Can you accept MCX undertaking on equityholding: HC to SEBI

The Bombay High Court today asked SEBI whether it would accept an undertaking from the promoters of MCX Stock Exchange (MCX-SX) that they would maintain their equity holding at 5% and not exercise the option of converting warrants into equity.

The suggestion was made by Justice DY Chandruchud and Justice Anoop Mohata, who 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.  Securities and Exchange Board of India representatives responded by saying that they 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%equity stake. In the above case, Financial Technologies Ltd (FTIL) and MCX, promoters of MCX-SX, had reduced their equity stake to five per cent by evolving a method wherein they gave warrants to 18 PSU banks. They assured the court that the warrants would not be converted into equity.  FTIL concluded its arguments today, while MCX will give its submissions tomorrow. Thereafter, Additional Solicitor General Darius Khambata would argue on behalf of the SEBI. In a petition filed on July 19 last year, Jignesh Shah- -led 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, the MCX-SX came out with a public notice expressing anguish at the delay in getting license and also at the misinformation campaign launched by rivals. MCX-SX pleaded that although it had complied with all SEBI regulations and norms to commence operations, it was not given the permission to commence equity trading. It also alleged that Sebi was favouring a rival stock exchange. In an advertisement earlier, MCX-SX, without naming the National Stock Exchange, had alleged that its rival was killing competition by offering free trading in currency derivatives, and thus making it difficult for it to get
business and investors. "There have been attempts by some elements at spreading misinformation to create doubts among our shareholders and to undermine our reputation and business for their benefit," the MCX had said. In an apparent attack on the Sebi, it had said the go-ahead for doing full-fledged business was elusive despite MCX-SX having taken all the necessary steps to make it compliant to the relevant regulations about trading in equities, equity derivatives, interest rate derivatives, mutual fund and debt market among other instruments. Although MCX-SX became operational in October 2008, it is offering only currency derivatives products at present. The stock exchange had said that one of the key conditions put on it was related to bringing down promoters'
stake and it did so with a "capital reduction cum arrangement" scheme and that the Sebi was informed about the same, way back in December 2009. While the scheme was already approved by the board and shareholders, it also got the nod of the Bombay High Court in March 2010 and the same was also notified to the Sebi on April 7, 2010, MCX-SX said. But the exchange has got "no response from Sebi in this regard" as of July 2010, it had noted in the public announcement.