MCX-SX plea may expedite Sebi decision: Experts

Ashish Rukhaiyar
Mumbai, July 22, 2010

The move by MCX-SX, the proposed new stock exchange, to approach the high court on its application to trade in equity and other instruments should get the Securities and Exchange Board of India (Sebi) to move, say legal experts.

MCX-SX has asked the high court here why its application with Sebi has been kept pending. It is, thus, presently able to offer trading facility only in currency futures.

"The court, in its writ powers, usually will not direct Sebi to approve the application but can certainly direct it to expedite its decision," says Sandeep Parekh, Founder, FinSec Law Advisors, also a former executive director (legal), at Sebi. "The court will only look at whether the decision (or the lack of it) was based on bias, perversity or non-application of mind, rather than judging the case on its merits. Writs only go into the legality of the process.”
Adding: “After taking Sebi's perspective, the court can ask it to come back with a status report in, say, three months. If at that stage the courts find any bias or non-application of mind, it can set aside the Sebi order and direct it to decide based on its directions."

The MCX-SX petition says Sebi should either reject or approve its proposal to do trading in equities, equity derivatives, interest rate derivatives, mutual funds and the debt market, among other instruments. It complains that the regulator got no response for three months after it obeyed a direction to reduce the promoters' stake.

MCX-SX's decision is also because the validity of Sebi’s existing approval for what it is allowed to offer, currency futures, is also due for renewal on September 15. The renewal is linked to the issue of promoter stake being brought down in accordance with the Sebi guidelines. Sebi has yet to tell MCX-SX if the reduction in stake is satisfactory to it or not.

The problem is that while the two promoter entities, Multi Commodity Exchange of India (MCX) and Financial Technologies (India) Ltd, have brought down their stake to five per cent each, they continue to hold warrants amounting to 60 per cent of the exchange ownership.

Lawyers say the petition could also serve as a pressure tactic. "The court will direct Sebi to respond within a period of, say, two or three weeks. This would put pressure on Sebi," said a lawyer.