MCX Stock Exchange (MCX-SX) on Tuesday denied all the charges made by the Securities and Exchange Board of India (Sebi) in a September order refusing permission to open new lines of business.
The case came up before a bench of the high court here, comprising judges D Y Chandrachud and Anoop Mohta. The exchange also pleaded that Sebi should spell out clearly what it needs to do to be compliant with the shareholding norms.
Chandrachud asked the Sebi counsel if compliance with the shareholding norms was the only issue. Sebi counsel Darius J Khambatta said it was not and the exchange had been found not to be a fit on several other counts. He, however, agreed to take Sebi's instructions on what the exchange needed to do now to be compliant with the norms.
A M Sundaram, counsel for one of the promoters, contended the exchange was already compliant with MIMPS (Manner of increasing and maintaining public shareholding in stock exchanges) rules at the end of the capital reduction process undertaken in 2010. “It is not the manner of reduction (that is important),” he argued. However, Sebi said this reduction of capital undertaken by the exchange by issue of warrants was not real reduction and amounted to concentration of economic interest.
Sundaram argued the concept of economic interest was imported from outside the legal framework and not recognised by law. He also questioned Sebi's logic of recognising the exchange first and later finding it to not be a “fit and proper”. Khambatta retorted that the fact of the exchange being not fit and proper was on record and would be considered when its application for renewal comes up.
The hearing will continue tomorrow. J J Bhatt, appearing for MCX-SX, and the MCX counsel will make their arguments, after which Sebi’s counsel will present his case.
In November, the exchange had challenged the order passed by the regulator, which had found the exchange short of full compliance with shareholding norms.
One of the main objections raised by Sebi was the manner in which the exchange reduced the equity shareholding of its promoters. And, the fact that the promoters, Financial Technologies (India) Ltd and MCX held substantial economic interest through warrants, though they held only five percent each in equity shares.
“The concentration of economic interest in a recognised stock exchange in the hands of two promoters (MCX and Financial Technologies) is not in the interest of a well-regulated securities market,” went the Sebi order. “The applicant is not fully compliant with MIMPS regulations, as substitution of shares by warrants is an attempt to work around the requirements of the regulation.”
