FMC action after Mayaram report

The regulator is likely to issue a show-cause notice to Financial Technologies questioning its competence to run the exchange

The Forward Markets Commission (FMC) is waiting for the final report from the economic affairs secretary Arvind Mayaram.

The regulator is likely to issue a show cause notice to Financial Technologies, which is a promoter of crisis-ridden National Spot Exchange Ltd (NSEL) questioning its status as a fit person to run the exchange.

NSEL had defaulted consecutively for five weeks and the total recovery so far has been only Rs 148 core, after it suspended trading on 31 July. The total payment it has to make is Rs 5,572 crore.

“We are waiting for the reports from Arvind Mayaram, Economic Affairs Secretary to initiate action,” an FMC official said. Mayaram is looking into two reports filed by two task forces and based on that, the line of action by various regulators will be decided.

FMC had earlier warned NSEL's board of directors that their ‘fit and proper’ status to run the exchange is at risk. The latest development is that the ousted MD of NSEL, Anjani Sinha, has said in an affidavit that he had kept the board in the dark and accepted the blame for all the wrongdoings. For FMC also it would be not be an easy task to challenge the fit and proper status as the management is being blame. It is learnt that the NSEL board has relied on information provided by the MD and compliance certificate issued by the exchange every quarter and none of them were suggesting anything wrong happening.

Arvind Mayaram has called a review meeting on Friday to discuss further course of action. FMC also now reports to Mayaram after it was moved under finance ministry last week.

The show cause notice, according to an official in the know, will be issued to the board members of NSEL including Jignesh Shah, non-executive vice chairman, Joseph Massey, non-executive director and Shreekant Javalgekar, managing director and CEO of MCX.

Meanwhile, the notice will also incorporate Financial Technologies (FT) being the promoter of NSEL. FT continues to hold an anchor investor’s stake equivalent to 26 per cent in MCX.

Meanwhile, the FMC official said that the Commission through a recent direction has lowered dominance of the promoter group by equalizing representation from both independent and non-independent directors.

For example, of the board’s 14 member strength, seven will be independent directors. The representations of the remaining seven will be divided in proportion to shareholding pattern.

With this, however, FT’s representation on the MCX board will decline to one from the existing four.

“This will make the decision broad-based and end the dominance of promoter or anchor investor group,” said the official.