Mumbai: Financial Technologies India Ltd (FTIL) and Multi Commodity Exchange of India Ltd (MCX), promoters of the country’s newest stock exchange, MCX Stock Exchange Ltd (MCX–SX), will sharply pare their stakes in the exchange by September.
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According to a person close to the development who did not want to be identified given the sensitivity of the issue, FTIL and MCX will lower their stakes to 20% each, from 42% and 40%, respectively, in the next two months.
According to the person, MCX-SX has appointed Deutsche Bank AG and Nomura Financial Advisory and Securities Ltd to oversee the divestment process.
Mint could not independently confirm this with the two investment banks.
Jignesh Shah, vice-chairman of MCX-SX, said the stake sale plan has not been finalized yet.
It is imperative that the promoters pare stakes if MCX-SX wants to start equity trading.
MCX-SX started trading in currency futures on 7 October and subsequently it applied to the Securities and Exchange Board of India, or Sebi, seeking approval for equities trading. It also plans to start trading in interest rate futures.
Future plans: MCX-SX vice-chairman Jignesh Shah. Abhijit Bhatlekar/Mint
The average daily turnover of currency futures traded on MCX-SX is at least Rs3,000 crore.
The Sebi approval for currency futures trading is valid for one year till mid-September and by this time the promoters of MCX-SX are required to bring down their stakes. Sebi has not allowed the exchange to start equity trading as the promoters have not pared their stakes to conform with regulatory norms.
According to Sebi norms, a stock exchange is required to maintain a public shareholding of at least 51%. No single corporate entity is allowed to hold more than 5% in an exchange but stock exchanges, depositories, clearing corporations, banks, financial institutions, insurance firms and mutual funds can hold up to 15%.
It is not clear whether Sebi will permit MCX-SX to start equity trading after the promoters bring down their stakes to 20% each by September.
Being an exchange itself, MCX can hold up to 15% stake in the stock exchange.
In a recent interview with Mint, Sebi chairman C.B. Bhave had said the regulator had asked the promoters of MCX-SX to conform to norms in terms of the shareholding.
At present, private and public sector banks hold 18% in MCX-SX.
FTIL recently sold a 5% stake in MCX-SX to IFCI Ltd , following which its shareholding decreased from from 47% to 42%.
IFCI bought the 5% stake for Rs250 crore. This puts the valuation of the exchange at Rs5,000 crore. At this price, the divestment of a 42% stake would fetch the promoters Rs2,100 crore.
Quantum trade: A trader conducts business at the MCX-SX exchange in Mumbai. The average daily turnover of currency futures traded on the exchange is at least Rs3,000 crore. Amit Bhargava / Bloomberg
The person close to the development cited in the first instance said there are about 10 entities that have evinced interest in buying a stake in the exchange.
“Foreign and local banks, overseas exchanges and mutual funds are showing interest... Some of them are already holding a stake in the exchange and they want to raise their holdings,” the person said.
Even though stock exchanges, banks and mutual funds are allowed to hold up to 15% stake in any exchange, no overseas player can hold above 5%.
The MCX-FTIL combine runs 10 exchanges across various asset classes such as bullion, crude, currency and power, in India and overseas.
In a March interview with Mint, Shah, vice-chairman of MCX-SX, had said the exchange would launch innovative products and take different equity and bond products to the tehsil (district) level.
“I have put in Rs150 crore as capital. That’s not just for currency (derivatives). The point is if you are a stock exchange you should do everything. Existing exchanges are not innovating enough to seize the India opportunity,” Shah had said.