More Troubles for FTIL as It Misses Regulator’s Deadline to Dump Shares in MCX

Troubled Indian entrepreneur Jignesh Shah, the godfather behind the country’s most successful technology provider for financial services, Financial Technologies India Limited (FTIL), will have a new set of worries as it misses an important deadline. The firm was supposed to sell its remaining holdings in MCX and any financial Exchange by the 9th of August, as demanded by the country's main regulatory body.

The case is linked to the NSEL scam, FTIL the main promoter behind the firm has been proscribed by the regulators and termed unfit to hold equity stakes in regulated exchanges.

FTIL submitted an appeal against the regulator, Sebi, which was rejected on the 9th of July. This follows on from the Indian commodity regulator's, Forward Market Commission's Order against FTIL in December 2013, on similar grounds.

Details in the official Sebi briefing state that FTIL was appealing against the regulator’s decision that the firm must divest its shareholding in any trading venue. It states: “FTIL shall divest the equity shares and/or any instrument that provides for entitlement for equity shares or rights over equity shares at any future date, held by it, directly or indirectly, in MCX-SX, MCX-SX CCL, DSE, VSE and NSEIL within 90 days from the date of this order through sale of shares and/or instruments.”

FTIL had put forward an appeal against the verdict to the Securities Appellate Tribunal (SAT) which dismissed FTIL's plea against the Sebi Order, declaring it unfit to hold a stake (2% >) in bourses. A statement from the SAT cites the earlier directive against FTIL by the commodity markets' regulator, holding that orders passed by one regulator would apply to others too.

The SAT, by a majority order, gave FTIL four weeks, from the ninth of July, to divest its shares in bourses, including MCX-SX. JP Devdhar, pictured, a SAT officer said in a statement: “An order passed by one regulator would have to de-facto apply to other regulators and not following this principle would defeat the spirit of Regulation .”

FTIL had four weeks from the date of the appellant to reduce its stake in MCX exchange to below 2%.

FTIL, the technology framework behind leading trading venues in India and the Middle East, had a shareholding of 26% in MCX. After the financial watchdog pressed down and demanded the firm reduce its holdings, FTIL pared its stake down to 20% through a series of open market transactions.

The firm reported its major sale to a banking giant on the 20th of July. The firm reached an agreement with Kotak Mahindra Bank to sell 15% of its stake.

FTIL reported that it had sold a large chunk of its remaining holdings to Kotak Mahindra Bank. The firm disclosed the detail in a press statement, Venkat Chary, Non-Executive Chairman, Financial Technologies, commented on the deal, he said: “We are happy that Kotak Mahindra Bank will become a significant minority shareholder in MCX and will contribute towards the next phase of growth of MCX as a responsible public shareholder. We are satisfied that we could divest to KMBL and wish both MCX and KMBL a great future. FTIL will continue to remain a technology partner to MCX and will work closely with MCX to take MCX to even greater heights.”

After the sale to the bank FTIL still owns 5%, a worry for the firm that currently breaches the regulators guidelines on only ‘fit and proper’ firms holding stake in exchanges.

FTIL and its founder have been facing the music since NSEL, an exchange promoted by FTIL, was involved in one of India's largest financial trading scams. Since the case came to light, the firm's Forbes rich list contender, Jignesh Shah, has been stripped of his seniority in the exchange and has been taken into custody by the Mumbai police.

FTIL, a listed firm, has been a pioneer in electronic trading in India. The firm launched MCX, India's most liquid commodity exchange in 2003.