High Court asks Sebi to decide on MCX-SX plea by Sept 30

The Bombay High Court on Tuesday gave the Securities and Exchange Board of India (Sebi) time until September 30 to arrive at a final decision on the application of MCX Stock Exchange (MCX-SX) for launching new segments, including equity.

The court was hearing a petition by MCX-SX against delay in granting permission to the exchange to operate as a full-fledged stock exchange. Currently, only currency futures are traded on MCX-SX and it is seeking permission for launching equity, derivatives, interest rate futures, a separate platform for small and medium enterprises and all those areas where its rivals, Bombay Stock Exchange and the National Stock Exchange, are operating.

The petition stated that despite complying with Sebi norms, the permission to MCX-SX for operating in other segments has been delayed for months, due to which it was incurring a loss of Rs 15 lakh daily. Also, that Sebi hadn’t even told it where the matter stood.

When Chief Justice Mohit Shah asked the same question, Sebi said it was looking into the issue of the promoters having entered into buyback arrangements with some of their shareholders.

“MCX-SX has entered into a buyback agreement with certain banks, which Sebi is inquiring into. If there are serious issues, we will look into it,” said Additional Solicitor General Darius Khambatta, who was appearing for Sebi.

He said the buyback arrangement was brought to the regulator’s notice only through media reports and the exchange had “suppressed” the information. “The petitioner (MCX-SX) should have told us about this,” argued Khambatta. He clarified that the regulator had already written letters to all the shareholders and most of them had replied. “Responses of three-four banks are awaited. We may ask for further information, depending on their responses,” he said.

THE CASE

MCX-SX reduces its share capital to comply with Sebi norms on shareholding of exchanges; applies to Sebi in April for launching equity, derivatives, interest rate futures & SME segments. With no response from Sebi, MCX-SX files petition in Bombay High Court in July.

THE VERDICT

# Sebi to give final decision on MCX-SX application by September 30

# Sebi to decide on renewal of licence of MCX-SX (expiring on September 15) within four weeks

# FTIL and MCX to pass board resolution that they will comply with MIMPS norms at all times within 10 days

# Sebi to ask banks/ institutions to reply to its letter within 10 days regarding buyback agreement with promoters of MCX-SX

There had been media reports suggesting the promoters of MCX-SX had entered into buyback arrangements with some public sector banks, offering to buy shares at a specified premium on a later date.

Khambatta also said Sebi needed to examine if MCX-SX was fit for launching trading in various other segments. MCX-SX’s current licence to operate in the currency futures segment also expires on September 15, which Sebi said would be renewed in a month.

The counsel of MCX-SX told the court the promoters had no intention of increasing their stake in a manner that breached the Sebi (Manner of Increasing and Maintaining Public Shareholding in Recognised Exchanges) Regulations, 2006. After which, the bench directed the two promoter entities — Financial Technologies (India) Ltd and Multi Commodity Exchange of India — to pass suitable board resolutions within 10 days that they would not go beyond the limits prescribed under these regulations.