rubber, coffee. These are commodities where farmers need training and market access, and that is something we are proficient at," Raste told Informist in a telephonic interview.

 

If the project materialises, NCDEX will monetise its expertise and may also take an equity stake in the new exchange, he said. "We will build it, operate it for a period and then transfer it. We may also put in some money and get a stake in the Colombo exchange," Raste said.

 

The move would mark the first time an Indian exchange will be operationally involved in setting up a derivatives exchange overseas, he said.

 

Below are the edited excerpts from the interview:

 

Q. NCDEX has completed two decades of operations, how has the journey been?

A. When I look at the 22-year journey of NCDEX, I would divide it into three phases: the initial phase when we started, the phase we are in today, and the growth phase that lies ahead.

 

We began operations with both metals and agricultural commodities, but over time we transitioned to being primarily an agri-commodities exchange. At one point, we were doing close to 10,000 crore rupees (INR 100 billion) a day in turnover across agri and metals. That period involved a lot of experimentation. For instance, potato futures were not launched by us initially; they were launched by another exchange first. We entered later, gained liquidity, and eventually both exchanges lost volumes. That phase was characterised by trial and error.

 

Between 2013 and 2015, we went through a very difficult phase marked by extensive litigation and a major regulatory transition, when the Forward Markets Commission was merged with the Securities and Exchange Board of India. Once we came under SEBI, all regulations applicable to stock exchanges became applicable to us as well. In effect, we became a stock exchange in regulatory terms, which meant complying with every requirement that applies to equity markets. This required significant upgrades to our systems and major investments in both technology and manpower.

 

In hindsight, that phase strengthened us. Several initiatives we undertook became benchmarks for the industry. For example, we were the first exchange to move our data centre from an in-house facility to an uptime-certified Tier-4 data centre at Yotta in Navi Mumbai. Even globally, very few exchanges operate out of Tier-4 facilities. That decision has proved useful today, especially as we prepare to enter equities, because it allows us easier access to co-location racks and very low-latency connectivity between brokers and the exchange.

 

(Tier-IV is the highest globally recognised certification for data centres and signifies the highest levels of reliability and resiliency for completely fault-tolerant critical infrastructure that supports the facility's operations.)

 

The transition to SEBI also ensured a culture of rigorous compliance. Whenever we felt that we might not be able to comply with a particular directive within a stipulated timeline, we were transparent with the regulator and sought time. The regulator was supportive because we had a consistent compliance record. As a result, there was never a blot on our regulatory history, and when we applied for equity market permission, there was nothing that prevented the regulator from granting it.

 

Today, we see ourselves in the growth phase. We conducted an internal assessment of our strengths and weaknesses and realised that commodity suspensions have been a recurring vulnerability. Any commodity that directly affects consumer prices becomes politically sensitive and risks suspension. Over the years, commodities were suspended multiple times. It is very rare for an organisation to lose nearly 70% of its market and still survive, but we did. We had to make some difficult financial decisions, but we survived.

 

We also strengthened our balance sheet. We raised around INR 7.7 billion from about 60 investors, including marquee domestic and global names such as JM Financial, Kotak, Citadel, and Optiver, as well as several high-net-worth individuals.

 

Q. What do you envision for the exchange in the next few years?

A. Looking ahead, we are targeting the launch of equities around 2026 and equity derivatives around 2027. At the same time, we remain committed to commodities, particularly agri-commodities, which define our identity. We are exploring new initiatives and products, including weather futures, maize, pepper and potato contracts.

 

We are also exploring international partnerships, particularly in metals and crude oil. On the equities side, we plan to hire around 120 people over the next few months, having already hired 30–40. We are in the process of finalising technology vendors. Currently, we use the London Stock Exchange Group system. We have floated an RFP and expect to finalise vendors around January. After that, it should take about a year to launch equities.

 

India needs more exchanges. Globally, countries such as the US have seven or eight exchanges, while China and Australia have three or four. In India, participation in equity markets is expanding rapidly, with around two crore (20 million) new investors entering every year. The market is growing, so we are not necessarily competing with existing exchanges for the same pie. Even a 1% share of the equity market would allow us to break even.

 

If commodities resume and equities are added, by 2027 we could be operating successfully across both segments. That would position us as a multi-asset exchange, which is the direction we are working towards.

