Agriculture and consumer affairs minister Sharad Pawar has disapproved of the alacrity shown by some officials in the department of economic affairs to aid the National Stock Exchange?s (NSE) aborted plan to consolidate its holdings in NCDEX, the country?s second largest commodity exchange.

In a letter to finance minister Pranab Mukherjee, Pawar expressed consternation at the manner in which these officials expended considerable effort to prevail upon two public sector entities LIC and Nabard to divest parts of their stakes in NCDEX in favour of NSE, which is a private company.

Pawar?s letter, written a fortnight ago, was based on information shared with him by an RTI applicant, including file notings by the DEA officials, sources privy to the matter told FE.

NSE is the country?s largest bourse ? about 70% of the equity market transactions and 99% of trade in equity derivatives take place on its platforms. It, however, is a laggard in two fast-growing segments?commodity futures and currency futures. There has long been an allegation that NSE?s dominant position in the stock exchange business is crippling the growth and diversification of the market. The exchange is alleged to have used its clout in the government and the market regulator to keep competition at bay.

Incidentally, NSE did not even approach the Forward Markets Commission, the regulator of commodity futures market which has jurisdiction over NCDEX, before seeking North Block?s help to up its stake in the commodity exchange. FMC chairman BC Khatua told FE: ?We have never been approached officially by the NSE or NCDEX on this matter.? NSE has 15% stake in NCDEX at present. Its intention was to get 5% each from LIC and Nabard (both of which hold 15% each) so as to gain management control and use its experience in running exchanges to make headway in commodities futures segment. ?The right course (for NSE or NCDEX) could have been to approach LIC and Nabard for their consent and then come to the FMC and the consumer affairs ministry,? Khatua said.

Incidentally, scuppering the chances of the NSE achieving its goal, the FMC has recently capped the shareholding of any single stock exchange along with the persons acting in concert in an existing national commodity exchange at 5% and cumulative shareholding of stock exchanges at 10%. NSE will have to comply with this stipulation latest by March 2011. Khatua said the new cap is aimed at reducing conflicts of interest. The stake a commodity exchange can have in a stock exchange is capped at 5%.

Under the Forward Contracts (Regulation) Act, 1952, FMC has powers to issue guidelines for equity holdings in commodity exchanges, just as Sebi can define the ownership pattern of stock exchange firms.

On a compliant lodged by rival MCX Stock Exchange (MCX-SX), the Competition Commission of India is already probing ?abuse of dominant position? by NSE in currency derivatives segment through ?predatory pricing? (waiver of transaction fee in this case). MCX-SX, which launched currency derivatives platform in October 2008, has acquired a clear lead over NSE in this segment which is already reporting a handsome daily trading volume of about Rs 25,000 crore.

Pertinently, Multi-Commodity Exchange (MCX) and Financial Technologies, the twin promoters of MCX-SX, reduced their stakes in the firm to 5% each three months ago in compliance with Sebi?s diversified-shareholding norm. (The transaction was completed on March 19). Keen to get the licence for the all-important equity segment, MCX-SX has moved the Bombay High Court against Sebi on the ground that three months after the regulator was informed of the divestiture of stakes by the promoters, it was yet to allow the firm to operate in the equities segment.

NSE?s is a fairly diversified shareholding structure comprising several Indian banks, private companies, foreign investors and individuals.

Besides MCX (with a share of over 80%) and NCDEX, the commodity futures segment has two other players ? National Multi-Commodity Exchange and Indian Commodity Exchange.

In June last, MCX got an unconditional approval from FMC for its IPO.MCX-SX claims it has all the facilities of ?world?s most evolved and hi-tech new-generation exchanges.? ?With cutting-edge technology, world-class services and cost optimisation, MCX-SX has altered the face of the Indian financial markets,? says the company?s website.