After questions over Financial Technologies India Ltd’s (FTIL) suitability to run India’s premier commodity exchange MCX, the Rs 5,500-crore National Spot Exchange Ltd (NSEL) payment-default case threatens to take away its control from the recently-launched MCX-SX stock exchange.
The Securities and Exchange Board of India (SEBI) has issued a show-cause notice to FTIL asking why it should be considered fit to run MCX-SX and not be asked to divest its shares and warrants in the exchange, sources have told CNBC-TV18. FTIL has been given time to reply till December 26.
The stock-market regulator appears to have picked up the lead from the Forwards Markets Commission (FMC).
The commodity-futures regulator, while looking into the NSEL scam, recently issued an order stating it believed FTIL, and its key officials Jignesh Shah, Joseph Massey and Shreekant Javalgekar, were not fit to run any government-recognised bourse in India.
The FMC also asked the company to cut its stake in MCX to 2 percent from 26 percent currently. FTIL has contested the order in the Bombay High Court.
Also read: FTIL looks set to relinquish MCX control
Laws in India allow an institution or a person to hold over 2 percent in a stock exchange only after prior regulatory approval and if they satisfy a detailed criterion of being “fit and proper” to be allowed that stake.
FTIL holds stake in NSEL (100 percent), MCX (26 percent), MCX-SX (5 percent equity and warrants convertible into 71.8 percent), MCX-SX Clearing Corporation (23 percent) apart from minor stakes in the BSE and the Vadodara Stock Exchange.
The NSEL, a wholly-owned subsidiary of FTIL, is prima facie not just guilty of facilitating trading of forward contracts in contravention with local laws but also appears to have issued fake underlying receipts towards such trades, failing to settle and honour payments for trades that take place, and not having a settlement guarantee fund commensurate with the volume of trading.
The FMC and the Ministry of Corporate Affairs are investing the case.
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