FinMin objected MCX-SX, but Sebi gave green signal: CBI

So, their basis is that there was an objection from the finance ministry but Sebi decided to grant recognition to MCX-SX despite that objection from the finance ministry.

Now on June 15 2009, Venktaraman who was also a chief executive officer and whole-time member of MCX-SX had submitted an application to Sebi for renewal and recognition. Sebi officials conducted an inspection of MCX-SX because they had been asked to comply and bring their shareholding down to 5 percent as per Sebi's regulations.

When that audit or inspection was conducted by Sebi, they found that the shareholding cannot be brought down to 5 percent but despite that, the PE claims that award of an extension for one year was in fact given to the stock exchange.

They then went on to say that on June 4, 2010, Joseph Massy, the managing director and chief executive officer of MCX had submitted an application to Sebi seeking renewal and permanent recognition for the exchange starting that they had in fact complied with Sebi's shareholding guidelines.

_PAGEBREAK_

A Sebi inspection was further conducted and there was the Bombay High Court angle as well but the capital reduction arrangement and shareholding had gone to the Bombay High Court as well. As per Sebi's inspection, MCX and FTIL did bring their stake down. The PR states, ‘it is seen that without discussing the fact whether the promoter stake holders namely MCX and FTIL had actually complied with the MIMPS regulations, it was decided and approved by the then whole time member KM Abraham to renew the recognition for MCX-SX for another year.’

They also questioned the fact that the approval was granted by KM Abraham and not by chairman CB Bhave.

The PE then goes on to state that MCX-SX had applied for permission to deal in equity, interest rate derivative markets, Futures & Options in equity, wholesale debt segments in addition to currency derivatives. That application was made on April 7, 2010.

It then goes on to say that KM Abraham who was then the whole-time member had issued a notice dated August 30, 2010 in which he had said that there was excessive concentration of economic interest in the hands of two promoters namely MCX and FTIL and that the applicant was not fully complying with Sebi's regulations.

The PE also added that the promoters of MCX-SX are persons acting in concert and the promoters have also entered into certain buyback arrangements which are illegal and on that basis, KM Abraham had rejected MCX-SX’s application. So, the CBI’s conclusion is that if the Sebi had allowed them an extension on August 25, 2010 for currency derivatives, then why did it find them not fit-and-proper just five days later.