Sebi may act on PwC's MCX audit

Regulator likely to write to BSE, corporate affairs ministry on alleged violations of listing norms

The Securities and Exchange Board of India (Sebi) will soon direct the BSE to independently check for violations of listing agreement norms at Multi Commodity Exchange (MCX), following PricewaterhouseCoopers’ adverse findings, said sources.

The capital market watchdog is also likely to approach the Union ministry of corporate affairs to probe allegations of breach of various clauses in the Companies Act, they said.

Separately, the commodity markets regulator, the Forward Markets Commission, on Wednesday sent the PwC audit report to MCA and the Enforcement Directorate (ED). The ED is going to examine allegation of money laundering at MCX, sources said.

The special audit report by PwC, a summary of which was made public on Tuesday, has highlighted serious corporate governance lapses and non-compliance with regulations. For instance, the audit revealed MCX had only disclosed names of 235 related party entities, while PwC’s background checks revealed at least 670 more known or related parties. (PWC AUDIT REPORT POINTS TO SEVERAL ADVERSE FINDINGS AGAINST MCX OPERATIONS)

Also, the PwC audit summary noted payouts to trading members or related parities worth millions “without adequate substantiation”.

BSE will have to verify whether any of the PwC findings breach any listing agreement clauses. The latter agreement is a contract between a stock exchange and a listed company. It comprises a little more than 50 clauses — on corporate governance and information-based disclosures such as filing of results, shareholding data and related party deals — which listed companies have to follow.

Failure to disclose related party business dealings is a violation of Clause 32 of the listing agreement.

MCX is the country’s only listed commodity bourse. It is listed solely on the BSE; it also trades on the National Stock Exchange, under the permitted to trade category.

At present, ensuring compliance with the listing agreement has to be done by the exchanges. Typically, they order suspension of trading in companies for repeated violations of the agreement. Violators also face a penalty of up to Rs 25 crore under the Securities Contracts Regulation Act. “Sebi will not like to undermine the authority of BSE and will want the exchange to verify facts before taking any action on the alleged violations,” said a person in the know.

Corporate governance experts said the role of independent directors and the audit committee at MCX can be questioned, given the adverse findings in the PwC audit.

Shares of MCX on Wednesday ended at Rs 533.55, down Rs 40.55, or 7.1 per cent.