NSEL crisis: Sebi notice to Financial Technologies soon, Jignesh Shah not fit & proper

Written by fe Bureau | Mumbai | Updated: Dec 19 2013, 14:51pm hrs
Jignesh ShahJignesh Shah's FTIL is the parent entity of NSEL, which is struggling to meet its settlement obligations amounting to Rs 5,600 crore.
FOLLOWING the Forward Markets Commissions (FMC) order to Financial Technologies India Ltd (FTIL) that it is not fit & proper to run an exchange, the Securities and Exchange Board of India (Sebi) will soon issue a show cause notice to FTIL which owns a 5% stake in MCX-SX, the equity exchange. In September this year, Sebi had extended MCX-SXs licence for a year even as it awaited a ruling by the FMC in the wake of the Rs 5,575 crore settlement crisis at the FTIL-promoted National Spot Exchange (NSEL) which came to light in late July. The move will crush Jignesh Shahs ambitious plans for the equities trading platform.

The FMC ruled late on Tuesday that Jignesh Shah, chairman, FTIL is not a fit and proper person to be shareholder in an exchange. The ruling means that Shah will no longer be a major shareholder in Multi Commodity Exchange of India Ltd (MCX) in which FTIL holds 26%. Shah holds nearly 45% in FTIL.

FMC, the commodity market watchdog has ruled that FTIL cannot continue as an anchor shareholder of an exchange, thereby dealing a body blow to the flagship entity controlled by Shah. In the public interest and in the interest of the commodities derivatives market... the commission (FMC) holds that FTIL is not a fit and proper person to continue to be a shareholder of 2% or more of the paid-up equity capital of MCX, said the 80-page order.

FMC has also labelled Joseph Massey and Shreekant Javalgekar both close confidantes of Shah as unfit to occupy the role of a director in any exchange. Incidentally, all the three individuals Shah, Massey and Javalgekar have already resigned from the directorships of all exchanges in India that are owned or controlled by the FTIL group.

According to FMC, Shah is also practically the highest beneficiary of the fraud perpetrated at the NSEL exchange. It is because of the huge profit of R125 crore earned by NSEL during FY13 that the value of the shares of Shah in FTIL shot up manifold, giving him the benefit of a spectacular market capitalisation of his investment in FTIL running into thousands of crores of rupees, noted the FMC order.

n Continued on Page 2

These entities will now not be able to hold any shares in any exchange in excess of the threshold limit of the total paid-up equity capital. FTIL, as the anchor investor in MCX does not carry a good reputation and character, record of fairness, integrity or honesty to continue to be a shareholder, said the FMC order.

While an FTIL spokesperson said that their lawyers are examining the order, it is believed that the entity will soon challenge the FMC order in a court of law.

According to the commodity market regulator, the trade data of NSEL along with the internal audit reports and the minutes of the board meeting clearly prove that FTIL, along with the board members, was completely aware of the irregularities.

FTIL, in which Shah and his entities hold controlling stake and which in turn, has complete control over NSEL, deliberately allowed NSEL board to admit, nurture and incentivise unworthy members to continuously trade and default on its platform, said the order.

The board of directors completely failed to provide any effective governance over the management of NSEL; specifically, it failed to put in place a risk management system at NSEL, effective audit of the internal control process, warehouses, accounts and other business of the company and total apathy to take follow-up action to address the serious concerns that existed in these areas, added the order.