FTIL not 'fit & proper' to own bourse: Sebi

Will have to shed stake in MCX-SX, other exchanges

The Securities and Exchange Board of India (Sebi) has barred Jignesh Shah-promoted Financial Technologies India Ltd (FTIL) from owning stakes in the country’s stock exchanges. In an order released late Wednesday evening, the capital markets regulator said FTIL was not ‘fit & proper’ to hold shares in bourses and directed it to sell its holding in the four exchanges and a clearing corporation within 90 days.

A spokesperson for FTIL said that the company was still examining the order.

Besides MCX-SX, FTIL owns stakes in the Delhi Stock Exchange, the Vadodara Stock Exchange, the National Stock Exchange and MCX-SX Clearing Corporation. Sebi’s decision follows a similar move by the Forward Markets Commission, the commodity markets regulator.

“A person who is not ‘fit & proper’ to hold shares in a commodity futures exchange cannot be ‘fit & proper’ to hold shares in recognised stock exchanges and clearing corporations. He poses the same danger to the interest of securities market as he does to the commodity futures market, as both require the same standard of integrity. So, there is no doubt that the declaration of FTIL as not ‘fit & proper’ by FMC has direct bearing on the securities market,” said the Sebi order.

There will also be an immediate freeze on FTIL’s voting rights in these entities.

The stock market regulator had sent a notice to FTIL in December, after FMC sent a similar one in the wake of a Rs 5,600-crore payment crisis at National Spot Exchange Ltd, in which FTIL held a 99 per cent stake.

An appeal was filed in the Bombay High Court against the FMC notice; a decision on that is pending.

“Considering the facts and circumstances of the case, interest of investors and the securities market, I do not find any reason to defer passing of this order or defer the implementation of this order as pleaded by FTIL,” said the Sebi order.

FTIL and Multi Commodity Exchange (MCX) hold a 4.99 per cent stake in MCX-SX. The two also hold warrants that on conversion will translate into a 69 per cent stake in MCX-SX.

The Sebi move has come on the back of a CBI inquiry into the circumstances under which MCX-SX received recognition as a stock exchange. The CBI inquiry is also looking into the role played by senior Sebi officials, including former chairman C B Bhave and whole-time member K M Abraham. Some ministers and bureaucrats, though, have come out in support of the duo.

The order came within days of Bhave questioning in a media interview if the original decision to grant recognition to MCX-SX merited an investigation and whether Sebi’s role in allowing MCX-SX to function after the payment crisis at NSEL should also merit one.

Following initiation of the CBI probe, former home secretary G K Pillai, who had been appointed as MCX-SX chairman, quit last week. He served for less than five months. MCX-SX, which now has a board with public-interest directors, has been looking to raise capital through a rights issue.
UNFIT & IMPROPER

• Dec 17, ’13: FMC passes order against FTIL, declares it not ‘fit & proper’
• Dec 20, ’13: Sebi serves ‘fit & proper’ showcause notice on FTIL for its holdings in MCX-SX and 4 other market infra institutions (MIIs)
• Dec 21 & 26, ’13 and Feb 10, ’14: FTIL files its replies to Sebi
• Jan 7 & 13, Feb 11 and Mar 6: FTIL appears before Sebi for personal hearing
• Mar 6: FTIL counsel seeks time till March 18 to file written submissions. Says in replies & submissions the FMC order, on which the Sebi notice is based, is under challenge before the Bombay HC. So, Sebi should defer order till the court’s decision
• Mar 19: Sebi declares FTIL not ‘fit & proper’, asks it to divest its holding in five MIIs — MCX-SX, MCX-SX Clearing Corp, Delhi Stock Exchange, Vadodara Stock Exchange and National Stock Exchange