MCX-SX up for renewal as NSEL crisis worsens

Mumbai | Updated: Aug 27 2013, 19:55pm hrs
As the National Spot Exchange (NSEL) lurches from crisis to crisis another payment default looms large on Tuesday its associate company MCX-SXs equity trading licence could be in jeopardy when it comes up for renewal next month. Theres absolutely no doubt that recent developments in the group will have a bearing on the matter. The fact that the promoters of the two exchanges are the same cannot be ignored, a senior official said.

Multi Commodity Exchange of India Ltd (MCX)

Both NSEL and MCX-SX are promoted by Financial Technologies India Ltd (FTIL). While Jignesh Shah, chairman and group CEO, FT, holds 18.8% in the company in his personal capacity, La Fin Financial Services has a 26.76% stake. As of June 30, FT and Multi Commodity Exchange of India classified as the promoter group held 71.84% of the diluted share capital of MCX-SX. This includes underlying shares assuming the full conversion of warrants and convertible securities.

While the Forwards Markets Commission (FMC) and the government will take a call on whether promoters of FT are considered fit & proper to continue operating NSEL, the Securities and Exchange Board of India (Sebi), which has been closely watching the developments relating to NSEL, would need to make its own assessment of whether MCX-SXs stock exchange licence should be renewed.

Referring to NSEL promoters, FMC chairman Ramesh Abhishek told FE, In our letter to the board we have stressed their status as a fit and proper person can come under pressure. We are waiting for tomorrows payout before deciding on this.

Abhishek added, You read the letter that we wrote to the NSEL board, we have clearly said that if they don't meet their obligation, they don't have a fit and proper state and consequential action would follow.

In response to an email query, an MCX-SX spokesperson said: Just as in previous years, the recognition granted by Sebi to MCX-SX is due for renewal on September 16 this year also. As per the usual process, we have applied for renewal to the regulator and the same is under their consideration.

A Sebi notification, dated September 11, 2012, says MCX-SX was granted a renewal of recognition for one year commencing on the 16th day of September, 2012, and ending on the 15th day of September, 2013.

The notification was issued by Rajeev Kumar Agarwal, whole-time member, Sebi.

As the Rs 5,600-crore settlement crisis threatens to engulf all group entities, the FMC will meet institutional investors of MCX, the commodities futures exchange, on Tuesday to apprise them of the situation. The meeting was initiated by Nabard, among other institutional shareholders. There is a lack of confidence among the investors. We would like to understand the implications of what has happened at NSEL on MCX, said Nabard chairman Prakash Bakshi. Nabard holds a 3.06% stake in MCX while financial institutions and banks together account for a stake of 17.48%. As of June 30, other institutional shareholders included IFCI (4.79%) Euronext (4.73%), Merrill Lynch (2.79%) and Blackstone (2%). The National Stock Exchange, which also held 2.45% in MCX until June 30, has sold most of its stake in the last three weeks. The stake has been sold through open market operations as the exchange did not see any value in holding the equity any longer, say sources.

NSEL on verge of another default

The National Spot Exchange appeared to be on the verge of another payment default with the second round of payouts due on Tuesday, reports fe Bureau in Mumbai. As on Friday, the exchange had collected a mere R8.5 crore compared to the weekly scheduled payout of R174.72 crore. In the first round of payouts last Tuesday, NSEL managed to pay just R92.13 crore. Ahead of the second payout, brokers that have money stuck with the NSEL met again to assess the situation and look for possible solutions. Sources within the brokers forum indicated that while legal options remain on the table, brokers are looking at ways to facilitate the exchange in the a way that can help break the deadlock.

Senior brokers, who spoke on the condition of anonymity said that stocks were not being liquidated as they were lying in the warehouses of the exchanges borrowers and processors. Since the godowns are now under the control of the regulators, stock liquidation has not started, said the broker.

The FMC chief, however, said that it was up to the exchange to liquidate the stocks.It is required to be understood that it is the exchange that is responsible for liquidating the stocks and as well as for taking action against the defaulters as per the exchange by laws. It is not the job of FMC to take these activities, said Abhishek. At this juncture, we are required to supervise the pay-ins and pay-outs. However, not much is moving around these activities, he added.

By Ira Duggal