FMC says Kotak Bank nominee on MCX board will lead to conflict of interest

The Forward Markets Commission has questioned Kotak Mahindra Bank’s claim on board representation in the MCX commodity exchange.

In July, while signing an agreement to buy an MCX stake — at a discount — from Financial Technologies, Kotak Bank had said the deal was just an investment and that it would not seek any “special rights or a board seat”.

However, last month, the bank recommended Paul Parambi, Head of Group Strategy, as a nominee on the MCX board. The FMC feels that having a Kotak Bank nominee on the MCX board can lead to a “conflict of interest” as the bank owns a 40 per cent stake in the ACE Derivatives and Commodities Exchange.

It has also asked ACE Derivatives and Commodities Exchange to explain how it allowed Kotak Commodities to trade on its platform. In a December 26 letter, the FMC has sought a clarification from Kotak Bank on terming Kotak Commodities as an associate entity in its latest balance sheet. Kotak Commodities is a trading member on the MCX exchange.

Pointing to the SEBIs guidelines on Stock Exchanges and Clearing Corporations, 2012, for the definition of an associate, FMC said Kotak Commodities cannot trade on MCX as Kotak Bank owns 15 per cent in the commodity exchange. A group of MCX trading members has raised objections with the FMC on Kotak Bank’s claim for board representation, stating that their interest would be hampered if the bank uses market-sensitive information on MCX to boost volumes in the ACE Commodities Exchange. MCX has called for a board meeting early next week to discuss the objections raised by the FMC. In response to a questionnaire from BusinessLine , a Kotak Mahindra Bank spokesperson said: “We have not received any communication from FMC or MCX. We respect apprehensions, if any, of FMC and will address the same”.