MCX-SX seeks to end business ties with Financial Tech

MUMBAI: MCX-SX, the exchange promoted by Jignesh Shah’s FT Group, has written to the capital market regulator saying it wants to end business ties with Financial Technologies (FTIL), Shah’s flagship company.

FTIL is the leading capital market technology solutions provider in India. Apart from the front-end trading software the company sells to brokers, it serves as a software vendor for some of the exchanges and their trading engines.

In a recent letter to Sebi, MCX-SX, which runs trading platforms for currency futures, debt and equity, has said its cost could dramatically reduce if the regulator allows the exchange to migrate to another technology vendor in a phased manner. Against Rs 80-90 crore that FTIL charges the exchange every year, leading technology firms are willing to offer similar software solutions for Rs 20 crore.

Companies like CMC, HCL, TCS, Nasdaq and the Swedish firm Cinnober have shown interest to be technology partner for MCX-SX, a source told ET.

A transition to a new technology will require a temporary shut-down in operation of MCX-SX’s debt and equity platforms where trading volumes are negligible, but a parallel, less expensive system can be set up for currency futures while keeping the existing platform running. The exchange, which has been unable to raise funds, as most shareholders have been reluctant to subscribe to a rights offering, has told Sebi that slashing costs could be the only option to keep itself afloat.

The move is unlikely to go down well with FTIL. Since MCX-SX (as a client) had signed a long-term contract with FTIL (acting as service provider), market circles do not rule out the possibility of FTIL seeking legal redress if MCX-SX chooses to terminate the agreement to pick another technology vendor.

But the new MCX-SX management — armed with a forensic report that has put a question mark on its choice vendor — believes that the contract was one-sided and it is in a position to take on legal challenges. The exchange, which is more than 60% owned by state-owned financial institutions, is undergoing an audit by the Comptroller & Audit General (CAG). Under the circumstances, the exchange prefers to refrain from any possible renegotiation of terms and charges with FTIL.

With present shareholders unwilling to chip in equity in the aftermath of the NSEL scandal and CBI enquiry, MCX-SX has hired an investment bank to explore the possibility of roping in new investors like private equity funds.

MCX-SX started operations in the currency derivatives segment in October 2008. In June 2012, it received permission to run trading platforms for interest rate derivatives, stocks, equity futures and options and wholesale debts.