According to guidelines issued by the Forward Markets Commission (FMC) on Tuesday for commodity futures bourses that have completed five years of operation, any person ceasing to be 'fit and proper' will have to divest shareholding to a maximum of 2%. "Further, pending divestment of shares, the voting rights of such person shall stand extinguished and any corporate benefit in lieu of such holding shall be kept in abeyance/withheld by the exchange," the FMC said.
The move came after FTIL failed to dilute its stake in MCX from 26% to 2%, as desired by FMC by April end. Reacting to the guidelines, FTIL said: "The legality of issuing guidelines under FCRA is already before the Bombay High Court and despite that, FMC has issued another set of norms which are exceeding the provisions of FCR Act 1952 and hence ultra-vires."
Earlier in the day, outgoing MCX MD and CEO Manoj Vaish met FMC officials and discussed the divestment process. The FMC had warned that MCX's existing contracts won't be renewed and fresh contracts won't be permitted, and ultimately its licence would be revoked if the exchange did not comply with its orders.
Importantly, the FMC also directed exchanges to take necessary steps to ensure that the shareholding of a 'not fit and proper' person is divested. So MCX is now empowered to direct FTIL to dilute its stake in the exchange, said one of the market sources. This means FTIL may get some more time to divest its stake and if it doesn't comply, the exchange will have the authority to auction the shares, he added. However, the aggrieved entity can challenge such an act in court.
After the settlement crisis at NSEL, owned by FTIL, the FMC declared FTIL 'not fit and proper' to hold over 2% in MCX.
FTIL said last week that its board will meet on May 10 to review the divestment process. Moreover, the commodity exchange's articles of association will have to be changed in sync with the revised guidelines so that it can take action against FTIL using section 10 of the Forward Contracts (Regulation ) Act, 1952.
As part of the revised guidelines, the FMC mandated that no person can hold over 5% in a recognised exchange. The earlier guidelines were revised to "provide for adequate development of the market," it said, hinting at the NSEL crisis.
However, entities such as commodity or stock exchanges, depositories, banks, insurance firms and public financial institutions hold up to 15%. This means a bourse like the NSE can raise its stake in NCDEX to 15% from roughly 10% now, while Renuka Sugars may have to reduce its holding to 5% from 11.38% now.
At least 51% of the paid-up equity share capital will have to be held by the public. No resident outside India can acquire over 5% and the combined holding of all residents outside India will not exceed 49%.