SEBI bars Financial Tech from holding stake in stock exchanges

Market regulator SEBI has passed an order against Financial Technologies, declaring it as not “fit and proper” to hold any shares directly or indirectly in any stock exchange or clearing corporation.

In an order issued on Wednesday, Rajeev Kumar Agarwal, Whole-Time Director, SEBI, said: “A person who is not ‘fit and proper’ to hold shares in a commodity future exchange cannot be a ‘fit and proper person’ to hold shares in a recognised stock exchange and clearing corporation.”

SEBI’s order said that such a person poses the same danger to the interest of the securities market as to the commodity futures market.

In December, the Forward Markets Commission (FMC) had declared FTIL as not fit and proper to hold two per cent or more of the equity share capital in the Multi Commodity Exchange of India Ltd (MCX).

“There is no doubt that the declaration of FTIL as not ‘fit and proper person’ by FMC has a direct bearing on the securities market,” said the SEBI order.

Besides MCX Stock Exchange, the FTIL group holds equity in its rival NSE, Delhi Stock Exchange (DSE), Vadodara Stock Exchange (VSE) and MCX-SX Clearing Corporation (MCX-SX CCL). All these holdings will need to be disposed of within 90 days, said Agarwal.

FTIL and the entities through which it indirectly enjoys voting rights in MCX-SX, MCX-SX CCL, DSE, VSE and NSEIL will no longer have those rights, SEBI said.

Earlier this week, the Jignesh Shah-led Financial Technologies (India) Ltd submitted its reply to a show-cause notice issued by SEBI on the ‘fit and proper’ status.

SEBI sent a show-cause notice to FTIL in December last, asking how Shah and FTIL were ‘fit and proper’ to run any exchange in the wake of the ₹5,600-crore NSEL payment crisis.

In its response to SEBI, FTIL had submitted that the FMC order was sub-judice and had been challenged in the Bombay High Court.

Besides, FTIL also said that its shareholding in recognised stock exchanges and the clearing corporation was insignificant and did not have any bearing on the securities market.

MCX-SX also initiated a rights issue. As FTIL decided not to participate in the issue, its shareholding will automatically stand reduced to approximately 1.72 per cent of equity shares in MCX-SX, assuming all other shareholders subscribe to the issue.

MCX-SX, which was set up by FTIL and MCX, was initially given a licence to operate in a limited segment of currency derivatives in 2008, but SEBI refused it permission to act as a full-fledged bourse for years as it was not found to be in compliance with regulations.

MCX-SX fought a bitter battle with SEBI and obtained an equity trading licence in 2012.