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Mumbai: The board of MCX Stock Exchange Ltd (MCX-SX), a unit of Financial Technologies (India) Ltd, or FTIL, on Friday approved a 1:1 rights issue to its shareholders to boost capital and appointed a chartered accountancy firm to conduct a comprehensive audit.

The board will meet representatives of institutional shareholders on 13 January to seek their approval for the rights issue.

A rights issue is often used by cash-strapped companies to raise funds in difficult times. This allows existing shareholders to buy additional shares directly from the company in proportion to their existing holdings at a discount to their current trading price.

In the case of MCX-SX, the rights issue will also result in the Financial Technologies group’s effective stake in the exchange coming down from 70.9% to 56.4%. This is because most of its stake is held as convertible warrants, for which no additional securities will be issued through the rights issue. Even so, India’s capital market regulator, Securities and Exchange Board of India, will have to decide its stand on the disposal of the warrants, the deadline for which expires this month.

MCX-SX's net worth (share capital plus reserves and surplus) has come down from 274.6 crore to 185.8 crore between March 2013 and September 2013. At this rate, the company’s net worth could soon breach the stipulation of a minimum net worth of 100 crore by Sebi. Apart from a successful rights issue, the exchange’s net worth can also get a boost if the FTIL group finds takers for its warrants which are then converted into equity shares.

In a related development, Sebi has approved the appointment of a new managing director and chief executive officer (CEO) at the exchange. An MCX-SX statement did not name the CEO but, according to a person familiar with matter, who did not want to be identified, Saurabh Sarkar, chief of United Stock Exchange Ltd, will take up the role.

In October 2013, Joseph Massey resigned as CEO of MCX-SX amid a payment crisis at the National Spot Exchange Ltd (NSEL), another unit of the Jignesh Shah-promoted FTIL.

While renewing the license of MCX-SX for one year on 11 September, the market regulator had asked the exchange to strengthen corporate governance, an order that came after the payments crisis at NSEL, which surfaced at the end of July.

It also ordered the setting up of an expert panel for taking all key business decisions at the exchange in the wake of NSEL crisis. Over recent months, MCX-SX has witnessed a string of resignations, including those of Shah and Massey from its board.

On 1 November, former home secretary G.K. Pillai was appointed MCX-SX’s chairman and former Life Insurance Corp. of India managing director Thomas Mathew T. became the vice-chairman.

MCX-SX has also appointed a chartered accountancy firm to conduct a comprehensive audit of the exchange since its inception. According to the person familiar with the matter cited above, EY (formerly known as Ernst and Young) was in the fray for this contract.

The exchange’s statement said that it had made an application to the capital market regulator for introduction of interest rate futures in the currency derivatives segment and a new product in the futures and options segment. The board also took note of various cost-reduction measures undertaken by the exchange under the supervision of a special committee of public interest directors. According to the exchange, its newly appointed chairman Pillai said the cost rationalization measures, proposed capital infusion plans and expected pickup in business volumes would help MCX-SX record “good business growth and stability".

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