Sebi gets three months to review MCX-SX plea

Written by Indu Bhan | Indu Bhan | New Delhi | Updated: Apr 12 2012, 09:26am hrs
Paving the way for MCX Stock Exchange (MCX-SX) to trade in equities and derivatives, the Supreme Court on Wednesday gave Sebi three months to make necessary amendments to its regulations and consider its MCX-SXs application for operating as the countrys third stock exchange.

A bench headed by Justice Aftab Alam passed the consent order after MCX-SX agreed to Sebi amending its regulations on the buyback of shares and parties acting in concert in three months from Wednesday, notwithstanding anything contained in the Bombay High Court judgment. Sebi agreed to consider the MCX-SX plea within this time.

Appearing for MCX-SX, senior counsel Harish Salve said: There are two issues which are bothering them (Sebi) and I perfectly understand why. Let them amend the regulations and we will comply. Let them take three months, we have no problem. Attorney general Goolam Vahanvati, who appeared for Sebi, agreed to Salve's proposal.

MCX-SX welcomed the order: We always had full faith in our regulatory and judicial institutions and systems. We remain committed to the growth and development of Indian capital market which has a significant role to play in the overall development of the economy.

The Sebi appeal before the Supreme Court sought three months to make the necessary changes to the Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges, Regulations 2006 (MIMPS Regulations).

Since an important matter of law was involved, it took some time to understand and analyse them and it is not possible to dispose of the matter within the time given by the High Court, the petition stated, adding the MCX-SX promoters MCX and Financial Technologies had given an undertaking before the high court that notwithstanding the exercise of the warrants and the buyback agreements, their combined shareholding in MCX-SX would not exceed 5%.

The regulator also alleged that these promoters were persons acting in concert and together could not hold more than 5% and the buyback agreements were illegal as they amounted to forward contracts.

The Bombay High Court on March 14 set aside the Sebi order rejecting the application from MCX-SX, one India's youngest bourses for permission to offer trading platforms for stocks and equity derivatives over and above currency derivatives that are currently traded on the exchange.

The high court had given a month to Sebi to consider the MCX-SX application afresh and decide on it in terms of the observations made by the court.

In 2010, Sebi had rejected MCX-SX's application seeking permission, saying it had violated shareholding norms for stock exchanges, which restrict ownership of a single investor at 5%.

It objected to the manner in which MCX-SX promoters MCX and FTIL diluted their stakes in the exchange by issuing warrants to banks and financial institutions. The regulator also alleged the exchange's promoters were persons acting in concert and had entered into buyback arrangements with a few financial investors in violation of Sebi regulations and were not fit to receive an equity trading licence.

Sebi also found flaws with the manner in which the promoters diluted stake from a combined 70% to 10% by getting warrants issued to themselves.