MCX-SX recognition renewed for a year, with strict caveats

The Securities and Exchange Board of India (Sebi) on Wednesday renewed the recognition granted to MCX Stock Exchange (MCX-SX) for another year, but asked it to strengthen its governance structure to continue remaining a recognised bourse.

The recognition was due to expire on September 15.  

In what can be termed as a direct fallout of the National Spot Exchange crisis, the regulator has asked for a committee comprising two public interest directors and three nominees from amongst the institutional investors in the exchange to oversee various functions of the exchange and advise its board, it said in a press release on Wednesday.

These include appointments to key managerial posts, major capital expenditure and facility and infrastructure sharing agreements.

A CONDITIONAL RENEWAL

• MCX-SX recognition extended for another year, but subject to compliance with Sebi directions
• Regulator has asked for separate committee to be formed for oversight of exchange functions
• Move come after NSEL's Rs 5,500-cr payment crisis
• Oversight body to comprise two public interest directors and nominees from institutional investors

The committee would also look at “...all financial transactions related to investment, lending, and borrowing of funds and related party transactions...” Sebi said in a statement.

Institutional shareholders in the exchange include several well-known names in the banking sector include HDFC Bank, Axis Bank and State Bank of India, according to the exchange website.  

A similar committee is to be formed by its clearing subsidiary, MCX-SXCCL, which would also look into clearing and settlement in addition to the other functions.

In order to further secure the management of the exchange and clearing corporation, shareholders of MCX-SX and MCX-SXCCL have been told to examine conflict of interest and compliance with the regulations governing stock exchanges and clearing corporations by the directors and the key management personnel including managing director.

The shareholders have further been asked to “...take appropriate action including reconstitution of board, reappointment of any key management personnel and will report to Sebi within 30 days from the date of renewal of recognition.”

The regulator warned any non-compliance could result in withdrawal of recognition.

MCX-SX is part of the Jignesh Shah-promoted Financial Technologies group, whose commodity segment operations through the National Spot Exchange is currently embroiled in a Rs 5,500-crore payment crisis. Earlier, investors in NSEL had asked the regulator not to renew the exchange’s recognition.

MCX SX is present in the equities and the currency segments. It commenced operations in the currency derivatives segment on October 7, 2008.

It was after a lengthy court battle that the exchange received recognition. The regulator had initially rejected the exchange’s application for recognition on the ground that it did not meet shareholding norms in an appropriate manner.

The legal battle had gone all the way to the Supreme Court before the regulator softened its stand and said it would grant recognition if the exchange meets the shareholding norms within a fixed time frame.