NSEL crisis: Sebi tightens screws on MCX Stock Exchange

As the crisis at National Spot Exchange Ltd (NSEL) continues to deepen, its group entity MCX Stock Exchange was asked by market regulator Securities and Exchange Board of India (Sebi) on Wednesday to strengthen its governance structure to continue remaining a recognised bourse.

While renewing MCX-SX recognition for a period of one year, commencing from September 16, Sebi also asked the bourse to constitute a committee of two independent directors and 3 institutional investor nominees to oversee key business decisions, policy matters and appointments of top management.

Similar directions were also issued to MCX-SX Clearing Corporation Limited (MCX-SXCCL), a subsidiary of MCX-SX. The committee needs to be constituted within two days of the renewal of licence.

MCX-SX Ltd is promoted by Financial Technologies Group which also runs spot commodity exchange NSEL, which has been engulfed in a crisis when it stopped trading on all contracts on July 31 following government directives.

It raised concerns about the possible default of Rs 5,500 crore to investors.

NSEL defaulted for a fourth consecutive week on Tuesday as it could pay only Rs 7.77 crore to investors out of scheduled Rs 174.72 crore.

The crisis-ridden bourse had defaulted in payments on three previous occasions as well.

MCX-SX had got a license from Sebi to operate as a stock exchange in September last year and this permit was about to expire on September 15, 2013.

The stock exchange began operations in February this year, after it was notified as a "recognised stock exchange" by the Corporate Affairs Ministry on December 21, 2012.    

However, trading volumes of the bourse have been quite low as compared to those of rivals BSE and NSE, while problems erupted at group entity NSEL in late July.

While Sebi has decided to renew its license despite continuing troubles at NSEL, which has defaulted on at least four payments so far, the regulator today asked MCX-SX to work towards strengthening its governance practices.

Sebi also warned that the licence can be withdrawn in case of any non-compliance to its directions, including about the setting up and functioning of a governance committee required to be constituted to oversee the operations of the exchange.

This panel will oversee the exchange's financial transactions related to investment, lending, and borrowing of funds and related party transactions, appointment of key management personnel, all facility/infrastructure sharing arrangements and major capital expenditures.

The panel would also advise the MCX-SX board on all the major policy matters. The board will have to consider the advice of the panel and maintain a record of the proceedings, the market regulator said.

In order to further secure the management of the exchange and clearing corporation, shareholders of MCX-SX and MCX-SX-CCL in AGM/EGM would examine conflict of interest and compliance with Stock Exchanges and Clearing Corporations (SECC) Regulations by the directors and the key management personnel and take appropriate action including reconstitution of board, reappointment of any key management personnel.

This will have to be reported to SEBI within 30 days from the date of renewal of recognition.

Sebi said any non-compliance with its directions or any adverse findings by any other regulator may result in withdrawal of recognition of the exchange.

MCX-SX offers electronic platform for trading in Capital Market, Futures & Options, Currency Derivatives and Debt Market segments. The exchange has also received in-principle approval from SEBI for operationalising SME trading platform.