As crisis at its erstwhile promoter group continues to cast a shadow, MCX Stock Exchange today got a one-year conditional renewal to function as a bourse and regulator Sebi asked it to submit a long-term sustainable business plan and take other remedial actions. Besides, the exchange would not be allowed to introduce any new contract till it meets minimum networth requirement of Rs 100 crore, for which it has been given three-months time.
The current recognition of MCX-SX, which was set up by Jignesh Shah-led Financial Technologies group, expired today, but Sebi has now decided to extend it for a period of one year, commencing tomorrow and ending on September 15, 2015.
The renewal is subject to five specific conditions and compliance to other conditions specified by Sebi from time to time, the Securities and Exchange Board of India (Sebi) said in a statement.
“The exchange shall build its networth (undisputed) to the level as prescribed in Sebi (SECC) Regulations 2012 within a period of three months from the date of renewal of recognition. Further, the exchange shall also submit a business plan to satisfy the regulator about the long term sustainability of the exchange,” the regulator said.
While the exchange has been claiming to have a networth of Rs 100 crore, the regulator does not share the same view and pegs the figure at about Rs 56 crore, sources said. Sebi further said that MCX-SX “shall not introduce any new contracts till fulfilment of networth requirement” and it would have to comply with Sebi’s directions with regard to entities which have been declared not ‘fit and proper’ person.
The regulator also asked the exchange to “take immediate steps to rectify the deficiencies pointed out in the systems audit as well as special audit.” Besides, the exchange will have to take necessary steps for compliance with shareholding requirement by all the shareholders as per SEBI (SECC) Regulations 2012, Sebi said.
Earlier in March this year, Sebi ruled that Financial Technologies group was not “fit and proper” to own stakes in any stock exchange and directed it to divest existing holdings in MCX-SX and four other entities.
This order followed Shah-led group coming under scanner of various agencies, including CBI, for alleged irregularities in the grant of license to MCX-SX, as also for the payment crisis worth thousands of crores at National Spot Exchange (NSEL), also set up by the same group.
While FTIL group has challenged the Sebi order on their ‘fit and proper status’, they no more qualify as ‘promoter’ in MCX-SX and some other entities such as Multi Commodity Exchange (MCX).
Last year also, while granting a one-year renewal to MCX-SX, Sebi had asked the exchange to strengthen its governance structure to continue remaining a recognized bourse. Sources said that it might be difficult for MCX-SX to meet some of the conditions set by Sebi for the latest renewal.
The bourse earned total revenue from operations of Rs 91.83 crore for the latest fiscal 2013-14, down from Rs 155.23 crore in the previous year.
It incurred a loss of Rs 154.53 crore for the last year, as against a profit of Rs 21.42 crore in 2012-13. The exchange has attributed the loss to commencement of new segments and fall in volumes in the currency derivatives segment.
“The sentimental fallout of the defaults in another Exchange floated by the erstwhile promoter and introduction of zero pricing by competitor among other events leading to negative publicity also contributed to the fall in volumes,” MCX-SX said in its annual report.
“With the management and Board level changes as well as relaxations in the regulatory regime for CD Segment, your Directors feel the company would be able to see better volumes in the CD segment and consequently improve its financial performance in the coming years,” it informed its investors.
MCX-SX was notified a ‘recognised stock exchange’ on December 21, 2012. Its shareholders include top public sector banks, private sector banks and domestic financial institutions who, together hold over 88 per cent stake. It offers trading in Capital Market, Futures & Options, Currency Derivatives and Debt Market segments. It has also received in-principle approval from Sebi for operationalizing SME trading platform.
It commenced operations in the Currency Derivatives Segment on October 7, 2008. It launched Capital Market Segment, Futures and Options Segment and flagship index ‘SX40’ on February 9, 2013 and commenced trading from February 11, 2013.
The Debt Market Segment was launched on June 7, 2013, and trading commenced from June 10, 2013. The Exchange started live trading in cash-settled Interest Rate Futures (IRF), on 10-year Government of India security, in its Currency Derivative Segment from January 20, 2014.
MCX-SX had first got a license from Sebi to operate as a stock exchange in September 2012 and this permit was to expire on September 15, 2013, before getting extended by a year.
The bourse began operations in February 2013. However, the trading volumes of the exchange has been quite low as compared to rivals BSE and NSE, while problems at group entity NSEL in July 2013 further worsened the situation.
While Sebi has decided to renew its license twice now, the regulator has been asking MCX-SX to work towards strengthening its governance practices and comply with all applicable regulations to operate as a stock exchange. Sebi also previously warned that the licence can be withdrawn in case of any non-compliance to its directions.