The Forward Markets Commission (FMC), the commodity markets regulator, has directed the Jignesh Shah-led (pictured) Financial Technologies (FTIL) to reduce its stake in Multi Commodity Exchange of India (MCX) from 26% to less than 2%.
The regulator also deemed Jignesh Shah, the promoter of FTIL and former director of MCX, along with two others — Joseph Massey and Shreekant Javalgekar – as unfit and improper to hold any position in the management or board of any exchange recognised by it or the government.
The regulator came down heavily on Shah for his alleged involvement in the malfunctioning of the National Spot Exchange (NSEL) and labelled him the “highest beneficiary” of the Rs 5,500 crore fraud perpetrated at NSEL.
“It is because of the huge profit of Rs 125 crore earned by NSEL during FY2012-13 that the value of the shares of Jignesh Shah in FTIL shot up manifold, giving him the benefit of a spectacular market capitalisation of his investment in FTIL running into thousands of crores of rupees,” said the regulator in an order released on Tuesday night.
The FMC said that Shah, as the promoter of FTIL and NSEL, has misused his position to create a confidence in the minds of the participants regarding the legitimacy of the business and its operations in the exchange platform of NSEL.
It further said that Shah consciously used his position to represent to the public at large about the attractive features of the contracts being traded on the NSEL platform while taking no steps to introduce any effective governance mechanism, including risk management, due diligence and assured collateral, “to ensure the legitimacy of his claims and to prevent frauds”.
The FMC move opens the exit door for FTIL from MCX-SX too as the capital markets regulator Sebi had indicated earlier that they would assess the “fit and proper” criteria for FTIL once any other regulator finds them unfit.
At a recent capital markets-related conference organised by industry body Ficci, Sebi chairman U K Sinha said that the regulator would take cognisance of the findings of the FMC in the “fit and proper” case for FTIL. While granting one year conditional renewal of recognition to MCX-SX in September 2013, Sebi had also warned that the exchange’s licence would be withdrawn if there are any adverse findings by any other regulator.
In a separate move, the FMC allowed Blackstone GPV Capital Partners to increase its stake in MCX from 2% to 4.99% through secondary market transactions.
Shares of MCX rose as much as 11.27% before closing at Rs. 422.30, up 8.07%, on the NSE on Wednesday.
‘Jignesh Shah has misused his position’
“It is because of the huge profit of Rs 125 crore earned by NSEL during FY2012-13 that the value of the shares of Jignesh Shah in FTIL shot up manifold, giving him the benefit of a spectacular market capitalisation of his investment in FTIL running into thousands of crores of rupees,” said the Forward Markets Commission.