All eyes are now on Forward Markets Commission (FMC). What it says will sway the fortunes of Jignesh Shah and his boys. The verdict from FMC, the commodity market regulator, will determine whether Shah will face a new battle to save his empire or salvage it by putting the blame on a few managers. After Sebi's conditional lifeline to MCX-SX — the stock exchange promoted by the group Shah founded — the ball is now in FMC's court. And, indications are that next week FMC will make the final move.
The commodity market regulator will have to rule whether the promoters and board members of the troubled NSEL are "fit and proper" to run and remain stakeholders in MCX, the futures exchange promoted by Shah-led FT Group. Till now, no regulator in India has had to take such a decision. Ironically, it will now have to be taken by a regulatory body that has inadequate powers, limited mandate and little resources. It's certainly the least known. Nonetheless, it was the first to alert the government a year ago about the monkey business in NSEL.
Sebi, while staying clear of the fit and proper issue, has said that "any adverse findings by any other regulator may result in withdrawal of recognition" of MCX-SX. Withdrawal of recognition is easier said than done as closing down a bourse, just as shutting down a bank or an insurance company, would put thousands of investors in the lurch. A regulator can only change the management, replace the board and make sure that promoters, who are not considered "fit and proper", are left with little or no control. It's for FMC to decide when it wants to pull the trigger.
It could be messy. Any move that disqualifies the promoter of MCX, the country's only listed bourse, is likely to be challenged in court. While some will argue that frauds and chicanery at NSEL were confined to the exchange and did in no way boil over to MCX, FMC has the tricky job of establishing that the managers who committed them had the blessings, either explicit or tacit, of the NSEL board; and, therefore, the men on NSEL board should distance themselves from MCX. This will require information and evidence that's more than what FMC, within its powers, has gathered. It's thus likely to wait for the government-constituted committee probing the NSEL scam to submit its report.
The money trail and possible diversion of funds tracked by the central agencies together with other sharp transactions they have reported to the committee will strengthen the regulatory stand that FMC takes.
As things stand, FMC will issue a showcause notice next week on whether promoters and the board of MCX are "fit and proper". It's uncharted territory and the regulator will tread carefully. Over the next few days, FMC will take legal advice before shooting the notice, and chances are by then the committee's findings would also be known to it. The regulator believes that it's in a position to act. A series of defaults at NSEL, the exchange's failure to act as custodian of the commodity stocks, more than Rs25,000 crore trading positions taken by a group entity on MCX, and a board proposal that could have had financial implications for a promoter company are some of material with which FMC has built its case. Lawyers will differ on whether these are strong enough reasons to strip a group of men of their board positions and loosen their control over a company, but the regulator may think it has enough to go on. No matter how the story unfolds, it would go down as a test case in Corporate India.
The commodity market regulator will have to rule whether the promoters and board members of the troubled NSEL are "fit and proper" to run and remain stakeholders in MCX, the futures exchange promoted by Shah-led FT Group. Till now, no regulator in India has had to take such a decision. Ironically, it will now have to be taken by a regulatory body that has inadequate powers, limited mandate and little resources. It's certainly the least known. Nonetheless, it was the first to alert the government a year ago about the monkey business in NSEL.
Sebi, while staying clear of the fit and proper issue, has said that "any adverse findings by any other regulator may result in withdrawal of recognition" of MCX-SX. Withdrawal of recognition is easier said than done as closing down a bourse, just as shutting down a bank or an insurance company, would put thousands of investors in the lurch. A regulator can only change the management, replace the board and make sure that promoters, who are not considered "fit and proper", are left with little or no control. It's for FMC to decide when it wants to pull the trigger.
It could be messy. Any move that disqualifies the promoter of MCX, the country's only listed bourse, is likely to be challenged in court. While some will argue that frauds and chicanery at NSEL were confined to the exchange and did in no way boil over to MCX, FMC has the tricky job of establishing that the managers who committed them had the blessings, either explicit or tacit, of the NSEL board; and, therefore, the men on NSEL board should distance themselves from MCX. This will require information and evidence that's more than what FMC, within its powers, has gathered. It's thus likely to wait for the government-constituted committee probing the NSEL scam to submit its report.
The money trail and possible diversion of funds tracked by the central agencies together with other sharp transactions they have reported to the committee will strengthen the regulatory stand that FMC takes.
As things stand, FMC will issue a showcause notice next week on whether promoters and the board of MCX are "fit and proper". It's uncharted territory and the regulator will tread carefully. Over the next few days, FMC will take legal advice before shooting the notice, and chances are by then the committee's findings would also be known to it. The regulator believes that it's in a position to act. A series of defaults at NSEL, the exchange's failure to act as custodian of the commodity stocks, more than Rs25,000 crore trading positions taken by a group entity on MCX, and a board proposal that could have had financial implications for a promoter company are some of material with which FMC has built its case. Lawyers will differ on whether these are strong enough reasons to strip a group of men of their board positions and loosen their control over a company, but the regulator may think it has enough to go on. No matter how the story unfolds, it would go down as a test case in Corporate India.
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