All eyes on Sebi after FMC's decision on FT

Following the Forward Markets Commission (FMC)’s ruling declaring the Financial Technologies India Limited (FTIL) unfit to operate an exchange, the spotlight is now on the Securities and Exchange Board of India (Sebi).

The stock market watchdog had said any adverse findings by other regulators might have a bearing on the exchange.

“…Any adverse findings by any other regulator may result in withdrawal of recognition of the exchange,” Sebi had said in a press release in September, while renewing its recognition for one more year.

REGULATORY SPOTLIGHT

• FMC says FT, Jignesh Shah and Joseph Massey don’t meet ‘fit and proper’ criteria to operate an exchange
• Sebi had said that any adverse remarks by other regulators would impact MCX-SX’s recognition
• A spokesperson for the exchange said that only adverse remarks against the exchange by other regulators would affect recognition
• Remarks against promoters or other individuals would not affect its recognition, claims MCX-SX
• FT holds nearly 5 per cent in shares and 69 per cent in the form of warrants in the exchange

A spokesperson of the Multi Commodities Exchange-Stock Exchange (MCX-SX) said only adverse findings against the exchange by other regulators would have an impact on its operations. Thus, there would not be any negative fallout, as the FMC order did not name the MCX-SX, claimed the spokesperson.

“We are going through the order. As is publicly known, the concerned directors had resigned from the board of the exchange sometime ago, and the exchange is now being led by a new chairman and vice-chairman. As such, we do not expect any adverse fallout of the order on the exchange,” said a spokesperson.  

Meanwhile, sources close to the development said the market regulator may issue a show-cause notice to FT, the founder of MCX-SX, on why it should not be declared ‘not fit and proper’ to own a substantial stake in the stock exchange.

An email sent to a Sebi spokesperson received no response.

In the 80-page order on Tuesday, the FMC had declared FTIL, chairman Jignesh Shah and former managing directors of MCX Joseph Massey and Shreekant Javalgekar as not ‘fit and proper’. This came in the wake of a probe into Rs 5,500-crore payment crisis in the National Spot Exchange Limited (NSEL).  The FTIL held 99 per cent stake in the NSEL.

Shah and Massey had already resigned from the board of MCX-SX. Shah was the vice-chairman of the exchange and Massey its managing director and chief executive officer.

In November, the MCX-SX board had elected Gopal Krishna Pillai, former Union home secretary, as chairman, and Thomas Mathew, former chairman of Life Insurance Corporation (LIC) of India, as the vice-chairman.

However, FTIL, which has been named in the FMC order, owns 4.99 per cent stake and also warrants along with MCX amounting to nearly 69 per cent stake post conversion, in the MCX-SX.

A spokesperson for the FTIL declined to comment on if there would be any fallout of the adverse finding on the MCX-SX.

J N Gupta, former executive director at Sebi and founder of proxy advisory firm SES, said the regulator was likely to take steps to ensure the MCX-SX is distanced itself from the said entities.

“…Any action will be taken only after following due process of law and natural justice. The regulator will also ensure whether MCX-SX is ring-fenced from the entities declared unfit by FMC,” he said.  Sebi, in September, while granting a renewal of recognition to the MCX-SX for another one year, had imposed several conditions on the exchange, including on “reconstitution of board, reappointment of any key management personnel.”

Violation of these conditions or adverse remarks by other regulators could affect the status of the exchange, Sebi had said.