The Securities and Exchange Board of India (SEBI), on Wednesday, ordered that Financial Technologies (India) Ltd (FTIL) is not a ‘fit and proper person’ to acquire or hold any equity share in a recognized stock exchange or clearing corporation, either directly or indirectly. The order also covers warrants that FTIL may be holding.
The capital market regulator also said that FTIL should divest all its existing equity holdings in MCX-SX, MCX-SX Clearing corporation Ltd (MCX-SX CCL), Delhi Stock Exchange Ltd (DSE), Vadodara Stock Exchange Ltd (VSE) and National Stock Exchange of India Ltd (NSEIL) within 90 days.
FTIL has also been told that it shall cease to be entitled to exercise voting rights in respect of those shares or instruments, with immediate effect. SEBI’s order is based on the order of the Forward Markets Commission passed on December 17,2013, which found FTIL as not being ‘fit and proper’ to hold more than two per cent of the equity of Multi Commodity Exchange.
SEBI issued today’s order in the aftermath of the decision taken by the commodity market regulator against FTIL, which was also a promoter of the scam-tainted National Spot Exchange Ltd (NSEL) SEBI’s order observed that commodity future exchange and stock exchange basically discharge similar functions and obligations except that the two exchanges deal in different underlyings —physical commodity being underlying in the commodity futures exchange and the securities being the underlying in the stock exchange.
Further it stated that systems and processes such as trading platform, clearing and settlement are similar in both the markets. Settlement defaults in both the markets pose systemic risk to the respective markets. “The regulatory objective in both the exchanges are same as far as investor protection, market integrity, transparency, fairness and governance are concerned. “ SEBI added.
Both the markets are connected through substantial number of common stakeholders and flow of finance.
Commodity future exchange as well as stock exchange and clearing corporation are market infrastructure institutions of the financial markets needing the same level of integrity and governance standards.
SEBI concluded that a person who is not 'fit and proper' to hold shares in commodity future exchange cannot be a 'fit a proper person' to hold share in the recognized stock exchange and the clearing corporation. “He poses same danger to the interest of securities market as to the commodity futures market as both the market require the same standard of integrity. Thus, there is no doubt that the declaration of FTIL as not 'fit and proper person' by FMC has direct bearing on the securities market.”