As MCX rushes against the clock to transfer its trading system from former promoter 63 Moons, regulator Sebi is keeping a tight eye on simulated trading sessions and the changeover process. Meanwhile, the case has reached the Madras High Court, with an investor group requesting a full investigation into the exchange by Sebi (Securities and Exchange Board of India) into the “integrity and competency of the market software technology” to be used by MCX.
While Sebi has requested several weeks to file a counter-affidavit, the court issued letters to MCX, MCX Clearing Corporation, and its CEOs and Chief Technology Officers on December 8.
On the condition of anonymity because of the pending litigation and regulatory scrutiny, top officials stated that some mock trading sessions have major flaws, although MCX did not respond to PTI inquiries in this respect.
Top officials also stated that the regulator is closely monitoring the outcomes of each mock trading session, as well as the new technological transition plan, which has already undergone several adjustments.
MCX also did not respond to questions about regulatory intervention.
The software support and maintenance agreement between 63 Moons and MCX, last revised on September 27, 2014, was set to expire on September 30, 2022, but it was extended at the last minute for three months and will remain in effect until December 31, 2022.
63 Moons, formerly known as Financial Technologies India Ltd and MCX’s founder-promoter, has always provided technical assistance for the exchange.
Tata Consultancy Services (TCS) was chosen as the provider to create the new commodity derivative platform in February 2021.
Although the new platform was supposed to go online in July 2022, it was postponed and then altered to go live after September 2022, however that date was also missed.
MCX claimed “complexity in platform development and integration” as the cause for the delay in its most recent annual report.
The study suggested alternative possibilities such as a maximum six-month extension of the 63 Moons contract or management of the existing system by the in-house IT team.
“We are keenly working towards managing the situation and have also kept Sebi informed of the developments related to the migration to the new technology platform. However, in the event that none of the options are found viable, the risk quotient of the Exchange’s operations may go up till the new platform is fully implemented,” MCX said.
The exchange has a monopoly, but its commodities futures market share fell from more than 96 percent to almost 93 percent in 2021-22, while trade volume fell by 29 percent to 14.49 crore lots.
During an investor call on November 29, 2022, the exchange stated that its goal was to launch the new platform by the end of December.
Officials said the exchange is considering all possibilities to assure the continuation of its trading activities in the face of rising regulatory and judicial scrutiny.
Chennai Financial Markets & Accountability (CFMA) filed the case in Madras High Court, requesting Sebi’s involvement to guarantee that MCX and MCX Clearing Corporation have the requisite technical assistance for its technology beginning in January 2023.
The petition claimed that the new technological platform had not met its deliverables and that the lack of communication from the exchange was generating worry among investors and traders, as the contract with the previous vendor was set to expire on December 31.
CFMA further stated that it has made comprehensive representations to MCX and MCX Clearing Corp board members, raising worries about the looming threat.
It went on to say that MCX would be committing a suicidal move if it either continued to use old technology without assistance or switched to new technology without being satisfied with its stability and performance.
The technology of any exchange and clearing corporation is considered mission critical, and even a minor glitch for a few minutes during an active trading session, or a malfunctioning of the risk management system or settlement schedule, could result in chaos and heavy financial losses to the investing public, not to mention a loss of reputation for the country, it added.
Millions of investors and merchants are claimed to trade on MCX around the country.
In addition to MCX and MCX Clearing Corporation, notifications were sent to MCX CEO P S Reddy and CTO Shashank Sathe, as well as MCX Clearing Corporation CEO Narendra Ahlawat and CTO Anilkumar Varma.
After Sebi’s counsel accepted the notice and requested four weeks to file a counter-affidavit, the court ordered the issue to be listed after four weeks.
Source – ET
