SEBI approved the Draft Red Herring Prospectus (DRHP) of MCX's Initial Public Offering (IPO)

The Securities and Exchange Board of India (SEBI) approved the draft red herring prospectus (DRHP) of MCX's (Multi-Commodity Exchange) initial public offering on 9 September 2011. SEBI clearance will be valid for 12 months. Leading commodity exchange MCX had filed its Draft Red Herring Prospectus (DRHP) for an initial public offer (IPO) with SEBI of 6427378 equity shares of Rs 10 each.

The approval comes amid a debate on whether or not to allow exchanges to list shares because of the conflict of interest between supervising trading and maximizing profit.

The IPO offer constitutes 12.60% of the paid-up equity share capital of the company. The offer will be through a 100% book building process, wherein not more than 50% of the net offer shall be allocated on a proportionate basis to qualified institutional buyers, not less than 15% of the issue shall be available to non-institutional bidders and not less than 35% of the issue shall be available to retail individual bidders.

Currently, no Indian exchange is listed. If MCX gets listed, it will become the first Indian bourse to do so. Unlike the earlier attempts in 2006 and 2008, the exchange in 2011 is making an offer for sale to provide an exit route to existing shareholders, like SBI, Corporation Bank and Bank of Baroda, which will offload their combined equity of 4.8%.

MCX is the sixth largest commodity exchange in the world with number 1 in silver and number 2 ranking in gold. It would be the first exchange in India to go public and get India at par with other countries with listed exchanges such as US, HK, UK, Singapore, Japan and Australia. MCX paid dividend over 3.15 times that of equity since its inception. It has a diverse shareholding pattern with international names like NYSE Euronext, Fidelity, Merrill and leading Government institutions like SBI, NABARD, Corporation Bank.

MCX is 31 per cent-owned by founder Financial Technologies (India) Ltd and its shareholders include NYSE Euronext and Fidelity. It offers futures trading across segments such as bullion, ferrous and non-ferrous metals, energy and a number of agriculture commodities. The exchange is already in a legal battle with the SEBI after the regulator denied it permission to start equity trading in 2011.

The Bimal Jalan panel set up by the SEBI to review the ownership and governance structure of exchanges and depositories was against public listing of exchanges, citing the conflict of interest. The regulator’s then chairman, CB Bhave, had supported the panel’s view.