The Securities and Exchange Board of India (SEBI), which had earlier rejected the MCX-SX's plea, was asked by a bench of justices Aftab Alam and C K Prasad to reconsider it within three months.
The court's order came on a petition by SEBI, challenging a Bombay High Court verdict, setting aside its order rejecting the MCX-SX application to operate as a stock exchange. MCX-SX, currently, trades only currency derivatives.
The bench, however, asked SEBI not to be influenced by various observations made by the Bombay High Court in its judgement, setting aside the SEBI's order.
The apex court passed the order on the basis of a consensus, reached between SEBI and MCX-SX vis-a-vis amendment to the MIMPS (manner of increasing and maintaining public shareholding in recognised stock exchanges) rules which the corporate entity also agreed to adhere to.
Attorney General G E Vahanvati appeared for SEBI, while senior counsel Harish Salve represented MCX-SX. The bench passed its order after Vahanvati told it that SEBI was willing to amend the MIMPS rules within three months, while Salve assured it that MCX-SX was willing to abide by the proposed amended rules.
The Bombay High Court, earlier, had set aside the SEBI order, rejecting permission to MCX-SX to start trading in equities and equity derivatives, asking the regulator to reconsider afresh the bourse's application within a month.
The SEBI had rejected Financial Technologies-promoted MCX-SX's application on the ground that it was not in “the interest of the trade and the public to allow its plea.”
While rejecting multi-commodity exchange plea to launch a new equity trading platform, the SEBI had also cited violation of the MIMPS rules which stipulateds only 5 percent stake for promoters in the venture.
But the high court set aside the SEBI order and said, “The findings arrived at in the September 23, 2010 order of the SEBI are contrary to the law as they ignored the relevant legal tests which have been laid down by the Supreme Court.”
In August 2008, MCX had got an in-principal SEBI approval for setting up MCX Stock Exchange for one-year, provided it complied with the provisions of Securities Contracts (Regulation) Act, 1956 (SCRA) MIMPS norms within a year. Following this, MCX-SX in October 2008 began operations in currency derivatives (CD).
On August 31, 2009, SEBI renewed recognition of MCX-SX for another year, subject to full compliance with the relevant provisions of SCRA's MIMPS rules by September 15, 2010, allowing it to trade only in currency derivatives.
On December 15, 2009, an extra-ordinary general meeting (EGM) of Financial Technologies approved the MIMPS scheme and three days later MCX moved the Bombay High Court for sanction of the scheme, which it got on March 12, 2010.
On April 7, 2010, MCX-SX informed SEBI of becoming MIMPS-compliant. As SEBI did not respond to the information by MCX-SX, the latter moved the Bombay High Court, seeking its intervention to direct SEBI to respond to its applications.
On August 10, 2010, the high court directed SEBI to take a final decision on the application by September 30, 2010, after which, the SEBI on same day (August 10, 2010) renewed MCX-SX permission for another year, till September 15, 2011, but issued a showcause notice to it asking as to why its application should not be rejected.
The SEBI then on September 23, 2010, rejected MCX-SX's MCX-SX's application for trading in other segments, forcing the company to move the high court six days later against the SEBI order.