Brokers write to Sebi for refunds from MCX-SX

Stockbrokers, who paid a deposit to become members of Multi Commodity Exchange-Stock Exchange (MCX-SX)'s equity segment, are asking the bourse to return their money, even as volumes in the segment have completely dried up.

They have also written to the Securities and Exchange Board of India (Sebi) on the issue, according to information from two persons familiar with the matter. "The brokers have asked for a refund," said a senior industry official.

A brokers' body has also written to Sebi, seeking its intervention in the matter, said the second person.

Members of the Association of National Exchanges Members of India made a representation to the exchange on this issue on July 30, said Naresh Tejwani, president of the association.

"Even in an IPO (Initial Public Offer), if there is a change in the circumstances surrounding the issue, the regulator says investors should be given a chance to withdraw. The same thing applies here also," added Tejwani.

He said what made most brokers sign up was the reputation of Jignesh Shah, the exchange's founder and former vice-chairman, and the expectation that they would be able to get a first-mover advantage at the new exchange.

"Shah had that kind of brand equity," he added.

Shah, regarded as the driving force behind the founding of MCX-SX, is currently in jail after the Rs 5,600-crore payment crisis surfaced. He, later, stepped down from the board of MCX-SX.

Meanwhile, volumes in the equity segment at MCX-SX have fallen significantly. The last trade on the bourse was on June 6. The cash segment saw trades of Rs 0.01 lakh, while the derivative segment saw volumes of Rs 3 lakh.

About 70 brokers have applied to MCX-SX for a refund. Each broker has paid about Rs 10 lakh as deposit. One broking source said the deposit is a waste of resources, since there is no interest on the deposits.

Meanwhile, the exchange said it was in talks with the brokers and is hopeful of resolution soon. It added there was no provision for refund under the exchange's membership structure.

''We are in continuous dialogue with the members and have received a positive response. Most of the members are convinced about the long-term value proposition and the roadmap put together by the exchange for its turnaround," said a spokesperson of the exchange.

The exchange has been working on raising capital and has been concentrating on its currency segment. It added that brokers had been made aware of the lock-in when they signed up.

"As per the membership structure approved by our board, the membership fee of Rs 10 lakh was non- refundable in nature and deposit can be released only after surrender of membership rights. For surrender of membership, there is lock-in period of three years, which was communicated to the market/members at the time of launch of the segment,'' the spokesperson added.

The chief executive at a domestic brokerage, which did not take the equity membership at MCX-SX but has a membership on the currency segment, said it might not be a fit case for Sebi to interfere.

"This does not involve investors. It is an agreement between two parties in business. It seems unlikely that the regulator will intervene," he said.