MCX proposes sharp scale-down of software contract with FTIL

Sources say the move is to bring the contract to a sensible level, failing which MCX would be looking for another software vendor

The Multi Commodity Exchange (MCX) has proposed a revision in the controversial technology supply contract with parent Financial Technologies India (FTIL). According to sources, MCX has asked FTIL to reduce the contract to five years, which can be extended up to 20 years. It will pay the parent company only 33 per cent of the existing payout of about Rs 1,000 crore.

The current software contract between MCX and FTIL is for 33 years, renewable twice up to 99 years. The special audit report by PricewaterhouseCoopers had termed the deal one-sided and that there was no evidence that MCX sought quotes from global or Indian technology providers while awarding contracts to FTIL, which provided services such as new software development, upgradation of existing software, annual maintenance and consultancy.

MCX paid a mark-up of up to 32 per cent on procurement of hardware by FTIL and signed contracts with it that had "unprecedented long tenure" of 33 to 50 years, with a provision of automatic renewal for another 33 years.

Sources said FTIL was not willing to comply with all the terms and conditions laid down by MCX.

While FTIL was unavailable for comment, sources said the move is to bring the contract to a sensible level, failing which MCX would be looking for another software vendor.

An MCX spokesperson said, "As a policy, we refrain from commenting on market speculation."

Forward Markets Commission, the commodity market regulator, had asked MCX to ensure that a satisfactory software and technology contract was signed between the two by June-end. "FTIL's final response to the re-negotiated terms is with the MCX board and will take a decision soon," said a source.

According to the existing contract terms, if FTIL broke the contract, there would be no consequences; however, if MCX did the same, then it would have to face penalty.

FTIL sees 25 per cent of its revenue coming from MCX. The new contract, if effected, will severely hit the company's top line.

MCX has decided to transfer FTIL's 26 per cent stake to an escrow account. After the Rs 5,600-crore NSEL scam came to light, FMC declared on December 17, 2013 that FTIL was not fit and proper to run the MCX.