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Mumbai: As part of its attempts to completely de-link from Jignesh Shah-led Financial Technologies (India) Ltd (FTIL), MCX Stock Exchange Ltd (MCX-SX) is evaluating ways in which it can dispose of the 5% equity stake held by the former in the exchange.

According to two people familiar with the matter, the board of the exchange has already discussed a few options and has sought the views of the Securities and Exchange Board of India (Sebi). Late last month, the board took the decision to extinguish the warrants held by FTIL in MCX-SX.

According to one of the people privy to the discussions, selling shares directly owned by FTIL is tougher than extinguishing warrants, as shares are with the depository and MCX-SX has no direct control over them.

“Equity is more complicated as it lies in a demat account while warrants were simply deposits lying with the exchange," said one of the two people wanting not to be named as the discussions are not yet public.

“Equity is the property of FTIL and MCX-SX cannot directly tell the depository to transfer the shares to a buyer. The depository will not act unless it gets an order from Sebi to override the rights of the owner," he said.

According to the second person familiar with the matter, the view within the exchange is that if Sebi allows FTIL shares to be transferred to an escrow account, then MCX-SX can facilitate the sale through the offer for sale (OFS) platform.

The catch is that MCX-SX is an unlisted entity where FTIL holds only 5%. Regulations allow only the top 200 companies in terms of market capitalization and a shareholder that holds more than 10% stake in such companies to use the OFS window.

“The Sebi approval will again be needed for the second leg of the transaction. A stock exchange is a market infrastructure intermediary and Sebi should give special permission. This would also set a great precedent for such unlisted entities and their shareholders," said the second person on condition of anonymity as he is not authorized to speak to the media.

MCX-SX has already made its intent clear to FTIL, though the manner in which the shares can be sold is yet to be finalized as the regulator is yet to revert on the proposal. Both FTIL and MCX-SX did not respond to email queries.

In a letter dated 25 August to FTIL, MCX-SX said the bourse will look at other options for selling the shares held by FTIL if the company failed to do it on its own.

“As far as the equity shares held by you (FTIL) are concerned, we request you to divest the same forthwith and comply with the directions of the Whole Time Member, Sebi as upheld by SAT. Our Board has considered and decided on the alternative course of action, if you fail to comply," said the letter addressed to Hariraj Chouhan, company secretary, FTIL.

On 19 March, Sebi declared FTIL and its promoter Shah unfit to hold stake in any stock exchange or clearing corporation and gave it 90 days to sell its holdings in such entities. The order followed a 5,574.35 crore fraud at the Shah-promoted National Spot Exchange Ltd. FTIL appealed the Sebi order before the Securities Appellate Tribunal (SAT), which on 9 July upheld the ruling and gave the company and its affiliates four weeks to comply. The four-week deadline ended on 7 August, but FTIL has failed to sell its equity stake in MCX-SX.

Christopher Krishnamoorthy, associate partner, Majmudar and Partners, a corporate law firm, said that while failure by FTIL to sell its stake constitutes a violation of the Sebi and SAT orders and can have serious consequences for FTIL and its management, it may be difficult for MCX-SX to initiate separate action against FTIL to force it to exit. “I am not sure how this can work in an unlisted company context," he said.

The last fortnight saw MCX-SX shifting its corporate office to Bandra Kurla Complex from Andheri in suburban Mumbai, which houses the offices of FTIL and MCX. The data centre and co-location have also been moved to the new office. The migration includes co-location, front-end and back-end information systems as well.

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