The Bombay High Court on Wednesday set aside the Securities and Exchange Board of India (Sebi) order which had rejected MCX-SX 's application for launching an equity trading platform setting a one-month deadline for the stock market regulator to take a fresh look at the request.
The verdict could pave the way for MCX-SX to start trading in shares. At present, MCX-SX operates only in the currency segment as Sebi had earlier denied it permission to trade in equities. "We are setting aside the order passed by Sebi on September 23, 2010. Sebi is directed to reconsider MCX's application afresh within a month after considering the observations made by this court," a two-judge Bench of the Bombay HC said in the order.
Sebi had rejected Financial Technologies-promoted MCX-SX' application on the ground that it was not in the interest of trade and public interest. The regulator had also cited violation of the Mimps rules (Manner of increasing and maintaining public shareholding in recognised stock exchanges), which mandates promoters to hold only five per cent stake.
The court further said that the findings arrived at in the September 23, 2010, order of Sebi are contrary to law since they ignored the relevant legal tests which have been laid down by the Supreme Court. The court stated that during the proceedings before Sebi and the High Court, undertakings have been filed by the MCX promoters to the effect that the provisions of Mimps regulations, including the ceiling on the holding of shares, would be complied with.
Observing that stock exchanges are an integral part of the statutory framework, which Sebi regulates in relation to the securities markets, the court said that the relationship between a stock exchange and Sebi is one based on trust and utmost faith. The company is duty-bound to make full and honest disclosure of all material facts.
The effect of the non-disclosure of the buyback agreements MCX wins court battle against Sebi to Sebi should be considered having regard to the fact that a genuine attempt has been made by the promoters by tendering an undertaking that their shareholding together will not exceed five per cent of the equity capital, the Bench, consisting of justices D.Y. Chandrachud and Anoop V. Mohta, said.
While rejecting the MCX-SX application on September 23, 2010, Sebi had observed: Concentration of economic interest in a recognised stock exchange in the hands of two promoters is not in the interest of a wellregulated securities market. The applicant is not fully compliant with the Mimps regulations as substitution of shares by warrants is an attempt to work around the requirements of the rules.
The MCX-SX spokesperson said after the order, "Sebi was, is and will always remain a respected regulator. The MCXSX stance was not against regulatory institution but was for principles. We stand vindicated and always have full faith in the judiciary system. We remain committed to growth and development of the country's financial markets."
The Sebi-MCX-SX tussle goes back to July 16, 2010, when MCX-SX filed a writ petition in the Bombay HC seeking its direction to Sebi to respond to its application. In August 2008, MCX got an in-principle Sebi approval for setting up MCX Stock Exchange provided it complied with the norms within a year. Following this, MCX-SX in October 2008 began operations in currency derivatives.
Courtesy: Mail Today