Special

The amazing story of Jignesh Shah and MCX

Arati Menon-Carroll | October 13, 2005

T he meeting with Jignesh Shah, managing director, Multi Commodity Exchange of India, is scheduled for 4 p.m., and begins at five past. The man is not just prompt, he makes spending 90 minutes with a journalist seem like no effort at all. (He is extremely media friendly and projects an impeccable corporate image.)

This, despite him telling me later that he works a 15-hour day, and I suspect they are often longer. There's enough hyperactivity in the commodity markets to justify it.

Trading volumes in commodity futures surpassed capital market futures in August for the first time in the history of domestic derivatives, and average daily trading volumes have crossed the Rs 10,000 crore (Rs 100 billion) mark. MCX is in the thick of it.

Indications of the nature of the business are up for all to see. The walls of the swanky front office are covered in photographs of commodities like sunflower, rice, sugar and -- as he emphatically points out -- gold. Bullion is its blue-eyed commodity and, along with energy, forms the largest chunk (70-80 per cent) of its trade volumes.

"Let me tell you," he starts off, "when Financial Technologies (FTIL, the financial product company that promotes MCX) applied for a commodity exchange licence in 2002, we were up against biggies like the Bombay Stock Exchange.

The media decided I, neither a trader nor a banker, was least likely to get government approval; besides what did a technology company have to offer? Not only did we get the in-principle approval, we went live in a record nine months on November 10, 2003. That was my first show of might."

Jignesh Shah was always a go-getter, even when he was just eight. "My mind was made up when I was in second grade. I knew I wanted to do engineering, go abroad, set up my own business," he explains. Incidentally, Shah also met his wife when he was in the second grade. Prodigious times in the life of an eight-year-old.

So engineering it was, although the conventional options of mechanical and electrical engineering gave way to electronic and telecommunications. Shah says, "Normally, the route would have been either the United States for MS or to join a branded technology company like TCS."

But Shah, as is evident, was not one for taking the road well travelled. "I chose, instead, to join the BSE on Project BOLT (Bombay Online Trading System), an ambitious Rs 100 crore (Rs 1 billion) project to automate the exchange.

However, the project was transferred mid-process to CMC (an IT solutions company), but not before Shah, and his eventual partner and executive director at FTIL, Dewang Neralla, had a chance to witness how technology has revolutionised capital markets from stints at the Hong Kong and Tokyo stock exchanges, and NASDAQ.

"The technology we had developed for BSE lay with us, unutilised, so the obvious move was to put it to good use elsewhere," explains Shah. Again he saw beyond the immediate horizon, and turned down an offer to work on the Merrill Lynch New York Foreign Exchange trading platform.

In 1995, with Shah as the dreamer and Neralla as the architect, they set about starting a financial product company that would not just restrict itself to trading systems for equity, but create products that "would attack all high transaction density markets, whether commodity, equity, currency or bond."

"Until then, technology in India was predominantly a skilled manpower supply story but we were going to create products that were a means to an end, not an end in itself. Our sights were set on transaction markets," explains Shah.

From a starting capital of Rs 500,000, self-funded by Shah mortgaging his home, FTIL grew from five work terminals to a 5,000 strong workforce and covered 80 per cent of the domestic base, powering practically every major Indian Internet site during the Internet boom.

It is hard to ignore the fact that Shah is very proud of his management team. He names them in rapid succession, rattling off their credentials; he knows it like the back of his hand. (In fact, names, numbers, dates are all at the tip of his tongue -- the man's memory almost seems technology driven itself).

When asked what luxury he can afford today that he couldn't 10 years ago, luxury watches and prized art find no mention.

Instead, he replies, "I always had dreams of hiring the best, and being able to afford pay scales that outmatched all others. Today I can afford to not compromise on salaries when it comes to hiring and retaining the best."

Back to 2002, and not one to be content with one success story, FTIL was making its next big move. It decided that currency markets were the place to be, so it applied to the Reserve Bank of India, demonstrated its capabilities and got the licence for an inter bank foreign exchange trading platform, IBS-Forex.

