The Securities and Exchange Board of India (Sebi) will decide on the renewal of MCX-SX’s currency exchange licence on the basis of the outcome of the court case for allowing it to run an equity exchange. The licence is due for renewal on September 15.
MCX-SX had approached the Bombay high court to challenge a Sebi order that rejected its application for permission to launch equity operations. The next hearing of the case is on Friday. The court had adjourned the case on August 26 after hearing both sides. A senior Sebi official told Business Standard renewal of the MCX-SX’s currency exchange licence would depend on the outcome of the equity operations case.
“If they are not considered fit for dealing in equity, then how will they be fit for handling currency?” said the official.
He said if the outcome was in the shape of a process through which the issues raised by Sebi for permitting equity operations could be resolved, then the currency exchange licence renewal would happen in the normal course.
| LEADING THE WAY IN CURRENCY TRADING Currency futures turnover (Rs crore); aggregate for each month this year | |||
| Month | MCX | NSE | USE |
| January | 341,912.61 | 252,771.76 | 43,296.94 |
| February | 282,742.21 | 218,198.06 | 60,533.10 |
| March | 403,898.50 | 295,087.64 | 86,841.50 |
| April | 270,380.47 | 251,159.12 | 94,131.75 |
| May | 357,484.45 | 329,794.88 | 292,387.27 |
| June | 367,456.20 | 329,779.97 | 212,780.40 |
| July | 408,313.78 | 389,733.92 | 258,932.03 |
| August | 450,761.08 | 406,979.81 | 311,943.96 |
| September* | 40,494.35 | 26,234.41 | 27,577.38 |
| * Till Sept 6 Compiled by BS Research Bureau | |||
“The result of the case will have a direct bearing on the regulator’s decision on the currency exchange operations of MCX-SX,” he said.
An MCX-SX spokesman declined to comment on the possible implications and said, "The high court has heard our position and that of Sebi’s regarding your query, amongst other issues related to the MCX-SX versus Sebi case. The hearing is at a final stage and is listed for tomorrow. Providing any view in this matter at this juncture would be preposterous and may lead to contempt of court and we would not like to comment anything till the court pronounces its order in this matter," he said.
MCX-SX is the number one exchange in the currency derivatives market. The other two players are National Stock Exchange (NSE) and United Stock Exchange (USE). MCX-SX's currency futures turnover in August was Rs 4,50,761.08 crore, followed by NSE’s Rs 4,07,969.81 crore and USE’s Rs 3,11,943.96 crore (see chart).
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MCX-SX started operating in the currency derivatives segment in 2008 and its licence for the segment has already been renewed twice. Sebi had given MCX-SX a year's extension in September last year to offer trading in currency derivatives, even as it awaited the market regulator’s approval to start business in equities.
Sebi, however, decided against giving permission for equity exchange operations to MCX-SX, due to apprehensions over the shareholding pattern. The latter then challenged the September 2010 Sebi order that rejected its application to deal in other segments, including equities.
Sebi had found the exchange short of compliance in its shareholding norms and had taken objection to two key shareholders, Financial Technologies (FTIL) and Multi Commodity Exchange (MCX), holding warrants and their buyback arrangements with some banks. The regulator had objected to FTIL and MCX acting in concert, in violation of Sebi rules.
In a hearing in April, counsel representing FTIL and MCX argued the findings were all related to the promoters, who were never given an opportunity of hearing by Sebi before the exchange’s application was rejected. Sebi, however, maintained the apprehensions raised at the time of rejection of MCX-SX application for dealing in other segments were still valid.