Last week, MCX Stock Exchange (MCX-SX) said it had secured conditional approval from the Securities and Exchange Board of India (Sebi) to trade in new asset classes. While the company issued a statement listing a few 'main conditions', so far, the regulator has not issued any official statement.
In the absence of any official word from Sebi, the market is rife with several interpretations of the decision. At least one newspaper report said the exchange would start trading only by 2014 (https://bsmedia.business-standard.combit.ly/MiNQsY), while others said it may start equity operations in the next few months. The exchange is, however, silent about the timeline of launching equity products. MCX-SX's press release also mentions “submissions and undertakings” given to Sebi by the exchange’s promoters. The usage of the term 'main conditions' also suggests there might have been other conditions in Sebi's approval that were not considered significant by the bourse's release writers, the Street feels.
While this column does not seek to speculate one way or the other, it is in the interest of the exchange, its promoters---MCX and Financial Technologies (both listed entities) --- and their minority investors that there is no room for further speculation. Potential buyers of the excess promoter holdings in shares and warrants would also be happy with clarity. In addition to their combined equity stake of 10 per cent, MCX and Financial Technologies also hold share warrants equivalent to about 60 per cent stake in MCX-SX. According to the MCX-SX release, Sebi wants the excess equity of five per cent to be divested in the next 18 months, and the warrants in the next three years.
Investors have already suffered from selective disclosures and legal battles. For an investor who has not tracked the legal proceedings in the Bombay High Court, and later in the Supreme Court, the last communication from Sebi is the order passed in September 2010. He has no means of knowing what happened during September 2010-July 2012, a period during which the exchange saw varied times---from being charged with several irregularities to becoming one compliant with the norms.
Another grey area is the consequence of non-compliance with the Stock Exchange and Clearing Corporation Regulations. Selling of stakes is not a unilateral process---it needs a seller and a buyer who agree on the price and volume. Such an agreement is also dependent on other factors such as the macro-economic environment, business prospects, the liquidity available with potential buyers, etc.
With several variables affecting this decision, would Sebi consider a request for extending a deadline on 'fair grounds'? Voices are already being heard that a stake of five per cent is not incentive enough for promoters to build and scale up a capital-intensive venture such as a stock exchange. Would Sebi be sympathetic and open to a dynamic goalpost that would keep adjusting to the macro conditions and micro issues of regulated entities? The God, as well as the devil, resides in these fine details. It is, therefore, in the interest of all stakeholders that the regulator spells out the official version of its decision on the undertakings, conditions and consequences and put these in the public domain. This might be an unprecedented step, but the facts and circumstances surrounding the emergence of our nation’s youngest stock exchange, too, do not have any remote precedent.