Jignesh Shah exits MCX

Financial Technologies India Ltd promoter Jignesh Shah on Monday exited the Multi Commodity Exchange, the country’s largest commodity bourse that he founded in 2003, with FTIL signing an agreement with Kotak Mahindra Bank to sell its 15 per cent stake.

“I am sure the Kotak Mahindra group, as a significant minority shareholder, will contribute to MCX’s growth. We look forward to a constructive partnership as its technology partner, ” Shah said.

With Kotak’s entry, the exchange is now set to be fully institutionalised. Before signing its share-sale pact, FTIL revised its technology supply contract with MCX.

The agreement period, lowered from 33 years to 10 years, will expire in October 2022.

Also, software charges were reduced from Rs 2 crore (Rs 20 million) to Rs 1.5 crore (Rs 15 million) a month and transaction-based charges were lowered from 12.5 per cent to 10.3 per cent.

Following the announcement of FTIL’s exit and relaxed technology terms, the Forward Markets Commission on Monday approved MCX’s contract-launch calendar for 2015 and 2016 -- 27 contracts -- removing all uncertainties surrounding the fate of the exchange.

FTIL had to sell its entire holding in MCX -- 26 per cent then -- as the Forward Markets Commission in December last year declared it, besides Shah and two others, ‘not fit’ to hold a stake in a commodity bourse.

FTIL has challenged FMC’s order in court and a decision is pending.

But when Shah had to step down from MCX’s board a year ago, following a payment crisis at National Spot Exchange Ltd, a firm promoted by him, he had announced he would exit all exchanges.

That was much before the FMC order.

India has had an interesting history of commodity bourses.

In 2002-03, when the government invited bids for setting up national exchanges to trade in commodity derivatives, only two bids were accepted. Both of these applicants had good domain knowledge but one could never start an exchange.

The other one did but remained a marginal player all through.

By comparison, FTIL’s bid for setting up a commodity bourse was accepted in the second round.

And its MCX, barring the first few years, has remained the market leader, with 80-90 per cent share.

It retained its top position despite the imposition of a commodity transaction tax in July 2013 causing a sharp decline in volumes across exchanges.

The reduction in charges and FTIL’s exit are expected to help MCX improve its finances, which had been hit, with its transaction-based income coming down after CTT introduction.

END OF A JOURNEY

• Apr 2002: FTIL gets in-principle approval to incorporate Multi Commodity Exchange, a commodity bourse
• Nov 2003: MCX begins operation (in record nine months)
• 2006: MCX becomes India’s largest commodity exchange
• 2007: NYSE Euronext, Merrill Lynch Holdings, ICICI Bank, Kotak Mahindra, ILFS, Citigroup, New Vermon and others buy stakes in MCX
• Mar 2012: MCX becomes India’s first exchange to be listed
• Apr 2013: MCX records top daily turnover of Rs 1,19,941 cr (Rs 1,199.41 billion)
• Mar 2014: FTIL appoints financial advisor for divestment of stake in MCX; FTIL board appoints a committee to oversee the stake-sale process
• Sept 2014: Parent FTIL completely exits MCX

Image: Jignesh Shah; Photograph, courtesy: dnb.co.in