Sebi grounds MCX-SX equity trading plan

Reacting to the Sebi decision,MCX-SX has indicated it8217;s considering further action in the court or appellate forums. We are studying the lengthy order in all its aspects and will take appropriate measure in consultation with our legal counsels. We have confidence and respect in the resilience of our judiciary and the appellate forums and are sure that justice will be done to us in the near future. We are sad to see the continuation of the same bias and injustice as we have seen hitherto in the order passed by Sebi today, MCX-SX said.

Coming down on MCS-SX,the Sebi order said,The applicant MCX-SX has been dishonest in withholding material information on arrangements regarding the ownership of shares of its shareholders. The applicant has failed to ensure compliance with MIMPS Regulations as its two promoters Financial Technologies India Ltd and MCX are persons acting in concert and cannot hold more than 5 per cent equity in a stock exchange,it said.

According to Sebi,MCX-SX is instrumental to buyback transactions that are illegal under the SCR Act and cannot be considered to have adhered to fair and reasonable standards of integrity that should be expected of a recognised stock exchange. The concentration of economic interest in a recognised stock exchange in the hands of two promoters is not in the interest of a well-regulated securities market, it said. The Mumbai High Court had asked the Sebi to dispose of application of MCX-SX for other segments by September 30,2010. The Sebi order observed that FTIL also indirectly holds shares in MCX-SX through MCX,as FTIL and MCX,share a common manager and are de facto controlled by the same entity. Therefore the holding of FTIL together with that of MCX exceeds the permissible limit of 5 per cent limit of ownership in a stock exchange. Secondly,FTIL holds 31.18 per cent of shares in MCX. This implies that FTIL also indirectly holds 31.18 per cent of the shares of MCX-SX owned by MCX. Hence indirectly FTIL holds 1.559 per cent viz. 31.18 per cent of 5 per cent. In this manner too,FTIL holds,directly and indirectly more than the permissible limit of 5 per cent of shares in MCX-SX, it said.

Sebi questioned the buyback contracts that the promoters had entered into with three shareholders of MCX-SX Punjab National Bank,ILamp;FS and IFCI where sale of shares between the parties were based on offers to buy back the shares at or within specified time in the future. It likened them to an airline passenger smuggling excess gold past customs by striking a deal with fellow fliers. In view of the judgement of the Supreme Court and the judgements of the High Court,it has become the settled legal position in the Indian securities market that such buyback forward contracts arrangements in unlisted shares of public limited companies are illegal under the SCR Act,the Sebi said. If there is a restriction on an airline passenger visiting India that allows him to carry 5 kg of gold into the country and he is actually in possession of 10 kg. He gives the excess of 5 kg to a fellow passenger to carry the same across the Customs Line and enters into an agreement with him to take it back some time thereafter promising him a certain incentive for doing so. Would such an airline passenger be in violation of the law? The answer is self-evident. Sebi said.