MCX summons board on escrow proposal

Meant to obviate FTIL-like complications in the future; any equity holder declared unfit to have shares will have these put into the proposed account

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Multi Commodity Exchange (MCX), the country's largest bourse in this segment, plans to change its norms to enable transfer of shares of a shareholder declared 'not fit and proper' by the regulator to an escrow account.

If the said shareholder doesn't sell these shares as directed by the regulator in a reasonable while, the exchange will auction these and remit the proceeds to the owner, said a source close to the exchange's board.

To change the rules in this regard, MCX has called a board meeting on the coming Wednesday to consider an alteration of its Memorandum of Association and Articles of the Exchange. At present, there are no such norms, even in the Forward Contracts Regulation Act or in the rules governing commodity exchanges.

The issue emerged after Financial Technologies (FTIL) was declared by the Forward Markets Commission (FMC) to be 'not fit and proper' to hold any equity above two per cent in MCX. FTIL holds 26 per cent.

The Jignesh Shah-controlled FTIL has already initiated a move to sell its stake in the bourse. It has got 10 offers from leading domestic and global exchanges, beside other investors. The sale process, according to the company source, is expected to be completed in six to eight weeks.

FMC had told MCX two days earlier that there would be adverse consequences for it if FTIL had not cut its stake as directed by April 30. It has already stopped approving any new contracts of MCX, to build pressure.

The issue of asking a shareholder to pare stake became tricky after FMC told the high court here that it had not directed FTIL to sell stake, as it lacked the legal power to do so; however, it was the regulator's conclusion that FTIL should sell stake. Hence, FMC had been forcing MCX to ensure FTIL complied. FTIL has also challenged the FMC order before the HC.

To avoid all such complications in future, MCX decided on the said amendment. A source said, "The MCX plan is important forthe future and even the statute book should be amended in this regard."