Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Market / Stock-market-news/  FTIL opposes preferential allotment of shares by MCX
BackBack

FTIL opposes preferential allotment of shares by MCX

The company plans to take legal action against MCX in the interest of its own shareholders

Photo: Abhijit Bhatlekar/MintPremium
Photo: Abhijit Bhatlekar/Mint

Mumbai: Financial Technologies (India) Ltd (FTIL) on Monday said it opposes a plan by Multi Commodity Exchange of India Ltd (MCX) to consider a preferential allotment of shares at the latter’s board meeting on 3 April.

“MCX is fully aware that FTIL has initiated action to divest its stake up to 24%. Such a move is vindictive in nature to support certain vested interest and deprive FTIL of its level playing field to sell its shares," FTIL said a statement.

FTIL plans to take legal action against MCX in the interest of its own shareholders. It holds 26% of the shares in MCX and is in the process of reducing its holding.

MCX had notified BSE about the board meeting on Monday.

In February, MCX’s board asked promoter FTIL to cut its current holding of 26% in the commodities exchange to 2% in keeping with an order by the commodity futures market regulator Forward Markets Commission (FMC). FMC is likely to bar MCX from launching fresh contracts if it fails to bring down FTIL’s stake to 2% by 30 April.

“MCX is under strict orders by regulators to bring down FTIL’s shareholding to 2%. MCX might be considering preferential allotment of shares to comply with such directives of regulator. Such an issue will automatically result in dilution of FTIL’s shareholding and increase shareholding of the non-FTIL group as FTIL can’t subscribe to such shares since it has to divest its shareholding in MCX," said Rajnikant Patel, a former managing director of BSE Ltd. “This may also adversely affect the pricing of FTIL shares."

FMC on 17 December said FTIL was unfit to run an exchange. The order to reduce stake to 2% followed a probe into the operations of National Spot Exchange Ltd (NSEL), also promoted by FTIL, following a 5,574.34 crore payments crisis at the commodities spot exchange.

Irregularities at NSEL came to light on 31 July when the exchange abruptly suspended trading in all but its e-series contracts. These, too, were suspended a week later. The closure of trading may have been prompted by an instruction from the ministry of consumer affairs asking the exchange not to offer futures contracts. A spot exchange isn’t supposed to do so, but NSEL was doing that.

NSEL tried to implement the change, but because its appeal was to investors and members who were not interested in spot trades, it eventually had to suspend all trading. It later emerged that all the trading on NSEL happened in paired contracts, with investors, through brokers, buying a spot contract and selling a futures one for the same commodity.

The entities selling on spot and buying futures were planters or processors and members of the exchange. It turned out there were only 24 of them, and they used the paired contracts as a way to raise easy money. When the trading was suspended, the investors were left holding contracts that the members couldn’t buy because they didn’t have the money to do so.

On 14 August, NSEL proposed a pay out plan, but it has been unable to stick to the schedule and has not made a single successful pay out.

Meanwhile, FTIL is going ahead with the process of finding a buyer for its 24% of stake in MCX. “Non binding bids from interested parties are likely to be submitted by April 10th and the idea is to complete the process by the end of April," said a person involved in the transaction.

More than 10 domestic and international investors have expressed an interest in picking up stake in MCX, added the person. On March 27, The Economic Times had reported that a number of global and local bidders had expressed interest in FTIL’s share in MCX.

On Monday, shares of MCX rose 0.93% to 490.10 on BSE, while the exchange’s benchmark Sensex rose 0.21% to 22,386.27 points. FTIL shares fell 0.44% to 373.35.

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!

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: 31 Mar 2014, 05:51 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App