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MCX Audit by PWC Shows Lots of Related Party Issues, Sham Trades

Deepak Shenoy1 min read
Quick Facts
What is "MCX Audit by PWC Shows Lots of Related Party Issues, Sham Trades" about?
What category is this article in?
General
Who wrote this article?
Deepak Shenoy, Capitalmind's research team.
When was this article published?
Published 29 May 2014.
How long does this article take to read?
1 min read
What topics does this article cover?
FinanTech, NSEL

The Price Waterhouse Cooper report on MCX insider transactions is pretty damning. It’s at the end of this post, but here’s a quick summary:

  • FTIL, which owns 26% of FT, controlled a lot of the vendor contracts given out by MCX

  • FTIL has a stranglehold on MCX operations, getting paid 649 crores over the years for services from MCX. NBHC, a warehousing company owned by FT, got 42 crores for its services.

  • And there was no open-tendering for price discovery. So FT charged anything, there was no cross-checks.

  • Related parties to FTIL companies have traded on the MCX (not allowed)

  • MCX had even paid some such parties money, either as vendors or as donations

  • MCX paid 55 cr. to parties that either didn’t have a physical presence, or where the transaction was shady.

  • Lot of manipulation has been detected in trades by clients which have been changed or reassigned after the time allowed for such changes.Many big brokers like Riddhi Siddhi and Edelweiss conducted “wash” (sham) trades on MCXFTIL would get upto 12% of gross fees, plus Rs. 1 crore a month for the technology and services they provided to MCXEven a foreign stock exchange which wanted to buy a sake in MCX had said that the agreements with FTIL were one-sided.

The point now is that MCX has been delinked from FTIL forcibly after FTIL was declared “not fit and proper” to run an exchange after the NSEL crisis.

However, if MCX operations depend on FTIL technology so much, there is much dependency at stake here. And if agreements are one-sided, and don’t allow MCX to back out (which is one case pointed out) then a buyer of MCX will have to live with “one-sided” deals for a long time, and that could impact their ability to make the exchange more profitable.

The full report:

Tagged:FinanTechNSEL