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MUMBAI, FEB.

28: After getting very lucky with their initial public offering, the promoters of Multi Commodities Exchange (MCX) are still awaiting the judgment in their long-pending case against SEBI. The market is buzzing with speculation that the verdict would be out soon. In the last hearing in November 2011, the Bombay High Court reserved judgment after the two parties, SEBI and MCX-SX, were unable to sort the matter out internally. The MCX IPO which closed on February 24 was oversubscribed 54 times and managed to raise nearly Rs 35,000 crore. This was despite the complexities involved in the legal tussle and the risk factor mentioned in the red herring draft prospectus. The risk factor said that MCX had made investments in the form of equity share capital and warrants in MCX-SX. In the event of an adverse outcome in the outstanding litigation between MCXSX and SEBI in relation to the application for diversification of trading operations, they may not be able to benefit from their investments as anticipated by them. A division bench of the Bombay High Court consisting of Mr Justice D.Y. Chandrachud and Mr Justice Anoop V. Mohta was hearing an appeal filed by MCX-SX in October 2010 against market regulator SEBI for rejecting its application to set up a new equities trading platform. SEBI had said the promoters of MCX-SX did not comply with the Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges (MIMPS) regulations. The promoters are Multi Commodities Exchange of India (MCX) and Financial Technologies India Ltd (FTIL). In the last hearing in November 2011, it was agreed that MCX and FTIL will reduce their holdings in the exchange to 5 per cent from 10 per cent. According to the shareholding pattern, the promoters of MCX and FTIL were found to be persons acting in concert, meaning that the companies were controlled by common entities. MCX and FTIL previously held 51 per cent and 49 per cent respectively in the stock exchange. They later brought the holdings down by divesting to financial institutions and issuing convertible warrants with an option to buy them back in the future. The promoters now hold 5 per cent each in the exchange. The regulator said that since the two promoters were acting in concert, their combined stake should be less than 5 per cent. SEBI had said that reducing stake by issuing convertible warrants was not the right way under the MIMPS regulations. SEBI had always maintained that these were make-believe arrangements because money had temporarily been parked in another place. SEBI also pointed out that the buy back agreements were not legal. It would be a violation of the Securities Contracts (Regulations) Act, 1956 if these warrants were bought back in the future thereby raising the promoter's stake in MCX-SX beyond permissible limits, said SEBI. As mentioned by the Bombay High Court in an earlier hearing, SEBI was the only authority that could finally allow MCX-SX to set up its new trading platform. If the grounds on which SEBI had

denied permission to MCX-SX were found unsustainable, the maximum the Court could do was to ask SEBI to reconsider the application. In the meantime, the license issued to the stock exchange for currency futures was given a one-year conditional extension' in September 2011, subject to the outcome of the pending court case. priya.s@thehindu.co.in

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