India's capital markets regulator has approved Multi Commodity Exchange of India Ltd.'s draft red herring prospectus for an initial share sale, a person aware of the matter said Monday.

Under the offer, some existing shareholders of MCX, including founder Financial Technologies India, plan to sell about 6.4 million shares, constituting 12.6% of the company's paid-up equity capital, the person said.

Other key investors looking to sell some of their stake are State Bank of India (500112.BY), GLG Financials Fund, Alexandra Mauritius Ltd., Corporation Bank (532179.BY), ICICI Lombard General Insurance Company Ltd. and Bank of Baroda (532134.BY).

The Securities and Exchange Board of India's approval for the IPO is valid for 12 months and the company has been asked to file the offer document with stock exchanges, the person added.

The company had filed the draft red herring prospectus for the offer with the regulator in March this year.

Executives at Multi Commodity Exchange of India Ltd., or MCX, and its founder Financial Technologies (India) Ltd.(526881.BY), couldn't immediately be reached for comment, while a SEBI spokesperson declined to comment.

Financial Technologies India, which currently holds 31% in MCX -- India's largest commodity futures bourse by trading volume -- will dilute its holding to 26% after the IPO.

MCX Stock Exchange, which is owned by MCX and Financial Technologies India, is already in a legal battle with SEBI after the regulator denied it permission to start equity trading earlier this year.

In its order, SEBI said it rejected the exchange's application as MCX Stock Exchange withheld material information on ownership arrangements.

Edelweiss Capital Ltd., Citigroup Global Markets India Pvt. Ltd. and Morgan Stanley India Co. Pvt. Ltd. are the book running lead managers to the Offer.

-By Ashutosh Joshi and Debiprasad Nayak, Dow Jones Newswires; +91 22 6145 6120; ashutosh.joshi@dowjones.com