The Forward Markets Commission (FMC) wants institutional shareholders of Multi Commodity Exchange (MCX) to take a more “proactive role” in the operations of the bourse at a time when the promoter entity of the futures exchange is embroiled in a settlement crisis at the National Spot Exchange (NSEL).
Representatives of some of the institutional shareholders of MCX, along with high networth individuals with a stake in the exchange, met FMC chairman Ramesh Abhishek on Tuesday to seek clarity on the possible affect on the listed bourse if the regulator acts against NSEL and its board of directors.
“The FMC chief asked us to be more active in the operations of the exchange...We wanted to know the contagion effect on MCX... what happens if some of the entities are declared not 'fit and proper' to continue with their roles,” said a person who was part of the discussions.
Both exchanges — NSEL and MCX — are promoted by Jignesh Shah-owned Financial Technologies (India) (FTIL). Incidentally, Shah and Joseph Massey sit on the boards of both the exchanges. The MCX share has lost nearly 50% since the NSEL settlement crisis began on July 31. On Tuesday, however, the MCX share gained 5% to close at R322.
The commodities market regulator has already stated that the board of directors of NSEL could lose its ‘fit and proper’ tag if the exchange is not able to fulfil its settlement obligations. In such a scenario, the entities would not be eligible to be on the board of any other commodity futures exchange, stated the FMC directive issued last week.
According to persons privy to the discussions, the issues of warehouse receipts and settlement guarantee fund (SGF) were also discussed in the context of risk management practices followed by the exchanges.
“The meeting was basically to apprise the investors of what the various agencies are doing to manage the crisis and also seek feedback on how they could improve... FMC also told us that the exchange was unregulated till April 2012 and they have limited capacity to act against it,” said a person who was part of the meeting.