MCX-SX compliant with shareholding rules: Sebi

In its order refusing licence to MCX Stock Exchange (MCX-SX) as a full-fledged stock exchange, the Sebi is believed to have taken a stance opposite to its own inspection report that found the bourse in compliance with the relevant regulations.

The regulator had rejected MCX-SX's application in a 68-page order on September 23, 2010, saying the exchange did not comply with the promoter shareholding norms, among other factors.

However, a Sebi Inspection Report of MCX-SX found the exchange's promoters to have complied with the required shareholding regulations, sources said.

MCX-SX, promoted by India's largest commodity bourse MCX and another group company FTIL, is currently allowed trading in currency futures only.

The rules, called Manner of Increasing and Maintaining Public Shareholdig (MIMPS), require the promoters of a stock exchange to cap their shareholding at 5% each.

MCX-SX has claimed that its two promoters MCX and FTIL have brought down their holdings to 5% each and it has complied with MIMPS regulations, but the contention was rejected by Sebi in its September, 2010 order.

However, the report of inspection, conducted by Sebi about two months before its order, stated that the promoters' holdings have come down in compliance with the rules.

"It has been observed that Consequent to the approval of High Court of Bombay dated March 19, 2010 of the scheme of Capital Reduction cum Arrangement, the shareholding of two principal shareholders, MCX and FTIL, have come down to 5% each, from 45.22% and 38.73%, respectively in compliance with MIMPS Regulations," it said.

Sebi, however, said that the Inspection Report did not go into the validity of the issuance of warrants to the promoters as a means of "purported compliance with MIMPS Regulations".

The Report also did not examine whether the two promoters could be considered as persons acting in concert and also did not made any reference to the buyback arrangements, which were mentioned in the show-cause notice and the final Sebi order.

Sebi further said that the buyback arrangements between promoters and certain investors were not disclosed by MCX-SX to the regulator or its inspection team and it came to know about the same through media articles.

In its copy of Inspection Report sent to MCX-SX, Sebi had excised the part about the compliance with MIMPS regulations and justified this move by saying that the matter was sub-judice and it had been overtaken by the subsequent events.

Sebi said it did not attempt to conceal the contents of the Inspection Report by excising that portion.

MCX-SX has challenged the Sebi order and the case is being heard by Bombay High Court.