MCX-SX: Future uncertain on FTIL divestment doubt

MCX Stock Exchange may face regulatory compliance issues as Financial Technologies (India) Ltd is yet to divest its stake in the exchange. Last September, while granting conditional renewal of licence for a year to MCX-SX, the Securities and Exchange Board of India made it clear that all shareholders of the exchange should comply with the ‘fit and proper’ criteria by December-end.

Since Financial Technologies was declared not ‘fit and proper’, it sold its stake to a group of nine investors. But the deal is yet to be ratified by SEBI, as one of the investors, SKS Capital and Research, which had earlier agreed to buy MCX-SX shares from FTIL, cancelled the deal. Though FTIL transferred 17.27 crore warrants to the escrow agent, there is uncertainty on whether this is enough to comply with the SEBI norms.

This has led to trading volumes shifting to rival exchanges as SEBI has not approved the launch of MCX-SX’s new currency option contract which was attracting huge investor interest.

On whether the exchange can claim to be compliant after the transfer of warrants to the escrow, Saurabh Sarkar, Managing Director, MCX Stock Exchange, said in a written reply that “we have requested SEBI for certain clarifications regarding a minor part of the transaction.”

The lack of clarity on a new contract launch in the currency segment has forced many to shift their trades to rivals such as the NSE and the BSE, especially in the second half of December.

“We have started shifting most of the trades to the BSE and the NSE as investors do not want to take a risk. Nobody knows what action SEBI will take,” said an analyst requesting anonymity.

Sarkar said the exchange’s average market share last month was higher and the drop in the last few days of December was because forex as an asset class saw no client/bank trades.

“We are also unable to launch certain near-month contracts, pending regulatory approvals. It has affected the ability of members to carry forward their open interest in the expired near-month contracts and has an effect on our market share in the currency derivatives segment. We expect to launch new contracts soon.” he added. The crisis in MCX-SX has pushed up currency options turnover in the NSE by 84 per cent to ₹89,693 crore from ₹48,834 crore in November, while in the BSE it more than doubled to ₹67,058 crore.

Interestingly, trading volumes in the MCX were also on the rise till the first fortnight of December as FTIL announced deals to hive off its stake, said a trader. Its currency futures turnover in December was up 35 per cent at ₹49,923 crore against ₹36,889 crore in November while its options turnover increased substantially to ₹2,778 crore (₹961 crore).

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