Following Jignesh Shah’s willingness (?) to step down, it appears like Multi Commodity Exchange of India Ltd (MCX), the country's largest commodity exchange, will be run by the board of directors. Will the board have much interest in defending its market position and ensuring its growth? In a meeting, MCX board on Tuesday agreed to give Mr Shah more time (to step down) till the Forward Markets Commission (FMC) takes a decision on this matter.
Mr Shah is the non-executive chairman of MCX, while the only other person related with the promoter group is Paras Ajmera. While commodities market regulator FMC has appointed four directors, the National Bank for Agriculture and Rural Development (NABARD) has nominated one director on the MCX board. In short, MCX would be run by all nominated persons who may or may not have any interest in the growth of the company like a promoter. Nominees appointed by government-controlled entities may come and go, but what about the future of MCX itself? It would be interesting to see how the marquee MCX investors view this development.
Among the MCX’s investors are Euronext NV, Merrill Lynch Holdings, BNP Paribas, Blackstone and the Government of Singapore. However, with Mr Shah ready to move out of the picture, it would be hard for investors to expect a secular growth for the exchange.
At present, four independent directors, RM Premkumar, Ravi Kamal Bhargava, Dinesh Kumar Mehrotra and Santosh Kumar Mohanty are nominees of FMC. P Satish is the nominated by NABARD on MCX board as independent director. Paras Ajmera, the nominee of Financial Technologies (India) Ltd—FTIL, the main promoter entity of MCX, is a non-executive director of MCX. Just a few days ago, Shreekant Javalgekar, managing director and chief executive of MCX resigned. This leaves complete control of MCX in the hands of people who are not promoters. NABARD holds 3.06% stake in MCX but is not a promoter or a promoter group entity.
Mr Premkumar is a retired officer from the Indian Administrative Service (IAS) and he has been appointed as interim chairman of MCX. Mr Bhargava, another retired IAS officer was appointed as chairman of audit committee of MCX. Mr Mehrotra, who retired as chairman of Life Insurance Corp of India (LIC) in May was nominated by FMC on MCX board in July 2013. FMC also appointed Santosh Kumar Mohanty as director in place of Prakash Apte.
In a regulatory filing, MCX said its board has appointed five new directors. FMC has nominated G Ananth Raman, a retired officer from Indian Revenue Services (IRS) and Pravir Vohra as independent directors. With the two new appointments, FMC now has six nominee directors on MCX board.
The board also decided to appoint three representatives from banks as shareholder director. This includes KN Raghunathan (general manager for treasury at Union Bank of India), Sanjaya Agarwal (general manager for treasury and investment at Bank of Baroda) and P Paramasivam (general manager at Corporation Bank).
After the new appointments, the MCX board will have over 50% members nominated by FMC alone. Except Mr Shah and Mr Ajmera rest of the directors on MCX board are either nominees or representatives of non-promoter entities.
As per FMC norms, the board must have 50% independent directors. However, with Mr Shah’s willingness to step down, the MCX board will have over 90% nominated directors. This not only raises a big question over the future of MCX but also makes foreign investors to re-consider their decision to stay invested. After all, who would be interested, if there is nobody to grow the company?
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Where as the promoter directors have vested interest but not public interest.