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MCX-SX plea for equity trading rejected by SEBI

By SiliconIndia | Friday, 24 September 2010, 03:37 Hrs

Mumbai: Securities and Exchange Board of India (SEBI) has rejected the application by MCX Stock Exchange (MCX-SX) which was seeking permission to deal in several segments like equities and equity derivatives. SEBI has cited that the failure to comply with shareholding norms and illegal buyback agreements by promoters are among several issues which pestered the stock market regulator to reject the application.

"Having made necessary enquiry on the application filed by MCX-SX, SEBI, prima facie, was not satisfied that it would be in the interest of trade and also in public interest to allow the application," stated K M Abraham, whole-time member of SEBI.

In the 68 page order, SEBI has mentioned that MCX-SX does not comply completely with Manner of Increasing & Maintaining Public Shareholding (MIMPS) norms for recognised stock exchanges. SEBI said that the substitution of shares with warrants by Financial Technologies (FT) and Multi-Commodity Exchange (MCX) is an attempt to 'work around the requirements' and is not a recognised mode of complying with shareholding norms.

As per the norms of MIMPS, stock exchanges, depositories, clearing corporations, banking companies and public financial institutions can have at most 15 percent stake in a stock exchange. Any Indian or foreign entity is allowed to own a maximum of five percent in a stock exchange, where foreign entities can have 49 percent stake, 26 percent through foreign direct investment and 23 percent via foreign institutional investors.

According to the SEBI order, after implementation of the capital reduction scheme, MCX (37.03 percent) and FT (33.89 percent) accounted for 70.92 percent of the total of shares and warrants in MCX-SX, as was the situation when MCX and FTIL held only equity shares.

As per SEBI, MCX-SX was not right in withholding material information on the buyback arrangements of its promoters with other shareholders.

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