‘We are setting aside the order passed by SEBI on September 23, 2010'

The Bombay High Court on Wednesday directed the Securities and Exchange Board of India (SEBI) to reconsider an application filed by MCX Stock Exchange (MCX – SX) to set up an equity trading platform.

The capital market regulator rejected MCX-SX's application in September last, saying that the bourse had failed to comply with the norms on the shareholding structure stipulated for a stock exchange.

Promoters' undertakings

However, the promoters of MCX Stock Exchange — Multi Commodity Exchange (MCX) and Financial Technologies India (FTIL) — had given an undertaking to the Court that they would reduce their holdings in the exchange to 5 per cent from 10 per cent.

“We are setting aside the order passed by SEBI on September 23, 2010. SEBI is directed to reconsider MCX's application afresh within a month after considering the observations made by this court,” said Justice D. Y. Chandrachud and Justic Anoop V. Mohta in their order.

The Court passed the order after hearing an appeal filed by MCX-SX in October, 2010, challenging the SEBI order rejecting its application to set up a new equity trading platform. MCX and FTIL previously held 51 per cent and 49 per cent, respectively, in the stock exchange. They later brought their holdings down by divesting to financial institutions and issuing convertible warrants with an option to buy them back in the future. However MCX and FTIL failed to disclose the details to SEBI.

Court's observation

The Court observed: The relationship between a stock exchange and SEBI must be founded in trust and good faith…..Stock exchanges cannot maintain a cloak of secrecy over their affairs and management particularly when they are required to confirm to regulatory standards… Full disclosure of compliance actions is a necessary element in that process.” Further, undertakings have been filed by the promoters of MCX Stock Exchange — during the proceedings before SEBI as well as the High Court — that the provisions of the Securities Contracts (Regulation) (Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges) regulations, 2006 (MMIPS) Regulations, including the ceiling on the holding of the shares would be complied with.

The court noted: “During the course of the proceedings before this court, the undertaking, which has been tendered by the promoters, is even more specific and stringent: that notwithstanding the exercise of the option under the buyback or the warrants, the shareholding of both the promoters together, jointly or severally will not exceed 5 per cent,” as prescribed in Regulation 8 of the MIMPS Regulations.

PTI reports:

“SEBI will always remain a respected regulator. The MCX-SX stance is not against regulatory institution, but is for principles. We stand vindicated and always have full faith in our judiciary.

“We remain committed to growth and development of the country's financial markets,” MCX-SX spokesperson said after the court order.

SEBI could not be reached immediately for comments.

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