 

Q. You said you NCDEX will be helping Sri Lanka set up their commodity exchange. What will be the role of NCDEX?

A. Colombo Stock Exchange in Sri Lanka is setting up an NCDEX equivalent there. They don't have a derivatives exchange, neither financial nor commodity derivatives. So we have agreed to support them in setting up this exchange when that happens. A request for proposal was floated by the Security Exchange Commission of Sri Lanka. And Colombo Stock Exchange has applied in response to that request for proposal and we are partners there. It will be a build- operate-transfer initiative. So we'll provide our skills, we'll provide specifications, contracts, all the details, because we find a lot of similarities, things like paddy, oils, things like rubber, coffee, these kind of things are, you know, pretty common in Sri Lanka. They require farmers' training, which we are proficient at. So we'll be doing that.

 

Q. Why do Indian agri-futures not influence global price benchmarks despite India being a major producer and consumer?

A. Price-setting power comes from being either a dominant producer or a dominant consumer. If you are one of the two, you can influence prices.

 

If you look at the history, NCDEX and China's Dalian Exchange were set up around the same time. In the first few years, their balance sheets were comparable. Today, Dalian is many times larger. The main reason is that in China, government agencies equivalent to the Food Corp. of India or National Agricultural Cooperative Marketing Federation of India Ltd. actively trade on the futures exchange. In India, they do not.

 

If Indian government agencies start trading on futures exchanges, market depth would increase significantly, and price-setting power would improve. In oilseeds and pulses, this is more challenging because India remains an importing country and global markets are volatile.

 

Pepper could be an exception. If we are able to revive that contract, it could demonstrate how India can influence global pricing.

 

Q. What differentiates NCDEX from other exchanges?

A. Other exchanges also trade non-farm commodities, with some specialising in bullion or crude oil. Crude oil contracts are not delivery-based, while bullion contracts depend heavily on refiners and depositories.

 

NCDEX has built a complete ecosystem. We have a repository subsidiary, NeRL. Farmers deposit goods in warehouses, receive electronic negotiable warehouse receipts, and can obtain refinance against those receipts.

 

We also operate a spot market platform, NeML, which entities such as National Agricultural Cooperative Marketing Federation of India Ltd. use. Additionally, we have our own clearing corporation. This integrated ecosystem is unique.

 

In 2017–18, NITI Aayog member Ramesh Chand published a paper on integrating spot and futures markets. If such an integration is permitted, the exchange is uniquely positioned to implement it.

 

We also have a not-for-profit arm, NICR, through which we have trained farmers. About 700 Farmer Producer Organisations are connected to NCDEX, and around 1.2 million farmers have traded on the exchange. This has been recognised by the Skill Ministry, which entrusted us with training FPO leaders.

 

Q. Which commodities have been major volume drivers, and which do you see bringing most volumes going forward?

A. In physical commodities, the guar complex has been the biggest volume driver, as it is widely used in industries.

 

Going forward, weather-related products have strong potential. Weather affects not just farmers but also fast moving consumer goods companies and other sectors. Rainfall patterns influence farm incomes, which in turn affect consumption. Initially, we are looking at rainfall-based products, with the possibility of temperature-based products later.

 

If suspended commodities return, there would be immediate participation. Historically, these commodities see strong activity from the first day because of the need for price signals.

 

Q. Are carbon-linked agri-instruments still on your roadmap?

A. Yes, but the market is still evolving. Carbon markets remain opaque and volatile and are largely buyer-driven. We are in discussions with international players, but it may take another year or two for the picture to become clearer.

 

Q. How do you plan to increase FPO participation?

A. NABARD and Small Farmers' Agri-business Consortium are the primary agencies mandated to support FPOs. We work closely with NABARD but have not yet worked with Small Farmers' Agri-business Consortium.

 

The limited number of commodities prohibits me from going to them in full force, because if we go and speak to people in Uttarakhand and there are no commodities in Uttarakhand which are traded on exchange, there's no point for me to go and train people in Uttarakhand for the simple reason that even if we train them, and even if they want to trade, there are no commodities in Uttarakhand, which can be traded on exchange. As more commodities return, we plan to expand engagement.

Q. Are there bottlenecks in warehousing and quality certification?

A. There are operational challenges, but none that are insurmountable. Systems have improved over time and continue to do so.

Q. Is NCDEX using Artificial Intelligence or Machine Learning to improve operations in any way?

A. We are running a pilot project with five engineering students focusing on Artificial Intelligence and Machine Learning applications such as surveillance and remote sensing. The project is expected to conclude by March, after which we will assess its effectiveness.  End

 

Edited by Vandana Hingorani

 

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