Today, Financial Technologies controls 30 per cent of the market. "Of course, the currency market is at a nascent stage; when it opens up, there will be huge opportunities for us to convert," he says, with a glint in his eye.

It was around the same time, in 2002, that after a 33-year long hiatus, commodity trading was finally back in sight. "Starting up a commodities exchange was a cherished dream," says Shah.

That is not surprising; before retiring to spiritualism, his father was a conventional iron and steel trader in the '50s and '60s. "We were the only listed company promoted exchange at the time. My aim was clear -- to make India the finest commodity trading hub between Tokyo and New York."

"We were reinforced in our faith when SBI took strategic equity partnership with an 18 per cent equity stake along with seven subsidiary banks, which led the way for other nationalised banks like HDFC and NABARD." Shah is particularly proud that Reliance took preferential equity; he is seemingly a great fan of Mukesh Ambani's acumen and perspicacity.

"We have a global appetite for global commodities", he says, "Today, MCX is the second largest exchange in silver in the world, the third largest in gold and the only one to trade Rs 1,000 crore (Rs 10 billion) of crude a day. We have consciously chosen our basket of commodities, commodities that had enough depth for us to dig our heels into, and allowed trading to the daily volumes of Rs 50,000 crore (Rs 500 billion)".

Now's the time to talk competition; currently MCX is second to NCDEX (National Commodity and Derivatives Exchange) in trade volumes.

Shah appears somewhere between being a little defensive and a little unruffled, stating, "We made profits in the first year, declared a 10 per cent dividend, had a Rs 30 crore (Rs 300 million) top-line, paid Rs 4.5 crore (Rs 45 million) in tax and registered a Rs 11.5 crore (Rs 115 million) net profit. Our 2004-05 balance sheets couldn't look stronger; our financial ratios are comparable to the National Stock Exchange and the Chicago Mercantile Exchange."

"Look, there are 140 agri-commodities and 1,400 industrial commodities; there is enough space for more than one exchange," he continues. Shah dismisses benchmarking success against daily volumes as hyperbole; he talks innovation.

"Every step we have taken has been copied by a competitor in 3-6 months. There should be a regulated cooling period, which protects someone investing in innovation. Otherwise there is no incentive to be innovative because the second player always has the advantage," he adds with a touch of bitterness.

Shah rattles off a list of "firsts" that MCX has achieved; he is keen to promote his laurels but not one to rest easy on them. Last November, MCX announced a strategic collaboration with the London Baltic exchange to launch freight futures contracts.

In September, MCX and the Chicago Climate Exchange signed a licensing agreement to offer the first environmental products to be traded in the subcontinent. Next month, trading will begin at DGCX (Dubai Gold and Commodities Exchange) in a joint venture between the Dubai government and MCX, with MCX becoming the first commodities exchange to co-own a foreign exchange.

MCX also has to its credit the setting up of the first national spot exchange, NSEAP, which interlinks all-India APMC (agriculture produce market committee) markets electronically. The network established by NSEAP and MCX will be used by producers for spot trading in commodities.

Shah says, "Finally the farmer will benefit. I am not an economist but I understand this much that if I am able to double farmers' incomes, not only will the quality of their lives improve, money will come back into the economy."

In a few months time, there could be a large swell of capital in MCX's favour. In September it announced its decision to float an initial public offer, to raise approximately Rs 330 crore (Rs 3.3 billion) to fund infrastructure expansion, making it only the third commodities exchange in the world to do so.

It's ironic that a man who is so bullish when it comes to his work turns reticent when the topic turns to his personal life. It is clear he is a family man, but it is unclear how much they get to see of him. "For 10 years I didn't take a holiday. When FTIL turned 10 this year, I took my family to Switzerland," he says.

At other times they have to be content with short weekend breaks at their family home in Khandala. Does he have the time for trivial personal pursuits? "I love Hindi movies," laughs Shah.

