Overlooking Principles of Justice to Unfairly Punish the FTIL Group

While FTIL and NSEL have been pursuing and satisfying commitments, within the framework available in the lawful sphere, to safeguard rescue and to attend to the interests of the affected constituencies, the behavior that was meted out to them by the various authorities has been pure unfair, in a excessive urgency, contravening and in contradiction of principles of justice that need to be applied to a firm operational towards disaster resolution.

The manner in which the accident at NSEL was handled is a cause of concern. The way it was addressed by various agencies, including the regulatory authorities raises far more important issues that could cause anxiety and disquiet for those people who believe in free markets and fair justice. A complete and comprehensive review of the whole episode what contributed to the crisis and how it was managed subsequently – brings into light the importance of balance and maturity in handling crisis such as this, which unfortunately is in severe shortcoming in this case. In democracies and free markets, crises are not uncommon. If the authorities go into excessive overdrive, demolishing everything that is remotely connected with the issue in the name of resolution of the crisis, the image and ability of India to emerge as a major and mature economic power will come into serious doubt and dispute.

There is so much of misconception, misinformation, misreading, misunderstanding and misinterpretation around the whole crisis that it has made it into a sordid drama where players who should have taken the responsibility of finding a solution to the crisis went beyond their brief, leading to a complex situation arising.

The NSEL accident is not something that the world has not known in the past or that has never taken place. The context of the crisis is also not something so unusual. The question that only comes to mind is how and why there was so much hurry on destroying a vast ecosystem that has great potential to grow and contribute to India’s progress, which was carefully built over long years, in the name of solving a crisis just to fulfill the demands of a few high networth trading clients who themselves are also to be blamed, in the first place, for the crisis to happen?

The way it was dealt with raises more questions than answers. Here are a few that are quite puzzling and perplexing.

FTIL by itself has not committed any breach of governance standards or market abuses. It is a well-run company, with close to 60,000 public shareholders, an accomplished Board and a dynamic management, that has steered this company from being a start-up in early 2000s to one of the most respected and widely regarded technology solutions company that pioneered multi-asset-class trading segments, which stood the tests of competition from global majors such as IBM. Cost-effective and efficient technology solutions enabled Indian financial markets to expand the reach and access nationwide, benefiting millions, including financial institutions, intermediaries, investors and other stakeholders.
Since its inception, FTIL has not received any complaint from exchanges or intermediaries, which are its biggest clients and customers. Even competing institutions used to buy technology solutions from FTIL, which is a testimony for its integrity and business ethics. There was never any regulatory action of any sort though the exchange and ecosystem ventures of the Financial Technologies Group were operating in several regulatory jurisdictions in India and abroad.

FTIL: Fit and Proper?

A cursory glance at the manner in which Fit and Proper guidelines are enforced by the Forward Markets Commission on FTIL shows several inconsistencies. The Fit and Proper order was passed without any independent fact finding inquiry by the FMC. The FMC relied solely upon the audit report of Grant Thornton, which had very limited scope of review within a limited period of time. The Audit report was prepared without Management response (i.e. a completely one sided story) and had a clear disclaimer that it cannot be used for legal purposes which was subsequently changed at the instance of the FMC. The FMC acted in undue haste without giving FTIL and its promoters a fair chance and sufficient time to cross-examine the audit report that led to such drastic action having irreversible consequences.

The following criteria determine Fit and Proper status and how FTIL and its promoters meet them:
FINANCIAL STATUS:
FTIL and its promoters are financially very sound. FTIL has a strong balance sheet with robust reserves and networth.
EDUCATIONAL QUALIFICATIONS OR EXPERIENCE:
FTIL is a pioneering company in designing state-of-the-art financial market solutions and its promoters are not just highly qualified but are considered as visionaries of creating new-generation markets in India and abroad.
ABILITY TO CARRY ON THE REGULATED ACTIVITY COMPETENTLY, HONESTLY AND FAIRLY:
The Financial Technologies Group has multi-asset-class exchanges functioning in international financial centres, such as Singapore, Mauritius, Dubai, Bahrain and Botswana. After elaborate due diligence and assessment of the promoters, the licence for these exchanges are issued by the monetary authorities and regulators of security markets of the respective jurisdictions. Investors in FTIL have received excellent returns in terms of price appreciation and dividend declared for 36 continuous quarters. The Financial Technologies Group's exchanges in India, such as MCX and MCX-SX, are subjected to annual statutory and regulatory audits, which found no problems with the regulatory and compliance standards at the exchanges. FTIL or any of its group companies do not have any claims pending with any of its bankers, lenders, customers, vendors or employees. The IPO of MCX received phenomenal response of mobilizing nearly US$ 7 billion of subscription to an issue size of US$132 million. Leading auditors are engaged to examine the businesses of FTIL and its Group companies. FTIL and its group companies received numerous awards and citations in various international and domestic forums.
REPUTATION, CHARACTER, RELIABILITY AND FINANCIAL INTEGRITY:
The reputation of the promoters is so high that once MCX-SX the new stock exchange promoted by the Group began its membership drive, it evinced unprecedented interest with road shows that received resounding success. The character was without any blemish, focusing on how to expand the sphere of markets in India and reward the investors. Growth and Inclusion was the theme that was promoted for the exchanges, which dominated the character of the group. FTIL and the Group ventures delivered beyond what was promised, demonstrating a high degree of reliability. When exchanges in India used to shut operations briefly during the sun outage, FTIL showed how this could be overcome, which was later followed by other institutions. FTIL promoted MCX-SX reduced the time gap for crediting the clients with money, making it available before the trading time, thus enormously helping the liquidity position of the brokers and clients. On the financial integrity issue, FTIL or any of its Group companies do not have any record of any disputes regarding payments or claims or financial obligation to any of its constituents.
FTIL and the promoters of FTIL fulfill all the criteria of financial soundness, fitness and probity. Yet for a crisis in one of the subsidiaries, hasty and undue punishment is awarded to FTIL and its promoters causing severe damage to the reputation and business prospects of the Financial Technologies Group.

