The business of commodities exchange is set to get hotter. The Mumbai-based Kotak Mahindra

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Bank is close to finalising plans

to relaunch the Ahme-

dabad Commodity Exch­ange (ACE) as a multi-commodity, national exchange, after it acquired a 51 per cent stake in the exchange.

ACE is a leading exchange in castor seeds futures trading.

ACE has drawn up a business plan that will see it expand its ambit of traded commodities beyond a single commodity focus to multiple commodities even as it prepares to go electronic and national at the same time, by mid-2010.

ACE will be the fifth national level commodity exchange vying for business from speculators, traders and actual commodity us-ers. There are three national-level commodity excha­nges, MCX, NCDEX and NMCE, and 19 regional ones.

“We have a group of 100 officials drawn from different teams who are at present working on the business plan. We will first convert the platform from an open outcry system of trading to a transparent screen based electronic trading system and then take the exchange national,” said a top official familiar with the revitalisation process of the exchange.

The move to add more commodities once the exchange gets an electronic platform is intended to broaden its appeal to potential traders and members.

In May this year, ACE announced that the Forward Markets Commission has accorded in-principle approval to the 53-year-old exchange to convert itself into a nationwide multi-commodity exchange.

The exchange then roped in Kotak Mahindra Bank as an anchor investor after the latter managed to secure regulatory approval for the investment from the Reserve Bank of India.

The Mumbai based bank managed to get the central bank’s approval in August this year, to pick up a 51 per cent stake in the exchange at Rs 321 per share. Its member brokers hold the remaining 49 per cent stake in the exchange, which has an average daily trading volume of about 5,000 tonnes of castor seed futures.

However, the bank will not be able to trade on the exchange through itself or its subsidiaries whether on its own account or for its clients.

This is why Kotak Commodities — the commodities broking operation of the Kotak group, is run under the supervision of Kotak and Company, owned by Suresh Kotak, a well-known cotton commodities expert and father of Uday Kotak, the promoter of Kotak Mahindra Bank, said an official familiar with the developments.

The bank is an anchor investor in the exchange, helping raise the latters’ net worth to Rs 100 crore. As per FMC guidelines, it has to bring down its stake to 26 per cent or below by the end of the fifth year from the date of recognition.

“We have granted special permission to Kotak Mahindra Bank to hold 51 per cent in ACE for a one year period to enable them to complete the process of de-mutualisation of this regional exchange by exercising control, thanks to the majority stake,” said chairman at Forward Markets Commission (FMC), the regulator of commodities exchanges, BC Khatua.

At the end of one year, Kotak Mahindra Bank will have to reduce its stake to 40 per cent.

ACE will be the first regional exchange in India to be corporatised and de-mutualised as a national exchange after a takeover. At present, it has permission to trade in futures of castor seeds, cottonseeds, cottonseed oil and cake.