FTIL,MCX boards agree to 5% stake limit in MCX-SX

As directed by the Bombay High Court,Financial Technologies (FTIL) and MCX,the promoters of MCX Stock Exchange (MCX-SX),have passed board resolutions saying that they would “at all times will not go beyond limits....

Written by George Mathew | Mumbai | Published:August 20, 2010 1:54 am

As directed by the Bombay High Court,Financial Technologies (FTIL) and MCX,the promoters of MCX Stock Exchange (MCX-SX),have passed board resolutions saying that they would “at all times will not go beyond limits (on equity holding) prescribed under Sebi’s MIMPS Regulations”. The copies of these resolutions were forwarded to the Sebi on Wednesday,thus setting the stage for the regulator to take a view on giving its approval to MCX-SX for equity trading.

Under Sebi’s MIMPS (Manner of Increasing and Maintaining Public Shareholding in Recognised Exchanges) Regulations,2006,the shareholding rights in a stock exchange is restricted to 5 per cent for a single entity. “As per the board resolutions,the stakes of FTIL and MCX won’t exceed 5 per cent each. This is in line with the Sebi’s MIMPS regulations. Even if the promoters exceed the five per cent limit at a later stage,the Sebi has the powers to reject it under the MIMPS regulations. How can we buy back the shares from other shareholder when we are not allowed to hold more than 5 per cent stake,” an official of MCX-SX said.

He also refuted charges that warrants were issued to 20 shareholders with a buyback clause. “This was outright equity sale. In the case of two shareholders,we issued letters of comfort. These letters are just to assure these shareholders that the promoters would guide and assist them when they want to divest the stake. Equity holding of MCX-SX promoters will never go beyond the limit prescribed under the MIMPS regulations,” he said.

When asked about the letters of comfort,he said,“these letters of comfort are no longer relevant as the MCX-SX promoters have passed a resolution agreeing to the conditions of MIMPS Regulations. These letters have no legal basis now.” The letters of comfort which were given to a government-owned financial institution and a leading public sector bank reportedly mentioned about a fixed rate of return and a condition that FTIL or its nominees would have the right to buy back the stake within a year of investment.

It’s learnt that 20 other shareholders (banks and FIs) are in the process of sending the details of their MCX-SX shareholding to the Sebi.

On August 10,the court asked Financial Technologies and MCX,the promoters of MCX-SX,to pass a suitable board resolution that they would “at all times will not go beyond limits prescribed under MIMPS Regulations within 10 days”. The court said that the SEBI must get the required information from banks within ten days. It also said SEBI should ask MCX-SX in case they require any further clarification,and give hearing to MCX-SX within 10 days thereafter and dispose of application of MCX-SX for other segments by September 30,2010.

In April this year,MCX Stock Exchange (MCX-SX),which at present trades only in currency derivatives,had applied to the SEBI seeking permission to start equity trading and expand operations. It moved the court in July complaining that the regulator was not allowing it to start equity trading despite complying with all the regulations of the regulator.

According to the MCX official,MCX-SX applied for all products through its several letters and reminders which were simply not responded by the SEBI. “This was hurting MCX-SX badly and was causing a daily loss of approximately Rs 15 lakh per day and as on today there is a loss of Rs 100 crore due to absence of other segments,” he said.

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