FMC declares Shah, FTIL unfit to run a bourse

Also declares Joseph Massey, Shreekant Javalegar unfit to hold any management position in any exchange recognised by GoI, FMC

The Forwards Markets Commission (FMC) on Wednesday declared Jignesh Shah, chairman of Financial Technologies India Ltd (FTIL), unfit to run an exchange. Besides Shah and FTIL, the commodities market regulator, in an 80-page order, also declared former MCX director Joseph Massey and the exchange’s former MD Shreekant Javalgekar “not fit to hold any management position in any exchange recognised by the Government of India and FMC”.

In its order dated December 17, FMC found gross irregularities and violations of the Forward Contracts (Regulation) Act, under which National Spot Exchange Ltd (NSEL) — FTIL holds a 99 per cent stake in the entity — was granted exemption to run one-day forward contracts. Now defunct, NSEL is grappling with a Rs 5,500-crore payment default to around 13,000 investors.

Shah refused to comment on the order but company officials said the FMC order could be challenged in the Bombay High Court.

The regulator’s order said FTIL, as the anchor investor in MCX, did not carry a good reputation and character, record of fairness, integrity or honesty to continue to be a shareholder of MCX. “Therefore, in the public interest, the Commission holds FTIL not a ‘fit and proper person’ to continue to hold two per cent or more paid-up equity capital of MCX,” said the order.

As the anchor investor, FTIL holds a 26 per cent stake in MCX. The regulator, however, has not given any deadline for stake reduction.

The order pointed to instances of irregularities in the Indian Bullion Market Association, another entity promoted by NSEL (60.88 per cent stake), trading on MCX — a practice that has been banned by the regulator. The induction of Mukesh Shah, Jignesh Shah’s maternal uncle, as NSEL’s auditor was also considered inappropriate and questionable.

Besides, Shah was found to have made several false claims to the Department of Consumer Affairs assuring that it will have all collaterals before allowing the sale order on NSEL. Citing forensic audit and personal visit by various sources, FMC found evidences of “short selling”, a banned practice.

Questioning the promoter’s intention for seeking exemption for its one-day contract even before actual commencement of NSEL business, FMC said: “Keeping in view the observations, the facts reveal misconduct, lack of integrity and unfair practices on the part of FTIL in planning, directing and controlling the activities of its subsidiary company.”

Despite the adverse order, the MCX stock price rose 8.29 per cent on BSE on Wednesday to Rs 421.35. Market participants said the exchange’s announcement that FMC had cleared private equity major Blackstone’s proposal to increase stake in MCX led the rally. The FTIL scrip, on the other hand, fell about one per cent to Rs 166.80 apiece.

The FMC order is crucial because the Securities and Exchange Board of India (Sebi) had given MCX-SX a year’s extension only on the condition that no other regulator should find anything adverse. Since then, Shah and Massey have stepped down from the stock exchange.

Former Union home secretary G K Pillai became the chairman of the exchange and former LIC managing director Thomas Mathew was named the vice-chairman.

IN A SPOT
Challenges before Jignesh Shah

* Reducing FTIL’s stake in MCX from 26% to 2% of paid-up equity capital

* Selling 69% stake owned by MCX and FT in MCX-SX — within the Sebi deadline

* Retaining the market credibility and market share of ODIN, a popular trading software used by brokers

* His assets have already been frozen by Economic Offences Wing