Sebi questions Financial Technologies Indias fit-&-proper status

Written by fe Bureau | Mumbai | Updated: Dec 21 2013, 06:02am hrs
SEBIIssues show-cause notice; seeks reply by Dec 26
The Securities and Exchange Board of India (Sebi) has issued a show-cause notice to Financial Technologies-India (FTIL), questioning the 'fit & proper' status of the entity. The capital market regulator has given FTIL till December 26 to explain why it should not be directed to divest its stake in MCX Stock Exchange (MCX-SX).

According to sources, any adverse findings by the capital market regulator would force FTIL to divest its 5% stake in MCX-SX. The Jignesh Shah-controlled company also holds minority stake in the Delhi Stock Exchange and the Vadodara Stock Exchange bourses that fall under Sebi's purview.

The Sebi notice comes close on the heels of the order passed by the Forward Markets Commission (FMC), which ruled that FTIL is not a 'fit & proper' entity to be a shareholder in any exchange in the wake of its alleged role in the R5,575-crore settlement crisis at the National Spot Exchange (NSEL). The FMC, in its order, also named FTIL group chairman Jignesh Shah, along with Joseph Massey and Shreekant Javalgekar, as unfit to be a shareholder in any exchange.

Sources add that the prompt reaction by Sebi was largely expected as the Securities Contracts (Regulation) - (Stock Exchanges and Clearing Corporations) Regulations 2012 popularly known as SECC clearly lay down that if any person or entity has been declared not 'fit and proper' by any regulatory body, then Sebi can also declare the same.

While FTIL directly holds 5% in MCX-SX, it owns a large number of warrants that give the listed entity a greater say in the functioning of the bourse. Incidentally, the warrants have been a bone of contention between Sebi and FTIL, which was finally resolved in a long-drawn battle in the Bombay High Court.

FMC, in its order, has stated that FTIL cannot continue as an anchor shareholder in an exchange. Currently, FTIL holds 26% in Multi Commodity Exchange of India (MCX). 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 issued late on Tuesday night.

Meanwhile, FTIL has challenged the FMC order by filing an appeal in the Bombay High Court. The case will be heard by Chief Justice Mohit Shah on Saturday.

The plea filed by FTIL and the three individuals challenges the findings of the FMC, including the observation that Shah has been the biggest beneficiary of

the irregularities committed at NSEL.