SEBI Gives Nod to MCX Stock Exchange

Market regulator Securities and Exchange Board of India (SEBI) on Tuesday, granted permission to MCX Stock Exchange (MCX-SX) to operate as a full-fledged stock exchange.

The nod by SEBI ends nearly four-year-long wait of the bourse and will bring in more competition in markets.

With Tuesday’s approval, MCX-SX would be able to offer additional asset classes such as equity and equity F&O (Futures and Options), interest rate futures and wholesale debt segments.

The SEBI has been so far renewing MCX-SX’s licence for one-year periods, but has not been allowing the exchange to operate in segments other than currency derivatives, saying the bourse was not compliant to the shareholding and other regulations. Its last license was valid up to 15th September this year.

The promoters of MCX-SX, in their submissions and the undertakings to SEBI, have said that the shareholding of MCX and Financial Technologies (India) Ltd. (FTIL) (the two promoters) would be brought within the 5 percent limit within 18 months from today (Tuesday).

The combined voting rights of FTIL and MCX in the stock exchange would not exceed 5 percent at any point of time, the promoters have told the regulator.

MCX and FTIL would reduce their rights over equity arising from instruments such as warrants to within the shareholding limit as specified in the revised SEBI regulations within three years.

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Capital market regulator Sebi plans to set up an independent SRO (Self Regulatory Organisation) for stock exchanges, but wants the day-to-day trading regulations and surveillance actions to remain with bourses themselves.

Under the existing regulatory framework in India, the stock exchanges act as the front-line regulators for the market and the Sebi (Securities and Exchange Board of India) is the ultimate oversight and regulatory authority.

After putting in some efforts to effect a major overhaul last month in the way stock exchanges are run and owned, Sebi is now looking at ways to minimise any possible conflict of interest in the regulatory and business interests of bourses.

As per the new rules, exchanges can also get listed, although not on their own platform.

Sources said Sebi is of the view that an independent SRO could be set up to take over member regulation functions of stock exchanges in the long run, but trading regulations and surveillance actions should remain with bourses.

However, a dual-reporting structure could be introduced for the regulatory department of stock exchanges for now to tackle any conflict of interest. Under dual reporting, the head of regulatory department would report to the MD or CEO of the bourse as well as to an independent committee of the exchange's board.

The Sebi board has already approved a proposal for providing the seed fund for setting up the SRO, whenever deemed appropriate.

For trading regulations and surveillance actions also, the Sebi is in favour of dual-reporting for the heads of these departments -- to the CEO or MD as well as to an independent committee of the board of the bourse.

In the area of listing of the companies, Sebi would continue to prescribe minimum listing standards, but the exchanges would have the power to put in place additional stringent measures. The heads of listing department would also have a similar dual reporting.

Sebi has already announced that it would form a Conflicts Resolution Committee (CRC) with majority external and independent members to deal with all issues concerning 'conflicts of interest'.

The CRC will consider matters of policy, guidelines involving conflict issues and recommend standards that are pertinent to the areas of potential conflict in the exchanges.

The issues of conflict will be referred by exchanges or may be taken up suo moto by the CRC.