By Neeraj Mahajan
Jignesh Shah- hero to zero
There was a time when Jignesh Shah was a celebrity, a pioneer who developed the commodities and futures industry in the Indian sub-continent.He was Founder Chairman and Group CEO of the Financial Technologies Group, Chairman of Bahrain Financial Exchange Limited [Average daily turnover $175 million], Vice Chairman Multi Commodity Exchange of India Limited (MCX), Vice-chairmanGBOT, Mauritius [average daily turnover in $25million], Vice Chairman IBS Forex Limited, Vice Chairman Dubai Gold and Commodities Exchange [Average daily turnover $2.2 billion], Non-Executive Director Indian Energy Exchange Limited, Vice Chairman Singapore Mercantile Exchange Pte Ltd. [Average daily turnover $81 million], Vice Chairman National Spot Exchange Ltd., Vice-Chairman and Group Chief Executive Officer MCX Stock Exchange Ltd. and Director, National Bulk Handling Corporation Ltd besides being on the board of several companies including Bourse Africa Limited –a pan-African stock exchange.
Today all these designations are useless.
He and two of his two lieutenants – Joseph Massey and Shreekant Javalgekar –have been declared unfit and improper—have been declared unfit and improper meaning, they cannot hold more than 2% stake in any recognized commodity exchange individually or through other entities.
They have been forced to resign from the Board of Financial Technologies, Multi Commodity Exchange of India (MCX), Singapore Mercantile Exchange (SMX), Global Board of Trade (GBOT), Bourse Africa and Indian Energy Exchange (IEX).
Till lately Jignesh Shah was a famous personality in the Kingdom of Bahrain. Prince Khalifa Bin Salman Al Khalifa used to give him a lot of attention as the Chairman of BFX, BFX Clearing and Depository Corporation (BCDC) touted as the first exchange platform in West Asia. Today though BFX continues to be a wholly owned and parented by the Financial Technologies Group (FT Group) its website displays just two Board of Directors– Tawfiq Al Alawi, Personal Secretary to HRH Prime Minister, Prince Khalifa Bin Salman Al Khalifa and Lambertus Rutten, Non-Executive Director, MCX. There is no mention of Jignesh Shah on the website. The BFX and the BCDC are licensed and regulated by the Central Bank of Bahrain (CBB) adhering to its strict regulatory standards.
FTIL had to sell off its 100% stake in Singapore Mercantile Exchange to ICE Singapore Holdings, owned by Atlanta-based ICE group, for US$ 150 million. FTIL’s exit from SMX and SMX Clearing Corporation was allegedly masterminded by Monetary Authority of Singapore (MAS), the financial regulator in Singapore. MAS reportedly has a way of telling exchange owners to do things it way or lose their license.
But nothing could be worse for the FTIL Group than what happened at the Dubai Gold Commodity Exchange. Around 12 years ago it started off as a 50:50 joint ventures between Dubai Multi Commodities Centre DMCC and DGCX. DGCX supported by the Indian bullion and diamond merchants in the Emirates became the first bourse to offer dollar-rupee forex trading. FTIL held two of the five nominated seats on the board —Shah (Vice-chairman), Joseph Massey (Director). Today the DGCX website introduces itself as a subsidiary of Dubai Multi Commodities Centre (DMCC), a strategic initiative of the Government of Dubai. Further, the DMCC website just mentions Ahmed Bin Sulayem as Executive Chairman and Gautam Sashittal as CEO DMCC there is no trace of Jignesh Shah, who used to be its Vice Chairman.
Till a few years back, the DGCX website mentioned four names– Ahmed Bin Sulayem as Chairman, Jignesh Shah, Vice-Chairman, Abdul Wahid Al Ulama, Abdul Wahid who represents the Dubai Financial Services Authority (DFSA) , Commercial Bank of Dubai and International Chamber of Commerce (ICC) and Gautam Sashittal – an Indian immigrant on the board of directors. Gautam Sashittal — who was a former CFO of Dubai Gold and Commodities Exchange (DGCX) is now CEO of DMCC a Dubai Government Authority responsible for establishing Dubai as a global gateway for commodity trade by providing the appropriate physical, market, financial infrastructure and services.
It is reliably learnt that the bitter end started off as a personal fight between Jignesh Shah and Gautam Sashittal who wanted to kick Shah out of Dubai. Gautam Sashittal as the head of the Dubai Multi Commodities Centre (DMCC), a strategic initiative of the Government of Dubai and majority partner in the Dubai Gold and Commodity Exchange (DGCX), reportedly ordered replacement of ODIN technology with EOS from Cinnober a rival exchange technology provider.
DGCX’s EOS Trader Platform went live on March 12, 2013. It proved to be a sound investment for DGCX as EOS was recognized as the “Best Technology Innovation by an Exchange” in Asia, Australasia, the Middle East and Africa and substantiated allegations about software glitches and unethical use of technology by FT-MCX to manipulate the exchanges where it provided the technology. In the past too many others including BSE, NSE replaced ODIN following complaints that its technology was unethically spiked.
Meanwhile, Sashittal timed a rights issue option in such a way MCX with just ten days notice –couldn’t muster regulatory approvals to participate. As a result, its stake in DGCX got diluted to 3.4 per cent. To add insult to the injury DGCX started distancing itself from the FT Group and issued a communiqué stating that FT was only a minority shareholder, and none of its directors had any operational responsibility for running the exchange. DGCX also started futures trading in BSE’s sense — FT group’s stock market rival in India.
The setback of losing control over DGCX – the valuable crown jewel in FT-MCX stable almost broke Jignesh Shah’s back. Branded as the first and leading commodities exchange in Middle East regulated by the Emirates Securities and Commodities Authority DGCX had seen an over 80% jump in traded lots and surpassed the 10 million volume mark in just 164 trading days. It was a massive financial loss- also because INR futures contribute nearly $2 billion to DGCX’s average daily turnover. In less than a decade, DGCX launched in November of 2005 had positioned itself as a global financial hub, adjudged “Exchange of the Year 2013″ and excelled in trading — bullion, currency and metals. Above all is the fact that Dubai historically has been an important hub for trading in gold and other commodities.
It was bad news for Shah, who had allegedly violated much foreign exchange and money-laundering laws and virtually transformed DGCX into a den for illegal hawala transactions. Curiously in the hurry to set up international exchanges Shah forgot to obtain necessary Reserve Bank of India (RBI) permission. For instance, he allegedly used Prithviraj Kothari the owner of RiddiSiddhi Bullions Ltd as a money-laundering conduit to illegally transfer the margin money collected in cash from Indian investors for commodity trading through hawala without any book entry. In this manner, only the other profits were calculated and settled. There were also instances of ‘paired trades’ where MCX investors were offered favorable positions on international exchanges floated by the FTIL group.
Another reason behind FTIL’s exit from DGCX was that the RBI Act explicitly prohibits any Indian company from having an equity shareholding in an overseas firm offering trading of rupee-linked financial products without its prior approval as the rupee is not fully convertible, and such product can have exchange rate management implications. The RBI issued a circular on April 25, 2013, stating, “It is observed that appropriate Indian parties are using overseas direct investment automatic route to set up certain structures facilitating trading in currencies, securities and commodities. Any incidence of such product facilitation would be treated as a contravention of the extant FEMA regulations and would consequently attract action under the relevant provisions of FEMA.”
(To be continued)