SEBI rules FinTech not 'fit and proper' to hold stake in any stock exchange

Cracking the whip, SEBI has directed Jignesh Shah-led Financial Technologies group to offload its direct and indirect holdings in MCX-SX, MCX-SX CCL, DSE, VSE and NSEIL within 90 days

Market regulator Securities and Exchange Board of India has ruled that Jignesh Shah-led Financial Technologies (FT) group, is not "fit and proper" to own stakes in any stock exchange. SEBI also directed FT group it to divest its existing holdings in MCX Stock Exchange (MCX-SX) and four other entities.


Besides MCX-SX, the Jignesh Shah-led group holds stake in its rival NSE, Delhi Stock Exchange (DSE), Vadodara Stock Exchange (VSE) and MCX-SX Clearing Corporation (MCX-SX CCL). As per the direction from SEBI, it would have to dispose off its stake in all these entities within 90 days.


The SEBI order comes at a time when the MCX-SX is under the scanner of Central Bureau of Investigation (CBI) for alleged irregularities in granting of licence to it in 2008 as well as subsequent renewals.


Financial Technologies (India) Ltd is the flagship company of the Jignesh Shah-led group and one of the original promoters of MCX-SX.


SEBI has said that Financial Technologies is not a "fit and proper person to acquire or hold any equity share or any instrument that provides for entitlement for equity shares or rights over equity shares at any future date, in a recognised stock exchange or clearing corporation".


This would be applicable for both direct and indirect holdings of Financial Technologies in stock exchanges and clearing corporations.


Besides, Financial Technologies and the entities through whom it indirectly holds equity shares or any instrument entitling voting rights in MCX-SX, MCX-SX CCL, DSE, VSE and NSEIL shall cease to be entitled to exercise voting rights in respect of those shares or instruments, with immediate effect, SEBI said in its order.


SEBI had issued a show cause notice on "fit and proper" status of FTIL and the latter submitted its response earlier this week.


The show cause notice followed commodity market regulator Forward Markets Commission (FMC), in December last, asking how Shah and FTIL were 'fit and proper' to run any exchange in the wake of Rs5,600 crore payment crisis at National Spot Exchange Ltd (NSEL).


FTIL and MCX were among the original promoters of MCX-SX, the country's youngest exchange, and following a restructuring they were shifted to public shareholder category. Financial Technologies and MCX hold 5% each in the Exchange while their total stake has to be brought down to 5% in all, according to SEBI guidelines.


FTIL has already offloaded stakes in Singapore Mercantile Exchange and some other entities.


FTIL had submitted before SEBI that since it was having less than 5% stake in MCX-SX and insignificant shareholding in other recognised stock exchanges and clearing corporation, there would not be any bearing on the bourse.


However, SEBI has said that prohibition under SECC (Stock Exchanges and Clearing Corporations) regulations on a person, who is found to be not 'fit and proper person', is not dependent upon number or percentage of his/her shareholding or control in a recognised stock exchange or clearing corporation.


"It is also not dependent upon whether or not that person is represented in the board of directors of the recognised stock exchange or clearing corporation or he is person acting in concert with the management or board of directors of the recognised stock exchange or clearing corporation," the order said.


Last week, CBI had registered a Preliminary Enquiry (PE) against CB Bhave, former chief of SEBI as well as former member KM Abraham and others with regard to alleged irregularities in granting licence to MCX-SX in 2008 and subsequent renewals.


Following the CBI case, former home secretary GK Pillai resigned as chairman of MCX-SX. The bourse then elected Thomas Mathew T as its new chairman and Dr Ashima Goyal as its vice -chairman. The Exchange also announced that FTIL and MCX have been re-classified from the category of "promoter shareholder" to "public shareholder".




3 years ago

There ought be 360 degrees evaluation of the 'Fit & Proper' criteria - without exception.

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