FTIL, MCX shares plunge on stock exchange probe

Shares of Jignesh Shah-led Financial Technologies (India) Ltd. (FTIL) and MCX on Friday fell sharply amid a probe initiated by CBI into grant of license to MCX Stock Exchange over five years ago.

With the grant of licence to MCX Stock Exchange facing a CBI probe, the government and regulators have begun looking into ways to assuage the concerns of investors, trading members and newly appointed directors of the bourse’s restructured board.

MCX-SX was set up by FTIL and MCX, but they have been now classified as ‘public shareholders’ as against ‘promoters’ earlier, pursuant to a SEBI-ordered restructuring of its board and governance structure.

A day after CBI registered a Preliminary Enquiry (PE) against FTIL and MCX as also two former top SEBI officials in a matter related to the grant of license to MCX-SX, the shares of the two listed companies fell sharply this morning.

FTIL was down 3.6 per cent at Rs. 364.40, while shares of commodity exchange MCX were trading 4.6 per cent lower at Rs. 491.95 at the BSE in late morning trade.

The group has been facing trouble ever since National Spot Exchange Ltd (NSEL), another entity set up by the same promoters, got engulfed in a major payment crisis putting a question mark on their ‘fit and proper’ status to run an exchange.

MCX-SX board threatens to quit

While a board meeting is scheduled for Friday, the Chairman and other ‘public interest directors’ of MCX-SX have expressed their desire to quit in the wake of a preliminary enquiry registered by the CBI on Thursday into grant of licence to the exchange way back in 2008 and the subsequent renewals.

Surprisingly, the PE has also been registered against SEBI’s former chairman C.B. Bhave and ex-member K.M. Abraham, besides MCX-SX promoters FTIL and MCX.

Sources said the regulator and the Finance Ministry want MCX-SX’s current chairman G.K. Pillai and other three public interest directors to continue on the bourse.

These four were appointed to the board after SEBI ordered last year an overhaul of board and governance structure of the bourse, after another entity set up by the same promoters got engulfed in a major payment crisis putting a question mark on their ‘fit and proper’ status to run an exchange.

Top officials had said last night that Mr. Pillai and other directors may offer to resign from the board at today’s meeting as they fear that CBI probe may jeopardise the exchange’s prospects and its search for strategic investors.

At a hurriedly-conducted press conference this morning, MCX-SX CEO and MD Saurabh Sarkar also said that “it would be speculative to pre-empt resignation of all public interest directors and we would request to refrain from rumours and await the announcement post the board meeting.

“As in the case of other companies, new members would be nominated by shareholders or independent directors would be appointed by the regulator if the need arises,” he said, while adding that Friday’s board meeting was not an “emergency meeting” and was planned a month in advance.

“The exchange has cleared stringent audits by the regulator before granting the renewal in October 2013.

“We were also granted permission to offer trading in Interest Rate Futures (IRF) segment on our platform in January 2014 indicating the confidence of the regulator on the exchange and its systems and processes,” the bourse said.

MCX-SX further claimed that its rights issue was on track and it has received a confirmation from several shareholders for participation. In the rights issue, the existing shareholders are being issued fresh shares to raise funds.

“The outcome of the rights issue will be made public upon its completion by end of this month. Meanwhile, we have also received expression of interest from new investors and the exchange could exercise a preferential allotment post the rights issue if it is not entirely subscribed,” it added.

The exchange had also appointed new CEO Saurabh Sarkar last month.

MCX-SX has come out with a rights issue to reduce its related firms’ stakes. Financial Technologies and MCX hold 5 per cent each in the stock exchange while their total stake has to be brought down to 5 per cent in all, as per SEBI guidelines.

The board has been successful in rationalising costs in a significant manner over the last few months. We are confident that the policy reforms for currency derivative segment will give the desired boost to the volumes resulting in a turnaround in the balance sheet, said Mr. Sarkar, who was appointed the exchange chief last month itself.

The exchange further said it has successfully ring-fenced itself from the crisis and is run by a professional management team, while FTIL and MCX have been shifted from the category of ‘Promoter shareholder’ to ‘Public Shareholder’

“The board has been successful in rationalising costs in a significant manner over the last few months. We are confident that the policy reforms for currency derivative segment will give the desired boost to the volumes resulting in a turnaround in the balance sheet.

“The exchange has also cemented its number-2 position in the newly launched IRF segment,” it said.

The board of MCX-SX currently include Mr. Pillai as Chairman, vice chairman Thomas Mathew T., as also Ashima Goel and D.R. Dogra.

There are apprehensions that the licence of the exchange, which is already battling low business volumes due to problems at NSEL, can be cancelled if CBI probe finds something detrimental.

The original promoters of MCX-SX have been issued show-cause notices by regulator SEBI after another regulator FMC ruled they were not “fit and proper” to run any exchange in the wake of NSEL fallout.

The exchange was initially granted permission for only a limited segment of currency derivatives in 2008, on the condition its licence would require approval every year.

The PE was registered into the MCX-SX licence matter on a day when CBI carried out raids at various premises of NSEL.

Mr. Bhave became SEBI Chairman in February 2008 and his three-year term ended in February 2011. Abraham’s term as a whole-time member of SEBI also ended in 2011.

Incidentally, Mr. Abraham had written in 2011 to the Prime Minister’s Office that SEBI was being pressurised by the Finance Ministry to go easy on some corporates, including MCX and Sahara, against whom he had passed orders. However, these charges were rejected by the Finance Ministry and SEBI.