MCX Stock Exchange (MCX-SX), which is in the midst of a legal tussle with the Securities and Exchange Board of India (Sebi), said it was surprised with the “jet speed” at which the regulator has sought information from it about the buyback agreements, when it has been patiently waiting to hear response to its several letters.
On July 21, J N Gupta, executive director of Sebi, wrote a letter to MCX Stock Exchange (MCX-SX) stating that the regulator has observed from a news article in Mail Today that the promoters of MCX-SX have entered into buy-back arrangement with banks who are shareholders of the exchange. In the letter, Sebi asked MCX-SX to confirm whether any such agreement/arrangement has been made and if so to furnish a copy of the same to the regulator expeditiously.
In his reply to the Sebi letter on August 2, Joseph Massey, managing director and CEO of MCX-SX, said, “We are a little surprised with your action on the aforesaid news article, and the jet speed in which you are now seeking information, when we have been patiently waiting to hear response to our several letter/reminders for months now, despite complying with the MIMPS regulations.”
MIMPS stands for Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges regulations. According to these norms, entities like stock exchange, depository, clearing corporation, banking company and public financial institution can have maximum 15 per cent stake in a stock exchange. Any other entity, be it Indian or foreign, is allowed to own a maximum 5 per cent stake in a stock exchange. Foreign entities can have maximum 49 per cent stake in a stock exchange, 26 per cent through foreign direct investment (FDI) and 23 per cent for foreign institutional investors (FIIs).With this letter, Massey also attached a table showing how various steps taken by Sebi have been beneficial to NSE and against MCX-SX.
According to details given in this table, MCX-SX was given only one year to comply with shareholding restrictions, while NSE got more than three years to achieve the compliance. MCX-SX also alleged that Sebi’s amendment to MIMPS regulations on December 23, 2008, which increased shareholding limit from 5 per cent to 15 per cent for five categories of investors was “tailor made to benefit NSE and OTC Exchange of India”.
MCX-SX said that when it could not comply with the MIMPS regulations during the first year of its recognition, it was punished by addition of a stricter condition that it could not introduce any new product/segment until it complied with the regulation. However, despite NSE being non-compliant with MIMPs regulations until the end of 2009, it was not only carrying on all existing segments, but was also permitted to introduce a corporate bond platform, currency derivatives segment and interest rate futures.
According to the MCX-SX letter, Sebi allowed co-location services to NSE even before the formation of the technical advisory committee and without the subject being debated in public. “This move has greatly benefited NSE by enabling it to cater to its constituency of high net worth brokers and foreign banks,” MCX-SX said in its reply to Sebi’s letter.
MCX-SX said Sebi has permitted NSE and the Bombay Stock Exchange (BSE) to have tie-ups with the regional stock exchanges (RSEs) by way of allowing their members to trade directly in stocks listed on NSE or BSE. However, at the same time, it had rejected the applications of several other RSEs which had sought Sebi permission for this type of arrangement and for eventual merger with MCX-SX.
Because of Sebi’s prolonged delay in rendering other segments, FTSE, which signed a tie-up with it, finally decided to partner with NSE, MCX-SX said.
MCX-SX also complained that despite the blatant predatory pricing by NSE in the currency derivatives segment for an extended period of time and cross-subsilizing it from the monopoly profit made in the equity and F&O segments, Sebi had taken a stand that the appropriate forum should be approached.
