From 2008 and 2009, there has been a government policy describing a cap of 26 percent on anchor investor after five years of operation of the exchange. In the beginning it can be 51 percent, but it has to be brought down to 40 and in five years it has to be brought down to 26 percent.
Anchor investors will not have more than one fourth of the number of shareholder directors in all exchanges, says Ramesh Abhishek, Chairman, FMC. There is a cap of 26 percent on anchor investor after five years of operation of the exchange, he adds.
At least half of the Board of Directors has to be independent directors and that is already there in the policy, he says.
Below is the verbatim transcript of Ramesh Abhishek's interview on CNBC-TV18
Q: If you could confirm that there is a move to cut the representatives of Financial Technologies (FT) on MCX board from four to one?
A: We had issued revised guidelines on September 13 that the proportion of shareholders on the board of directors of the exchanges will be in proportion to their shareholding which is a maximum of 26 percent after five years of operations. So half of the board is independent and out of the shareholder directors, the other half will be institutional investors. Anchor investors will not have more than one fourth of the number of shareholder directors. That applies to all the exchanges.
Q: In that case shouldn’t there be cap on the shareholding itself as well apart from the cap on board members?
A: Already there has been a government policy from 2008 and 2009 describing a cap of 26 percent on anchor investor after five years of operation of the exchange. In the beginning it can be 51 percent, which has to be brought down to 40 and in five years it has to be brought down to 26 percent. So that policy is already there.
Q: Few people in the market believe that this 26 percent of the anchor investor holding will be on the total number of directors in the company but I understand from what you said it will be on 50 percent of the directors in the company?
A: That is correct, at least half of the Board has to be independent directors. So that is already there in the policy and out of the other half it will be in proportion. We have said that at least half of that should be institutional investors that we have defined as per the policy of the exchanges and the share of anchor investor will not be more than 26 percent.
Q: So the closest example will be in MCX where there were 14 members so half of them will be institutional and half of it will be under which 26 percent will be the role of anchor investors. So 7 into 26 percent which leaves us with 1.7-1.8 that could be the representation of FT promoters on the board of MCX right?
A: Yes as a matter of fact if any exchange has about 14 members on the board then half of that 7 will be independent and out of the other 7 half will be institutional investors, representatives on the board. And the share of anchor investor will not be more than one fourth of this number.
Q: What happens to 1.7-1.8, could we say that it would be one-two or it will be decided by FMC later?
A: The board of directors will have to propose to us after taking AGM approval and then we will see if it is in fractions then we will have to take a view on that. But normally at least half should be institutional investors because we want to make institutional investors and independent directors play a major role in governance of the exchanges.
Q: The other story that we are following is that there may be a showcause notice to FT directors, three of them. Can you confirm that?
A: We are working on this, we had asked for some showcause notices to MCX and we had written to the NSEL board also. Now we are all working to see whether these people are fit and proper so we are working on it.
Q: What was the reason of this board reconstitution? Of course the fit and proper issues were going around and you have been working on this for a long time, if I understand it correctly whether this fit and proper guidelines either come or not which is a separate issue altogether but with this the power of the anchor investor or the board of any commodity exchange will come to a standstill. As you said one out of 14 members will have nothing. So the entire power in order to run the board will lie with institutional or non-executive directors?
A: From May onwards we have been revising these guidelines to make them more conforming to better corporate governance on exchanges. And we have been considering how to improve the role of institutional investors on the board because we have found that they are not very active, many of them are not represented properly. So I think that role has been strengthened and we have also further strengthened the role of independent directors in the board and on various committees of the board.
Q: So if I look at the current board of directors of MCX, out of four nominees, one has already resigned, so could we expect more resignations before the September 30 deadline, what you have put ahead?
A: We have made it very clear that we want at least half of the directors as independent and out of shareholder directors at least half should be institutions. So the number of directors that anchor investor can have has to be limited to his proportion of overall shares which will be from half of the board, not from the full board.
Q: One very interesting thing is we hear that the showcase notice will go to Shreekant Javalgekar also who is currently the MD and CEO of MCX and he is also a nominee of FT on the board of MCX. In that case is it right to say that we could even see one FT nominee who is a chairman and CEO of MCX eventually resigning very soon?
A: The MD of any exchange is not the nominee of anchor investors in any exchange because MD is selected by the search committee constituted by the board of directors and they are appointed out of many candidates. So MD is not a nominee of the anchor investor.
Q: How will the investors be paid back now? Will there be attachment of any of the assets, will there be any personal liability or corporate liability of promoters, directors? How will this issue be resolved now?
A: The government is working on this and there is a committee which is going to take a view and they will make recommendations to the government, we have to wait for that.
Q: If we see the M&A guidelines of stock exchanges they are very different from a commodity exchange and a normal exchange. Are you working anything to align them because there have been talks of one commodity exchange buying another commodity exchange but if we see those guidelines it is not possible at all to do that?
A: This policy of national exchanges was drafted in 2008, revised in 2009. We would like to review many of the provisions after some time when things stabilise here a bit. There are many issues that need to be relooked and we will definitely review the entire policy from a number of angles.