The ripple effect of National Spot Exchange (NSEL) settlement crisis and tough measures initiated by the commodity market regulator Forward Markets Commission may lead to top board level changes at the Multi Commodity Exchange within a week.
MCX has to find a replacement for its independent executive Chairman, Venkat Chary and CM Maniar, independent director following the Commission’s directive capping the upper age limit for independent directors at 70 years at all the six online commodity exchanges.
Venkat Chary was former Chairman, Forward Markets Commission, while Maniar is a Senior Partner of Crawford Bayley and Co. FMC has also decided to nominate four board members on all the exchanges besides approving all board level appointments.
The regulator has also mandated that at least half the board seats should consist of independent directors.
‘Deposit margin money’
In a move that will have a wider implication, FMC has directed all the exchanges not to treat the margin money as part of their income, but deposit it under settlement guarantee fund. The income earned from the margins should be adjusted against the margins to be paid by the broker.
Auditors of MCX in their quarterly audit statement have raised concern over the practice of crediting margins to ‘Other Current liabilities’ and income from these margins to the statement of profit and loss account.
Analysts feel that the FMC dictate on margins will not only have an impact on exchanges’ revenue but also lead to reversal of income earned and lower profit.
FTIL IMPACT
Earlier, two independent directors, P. Devarajan and PR Barpande, have resigned from the board of Financial Technologies (FTIL), the parent company which owns MCX and NSEL and facing a crisis to settle trade worth Rs 5,600 crore. The other independent directors in the FTIL board are Ravi Seth, Chandrakant Kamdar and CM Maniar. The board is headed by Jignesh Shah, Chairman and Group CEO.
Shankarlal Guru, the non-executive Chairman of the NSEL resigned from the board after the payment crisis blew out of proportion.
With the earlier exit of non-executive directors Ramanathan Devarajan and BD Pawar, the five-member board is now left with Jignesh Shah, who owns FTIL and is also the single largest promoter of NSEL, and Joseph Massey, Managing Director and CEO of the MCX-SX.
NSEL, which stopped trading abruptly on August 1, has opted for a weekly financial settlement of outstanding trade position over six months. But it failed to pay out in the first week settlement leading to investor outcry.