Singapore regulator may have nudged Jignesh Shah-owned Financial Technologies to exit from SMX

Written by Ashish Rukhaiyar | Mumbai | Updated: Nov 20 2013, 20:12pm 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.
Jignesh Shah-owned Financial Technologies-India (FTIL) on Tuesday announced that it has sold its 100% stake in Singapore Mercantile Exchange (SMX) for $150 million to Intercontinental Exchange Group, which owns leading bourses like NYSE Euronext and New York Board of Trade. This is the first instance of FTIL selling stake in any of its overseas exchange holdings after the settlement crisis at the National Spot Exchange (NSEL) came to light in August.

According to persons familiar with the development, the sudden exit of FTIL from SMX could be at the behest of the Monetary Authority of Singapore (MAS), which is the financial services regulator of the country. The regulator has independent directors on the board of SMX and its views are always communicated in a tacit manner, they say.

The announcement comes less than four months after SMX issued a release in the island country that it was business as usual for the Singapore-based bourse and that it has sufficient capital and guarantee funds as well as a robust risk-management mechanism. While FTIL has established exchanges in various countries like the UAE, Bahrain, Mauritius, South Africa, Kenya and Botswana, SMX was among the few entities that reported significant amount of turnover.

Singapore is a tightly regulated market with MAS actively monitoring entities under its purview. It will not like any scandal to hit institutions that are directly under its jurisdiction. MAS, in a very tacit manner, would have told the owners that either they sell off or stand the risk of losing their licence, said a person who has interacted with MAS officials on a number of occasions.

While this could not be independently confirmed, an FTIL spokesperson said that there was no pressure from MAS. An email query sent to MAS remained unanswered till the time of going to press.

FTIL is the parent entity of NSEL, which is struggling to meet its settlement obligations amounting to Rs 5,600 crore. The Forward Markets Commission (FMC) has also challenged FTIL's 'fit & proper' tag.

Meanwhile, sources say that it made a lot of sense for FTIL to sell its stake in SMX at a time when the exchange was operational. Any adverse action from MAS on its licence would have led to lower valuations for the venture. The SMX stake was held through Financial Technologies Singapore Pte, a wholly-owned subsidiary of FTIL. SMX Clearing Corporation (SMXCC) was a step-down subsidiary of SMX.

According to FTIL, the money realised from the sale would be used to make FTIL a debt-free company. Currently, FTIL's foreign currency loans stand at R73 crore while external commercial borrowings are pegged at R67 crore.

SMX, which was launched in August 2010, has accumulated losses of $77 million (nearly R480 crore). The turnover of the bourse crossed $100 billion in 2012, according to data available on the website of SMX. Further, according to FTIL's annual report, the average daily turnover of SMX was $200 million in FY13.

A statement issued by FTIL said that Shah has "mixed emotions about parting way with an asset that he had nurtured as a global showcase of an institution built with Singapore's world class infrastructure and regulation". Interestingly, ICE, in a separate announcement, said that SMX and SMXCC will transition from their existing technology to the ICE trading and clearing platforms. The annual report of FTIL shows that the technology company earned R19 crore from SMX in FY13 for software services. The FTIL share gained 2.07% to close at R185.05 on Tuesday, after surging almost 20% in the previous trading session.