Shah Ordered to Cut Stake in India’s Biggest Commodity Exchange MCX; Financial Technologies doesn’t meet the “fit and proper person” criteria to hold a stake of 2 percent or more in MCX

December 20, 2013 Leave a comment

Shah Ordered to Cut Stake in India’s Biggest Commodity Exchange

Financial Technologies (India) Ltd. (FTECH), the founder of the Multi Commodity Exchange of India Ltd., will need to trim its holding in the nation’s biggest bourse after the regulator said it was unfit to own a controlling stake.Financial Technologies doesn’t meet the “fit and proper person” criteria to hold a stake of 2 percent or more in MCX, the Forward Markets Commission said in an order on its website. The regulator declared Financial Technologies Chairman Jignesh Shah and former MCX Managing Directors Joseph Massey and Shreekant Javalgekar as ineligible to hold any post in the bourse. Financial Technologies is the largest shareholder in MCX with a 26 percent state.

The regulator ordered a review of Shah and his company’s ability to run MCX (MCX) in October after a payment default at a spot exchange for commodities founded by him prompted the government to suspend trading. Police probing the payment crisis at the National Spot Exchange Ltd. have seized properties and shares worth $487 million from exchange officials and defaulters that may be used to clear dues to investors.

“MCX is a big exchange and this move by the regulator will instill some confidence,” said Paras Bothra, vice president for equity research at Ashika Stock Broking Ltd. in Mumbai. “We expect the stock to rally over the next few days.”

Shares of MCX, which slumped 73 percent this year, advanced 3.7 percent to 405.15 rupees at 1:07 p.m. in Mumbai. Financial Technologies, which plunged 70 percent since July 31, when NSEL suspended trading in most commodities, traded 2.4 percent lower at 164.50 rupees today.

Fraud, Dishonesty

Financial Technologies, Shah, Massey and Javalgekar will not be allowed to hold a stake in excess of specified limits or management positions in any government recognized association or exchange, the regulator said. A person shall be deemed “fit and proper” to run a bourse if he or she has a general reputation and record of fairness, integrity and is not involved in any action of fraud and dishonesty, according to the commission.

Suman Das Sarma, a spokesman for Financial Technologies and MCX, said the exchange was studying the commission’s order and will issue a statement later today. Shah quit the board of the MCX and MCX-Stock Exchange Ltd., India’s newest equity bourse, after police began probing the payment crisis at NSEL.

The turmoil at NSEL began with the government seeking details on the exchange’s settlement cycle on July 14, and deepened with the suspension of most contracts on July 31. The exchange failed to meet most of the payment targets set under the supervision of the FMC. While MCX held no stake in NSEL, it was controlled by Financial Technologies, which also owns exchanges in Bahrain, Botswana and Dubai.

The police arrested NSEL’s former Chief Executive Officer Anjani Sinha and two other senior officials after an investors’ group complained the executives diverted funds and failed to settle about 56 billion rupees ($901 million) in dues to investors.

The commission allowed Blackstone GPV Capital (BX) to increase its stake in MCX to 4.99 percent through secondary market transaction from 2 percent, the exchange said today. MCX controls about 90 percent of India’s commodities futures market.

To contact the reporters on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net; Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

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