NSEL plans recovery suits against defaulters

Written by fe Bureau | New Delhi | Updated: Jul 15 2014, 18:44pm hrs
The crisis-ridden National Spot Exchange Ltd (NSEL) has conveyed to the commodity markets regulator that it will file recovery suits and lodge FIRs against all defaulting members.

In its latest fortnightly report, the Forward Markets Commission (FMC) said it held a meeting with the management and board of directors of NSEL as well as the monitoring and auction committee last month, in which the exchange had "assured they would take steps such as strengthening the recovery team at NSEL, filing of FIR/recovery suits against all defaulting members".

The exchange has recovered only slightly more than R356 crore of dues from defaulting members out of the total outstanding amount of around R5,600 crore. Only two of the 24 defaulters have so far repaid the dues fully.

NSEL, promoted by Jignesh Shah-led Financial Technologies (India), is in the midst of the settlement crisis of around R5,600 crore, which is owed to 148 members/brokers, representing 13,000 investor clients, after the exchange suspended trading in one-day forward contracts on July 31 following the government directive. Already various official agencies are investigating NSELs activities and some assets of defaulters have also been attached.

On July 31 last year, NSEL was forced to suspend one-day forward contracts and defer settlements after the government said the exchange was violating rules by allowing contracts of tenures longer than 11 days. On August 6, the exchange stopped its e-series contracts, marking the end of trading on its platform for the time being. E-series contracts function like the cash segment in equities and offer commodities in demat form in smaller denominations.

Commodity exchanges turnover slumps

Commodity exchanges' turnover dropped by 59% in the second fortnight of June from a year before, the latest FMC data showed. Analysts have blamed a 0.01% of transaction tax on non-farm commodity derivatives, imposed since last July, the spillover effect of a settlement crisis at the NSEL, curbs on gold supplies and an investor shift towards equity for the plunge in turnover.

The trading value of various commodities in the second half of June hit R2,89,041.21 crore, compared with R7,09,046.91 crore a year before, FMC data showed. Sharp drop earlier in the fiscal helped drive down the turnover of the exchanges to R14,55,242.65 crore in the April 1-June 30 period, down 65% from a year earlier.

There is no respite for the Multi-Commodity Exchange (MCX), which primarily deals in metals, bullion and energy products, as the impact of the commodity transaction tax (CTT) on non-farm items continues to bite on top of a decisive blow to its image following the settlement crisis at NSEL, another group firm.

With the imposition of the tax on the seller, costs more than tripled at MCX from the R1.60 on a transaction value of R1,00,000 imposed earlier, MCX executives had said earlier.

The trading value of bullion across exchanges plunged the most, at 67%, in the second half of June from a year before, while that of energy items crashed by 68% and metals other than bullion by 57.3%.

An official crackdown to trim gold imports to curb the current account deficit hurt the bullion supplies, affecting trade.

However, farm items were the only segment to have witnessed growth in the second fortnight of June from a year before.

This is good news for the National Commodity and Derivatives Exchange (NCDEX) the country's largest farm commodity exchange which derives 85-90% of its turnover from agri items even though some of the processed farm items continue to be under CTT ambit.

Farm commodity turnover across bourses rose 10.7% in the second half of June, although the turnover still trailed the last year's level by 18.2% during the April-June period, thanks mainly to the decline earlier in the fiscal.