SEBI alleges MCX-SX concealed facts while diluting equity

Securities and Exchange Board of India (SEBI) today alleged in the Bombay High Court that MCX-SX Stock Exchange (MCX-SX) had concealed some facts while diluting its equity stake under the "capital reduction cum arrangement".

SEBI counsel, Additional Solicitor General Darius Khambata, argued that MCX-SX had also not informed it about modalities and nitty-gritty of this scheme. 

Justices D Y Chandrachud and Anoop Mohata were hearing a petition filed by MCX-SX against the market regulator for not allowing it to start equity trading despite complying with all regulations.

The court observed that it was obligatory on the part of MCX-SX to disclose the buy-back to SEBI and that such negligence could not be tolerated. The SEBI counsel brought on record that MCX-SX promoter Jignesh Shah and his wife were controlling a company called 'Lafin', which in turn holds 26 per cent stake in Financial Technologies Ltd (FTIL), also promoted by Shah.

MCX-SX submitted that during discussions, SEBI Executive Director J N Gupta had himself mooted the idea of warrant model for diluting equity stake of the stock exchange to five per cent. It was only then MCX issued warrants to 18 public sector banks with an assurance that this would not be converted into equity.

The HC had yesterday asked SEBI whether it would accept an undertaking from the promoters of MCX-SX that they would maintain their equity holding at five per cent and not exercise the option of converting warrants into equity. The regulator responded by saying it would seek instructions from the SEBI Board in this regard.

As per the SEBI guidelines, no promoter of a stock exchange can hold more than 5 per cent equity stake. FTIL and MCX concluded their arguments today, while SEBI will give its submissions tomorrow. In a petition filed on July 19 last year, MCX-SX had urged the High Court to direct the SEBI to grant clearance for commencing operations in the equity segment as it had complied with the guidelines issued by the regulator.

Three days prior to filing the petition, MCX-SX came out with a public notice expressing anguish at the delay in getting licence and also at the "misinformation" campaign launched by rivals.

MCX-SX pleaded that although it had complied with all SEBI norms, it was not given the permission to commence equity trading. It also alleged that the capital market watchdog  was favouring a rival stock exchange.