MCX MD quits; FMC asks board to take charge

In a letter to the board, the regulator has directed a 5-member committee be set up to oversee the exchange's operations

Shreekant Javalgekar had resigned as the managing director of Multi Commodity Exchange of India (MCX) on Thursday night, a source said.

On Friday, the Forward Markets Commission (FMC) directed the exchange's board to take charge and set up a five-member committee of board members, including at least two independent directors, to oversee the exchange's operations.

On Friday, FMC also asked the board to appoint a new managing director within a month. It has also said Dipak Shah, who heads MCX’s surveillance department, should be removed from the post.

Ahead of a crucial board meeting on October 22, the MCX board would have to comply with the FMC's directive of doing away with shareholder directors as permanent directors. Jignesh Shah has been a permanent director on the board since 2006.

Earlier, the Securities and Exchange Board of India had asked the board of the group's stock exchange, MCX-SX, to take charge; at a board meeting, Jignesh Shah, director, and Joseph Massel, managing director, would have to resign from the exchange's board.

FMC's action on Friday follows its revelation that the Indian Bullion Merchants' Association (IBMA) was allowed to trade on the exchange, a violation of FMC norms. IBMA is a subsidiary of the crisis-ridden National Spot Exchange Ltd (NSEL), and as such, a related entity. NSEL is promoted by Financial Technologies (FTIL), which is also a promoter of MCX.

It has been alleged Dipak Shah was lenient in allowing IBMA to trade on MCX.

In its correspondence with FMC in the recent past, MCX had admitted allowing IBMA to trade on MCX was a mistake, adding Dipak Shah was warned about this. To this, FMC had said a simple warning for such a serious violation wasn't enough. The commission has also issued a show-cause notice to MCX promoters, directors (Jignesh Shah and Joseph Massey) and Javalgekar, challenging their 'fit and proper' status.

FMC has also directed the exchange's board to carry out a special audit by accounting firm Grant Thornton, which had also conducted an audit of NSEL. The MCX audit would include tracking transactions by related parties, including IBMA, and related issues. The audit would cover period since the exchange's inception in 2003.

The Registrar of Companies is also carrying out a full-fledged inspection of all Financial Technologies group companies, including FTIL, MCX and its warehousing arm National Bulk Handling Corporation, since the inception of the respective companies, under section 209A of the Companies Act.

According to MCX's shareholding pattern for the quarter ended September 2013, foreign institutional investors (FIIs) sold shares equivalent to 1.61 per cent of the paid-up equity, while domestic institutions sold 4.76 per cent equity. FIIs who sold shares include Fidelity Funds and Passport Capital. Among large domestic investors, National Stock Exchange, Bank of India and Reliance Capital Trustee cut holdings. During the quarter, Swiss Finance Corporation and Valiant Mauritius Partners, BNP Paribas Arbitrage picked up stake in the exchange.

On August 19, MCX shares hit an all-time low of Rs 238.3; these had recorded an all-time high of Rs 1,617 on November 13, 2012. The exchange had launched an initial public offering in February 2012 and shares were allotted at Rs 1,032 apiece. Meanwhile, Union Bank of India has proposed to appoint K N Raghunandan as director on the exchange's board.