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Taking stock of Jignesh Shah
Arati Menon-Carroll
Business Standard Oct. 8, 2005
The meeting with Jignesh Shah, managing director, Multi Commodity Exchange of India
(MCX), is scheduled for 4 pm, 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 hyper-activity 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 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 project to automate the exchange.
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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 5 lakh, 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 RBI,
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.
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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 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”.
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 top-line, paid Rs 4.5 crore in
tax and registered a Rs 11.5 crore 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
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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 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, 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”.
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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. Navratri is here and Shah is
gearing up to celebrate 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
Former BSE president
Rathi,
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
Consulting economist and government appointed director on MCX
Pavaskar,
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
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transparency, team building and innovation
Girish
Vice president-trading, MCX
Raipuria,
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
Executive director and chief technology architect, FTIL
Neralla,
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