Jignesh Shah quits MCX board, pre-empts FMC action

Move comes ahead of FMC decision on his fit & proper status to run exchange

Barely three weeks after he resigned from the MCX-SX board, Jignesh Shah on Thursday quit the board of Multi Commodity Exchange of India (MCX) as well. In an emotionally charged statement, the founder-chairman of Financial Technologies (FT) said the crisis at the National Spot Exchange (NSEL) had destroyed everything he had worked hard to build over the past two decades. Shah said he hoped to “see the institution grow from a distance for the rest of my life”.

The resignation follows the Rs 5,600-crore payment crisis at NSEL, also controlled by FT. Shah was non-executive vice-chairman of MCX, which was promoted by FT in 2003 and became the country’s top commodities exchange in terms of volumes within a few years.

“My loss is not just financial but what has hurt me and my family most is the concerted effort to destroy my credibility and trust which I have lived by all my life,” Shah said, adding he had worked tirelessly along with his team to create institutions such as MCX and put India on the global map.

Shah’s sudden action comes ahead of probable action by the Forward Markets Commission (FMC) declaring him unfit to run MCX. The regulator had issued a showcause notice to him along with others, asking why they should not be declared not fit and proper to run the commodity exchange after the NSEL fiasco.

In the MCX board meeting held on October 22, Shah managed to retain his position on the board by seeking more time to step down. The board had accepted his request till the time the FMC decided on the fit-and-proper status of Shah.

In its reply to the showcause notice, FT is understood to have said that the notice became infructuous since Shah had already resigned from the board.  FT remains a shareholder in MCX. Shah only said that a detailed reply had been filed, addressing all the concerns raised in the regulator’s showcause notice. While the FT spokesperson was tightlipped on the contents of the reply, sources said the proceedings initiated by various agencies on NSEL were still pending adjudication. Hence, it was premature for the FMC to draw any adverse inference against it on account of such proceedings.

The FMC had alleged that Shah and others were aware of the NSEL fiasco.

A similar response is understood to have been given by Shah to the FMC in his capacity as an individual. In a similar manner, Joseph Massey and Shreekant Javalgekar, two other NSEL directors, have said that since they have resigned from the MCX board, no regulatory intervention is warranted at this stage.

Shah said he helped develop the commodities market in India and steered MCX to becoming the second-ranked commodity futures exchange in the world. His claims are borne out by facts. When the government decided to open up the commodity futures market to nationwide exchanges in 2002, several companies applied to launch an exchange. In the first shortlist, Shah’s company did not figure. He approached the ministry of consumer affairs and his application was cleared in the next round. Though three applications were approved, Shah was the first to launch an exchange, which went live in November 2003.

THE JIGNESH JIGSAW

• 2002: FT applies to set up an exchange
• Early 2003: Gets permission
• Nov 2003: MCX goes live
• 2006: Jignesh Shah quits as founder MD of MCX and becomes permanent director on its board
• 2007: NSEL set up as a subsidiary of FT
• July 12, 2012: Govt asks NSEL not to permit new contracts and settle existing contracts on maturity
• July 31, 2013: NSEL suspends trading
• Aug 20, 2013: NSEL defaults on payments
• Oct 4, 2013: FMC issues showcause notice to Jignesh Shah, others
• Oct 9, 2013: Jignesh Shah steps down from the board of MCX-SX
• Oct 31, 2013: Shah resigns from MCX board ahead of FMC move on his fit & proper status