MSEI, MCX may settle warrant cancellation dispute out of court

MCX's appeal against MSEI for extinguishing its 416 million warrants in the equity bourse is pending before the Bombay HC

Metropolitan Stock Exchange of India (MSEI) and Multi Commodity Exchange (MCX) plan to settle their dispute over warrant cancellation out of court, said people in the know.

MCX’s appeal against MSEI for extinguishing its 416 million warrants in the equity bourse is pending before the high court here. The next hearing is on July 14.

In July 2015, in interim relief for MCX, the high court restrained MSEI from cancelling the warrants and directed it to deposit Rs 41.6 crore as the cost of these. MSEI had deposited Rs 20 crore.

The settlement terms could involve conversion of the warrants into equity, to the extent that MCX’s holding in MSEI increases from the current 3.5 per cent to 15 per cent, said a source.
 

THE STORY SO FAR

• 2010: MCX subscribes to 415.92 mn warrants of MSEI (formerly MCX-SX)
• June 2012: Sebi directs MCX to dilute warrant within three years
• June 19, 2015: MCX deadline to dilute the warrant expired
• June 27, 2015: MSEI had extinguished the warrants after Sebi deadline ends
• July, 2015: Bombay HC granted interim relief to MCX by restraining MSEI from cancelling the warrants

By the rules, a commodity exchange can own up to 15 per cent in a stock exchange.

“The matter is sub judice and there is no concrete development; hence, we will not make any specific comments. However, the focus of the new management would be on business-friendly initiatives which will contribute to the turnaround strategy, and we are confident that a positive and collaborative approach will prove to be a win-win equation in the long run,” said Abhijit Chakraborty, chief financial officer and head of corporate strategy of MSEI, in an e-mail. MCX declined to comment and it could not be ascertained if it was in favour of such a proposal.

During the hearing, MCX had argued that MSEI (the erstwhile MCX Stock Exchange) had unilaterally extinguished the warrants held by it, along with Financial Technologies India (FTIL). The amount paid by MCX and FTIL to subscribe to these was deposited to MSEI’s capital reserve, it argued.

MSEI, on the other hand, claimed that it followed a directive of the Securities and Exchange Board of India (Sebi) in cancelling the remaining warrants. MCX and FTIL were the joint promoters of MSEI, holding up to 70 per cent (including warrants) in the exchange. Sebi had asked the two entities to sell the warrants within three years, to ensure no breach of the shareholding cap doesn’t breach. The deadline set by Sebi had expired on June 19, 2015.