The Forward Markets Commission (FMC), the commodity derivatives markets regulator, wants the National Commodity & Derivatives Exchange (NCDEX) to remove the Gaurav Arora-promoted Jaypee Capital Services Ltd (JC) as anchor-investor. Jaypee has 22.38 per cent stake in NCDEX, India’s second largest agri-centric futures exchange.
JC was inducted as anchor investor on NCDEX on October 7, 2010, and was allocated 11.34 million equity shares at a heavily discounted price of Rs 59 per share, as compared to the last transacted share price of Rs 110 per share through the exchange’s rights issue.
JC was issued shares on the condition that it would raise the exchange’s monthly average turnover to at least Rs 7,000 crore, Rs 12,000 crore and Rs 16,000 crore in any three consecutive months of the three subsequent years, respectively, from the Rs 3,000 crore level at the time of share allocation. In the first two years, i.e. during the financial years 2010-11 and 2011-12,
JC failed to achieve the target. The average turnover of NCDEX in April and May 2012 was Rs 5,600 crore.
However, under the Forward Contracts (Regulation) Act, any trader with more than one per cent stake in an exchange should not hold any position on the exchange’s board. Also, brokers are not supposed to trade on the exchange in which they hold an equity of over one per cent. They have to surrender membership of the exchange if they wish to own those shares.
An FMC spokesperson refused to formally comment on the issue but sources said it was against the NCDEX decision on JC, in having anchor investors also being responsible for generating trade on the exchange.
By the agreement between JC and the exchange, if the volume was not growing as targeted, JC has to pay Rs 113 crore as the share price differential amount to the exchange by October 2013 — completion of the third year from the agreement date.
M K Ananda Kumar, NCDEX’s head of corporate services, maintained that, “JC and its related entities are barred from trading on the exchange. The company (that is JC) divested its equity stakes in other entities having trading interests in the exchange in compliance of the regulatory stipulation by the FMC. The exchange maintains vigilance to ensure that any of the promoters or their relatives or their entities are not trading on the exchange.”
In fact, the induction of JC as an anchor investor was a decision taken by the board of directors of the exchange on October 2, 2010, where representatives of public sector companies — Life Insurance Corporation (with 11.1 per cent stake), Nabard (11.1 per cent), Punjab National Bank (7.29 per cent) and Canara Bank (6.03 per cent) — were present.
The JC spokesperson said: “Jaypee Capital is not a commodity broker and had divested its equity stake in another firm having membership in the NCDEX in compliance with FMC guidelines. In fact, that firm has also surrendered the membership.”