NSEL crisis: Sebi notice to Financial Technologies soon, Jignesh Shah not fit & proper

Dec 19 2013, 09:21 IST
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Jignesh Shah's FTIL is the parent entity of NSEL, which is struggling to meet its settlement obligations amounting to Rs 5,600 crore. Jignesh Shah's FTIL is the parent entity of NSEL, which is struggling to meet its settlement obligations amounting to Rs 5,600 crore.
SummaryForward Markets Commission says FTIL deliberately incentivised 'unworthy' trades.

FOLLOWING the Forward Markets Commission’s (FMC) order to Financial Technologies India Ltd (FTIL) that it is not ‘fit & proper’ to run an exchange, the Securities and Exchange Board of India (Sebi) will soon issue a show cause notice to FTIL which owns a 5% stake in MCX-SX, the equity exchange. In September this year, Sebi had extended MCX-SX’s licence for a year even as it awaited a ruling by the FMC in the wake of the Rs 5,575 crore settlement crisis at the FTIL-promoted National Spot Exchange (NSEL) which came to light in late July. The move will crush Jignesh Shah’s ambitious plans for the equities trading platform.

The FMC ruled late on Tuesday that Jignesh Shah, chairman, FTIL is not ‘a fit and proper’ person to be shareholder in an exchange. The ruling means that Shah will no longer be a major shareholder in Multi Commodity Exchange of India Ltd (MCX) in which FTIL holds 26%. Shah holds nearly 45% in FTIL.

FMC, the commodity market watchdog has ruled that FTIL cannot continue as an anchor shareholder of an exchange, thereby dealing a body blow to the flagship entity controlled by Shah. “In the public interest and in the interest of the commodities derivatives market... the commission (FMC) holds that FTIL is not a ‘fit and proper person’ to continue to be a shareholder of 2% or more of the paid-up equity capital of MCX,” said the 80-page order.

FMC has also labelled Joseph Massey and Shreekant Javalgekar — both close confidantes of Shah – as unfit to occupy the role of a director in any exchange. Incidentally, all the three individuals — Shah, Massey and Javalgekar — have already resigned from the directorships of all exchanges in India that are owned or controlled by the FTIL group.

According to FMC, Shah is also “practically the highest beneficiary of the fraud perpetrated at the NSEL exchange.” It is because of the huge profit of R125 crore earned by NSEL during FY13 that the value of the shares of Shah in FTIL shot up manifold, giving him the benefit of a spectacular market capitalisation of his investment in FTIL running into thousands of crores of rupees, noted the FMC order.

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These entities will now not be able to hold any shares in any exchange “in excess of the threshold limit of the

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