Multi Commodity Exchange, FTIL scrips see red after Jignesh Shah's arrest

Written by fe Bureau | Mumbai | Updated: May 9 2014, 18:17pm hrs
Jignesh ShahFinancial Technologies and Multi-Commodities Exchange (MCX) promoter Jignesh Shah, arrested in the multi-crore National Spot Exchange (NSEL) scam case, being produced in the Sessions Court in Mumbai on Thursday. PTI
Shares of Jignesh Shah promoted Financial Technologies (FTIL) hit a lower circuit on Thursday, a day after the Economic Offences Wing (EoW) of Mumbai Police arrested Shah and his close aide, Shrikant Javalgekar in relation to the Rs 5600 crore National Spot Exchange (NSEL) scam. Even Multi Commodity Exchange (MCX),an FTIL group entity in which it owns 26% stake witnessed selling pressure after EoW arrested Shah and Javalgekar, former CEO of MCX, for custodial investigation.

While the FTIL stock opened at lower circuit of Rs 276.70 (down 5%), the MCX stock traced lower in the second half of the trading session after opening near day's low of Rs. 483.55. It ended the the session at Rs 496.35, down Rs 37.30 or 6.99%.

EOW officials on Wednesday said that the arrests were carried out as both the key officials of the FTIL group were being evasive and had tried to shift the blame of the NSEL scam on the former CEO of the spot exchange, Anjani Sinha who is already in the police custody. On Thursday, the Maharashtra Protection of Interest of Depositors (MPID) magistrate at the session court placed both Shah and Javalgekar in police remand till May 15,2014.

Since April 29, 2014 both, FTIL and MCX have retreated by 17% and 13%

after the auditors PricewaterhouseCoopers' (PwC) submitted an audit report on MCX operations to the FMC. The report indicates that operations of MCX including technology solutions, warehousing and selection of vendors for non trading transactions were significantly dependent on FTIL. A latest FMC directive which stipulates that an entity declared unfit cannot hold any stake in commodity derivative exchanges further weighted on FTIL stock as the anchor investor of MCX would be forced to sell its entire stake under this guideline.

Both FTIL and MCX stocks have witnessed frequent swings since last July when the NSEL scam came into light. While FTIL fell 79% to Rs 112.10 within a month after the spot exchange operation of NSEL in which it holds 99.99% came into regulatory scrutiny, MCX declined by 65% to Rs243.25 in a matter of fifteen days after NSEL announced suspension of trading in all contracts on July 31, 2013.

Both the stocks however have more than doubled from these lows. In mid-December 2013, an order by Forward Market Commission (FMC) which deemed the promoters of MCX not fit and proper to run the exchange also added to the momentum in the MCX stock as the order effectively directed FTIL to reduce its stake in MCX from 26% to 2%. MCX rallied as much as 57% since the FMC order as the street expected the stake dilution to happen at healthy valuations. MCX is the number one commodity derivatives exchange of India and is regarded as a flagship company of the FTILs exchange initiatives.

Not surprisingly, investors like Blackstone GPV capital partners and Barca Global Masters Fund have purchased 4% stake in MCX worth Rs 114.66 crore in the last four months.