For MCX, tech transition to TCS was akin to changing plane engine at 30,000 ft

The technology transition that began in 2021, amid pandemic lockdowns, was “unprecedented globally" as something like that had never been done in any other exchange that was up and running, said Reddy, whose five-year term at MCX will rank as the most eventful since the bourse began operations a little over two decades ago.

"What we essentially did was a daredevil act," Reddy told Mint in a rare interview for the outgoing chief executive. 

“The task was formidable in that the new platform involved integration of the trading and clearing and settlement systems, made all the more challenging by the regulatory requirements to safeguard our markets against systemic risk. The markets regulator was very cautious given (that it was) the first time such a migration was happening, but they have been very supportive."

Reddy demits office on 9 May; an internal committee will run MCX until a new CEO is appointed.

A scam and a pandemic

In February 2021, MCX awarded Tata Consultancy Services Ltd a contract to implement the new tech platform, christened Project Udaan, by September 2022. 

TCS pipped the only other shortlisted candidate, the London Stock Exchange Group, a provider of financial infrastructure and data. Other candidates who had tendered expressions of interest to build MCX's new platform included 63 Moons Technologies Ltd and Nasdaq.

63 Moons, which was earlier known as Financial Technologies India Ltd, was the founder of MCX. But it had to divest its 26% stake in the bourse in 2014 following a ₹5,600 crore scam in its subsidiary National Spot Exchange Ltd. The Forward Markets Commission, which was then the regulator for the commodity and futures markets in India, declared that 63 Moons was not fit and proper to hold stake in any stock exchange. (The FMC was merged with the Securities and Exchange Board of India in 2015.) 

63 Moons, however, was also the technology vendor for MCX, which had renegotiated its contract with 63 Moons in 2014 for eight years through September 2022.

The new platform, however, was delayed by a year with heavy cost overruns—a total of ₹472 crore, against a normal cost of ₹60 crore annually, which dragged down MCX's FY24 net profit by 44% to ₹83.1 crore.

Also read: Why MCX is warming up to a wider pool of FPIs

Reddy attributed the delay to "bugs" that had to be removed before the TCS technology core—an integration of Deutsche Borse Group's T7 trading platform and TCS' BaNCS for delivery, settlement and risk management—could substitute 63 Moons' software.

After a series of dry runs eliminated all chinks, the new platform went on stream on 16 October last year. To Reddy's credit, the platform has been stabilised, and MCX reported an aftertax profit of ₹87.9 crore for the January-March period after two quarters of losses.

“Each time the project was delayed, the vendor got an upper hand to extract more from us," said Reddy, recounting the challenges at every postponement in implementing the new technology core. "Probably, it wouldn't have been so stressful had the previous vendor been more cooperative in terms of the monetary compensation they were asking for; every extension was huge. We had no alternative; we couldn't replace the vendor overnight with any other system."

The pandemic lockdowns during the second wave of Covid-19 also posed a daunting challenge, preventing the colocation of the MCX and TCS teams.

“The teams participated through VC (video conferencing), resulting in understanding gaps arising. As if this were not enough, certain members of our teams left, necessitating appointments of equally competent candidates. This also caused delays in the new platform," said Reddy. “The lockdown was a pretty complicated process that we went through."

Only scratched the surface

The successful migration to the new technology platform saw investors re-rating MCX's stock. In afternoon trading on Monday, the company's shares were trading marginally higher by about 1% at ₹4,055 apiece, up by about 215% from the stock's 52-week low of ₹1,285.05.

Asked whether Uday Kotak, whose Kotak Mahindra Bank owns a 15% stake in MCX, was supportive during the challenging period, Reddy said there was "support" from shareholder directors. MCX is owned entirely by public shareholders, with Kotak Mahindra Bank being the single-largest shareholder.

“All the time they were helping... they understood the problems we were facing and said, 'Don't worry, go ahead and you will succeed'."

Investors in the company were also supportive, he said.

Reddy recalled a one-on-one call with an executive of a foreign portfolio investor in MCX. According to Reddy, the FPI executive said, “We are not looking at what you're paying to them (63 Moons); we are looking at the future of (the technology). We are standing behind you rock-solid."

Reddy denied any proposal about a potential merger with BSE during the troubled phase or at present.

“The technology issue and Covid bogged us down for two-to-three years, which has restricted development of this market. Going forward, there is only upward trajectory for MCX," said Reddy, who will hang up his boots after 38 years of being associated with the capital markets, including with the Central Depository Services (India) Ltd and BSE. “There is huge potential in commodity derivatives and we have only scratched the surface."