Tech provider be neutral of commex ownership: FMC

Regulator mulling no entity with significant shareholding be allowed to be tech provider

Commodities derivatives markets regulator Forward Markets Commission (FMC) is considering a proposal that no person with significant shareholding in an exchange shall be providing technology to it.

Chairman Ramesh Abhishek said, "We are considering the technology provider be neutral of the exchange ownership."

There are six nationwide commodity exchanges. Three had faced problems where promoters were providing technology. FMC has declared two exchanges' promoters 'not fit and proper' to run the business.

Ahmedabad-based National Multi Commodity Exchange (NMCE)'s promoter, Kailash Gupta, had been declared not fit three years ago. His company, ATS, was one of the technology providers, along with CMC. Later the new management discontinued the arrangement with ATS. The latest case is of Financial Technologies (India) Limited, or FTIL, which was the anchor investor in Multi Commodity Exchange (MCX) and also its technology provider. In a special audit of MCX, auditor PricewaterhouseCoopers (PwC) had raised issues regarding financial aspects of the technology pact allegedly favouring FTIL. Since FTIL has been declared not fit, it is exiting MCX. A large part of its holding has been sold.

Universal Commodity Exchange's promoter was the Ketan Sheth-owned Commex Technology (earlier IT People). It was also the technology provider. Commex's share price was Rs 29.7 in January. It fell to Rs 3.58 on Monday.

FMC's proposal is because three exchanges have faced some or the other problem or irregularities, it is advisable to segregate technology provider from shareholding of the same exchange.

NMCE for which its promoter Kailash Gupta's ATD was providing technologies has been replaced. Now that job is outsourced to CMC and exchange's in house support has been provided for that. FTIL is in final stage of exiting MCX as a shareholder and will continue only as a technology provider while UCX has decided not to launch fresh contracts till they form a new strategy.

However once the FMC's new directives are in place which is expected in near future, exchange's shareholders will not be able to provide technology to it.

From FMC's point of view, "there was possibility of conflict of interest when shareholding and technology service provider to the exchange are common," said Abhishek.

FMC has asked MCX to renegotiate the technology pact with FTIL.

Since fees and other aspects, according to PwC, were favouring FTIL, FMC asked the exchange to renegotiate. Sources said the new pact was being negotiated and was in the final stage.