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Even as the FMC says it doesn’t have direct powers to ask Financial Technologies India Ltd (FTIL) to sell stake in the exchange, it is asking MCX to ensure FTIL pares stake. However, that is easier said than done, as MCX has no powers to ask FTIL, its 26 per cent shareholder, to cut stake.
Sources say the finance ministry is considering a suggestion that under the Act governing commodity futures, it can direct a commodity exchange to make rules that a shareholder declared “not fit” to run an exchange must transfer his shares to an escrow account and auction these.
FTIL has already challenged the FMC order in the high court here, which has neither stayed nor rejected the plea. This comes at a time when FTIL has already initiated the process of divesting stake in MCX and has also informed FMC and MCX about this. So far, it has received 10 offers.
Section 10(1) of the Forward Contracts Regulation Act gives powers to the central government to make rules in this regard, and through these, it can direct MCX to take action.
In December 2013, following the Rs 5,574-crore payment crisis at National Spot Exchange Ltd, a subsidiary of FTIL, FMC had issued an order saying FTIL and three others weren’t ‘fit and proper’ to run an exchange and, therefore, FTIL couldn’t hold more than two per cent stake in the exchange.
However, the onus of ensuring FTIL’s exit was put on MCX. The FMC has argued as FTIL doesn’t directly fall under it, MCX, a regulated entity, should ask its promoter-anchor investor to sell stake. Also, FMC has not approved any of the exchange’s contracts for long. Now, it has warned the exchange “if till April-end, the order asking FTIL to pare stake isn’t executed, the exchange will have to be prepared to face regulatory action”.
While the high court hearing FTIL’s appeal against the FMC order hasn’t stayed it, it has not spelt out its mind either. Therefore, FMC has taken a stand that its order holds. However, to ensure FTIL cuts stake, FMC has started arm-twisting MCX to get the order implemented. When it last asked FTIL to transfer its shares to an escrow account, FTIL objected saying MCX had no powers to so direct it.
The issue came up in an MCX board meet, during which it was decided the articles of association be changed to implement the process by acquiring powers. All non-FTIL shareholders of the exchange have supported this move.
Early last week, some shareholders met separately and discussed ways to support MCX, which is facing regulatory ire for no fault of its. The shareholders have also decided to write to the regulator, saying arm-twisting the exchange for ousting a 26 per cent shareholder is harming the interests of the remaining 74 per cent.
