As the NSEL crisis continues to deepen, its group entity MCX Stock Exchange was asked by market regulator Sebi today to strengthen its governance structure to continue remaining a recognised bourse.
While renewing MCX-SX recognition for a period of one year, commencing from September 16, Sebi also asked MCX-SX Ltd to constitute a committee of two independent directors and 3 institutional investor nominees to oversee key business decisions, policy matters and appointments of top management.
Similar directions were also issued to MCX-SX Clearing Corporation Limited (MCX-SXCCL), a subsidiary of MCX-SX.
The committee needs to be constituted within two days of the renewal of licence.
MCX-SX Ltd is promoted by Financial Technologies Group which also runs spot commodity exchange National Spot Exchange Limited (NSEL), which has been engulfed in a crisis when it stopped trading on all contracts on July 31 following government directives. It raised concerns about the possible default of Rs 5,500 crore to investors.
NSEL yesterday defaulted for the fourth consecutive week as it could pay only Rs 7.77 crore to investors out of scheduled Rs 174.72 crore. The crisis-ridden bourse had defaulted in payments on three previous occasions as well.
MCX-SX had got a license from Sebi to operate as a stock exchange in September last year and this permit was about to expire on September 15, 2013.
The bourse began operations in February this year, after it was notified as a "recognised stock exchange" by Ministry of Corporate Affairs on December 21, 2012.
However, the trading volumes of the exchange has been quite low as compared to rivals BSE and NSE, while problems erupted at group entity National Spot Exchange in late July.
While Sebi has decided to renew its license despite continuing troubles at NSEL, which has defaulted on at least four payments so far, the regulator today asked MCX-SX to work towards strengthening its governance practices.
Sebi also warned that the licence can be withdrawn in case of any non-compliance to its directions, including about the setting up and functioning of a governance committee required to be constituted to oversee the operations of the exchange.
This panel will oversee the exchange's financial transactions related to investment, lending, and borrowing of funds and related party transactions, appointment of key management personnel, all facility/infrastructure sharing arrangements and major capital expenditures.
The panel would also advise the MCX-SX board on all the major policy matters. The board will have