CME group eyeing stake in MCX

US-headquartered exchange group said to be keen on picking up 5% stake, the highest permissible

US-headquartered and the world’s leading derivatives exchange group CME is eyeing a stake in India’s leading commodity exchange Multi Commodity Exchange. As an overseas entity, CME group can pick up to five per cent stake in an Indian exchange and it is said to be negotiating for Financial Technologies’ five per cent stake in MCX.

According to the commodity market regulator Forward Markets Commission’s order, FTIL had to sell the 26 per cent stake it was holding in MCX. Of that, it has already sold 21 per cent. 15 per cent stake was sold to Kotak Mahindra Bank a fortnight ago.

The company and its investment advisor JM Finance are discussing with CME group the terms for selling the remaining stake. Pricing has emerged as an issue. MCX is being traded at about Rs 800 a share while the deal with Kotak Mahindra Bank was done at Rs 600 a share. In response to a BSE query as to why the deal with Kotak Mahindra Bank was done at a price lower than the prevailing market price, FTIL has said that, “The deal has been done at a fair price. There are multiple considerations. FTIL has challenged the finding of the Forward Markets Commission that it is not fit and proper to run an exchange, and this sale was without prejudice to this contention. There has been an inherent urgency and coerciveness in the sale of these shares, which has also been underlined by the fact that in the hands of FTIL, these shares do not have any voting rights until the proceedings are resolved.”

CME group is the world's leading and most diverse derivatives marketplace, handling 3 billion contracts worth approximately $1 quadrillion annually (on average). The group has in its fold the world’s leading exchanges like CME, CBOT, NYMEX and COMEX – offering products across asset classes.

Spokespersons for the CME group and FTIL declined to comment on the subject.

CME group, according to the sources, “had placed a non-binding bid last March-April, however it had not placed a binding bid later. The group’s interest in the Indian exchange space is well known.”

A CME group representative had met the FMC earlier and said the group was interested in bidding for FTIL’s stake in the exchange up to the permissible limit and wanted to buy shares in a consortium comprising a few other investors, including Tata Capital and Warburg Pincus. However, said the person in the know, “The FMC had told them that a consortium bid may be classified as persons acting in concert and hence all the investors bidding would have to give an undertaking that they were buying the shares independently.” This seems to have stopped them. Later, the FMC had changed the norms for shareholding in exchanges.

FTIL may face possible pressure from MCX to divest the rest of its stake as soon as possible. The FMC is not approving any new contracts or proposals of MCX till FTIL fully exits, even as the promoter of the exchange has sold most of its stake. The MCX board is meeting on August 13 to approve the quarterly results, at which the stake purchase by Kotak Mahindra Bank and the issue of FTIL’s remaining stake may come up. The board may also discuss if the remaining 5 per cent stake should be transferred to an escrow account or not. Incidentally, the FTIL board is also meeting on August 13 to consider its results.