MCX board asks FTIL to reduce stake to 2%

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HC to hear Shah, FTIL plea against FMC on Jan 8

MCX board asks FTIL to reduce stake to 2%
The board of the Multi Commodity Exchange of India (MCX) on Thursday asked promoter Financial Technologies India (FTIL) to reduce its stake to 2 per cent in accordance with the order of the Forward Markets Commission (FMC).

Last week, FMC had issued an order declaring FTIL and its chief Jignesh Shah unfit to run any exchange, including the MCX, following a Rs 5,500 crore payment crisis at group company National Spot Exchange (NSEL).

The regulator also charged Shah with being the “highest beneficiary of the fraud perpetrated” at NSEL. The NSEL, which is promoted by FTIL, has been defaulting on payments to 13,000 investors. The bourse plunged into the payment crisis after halting trading in commodities from August 1 on the basis of a government directive.

The MCX board of directors at a meeting decided to advise FTIL to implement the FMC order by reducing its stake in the company to 2 per cent or below from 26 per cent within a month, the company said in a BSE filing.

The country’s largest commodity exchange also decided to withdraw the representation of FTIL official Miten Mehta on its board, as per the regulator’s directions.

FTIL and Shah have already moved the Bombay high court, challenging the FMC order. Their petition seeks to quash the FMC order. The Bombay high court on Saturday fixed the case for hearing on January 8.

Shah founded MCX in November 2003 and then went on to set up a stock exchange this year. He is now the chairman of FTIL, which owns and runs NSEL. Shah quit as vice-chairman and shareholder director of MCX Stock Exchange on October 9. A few weeks later, he resigned as vice-chairman of MCX. Shares of MCX rose 0.03 per cent to close at Rs 472.60 on the BSE on Thursday. Its current market capitalisation is Rs 2,410 crore.

On Thursday, FMC further tightened the corporate governance norms for commodity exchanges and asked their boards to scrutinise all major business decisions, as also financial powers of CEOs and transactions involving promoters and top management personnel.

The boards of the exchanges would also have to ensure that appropriate checks and balances are in place with regard to costs incurred for donations, publicity, media and public relations, legal and other professional charges, among others.

In a directive issued to six national exchanges, including MCX, FMC stipulated the minimum requirement for sharing of information relating to functioning of the exchange with the board of directors.

It also directed that the decisions relating to certain matters should be taken with the approval of the board of directors or the board committees.

“The board will lay down an appropriate procedure for delegation of financial powers to managing director/CEO. The expenditure incurred above a particular level needs to be approved by the board or the audit committee,” FMC said.

Matters related to salaries, bonus, increments and compensation at the level of head of the department/ functional heads of the bourse would need the board approval.

A prior approval of the board is required for “all financial transactions/ loan/guarantees/deposits/financial commitment of any kind with parties/entities/individuals related directly or indirectly to the promoters/other shareholders or any party related to the exchange’s directors or management in any manner.”

Following the Rs 5,500 crore payment crisis at NSEL, FMC has taken several measures to ensure accountability and transparency in the commodity futures market.

As per new norms, the board of the exchanges would lay down a policy for disclosure, conflict of interest and resolution thereof. The board would address all complaints of deviation from such policy.

The exchange will execute, with the approval of the board, the liability insurance for directors to safeguard the professional liability of the board members arising from the performance of their duties for the exchange, FMC said.

The regulator also directed the exchanges to constitute a committee of the board on risk management. All matters relating to compliance with the directions, order and/or guidelines of the regulators, any government agency or any other statutory or licensing authority should be placed before the board for information and necessary action, it added.

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