MCX-SX likely to file appeal on Sebi rejection today

September order barring it from being a full-fledged exchange is unsound.

The legal battle between MCX Stock Exchange (MCX-SX) and the Securities and Exchange Board of India (Sebi) is set to move to the next level. Tomorrow, the exchange is expected to file an appeal in the Securities Appellate Tribunal (SAT), challenging the Sebi order of September 23 which rejected its request to be allowed to offer various new products.

Tomorrow is also the concluding date for challenging the 68-page Sebi order. It had barred MCX-SX from offering equity and equity derivatives, interest rate futures and a separate platform for small and medium enterprises. Among the reasons given by Sebi was failiure to comply with shareholding norms and illegal buyback agreements by promoters. MCX-SX, which currently offers trading only in currency futures, was given a 45-day window to appeal against the order.

The order can be challenged at either the high court (HC) here or the SAT. Sources say the latter is likely. “Till last week, the lawyers were divided on the appropriate forum for appeal against the Sebi order and meetings were held over the weekend,” said a person familiar with the development. “It, however, appears the exchange will move SAT, that is well equipped to go into the merits of the case.”

MCX-SX’s managing director, Joseph Massey, during a press briefing in September, had said the exchange would “soon” decide on which of the two forums to challenge the Sebi order. Attempts to contact the MCX-SX spokesperson on Sunday proved futile.

The regulator and the exchange have had a tug of wills for some time. In an unprecedented move, MCX-SX had petitioned the HC in July, asking for a direction to Sebi on why it had been sitting on the former’s application for permission to operate as a full-fledged stock exchange. The petition said the regulator had not given any response even three months after MCX-SX had fulfilled the key condition of bringing down the promoters’ stake.

Sebi, while finally rejecting the application, said the exchange was not fully compliant with the ‘Manner of Increasing & Maintaining Public Shareholding’ norms for recognised stock exchanges. The regulator said the substitution of shares with warrants by the bourse’s founding promoters, Financial Technologies and Multi-Commodity Exchange, was an attempt to “work around the requirements” and was not a recognised mode of complying with shareholding norms.

Sebi said MCX-SX had been “dishonest” by withholding material information on the buyback arrangements of its promoters with other shareholders. MCX-SX said this was “character assassination”.