Active Stocks
Thu Mar 28 2024 13:49:19
  1. Tata Steel share price
  2. 155.60 1.80%
  1. HDFC Bank share price
  2. 1,454.40 0.95%
  1. Power Grid Corporation Of India share price
  2. 277.00 2.20%
  1. ITC share price
  2. 430.30 0.54%
  1. State Bank Of India share price
  2. 754.80 2.83%
Business News/ Market / Stock-market-news/  Sebi orders FTIL to sell stake in MCX-SX, other exchanges
BackBack

Sebi orders FTIL to sell stake in MCX-SX, other exchanges

Sebi orders FTIL and its subsidiaries to divest their entire shareholding in MCX-SX and other exchanges in 90 days

Sebi’s action follows a FMC order in December that ruled FTIL chairman Jignesh Shah to be unfit to run an exchange in the country. Photo: Abhijit Bhatlekar/MintPremium
Sebi’s action follows a FMC order in December that ruled FTIL chairman Jignesh Shah to be unfit to run an exchange in the country. Photo: Abhijit Bhatlekar/Mint

Mumbai: India’s capital market regulator on Wednesday declared that Jignesh Shah’s Financial Technologies (India) Ltd (FTIL) was unfit to hold a stake in any stock exchange or clearing corporation and gave it 90 days to divest its holdings in such entities.

The order by the Securities and Exchange Board of India (Sebi) is the latest blow to FTIL, which is under investigation by multiple agencies after a 5,574.35 crore payment crisis surfaced in end-July at National Spot Exchange Ltd (NSEL), in which FTIL holds a 99.99% stake.

In the order late on Wednesday, Sebi annulled the voting rights of FTIL and its related entities in all exchanges and clearing corporations.

FTIL holds a stake in Multi-Commodity Exchange of India Ltd (MCX), MCX Stock Exchange Ltd (MCX-SX), MCX-SX Clearing Corporation Ltd (MCX-SX CCL), the Delhi Stock Exchange (DSE), the Vadodara Stock Exchange (VSE) and National Stock Exchange of India Ltd (NSEIL).

In line with the regulatory order declaring FTIL “not fit and proper", the flagship company of the Financial Technologies Group would have to dispose of its stakes in all the stock exchanges and the clearing corporation within 90 days.

Since the Sebi order also bars entities related to FTIL from holding any stake in any exchange, MCX will also have to divest its entire holding in MCX-SX. FTIL holds a 26% stake in MCX.

Sebi’s order follows a 17 December order by commodities futures market regulator Forward Markets Commission (FMC) whereby FTIL, Shah and two other entities were termed not fit and proper to be shareholders in any exchange.

As part of the order, FMC asked FTIL to reduce its holding to less than 2% in any regulated commodity exchange. The order followed a probe into the payment crisis at NSEL.

“We are reading the order and cannot comment at this stage," said a spokesperson for FTIL.

In MCX-SX, FTIL and MCX hold about 5% each in the form of equity shares. They also hold convertible warrants in MCX-SX, which if converted, would bring their combined holding to around 72%.

According to the Sebi order, FTIL and MCX can neither hold the equity shares nor the convertible warrants any more.

“FTIL shall divest the equity shares and/or any instrument that provides for entitlement for equity shares or rights over equity shares at any future date, held by it, directly or indirectly, in MCX-SX, MCX-SX CCL, DSE, VSE and NSEIL within 90 days from the date of this order through sale of shares and /or instruments," the Sebi order said.

Sebi’s order may have an effect mainly on MCX-SX and also on MCX, which is a listed company, said Rajnikant Patel, a former managing director and chief executive officer of BSE Ltd, adding that FTIL had the option to appeal against Sebi’s order.

“This might have an effect in on FTIL’s divestment plans as it may adversely impact the valuations of entities it plans to divest," Patel added.

While renewing MCX-SX’s stock exchange licence in September, Sebi had mentioned that any adverse finding on the promoters of MCX-SX by any regulator will have an influence on MCX-SX’s recognition.

After FMC passed its order in December, FTIL challenged it before the Bombay high court. However, an interim stay on the order, sought by FTIL, was denied by the court.

Following the FMC order, Sebi had sent a show-cause notice to FTIL on 20 December, asking the latter why it should not be directed to divest its shareholding in stock exchanges and clearing corporations as FMC had termed FTIL as not “fit and proper".

FTIL, in its reply to the show cause notice, argued that its holding in MCX-SX was insignificant and asked that Sebi refrain from passing a final judgement till the Bombay high court delivers a verdict.

The order comes at a time when MCX-SX is in the midst of a rights offering of shares.

“FTIL will not participate in the rights issue. Therefore, FTIL’s shareholding will automatically stand reduced to approximately 1.72% equity shares in MCX-SX assuming all other shareholders subscribe to the rights issue," FTIL said in its submission to Sebi.

“FTIL also holds 56,24,60,000 warrants in MCX-SX, none of which it is entitled to exercise for conversion into equity shares as per undertaking furnished by FTIL in this regard. Such warrants would entitle it to 19.52% in MCX-SX equity shares (post rights issue). In any case, FTIL is not desirous to convert the warrants or increase its voting rights in MCX-SX," it said.

Sebi, however, was of the view that it was not the size of the shareholding, but the status of the shareholder that determined an entity’s “fit and proper" status.

Sebi’s verdict was based on norms that say that to be a shareholder in an exchange, the entity must possess a good reputation and character. “It is his/her status which determines whether he/she is ‘fit and proper person’," Sebi argued while passing the order.

According to J.N. Gupta, managing director, SES Governance, a corporate governance advisory, Sebi’s order is along expected lines.

“Sebi must have considered all parameters before passing this order," said Gupta.

Sunil B.S. contributed to this story.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

ABOUT THE AUTHOR
Anirudh Laskar
Anirudh reports on significant corporate matters including large mergers and acquisitions, India's emerging e-commerce sector and regulatory issues in the corporate and financial services industry. Over the past 17 years, he has covered many beats including banking, NBFCs, aviation, automobile, insurance, markets, SEBI, IRDAI, mutual funds, investment banking, private equity, deals, and conglomerates.
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 19 Mar 2014, 09:05 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App