Founder of Top India Commodity Exchange Resigns Amid Probe

Jignesh Shah resigned from the board of Multi Commodity Exchange of India Ltd., the nation’s biggest commodity trading platform, amid an investigation into the failure of a related spot bourse.

Shah, 46, quit as non-executive vice chairman, according to a filing yesterday from the company he founded in 2003. He said he’s leaving to help ensure investors aren’t harmed by “mud-slinging” over the probe.

India’s commodities futures market regulator has sought an audit of MCX, which counts NYSE Euronext and Fidelity International Ltd. as investors, to examine large expenditures by the company and related-party transactions. The spot bourse being investigated, National Spot Exchange Ltd., which Shah also founded, was ordered by the government in July to halt trading.

“Investors will view Shah’s resignation as a positive,” said Paras Bothra, vice president for equity research at Ashika Stock Broking Ltd. in Kolkata. A change in ownership of MCX is a “distinct possibility,” he said.

Shares of MCX, which controls about 90 percent of India’s $2.8 trillion commodities futures market, advanced 3.1 percent to 488.2 rupees at 10:36 a.m. in Mumbai. The stock has dropped 23 percent since July 31, when NSEL suspended trading in most commodities. Financial Technologies (India) Ltd., which owns 26 percent of MCX, has plunged 68 percent in the period.

Fairness, Integrity

Forward Markets Commission, India’s commodities futures market regulator, on Oct. 5 questioned Financial Technologies’ ability to manage MCX. According to the FMC, a person shall be deemed “fit and proper” to run a bourse if the person has a general reputation and record of fairness, integrity and is not involved in any action of fraud and dishonesty.

Shah said a detailed reply has been sent to the regulator over concerns it raised about MCX. Financial Technologies also runs the Singapore Mercantile Exchange, Global Board of Trade in Mauritius, Bourse Africa in Botswana, Dubai Gold and Commodity Exchange and Bahrain Financial Exchange.

Shah quit the board of the MCX-Stock Exchange Ltd., India’s newest equity bourse, in October.

The now defunct NSEL broke rules by permitting the sale of goods traders didn’t keep in its warehouses, according to regulators. The turmoil for MCX began with the government seeking details on NSEL’s settlement cycle on July 14, and deepened with the suspension of most contracts on the NSEL on July 31. The exchange was banned from introducing new obligations without prior approval on Aug. 6.

CEO Resigns

MCX’s Chief Executive Officer Shreekant Javalgekar, its chairman, and three directors quit recently. Investors had been calling for Shah’s resignation.

The number of contracts traded on the MCX fell 38 percent in October from July, with volume last month totaling 12.09 million contracts, the least since February 2009, MCX data show. Volumes on the rival National Commodity & Derivatives Exchange Ltd. have increased 5 percent since July.

Shah’s departure may be an attempt to build some confidence in MCX, according to Kishore Narne, head of commodity and currency at Motilal Oswal Commodity Broker Ltd.

MCX appointed Pravir Vohra and G. Ananth Raman as independent directors to the board on Oct. 23, and named Parveen Kumar Singhal, a deputy managing director, as the chief executive until a managing director is named.

The Economic Offences Wing of the Mumbai police has arrested NSEL’s former Chief Executive Officer Anjani Sinha and two other senior officials after an investors’ group complained the executives diverted funds and failed to settle about 56 billion rupees ($911 million) in dues to investors.

The NSEL has failed to meet most of the payment targets set under the supervision of the Forward Markets Commission, the commodities futures market regulator.

NSEL and Financial Technologies Group will co-operate with the authorities in the probe, the exchange said in a statement on Sept. 30.

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