Apex court breaks the ice, paves way for MCX-SX

Market regulator to reconsider plea for stock exchange in three months

The dispute between the Securities and Exchange Board of India (Sebi) and MCX-SX has been resolved for the time being. Sebi agreed in the Supreme Court on Wednesday to amend its rules and dispose of MCX-SX’s application for recognition as a stock exchange within three months.

Attorney General G E Vahanvati, representing Sebi, said  its board had already met and taken certain decisions regarding the amendment to rules following a Bombay high court judgment last month. The high court, on a petition moved by MCX-SX, had asked Sebi to consider the company’s application within a month. Sebi appealed to the Supreme Court against the high court order.

The Attorney General submitted before a bench headed by Justice Aftab Alam that a month was not enough for the process of amendment to the Sebi (Manner of Increasing & Maintaining Public Holding in Recognised Stock Exchanges) Regulations 2006 (MIMPS Regulations) and sought three months for the process. All parties agreed to it.

LONG BATTLE

October 2008: MCX-SX launches currency segment

August 2009: Sebi renews recognition of MCX-SX but wants dilution of promoters’ stake before allowing stock trading 

October 2009: MCX-SX devices a capital reduction scheme to reduce promoter holding

April 2010: MCX-SX informs Sebi of compliance after the scheme gets court approval; seeks approval to trade equities 

July 2010: MCX-SX moves Bombay HC, seeking to direct Sebi to respond to its applications

August 2010: Bombay HC directs Sebi to decide by Sept 30, 2010
Sebi renews recognition of MCX-SX for one more year, issues showcause on alleged violations

September 2010: Sebi passes order, rejecting MCX-SX’s application 

October 2010: MCX-SX challenges order 

March 2012: HC sets aside Sebi order

April 2012: SC disposes Sebi SLP

According to Sebi, the high court judgment had thrown up two issues related to the recognition of stock exchanges. It said it was aggrieved by the high court observations, firstly, regarding the illegality of the buyback agreements under the Securities Contracts Regulation Act and notifications under it.

The second problematic area was whether commonality of objective was required to be proved when a person was deemed to be “a person acting in concert” for the purposes of Regulation 8 of MIMPS Regulations. Sebi argued the high court ruling on these two issues was “patently erroneous”.

The Attorney General said the Sebi board had taken decisions concerning various issues raised by the stock exchange before the high court. “It will shortly begin the process of making necessary changes to the regulations in the light of the policy decisions."

He said the matters involved were of great importance to Sebi as a regulator as well as to the market and public interest as they would have implications on other regulators and the general operations of the market.

Sebi, at the beginning of this month, issued new guidelines on the working of stock exchanges and other market infrastructure companies. According to these rules, any shareholder who has exposure of more than the prescribed limit will have to reduce it in three years and bring it in line with the regulations.

Currently, Multi Commodity Exchange and Financial Technologies hold more than five per cent each in MCX-SX through convertible warrants, which is not in compliance with Sebi norms. However, after the new rules, which will be implemented after Sebi makes changes to its guidelines regarding the shareholding structure of market infrastructure companies, promoters of MCX-SX may get three more years to bring down their holding.

Senior counsel Harish Salve, representing MCX-SX, submitted that it was not its intention to fight with the regulator. It was agreeable to wait for three months for the new regulations to come into force and would comply with the rules.

MCX-SX said, "We always had full faith in our regulatory and judicial institutions and systems. We remain committed to the growth and development of the Indian capital market, which has a significant role to play in the overall development of the economy."