MCX writes to SEBI clarifying stance on MCX-SX stake sale

Written by fe Bureau | New Delhi | Updated: Aug 14 2014, 03:11am hrs
MCX'FTIL and the company no longer act in concert in view of the recent development'
Multi Commodity Exchange (MCX) has written a letter to Securities and Exchange Board of India (SEBI) explaining why it should not be needed to divest its holding in MCX Stock Exchange (MCX-SX) and MCX-SX clearing corporation.

In an exchange filing communicating its June quarter numbers, MCX said that in a letter dated August 6,2014 it has once again represented to SEBI that FTIL and the company no longer act in concert in view of the recent development and therefore the company should not be required to divest its holding in MCX-SX and MCX-SX CCL.MCX pegged the fair value of its investments in MCX-SX and MCX-SX CCL at Rs 137.6 crore.

This explanation is communicated, after the commodity derivatives exchange and its erstwhile anchor investor Financial Technologies (FTIL) both, failed to meet a four-week deadline set by the Securities and Appellate Tribunal (SAT) for divesting their holdings in MCX-SX and MCX-SX CCL.

On July 9,2014, Securities and Appellate Tribunal (SAT) rejected FTIL's plea against a SEBI order that deemed it unfit to hold a stake in any stock exchange or clearing corporation. Effectively, the order required Jignesth Shah promoted FTIL and MCX to exit MCX -SX, by liquidating their holding, both, in equity shares and convertible warrants. FTIL and MCX both own 5% each in the equity share capital of MCX-SX besides convertible warrants of MCX-SX which if converted could increase their combined holdings to 72%.

While FTIL is yet to make in progress on compying with the SAT order, in last one month it has brought down its stake in MCX from 26% to 5% through a deal to sell 15% stake to Kotak Mahindra Bank and multiple open market exits.

Meanwhile, on the back of a slump in the trading volumes the June quarter standalone earnings of Multi Commodity Exchange (MCX) nearly halved shows exchange filings.

Net profit for the first quarter of the fiscal 2014-15 declined by 47% yoy to Rs 23.41 crore while the total income of the commodity derivatives exchange fell 20% yoy to Rs 51.6 crore.

During the period, the average turnover on the exchange dropped by two third to Rs 11.8 lakh crore as application of Commodities Transaction Tax (CTT) since July 2013, weighed on the traded volume on the exchange.

While the trading slump was primarily caused by CTT levy, dismal sentiment amongst commodity traders, after the Rs 5600 crore scam at National Spot Excahgne (NSEL) came into light last July, has also impacted the trading interest in the commodity derivatives space. NSEL is a subsidiary of FTIL.

As a fall-out of the NSEL scam, on December 17 last year Forward Markets Commission (FMC) declared FTIL and its promoter Jignesh Shah not fit and proper to be an anchor investor in any commodity exchange. FTIL was asked the technology company to bring down its take in MCX from 26% to 2%.