SAT's thumbs-down to FTIL

Upholds Sebi order on fit-and-proper issue, gives it a month to divest stake in MCX-SX, other bourses

The Securities Appellate Tribunal (SAT) on Wednesday, in a 2-1 verdict, upheld the Securities Exchange Board of India (Sebi) order declaring the Jignesh Shah-promoted Financial Technologies India Limited (FTIL) as not ‘fit and proper’ to hold a stake in any stock exchange or clearing corporation. The tribunal has given four weeks to FTIL to divest its holdings in various entities, including MCX Stock Exchange (MCX-SX).

“A person declared to be not a fit and proper person to hold shares of exchanges operating in the commodity market shall be deemed not a fit and proper person to hold shares of exchanges operating in the securities market. In such a case, an order passed by the regulatory authority under the commodity market would apply to the securities market,” said J P Devadhar, presiding officer and Jog Singh, member, in their order.

FTIL’s counsel had argued that Sebi's order was based on findings of the other regulator and without conducting its own investigations. Sebi had based its March 19 order against the company on a Forward Markets Commission (FMC) order dated December 17, 2013, which had declared FTIL unfit to hold stake in excess of two per cent in any commodity exchange.

A majority of the three-member bench at SAT was convinced by Sebi counsel's argument that an FMC order had a bearing on the securities market. “Both FMC and Sebi are regulating trades executed on the respective exchanges which form part and parcel of the financial market system operating in the country,” two of the three SAT members held.

A S Lamba, member, SAT, differed, setting aside the Sebi order and stating the “entire case has been dealt in an unprofessional manner”.

Beside MCX-SX, FTIL will have to divest its stake in MCX-SX Clearing Corporation, Delhi Stock Exchange (DSE), Vadodara Stock Exchange (VSE) and National Stock Exchange of India (NSE) in a month. As on March 31, FTIL held 33.86 per cent in MCX-SX (including warrants), 23 per cent in the clearing corporation, five per cent in DSE, 23 per cent in VSE and around 0.02 per cent in NSE.