MSEI's Ex-MD&CEO Udai Kumar Barred from Markets for 6 Months over Multiple Violations
Moneylife Digital Team 28 November 2022
Market regulator Securities and Exchange Board of India (SEBI) has barred Udai Kumar, former MD & CEO (managing director and chief executive officer) of Metropolitan Stock Exchange of India (MSEI) (formerly MCX Stock Exchange), for six months from being associated with any market infrastructure institution or associated entities. 
SEBI had conducted a special purpose inspection of MSEI in February 2018. SEBI found that the policy for reimbursement of clearing fees in the currency derivative segment and technology scheme of the Exchange were in violation of different regulations set by the regulator. The regulator discovered unauthorised utilisation of exchange funds for market making in Currency Derivatives (CD) segment during the financial year (FY) 2016-17 and 2017-18. Separately, non adherence  to  standard  operating  procedure  (SOP)  while  making payment was also observed by the regulator.
Several irregularities were found in making payment to Vermillion Capital and Macro Corporate Services for raising capital. The investigation also revealed various malpractices in the rights issue of the Exchange; various  non-disclosures,  like  details  of a whistle-blower  complaint,  deviation and  non-disclosure  of  earmarked  investments  in  the  annual  report  for FY16-17. 
Moreover, during Mr Kumar’s tenure, several contracts were alleged to have been issued without seeking competitive bidding, payments were said to have been made to some vendors without submission of bills, and the bourse apparently had fewer computers than it had paid for.
MSEI had also failed to disclose that fixed deposits amounting to Rs41.24 crore and deposits with banks (with maturity more than 12 months) for Rs14.56 crore were made out of a member’s fund lying with the Exchange, noted SEBI.
Subsequently SEBI issued a show-cause notice (SCN) dated 16 December 2021 to Mr Kumar asking him to show cause why proceedings under Section 12A of Securities Contracts (Regulation) Act, 1956 (SCRA) and Sections 11(1), 11(4) and 11B of the SEBI should not  be  issued  against him for  the violations as alleged in the SCN. According to the SCN,  there  was  an  arrangement between  MSEI  and  its  members  for  direct/indirect  payment  by  MSEI  to  its members for generating volumes in the currency derivatives segment, which is in violation of the requirements laid down in SEBI circulars.
In  response  to  the  SCN,  Mr Kumar wrote an email dated 18  January  2022 seeking an  extension  of  time  for  filing  reply. Meanwhile  the  file  was  placed before the whole-time member (WTM) on 24 January 2022 for  granting a  date  of hearing and a  hearing was granted to Mr Kumar on 18 April 2022. 
He contended that the primary responsibility of alleged non-compliance lay with the Exchange and that he has not carried out any of the impugned transactions or activities without the requisite approval of the Board of MSEI.
Mr Kumar  wanted the exchange to be arraigned as a “noticee” without  the SEBI order found untenable.
It was observed that the management of MSEI had adopted direct (advertisement expenses/ technology  scheme/ clearing  fee reimbursement)  and indirect route  (through  various  vendors)  to  make  payment  to  its  trading  members  for market making in CD segment, which amounted to liquidity enhancement scheme (LES) and was not permitted. 
Further, based on the copy of emails available on record, the SCN alleged that Mr Kumar  was  actively  involved  in  the  said  market-making. It  was  observed  from  the  minutes  of  the  board  meeting  of  MSEI dated 24 September 2016 that, the proposal for LES in equity cash segment was circulated to the board of MSEI, whereas MSEI was running the LES for CD  segment.  It  was  also  mentioned  in  the  said  minutes  that  the  board  also advised that approval from SEBI to be obtained and Mr Kumar, who is on the governing board of MSEI, has thereby misled the governing board.
“I find that the MD and CEO of a stock exchange has the overall responsibility to ensure that the entity functions in compliance with all applicable laws and regulations,” said SEBI WTM Ananta Barua in the order.
Mr Kumar, who took over as the MD and CEO of MSEI in February 2016, but was not allowed to complete his tenure and was sent on indefinite leave in July 2018. 
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