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Mumbai: The commodities market regulator has written to the chairman of the newly formed oversight committee of Multi-Commodity Exchange of India Ltd (MCX) to review all contracts and agreements, and financial and other commitments it has made since 1 April.

The directive by the Forward Markets Commission (FMC) comes as the regulator tightens its scrutiny of many aspects of the functioning of MCX, promoted by Jignesh Shah-led Financial Technologies (India) Ltd (FTIL), which owns a 26% stake in the exchange.

Mint has reviewed a copy of the 6 November FMC letter addressed to Pravir Vora, chairman of the oversight committee that was constituted following the 5,574.35 crore payment crisis at National Spot Exchange Ltd (NSEL), in which FTIL has a 99.99% stake.

Apart from Vora, the oversight committee includes independent directors G. Anantharaman and R.K. Bhargava, and shareholder directors P. Satish and K.N. Reghunathan.

There has seen a series of exits at the top management of MCX following the NSEL payment crisis.

What led FMC to write the letter is possibly the oversight committee’s flagging of an April 2013 transaction of MCX involving transfer of funds from the commodity exchange to a group firm, National Bulk Handling Corp. Ltd (NBHC).

NBHC is the warehousing arm of FTIL.

According to a senior FMC official, who spoke on condition of anonymity, the oversight committee is concerned about payments made to NBHC prior to receiving FMC’s approval for using the firm’s warehouses as a delivery centre.

“MCX launched a Raipur-based mild steel ingot/billet contract in October 2012. As the contract started witnessing increased participation, there was a need for an additional delivery centre. To accommodate market needs for steel shipments and facilitate these deliveries, MCX hired warehouse through NBHC in April 2013. MCX had sought FMC’s permission for an additional delivery centre. However, as we did not get the said approval, the warehouse was de-hired in August 2013," an MCX spokesman said in an emailed response.

“Prior to launching any contract, an exchange is required to take a variety of viability measures and this was one such decision."

The NSEL settlement crisis came to light on 31 July, leading up to various actions by the commodities market regulator, the government and its enforcement agencies in August. The fact that the “de-hiring" exercise also happened in August might well be a coincidence, but the oversight committee’s mandate includes looking closely at such transactions.

FMC has also asked the oversight committee to examine and approve “all financial or other commitments proposed to be entered into by the company...having financial implications or any other proposed transactions of similar nature".

Besides, the regulator said the committee will review the existing policy on information technology contracts, human resource policy, and all senior-level appointments in the future.

“Expenditure in the nature of related-party transactions and other expenses such as donation, legal and professional charges, business promotion expenses, advertisements, sponsorship/seminar expenses, etc., exceeding a particular amount of ceiling, may be examined by the committee," said the FMC letter.

The regulator, in its letter, has clarified that in the absence of a managing director (MD) and a chief executive officer (CEO) at MCX, the committee may include to review various other aspects involved in the running of the exchange as it “warrants a closer monitoring and supervision".

On October 31, Shah, founder chairman, MD and CEO of FTIL, resigned from the board of its lone listed subsidiary MCX, linking his decision to the crisis at NSEL.

Earlier on 30 August, six MCX directors—Venkat Chary, C.M. Maniar, Shvetal Vakil, Prakash Apte, Lambertus Rutten and P.R. Barpande—resigned from the board.

On 19 October, MCX’s managing director and chief executive officer, Shreekant Javalgekar, resigned from the board without specifying a reason while on 25 September, Joseph Massey, who was to retire by rotation as a director in the company, had withdrawn his offer for reappointment.

On 13 November, MCX announced the resignation of another director, Paras Ajmera, the last nominee of promoter FTIL on the commodity exchange’s board.

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

It 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 trading on the spot exchange 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, the exchange proposed a payout plan, but it has been unable to stick to the schedule.

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