He does own a Mercedes Benz because he believes it projects the right image for the company, adding, "I am very particular about the clothes my senior management wear out of the office; I have insisted they all get suits stitched with the finest fabric from Gabbana (not to be confused with Dolce & Gabbana, this one is the uncontested premier aspirational clothing store for Mumbai's business community).

Jignesh Shah is a curious mix of genuine prudence and Gatsby-esque aspiration. For a man whose personal fortune is in the region of Rs 2,000 crore (Rs 20 billion), some might find it surprising that he lives in the same flat he bought on an HDFC home loan 20 years ago in the middle class Mumbai suburb of Kandivili. His idea of a treat is still the Gujarati thali at the very affordable Chetna restaurant.

"We're a company that believes in optimal utilisation of resources. We work towards the greatest good of our shareholders so we operate with high financial prudence." That's him as a socialist, but the capitalist is never too far: "But the world likes to see capitalism, so a king must behave like a king."

And his image will continue to have to grow in stature to match the potential escalation of FTIL's achievements. Says Shah, "We are getting into mobile-based digital transactions for micro credit; it is a trillion dollar market. It will capture all low-end transactions, mobilising small money at a quarter of the cost. When media turns completely digital, we will be there too. I have a library with 5,000 books on various complex market opportunities that FTIL can get into when the time is right. We will create billion dollar stories out of million dollar ones. We are players in a high-speed, high-stakes game, we can't stop now."

For a man whose biggest luxury is spending time with his 12-year-old daughter, time is scarce enough without imposing on it, so I took my cue to leave but not before he quotes from, what else, a Hindi movie, Tezaab. "The hero's friend asks him, Tumhe itna time kaise hota hain? to which he replies, Time hota nahin hai, nikalna padta hain. The only difference is that he was talking about having time for his girlfriends," he laughs.

For the next nine days Shah will have to somehow find the time… to pick up the pace and dance to the tune of not the markets but the garba beat. With Navratri here, Shah is celebrating it, as he does every year. In style.

Shah on Shah

My mind was made up when I was in second grade. I knew I wanted to do engineering, go abroad, set up my own business

I always had dreams of hiring the best. Today I can afford to not compromise on salaries when it comes to hiring and retaining the best

Every step we have taken has been copied by a competitor in 3-6 months

Of course, the currency market is at a nascent stage; when it opens up, there will be huge opportunities for us to convert

The world likes to see capitalism, so a king must behave like a king

Voices

He is a great strategist and driven by results. MCX is going to take commodity futures a long way with its path-breaking work. I have known him since 1995, and he is someone who really believes in nurturing long-lasting relationships.

Anand Rathi, former BSE president

I have known Jignesh since 1998, when he first sought my advice on starting a commodities exchange. In 2003, when his application was approved, I was invited on board as an advising economist. I made several suggestions that they paid heed to, like starting off big with gold bullion; no other exchange was trading in it at the time. I also laid stressed building strategic partnerships with single commodity exchanges, which again they did. I did advise them to go slow, but Jignesh believes in exponential growth. He dreams, thinks, speaks and does BIG.

Dr Madhoo Pavaskar, consulting economist and government appointed director on MCX

Working at National Stock Exchange for over eight years, I'd been hearing of Jignesh Shah and his success with FTIL. He was the emerging entrepreneur everybody in the capital markets was talking about. I had decided by 2003 that he was the leader I wanted to grow with. Having worked under him for two and a half years, I truly believe he will not only emerge a national leader, but a globally benchmarked leader. He really sets the precedence in the organisation for transparency, team building and innovation.

Girish Raipuria, vice president-trading, MCX

We started working together on project BOLT. He was the visionary who thought 10 years ahead of time. His tremendous qualities are his ability to be customer and quality focussed, down to the last detail. He can make anything a commercial success because he drives growth with a missionary zeal.

Dewang Neralla, executive director and chief technology architect, FTIL