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The potential buyer of Financial Technologies‘s (FTIL’s) 26% stake in the Multi commodity Exchange (MCX) is likely to attain control of the group’s fledgling stock exchange venture MCX Stock Exchange (MCX-SX) also, according to legal experts.
At present, the Jignesh Shah-led group controls the MCX-SX through shares and warrants held by FTIL and MCX. MCX at present holds five% voting rights and about 617 million in convertible warrants in MCX SX. These warrants are convertible into shares at par. FTIL also holds five percent and held over 562 million convertible warrants. As a condition for approval of the exchange in July last year, Sebi had given an 18 month deadline for divestment of the warrants. While the NSEL crisis has already thrown spanner in the warrant divestment plans, if any, the group’s continued ownership of the stock exchange, which it won after many a legal battle is itself under threat, say experts.
“If status quo is maintained on warrants, anybody who buys (FT stake in MCX) will be the new promoter of the stock exchange. Then Sebi (Securities and exchange board of India) will see whether this entity is fit and proper or not,” a former Sebi official said.
This scenario will play out if the commodities regulator Forward Markets Commission (FMC) goes ahead with its move of declaring promoters (FTIL) of the scam-hit National Spot Exchange (NSEL) and its directors, including group chairman Jignesh Shah and MCX Stock Exchange chief Joseph Massey, as not “fit and proper” to run exchanges. FMC chairman Ramesh Abhishek has said the regulator is seriously considering such a declaration even as NSEL looked set for another default on Tuesday.
While the process of such a declaration will involve various steps and could be time-consuming, once so declared these entities would have to give up their board positions and ownership positions in other exchanges regulated by the FMC, according to the regulations.
MCX, being a commodity derivates exchange under FMC, would then have to ensure that it gets a new “fit and proper” promoter. This means FTIL will be forced to divest its 26% holding in MCX. Concerned financial investors in MCX, including Blackstone, HDFC Bank
Such a declaration by FMC will also force Sebi to reconsider the qualifications of FTIL as a promoter of a stock exchange.
People who have been watching the space also point out that the Union government also has considerable clout in the stock exchange. A clutch of public sector institutions and banks led by IFCI, Union Bank of India, Punjab National Bank, Indian Bank and Indian Overseas Bank hold over 80% stake.
