Farewell to MCX: From Jignesh Shah to Shah Jahan?

Shah’s emotional statement indicates he has bid farewell to MCX; but is he stooping to hit back?

Ten days before the 10th anniversary of its launch, Jignesh Shah stepped down from the board of his favourite child, Multi-Commodity Exchange (MCX). 

Financial Technologies was his stepping stone in business but MCX was the catapult that launched him in to the big league. The bourse defined Shah’s public profile. For the man on the road, Shah was MCX and MCX was Shah.

Building it was not an easy task, though. When the government decided to open the commodities trading space, there were 17-odd contenders, of which many were stock exchanges.

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Shah’s MCX was one of the few that neither had a commodity trading background nor had an experience of running an exchange. Nobody gave him a chance.

Yet, Shah managed to surprise everyone by winning a go-ahead in February 2003. Nine months later, on November 10, 2003, Shah announced his arrival by getting Reliance Industries Chairman Mukesh Ambani to inaugurate the bourse. 

Shah’s detractors say his dramatic entry and the meteoric rise were aided by favourable government directives and benevolent regulatory moves. Who helped him, what worked and what didn’t is stuff of folklore.

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MCX had a one-month headstart against rival National Commodity and Derivatives Exchange (NCDEX), which started trading on December 15, 2003. However, it raced away by positioning itself as a metals and energy bourse, capturing close to 90 per cent marketshare till the day a toxic sister concern came under heavy weather. 

Letting something like this go would have been painful. “The NSEL (National Spot Exchange Limited) crisis has destroyed everything that I have worked hard to build over the past two decades,” Shah said in a release announcing his resignation from the bourse. 

Notably, Shah put the attack on his credibility as even more hurting. “What has hurt me and my family the most is the concerted effort to destroy my credibility and trust for which I have lived by all my life.”

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However, he didn’t forget to record his concern for the well being of the bourse. “I don’t want any event or anything to undermine their reputation and want to ensure that the shareholder and investor interests are not harmed by the mud-slinging,” the statement added.

A lot of damage, however, has already been done. The bourse’s credibility has been hit; it is the subject of an Forward Markets Commission (FMC)-commissioned forensic audit and is already losing market share to competition as angry brokers hit by the NSEL fiasco and their cautious counterparts are moving away. 

Shah could have stepped down any time during the past three months. Why did he do it now? His options were diminishing. Thursday was the last day for filing replies to the fit-and-proper show cause notice. 

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“Technically, he need not have resigned. He could have continued until a decision was taken on fit and proper. But, the pressure was building up,” said a regulatory official.

Shah, Joseph Massey, Shreekant Javalgekar and Financial Technologies have reportedly submitted voluminous responses to the FMC. Replies running into some 125 pages and some 30 judgements have reportedly been referred to in these responses. 

Shah’s statement did not say much except that “a detailed reply has been filed addressing all the concerns raised in the regulator's show cause notice”.

The resignation and the hurriedly stitched-up deal with Mohan India, a Delhi-based borrower of NSEL, announced a day before the deadline got over, are seen as pre-emptive steps to strengthen the case against the fit-and-proper notice. 

However, Financial Technologies, which holds 26 per cent in MCX , is also facing such a notice. Observers are watching the case with interest to see what position the corporate entity takes. 

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It is the promoter and 99.99 per cent shareholder of NSEL. If it was declared unfit to be a shareholder in MCX, then, its holding would have to come down to two per cent.

Shah’s position in MCX depends on this shareholding. Shah seems to have chosen his words very carefully when he said: “I will see the institution grow from a distance for the rest of my life.”

Is it a vow which would give this statement a limited meaning that even if he wins all the legal battles, he would not come back to the MCX board. Or is he conceding defeat? 

That could mean Shah, like the great Mughal emperor Shah Jahan, would be left gazing his Taj Mahal “from a distance”?

What he meant by those words will largely determine the course of events over the next few weeks.