Sebi says no systemic risk, FMC asks NSEL for plan to settle pending contracts. The Forward Markets Commission (FMC) on Friday said it asked the National Spot Exchange Limited (NSEL) to come up with a plan of action to settle outstanding contracts and to confirm it had R6,200-crore worth of commodities. Ramesh Abhishek, chairman, FMC, clarified it was the responsibility of the exchange to ensure that the stocks were in place, adding that in the event of any default, the exchange would auction stocks to ensure transactions were settled. The FMCs observations came in the wake of concerns in financial and commodities markets that NSEL might not have adequate stocks to settle outstanding contracts worth R5,500 crore. On Wednesday, NSEL was forced to suspend new contracts and defer settlements after the government said it was violating rules by allowing contracts of tenures longer than 11 days. We were of the view that the exchange was violating rules on forward contracts based on which the government took action, Abhishek told FE, adding that NSEL seemed to have interpreted the rules differently. UK Sinha, chairman, Securities and Exchange Board of India (Sebi), said that as far as the securities market was concerned, everything seems to be in order. All the payouts and pay-ins are happening and there is no risk to the system, Sinha said, adding that he was in touch with the government and FMC. The NSEL is not regulated either by Sebi or the FMC, though the latter has been allowed to approach the exchange for information. The ministry of consumer affairs is drafting guidelines to enact a law to regulate spot exchanges, consumer affairs secretary Pankaj Agrawala told FE on Friday, saying the law will address concerns on the lack of oversight to check suspected manipulation on these bourses. On Wednesday, NSEL had said it would merge "the delivery and settlement of all pending contracts with immediate effect...and defer it for a period of 15 days and, consequently, the positions outstanding in the contracts will be settled by way of delivery and payment after the expiry of 15 days". However, the trading and settlement of e-series contracts, including e-gold and e-silver, will continue as usual, it clarified. The move drove down the shares of Financial Technologies (India), which owns NSEL and those of Multi-commodity Exchage (MCX), an FTIL-promoted commodity futures exchange. While FTIL shares crashed almost 65% on Thursday and a further 21% on Friday, the MCX counter lost 20% on each day, respectively. NSEL had a 99.78% share of the spot commodity market in 2012-13. Its net profit soared 338% last fiscal to Rs 127 crore, accounting for 56% of the profits earned by FTIL. The move came after the consumer affairs ministry last month asked NSEL not to launch any new contracts and settle the running ones on due dates. Trouble began last year when the FMC discovered that NSEL permitted trading without verifying whether sellers had stocks, in effect allowing short-selling by members. Short-selling refers to the selling of commodities without underlying assets, in the hope of buying them at a lower price before the delivery date. The futures market regulator had also discovered that the contracts traded on the exchange for which the settlement period exceeded 11 days were non- transferable specific-delivery contracts, which was in violation of the Forward Contract Regulation Act. Spot exchanges were allowed to offer one-day forward contracts provided members would not resort to short-selling and outstanding positions at the end of the trading day would result in delivery. For its part, the exchange has affirmed that there were no clear-cut guidelines on the delivery period of a contract exceeding the 11 days, something both the FMC and the consumer affairs ministry disputed.
Posted on: Sat, 03 Aug 2013 10:50:35 +0000
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