When the journey of Financial Technologies Group came to a halt

The journey of Financial Technologies Group came to an abrupt halt just because of payment defaults at one of its subsidiaries. Government and regulatory authorities could have surely recognized the power of enterprise that the Financial Technologies Group has built, the impeccable record of conduct it has displayed in public markets, the unblemished achievement of enriching thousands of its shareholders with uninterrupted dividend payout for 36 consecutive quarters, getting accolades and recognition from global and domestic institutions, including multilateral institutions such as UNCTAD, FAO, and should have extended a helping hand to the Financial Technologies Group to overcome the crisis, which could have enabled it to solve the settlement crisis quickly and take the country towards the next generation of growth and development in the financial markets. The world over it is not uncommon for the Government to give temporary and ad-hoc support to institutions in crisis. If the US and European regulators and governments would have adopted the same stance as that of the Indian Government and the FMC, there would not have been anything of US or European finance left by now. Globally, Governments and crisis-hit institutions have always worked hand in hand in solving the problem and enabled both to reach recovery within a short time, which
proved helpful to investors, customers and other constituents of the economy and finance. Unfortunately in the case of the Financial Technologies Group, it was nothing but vilification and witch-hunt from all sides, be it the government or the regulator or the agencies that have pressed it into a corner disabling its power to recover and redress quickly.

Even without assistance and support and despite being under constant and continuous harassment, NSEL is determined to get itself out of the crisis and redress grievances of the claims of trading clients. It is extending cooperation and actively coordinating with the courts and other agencies towards realization of dues from the defaulters that could lead to an early settlement. In all these efforts, FTIL is fully supporting NSEL, both with personnel and finance.

Achievements of Financial Technologies Group

The Financial Technologies Group has created millions of new stakeholders in the financial system, giving opportunities to earn, grow, and seek sustainable livelihoods. It created and nurtured new market segments and expanded the product ranges to serve a multitude of purposes such as investing, hedging and seeking newer opportunities for wealth creation. Governments, regulators and other development institutions from various countries used to visit the Financial Technologies Group to know and learn how it was able to create such a success story of sustainable financial market infrastructure growth and development with such an extensive ecosystem and a large engagement of numerous stakeholders.

Countries were keen to partner with the Financial Technologies Group to replicate the success that the Financial Technologies Group has managed in India, in their respective countries. The whole country expectantly looked at the Financial Technologies Group for leading to new directions of growth and maturity in Capital and Financial markets.

What FTIL did for NSEL?

FTIL extended all support to NSEL to resolve the crisis. As an interim measure, without prejudice loan of Rs 179 crore was given to NSEL to pay the smaller trading clients with exposure upto Rs 10 lakh. The NSEL Board was reconstituted and the management revamped. NSEL extended full cooperation to the investigating authorities, including EOW, CBI, ED as also the Committees that the Government has set up to study the NSEL crisis. FTIL has been supporting NSEL through financial and human resource support to explore various avenues of crisis resolution that are legally possible. NSEL, with support from FTIL, has been taking all measures required legally to proceed against defaulters to recover the money.
FTIL did all what was expected from a responsible corporate when one of its subsidiaries came into a problem.

Injustice for Financial Technologies

The silent and sincere efforts of the Financial Technologies Group in trying in every manner to resolve the NSEL crisis within the four corners of the law, were overawed by the barrage of criticism, accusations, aspersions, all based on misinformation and misunderstanding that came from all over with no responsible authority trying to explain the real situation.

That is why it is thought that the NSEL/FTIL side of the story needs to be told to the world. For the accident originated/engineered by FMC/DCA and then to payment default(post August 4, 2013) committed by defaulters at one of its subsidiaries, the entire Financial Technologies Group is paying the price. Not only injustice was meted on the FTIL, but added to it are other painful measures such as the hurry to declare promoters not ‘fit and proper’, the vilification campaign, unverified rumours, which have pushed the Group into a corner gasping for a little justice.

The solution given by Ministry of Corporate Affairs, on recommendation of the FMC, is a complete contradiction to the democratic system against the tenets of corporate law. Thousands of shareholders of FTIL will be deprived to enjoy the benefits of wealth creation and the very business that stood against the global competition and sustained success will wither away.

Financial Technologies should be given a chance to explain their stand.