After 4 years, MCX-SX gets SEBI nod

The Securities and Exchange Board of India (SEBI) has finally shone the green light at MCX-Stock Exchange’s (MCX-SX’s) equity aspirations.

Following a prolonged battle that went all the way to the Supreme Court, the regulator has allowed it to start operations in both cash and derivatives segments of equities as well as interest rate futures and the wholesale debt segment, according to a statement issued by the exchange.

However, the order had not been uploaded on the SEBI website at the time of going to press.

A SEBI spokesperson, too, declined to comment.

As a pre-condition, the regulator has asked that the shareholding of Multi Commodity Exchange of India (MCX) and Financial Technologies in the equity share capital of MCX-SX be brought within the 5% limit within 18 months from Tuesday, the exchange said in its statement.

The two entities would also have to reduce their entitlement to equity or rights over equity arising from such instruments (warrants) in excess of the shareholding within a period of three years from the date of notification of the regulations.

The combined voting rights of FTIL and MCX in MCX-SX shall not exceed 5% of the paid up equity share capital of MCX-SX at any point of time.

The court battle with SEBI began after the regulator rejected its application in 2010 for starting operations in the equity segment for not appropriately meeting shareholding guidelines.

Under the then existing Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges (MIMPS) Regulations, ownership in an exchange is limited to 5% for ordinary stakeholders and 15% for specific financial institutions.

MCX-SX tried to meet these obligations by reducing the paid-up capital of the company and issuing warrants to its promoters.

SEBI denied MCX-SX permission to start equity operations, noting that it had not sought, nor obtained regulatory approvals for the scheme used by the exchange to comply with the regulatory requirements.

The battle went to the High Court and then the Supreme Court.

The regulator, meanwhile, made amendments to the MIMPS regulations, stating explicitly that all forms of control, including indirect ones such as through warrants, would be considered while calculating the 5% limit. It gave the entities three years to meet the obligations under the new regulations, which came into force on June 20.

Three weeks on, it has given MCX-SX the nod.