Sebi may give FTIL more time to exit MCX-SX as deadline ends tomorrow

Written by fe Bureau | Mumbai | Updated: Aug 5 2014, 07:12am hrs
With the deadline for Financial Technologies (FTIL) to sever relationship with MCX-SX ending on Wednesday, Securities and Exchange Board of India (Sebi) is likely to give the technology firm more time to exit its holdings in the stock exchange.

Senior Sebi officials confirmed that FTIL would be given a grace period. In a written response, FTIL said it had appointed a merchant banker for the sale; so far, FTIL had managed to make R1,990 crore from the sale of various ventures, but investor response to the loss-making MCX-SX, the countrys third stock exchange, is understood to be tepid.

In first week of July, Securities and Appellate Tribunal (SAT) had rejected FTIL plea against Sebis order, which said it was unfit to hold a stake in any stock exchange or clearing corporation. Effectively, the order required Jignesh Shah-promoted FTIL and its unit Multi Commodity Exchange (MCX) to exit MCX-SX, by liquidating their holdings in equity shares and convertible warrants.

FTIL and MCX both own 5% each in the equity share capital of MCX-SX in addition to convertible warrants of MCX-SX, which if converted could increase their combined holdings to 72%. In case of MCX, where FTIL was told to bring down its stake from 26% by the Forward Markets Commission (FMC), there were nine bidders.

While some observers say that a dismal operational performance by MCX-SX, as well as its depleting net worth may be keeping investors away. Future conversion of warrants into equities could also be limiting interest.

MCX-SX, which commenced trading in equities, in February 2013, reported a loss of R154.53 crore in FY14 compared with a profit of R21.42 crore in FY13. Its net worth dropped to R120 crore as of March 31, 2014, from R275 crore at the end of FY13.

Later in April, the exchange raised R60 crore through a rights issue saying it planned to raise more capital through a preferential allotment after six-months.

Two months after FTIL moved against the Sebi mandate, SAT said a similar order passed by FMC would have bearings on the securities market. The tribunal, however, granted four weeks to FTIL to divest stake in its stock exchange and market infrastructure institutions.

On December 17 last year, FMC declared FTIL and its promoter Jignesh Shah not fit and proper to be an anchor investor in any commodity exchange and told the company to bring down its take in the Multi Commodity Exchange (MCX) from 26% to 2%.

Subsequently, on March 19, on the basis of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations or SECC, Sebi declared FTIL unfit to own any stake in a recognised stock exchange or clearing corporation. The securities market watchdog revoked voting rights of FTIL and any of its related parties in MCX stock exchange and MCX-SX clearing corporation and told it to divest its stake within 90 days.

The FMC order was a fall-out of the R5,600-crore scam at a subsidiary of FTIL, National Spot Exchange (NSEL). FTIL has brought down its holding in MCX from 26% to 5% and is required to divest its entire stake after the revised directives of FMC. Earlier, FTIL sold 15% stake in MCX to Kotak Mahindra bank for R459 crore while offloaded 6% stake in the open market of which about 2% was picked up by veteran stock market investor Rakesh Jhunjhunwala.