Sebi may clear MCX-SX stance this week

Ashish Rukhaiyar
Mumbai, September 21, 2010

The Securities and Exchange Board of India (Sebi) is expected to come out this week with its decision on the application of MCX Stock Exchange (MCX-SX) for launching a full-fledged equity bourse. The High Court here had set a deadline of September 30 for the regulator to decide on the matter.

According to a source, Sebi whole-time member K M Abraham had a number of meetings with MCX-SX officials in the past couple of weeks and is now set to decide. The meetings were held to allow the exchange to reply to the concerns raised by Sebi.

It is believed the exchange was also questioned about the 10 per cent collective holding of Financial Technologies (India) Ltd (FTIL) and Multi Commodity Exchange (MCX). The regulations clearly specify that persons acting in concert should not hold more than five per cent.
"Apart from the warrant and buy-back issue, the exchange officials were asked about the collective holding of FTIL and MCX. Prima facie it appears that both the entities are persons acting in concert," said a person on condition of anonymity.

FTIL owns 30 per cent in MCX, which is also the world's largest exchange for silver trading in terms of the number of futures contracts traded in 2009. Incidentally, Jignesh Shah is the chairman of FTIL and also vice-chairman of MCX.

The respective boards of FTIL and MCX have, however, already passed resolutions that the entities "would at no point of time of violate the MIMPS guidelines of shareholding structures and limit".

Said MCX-SX in an emailed response: "As per the High Court directive of August 10 regarding MCX-SX permission from Sebi to start trading in equities and other segments, MCX-SX has complied with all necessary directives and informed Sebi accordingly."

Meanwhile, Reserve Bank of India Deputy Governor Shyamala Gopinath, while inaugurating the United Stock Exchange (USE), said: “A diversified ownership is very necessary in a market infrastructure company. Ultimately, exchanges are public utilities... (It) is a means of good governance” Endorsing her views, Sebi chairman C B Bhave said: “I am happy that USE is coming with a diversified ownership. We need to see they serve the supposed purpose.”

Legal experts say the highly publicised matter could also move to the Securities Appellate Tribunal (SAT) if MCX-SX wants to challenge the Sebi order, even as the high court would remain an option.

"It's a subtle difference:- both would be open to MCX," says Sandeep Parekh, founder of Finsec Law Advisors and a former executive director (legal) at Sebi. "They could go to the HC, particularly since they have already filed a writ, asking Sebi to take a decision. But the nature of powers of the HC are more limited. It can only look at illegality, bias, etc. In contrast, they can go as a matter of right to SAT, which will not only look at the legality of the order but also the detailed merits of the order and accept, reject or modify the Sebi order," explains Parekh.