The MCX Stock Exchange’s (MCX-SX’s) long wait for launching an equity platform and other non-equity segments is set to get longer.
According to two persons familiar with the development, the Securities and Exchange Board of India (Sebi) is not comfortable with the manner in which MCX-SX has complied with public shareholding norms, with two promoter entities holding warrants accounting for 60 per cent of the ownership. It has been three months since MCX-SX completed the disinvestment process.
The persons said the regulator’s apprehensions stemmed from the fact that any approval to the shareholding structure in the current form could send a wrong signal and set an unfair precedent. The regulator is also waiting for the report of the Bimal Jalan committee formed to look into various issues, including ownership of stock exchanges, before giving its verdict.
Warrants a block
“Sebi is of the view that the exchange has followed the law in letter but not in spirit,” said a person familiar with the development who did not wish to be named. “Warrants held by the two promoter entities is the core issue. It is central to the actual ownership of the exchange. If that is resolved, there shouldn’t be any roadblock.”
In April this year, MCX-SX announced that, as required by the market regulator, it had completed its compliance with MIMPS Regulations through divestment and a scheme of reduction of capital. MIMPS Regulations refer to Sebi’s Manner of Increasing and Maintaining Public Shareholding in Recognised Exchanges Regulations, 2006. While the scheme of reduction of capital brought down the stake held by each of the two promoter entities — the Multi Commodity Exchange of India (MCX) and Financial Technologies (India) Ltd — to five per cent, both continued to hold warrants amounting to 60 per cent of the ownership. Warrants, incidentally, are not included while calculating the equity ownership, according to Sebi regulations.
A spokesperson for MCX-SX said: “We would not like to comment on this matter”. According to a statement by MCX-SX in April, the scheme of reduction of capital was “as per the provisions of the Companies Act, unanimously approved by the board, all shareholders in the EGM, which was also duly approved by the Mumbai High Court.”
Wait for Jalan
According to another person familiar with the development, the regulator is playing safe as the Jalan committee report is expected soon and will cover issues related to ownership of stock exchanges, among other things.
“Such an exercise (of capital reduction) has not been done earlier by any major exchange and hence poses a unique question for the regulator,” said this person. “Sebi would not like to jump the gun and would wait for the Jalan report before taking a final call.” An email to Sebi remained unanswered till the time of going to press.
The regulator’s stamp approval is critical to the exchange, as it cannot introduce any new segment before the final go-ahead from Sebi. At present, MCX-SX offers only trading in currency futures and has already applied for launching a separate segment for small and medium enterprises. Apart from the equity segment, it wants to launch trading in interest rate futures too.
MCX-SX was recognised by Sebi in September 2008 and commenced operations from October 2008. Unlike the Bombay Stock Exchange, the National Stock Exchange and some regional stock exchanges, MCX-SX does not enjoy permanent recognition from Sebi. It has to be renewed every year, pending regulatory approval for the divestment process.
