MCX gets currency licence extension

Sebi issues another showcause notice; approval subject to outcome of ongoing case in Bombay High Court.

The Securities and Exchange Board of India (Sebi) has granted a conditional extension to MCX-SX to operate in currency trading. The licence of MCX-SX to function as a currency exchange was to expire tomorrow.

The extension, granted in ‘larger public ineterst’ for one more year, would be subject to a fresh showcause notice issued to the exchange by Sebi on Wednesday and the outcome of the ongoing case in the high court here, sources said.

The showcause notice is similar to the one issued earlier. In its previous notice, Sebi had cited non-compliance with shareholding rules, withholding of material information, concentration of economic interest and illegal buyback transactions with investors as reasons for denying permission to the exchange to start trading in equity, debt and other instruments.

In Wednesday’s notice, Sebi asked MCX-SX to give reasons why its application for renewal of currency exchange licence should not be rejected. The exchange has been given three weeks to reply. “Since the issue involved forms part of the ongoing court case, we cannot comment,” an MCX-SX spokesperson said.

The exchange had taken Sebi to court during the tenure of former chairman C B Bhave for delaying permission to start trading in equities and other segments. The final hearing in this matter is to take place on Friday.

At the heart of the acrimonious public battle between MCX-SX and Sebi is the Manner of Increasing and Maintaining Public Shareholding, or MIMPS, regulations. While the exchange claimed it had adhered to those, the regulator’s contention was that the norms were not followed in spirit.

In its response to Sebi’s showcause notice in late August, MCX-SX had said the capital reduction scheme, through which it had brought down the promoters’ stake to comply with the MIMPS norms, had been suggested by a Sebi executive director. The bourse had briefed Bhave about the structure, MCX-SX had said. But the regulator dismissed the claim.

Under MIMPS norms, promoters are allowed to hold up to five per cent stake in a stock exchange, while select financial institutions can own up to 15 per cent each.

To bring down their stake in MCX-SX to five per cent, its promoters — MCX and Financial Technologies — reduced the capital base of the bourse. This resulted in their combined holding coming down to five per cent each from around 70 per cent earlier.

The two promoters, however, were issued warrants — which can be converted into shares at a later date — equivalent to the number of shares extinguished under the capital reduction scheme.

Later, under court directives, the promoters passed resolutions that they would not increase their shareholding above the limit specified under the MIMPS regulations.

On the other hand, promoters or companies controlled by them entered into a buyback arrangement with other shareholders, which led the regulator to declare the exchange ‘not a fit and proper person’, as material facts like these were not divulged to the regulator. The bourse had commenced operations in currency derivatives in September 2008.

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SEPT 9: MCX-SX’s currency licence renewal hinges on equity case