Uncertain future of NSEL sends FTIL stock tumbling

Written by fe Bureau | Mumbai | Updated: Jul 27 2013, 16:57pm hrs
The Financial Technologies (FTIL) share tumbled further on Friday as investors grew increasingly nervous about the impact of recent regulatory changes on the National Spot Exchange (NSEL) an unlisted subsidiary.

The FTIL stock tumbled as much as 15% to R532 during

the session, hitting a one-and-a-half-year low, before

ending down R 56, or 9%, at R566.85 on the BSE.

Traders were also concerned about the likelihood of a further probe into NSEL, even though it has complied with the orders from the consumer affairs ministry issued earlier this month. The order cited violations of certain rules while offering commodity contracts. NSEL is an national level electronic spot exchange promoted by FTIL and holds almost 100% market share in the electronic spot exchange space.

The latest fall in the FTIL stock is caused by the the recent restrictions on the NSEL with respect to contract specifications. The spot exchange contributed more than 50% of FTILs net earnings and a drop in volumes there is likely to impact FTIL's profits, said a trader.

In the wake of the steep correction in its stock price, FTIL put out a clarification on the stock exchanges claiming that rumors are being spread by some unscrupulous elements with a design to depress the price of FTIL and damage its reputation.

On July 16, NSEL said that it was asked by the government to not launch new contracts until further notice even as the ongoing contracts were allowed to be continued. The ministry also asked the exchange to ensure that the existing contracts be settled on the due date. Meanwhile, volumes on the National Spot Exchange have dropped since the restrictions were applied, with the turnover falling by 35% to R391 crore as on Friday. On Friday, 16.41 lakh contracts were traded on the exchange, a meagre 10% of the activity prior to these restrictions.

Market observers also said that after these developments, there is a possibility that spot exchanges would be brought under the regulatory ambit of the Forward Market Commission since, currently, there is no direct watchdog for these entities. Currently, FMC governs commodity derivative exchanges, including Multi Commodity Exchange (MCX), another group entity of FTIL.

The FTIL stock has been under pressure for nearly a month as traders also mulled the effect of a 0.01% commodity transaction tax (CTT) to be levied on futures trading on the profitability of MCX. FTIL has dropped 27% in July, taking its year-to-date fall to 49%.

FTIL owns 26% stake in MCX that contributed 67% to FTILs consolidated revenue of R741 crore in FY13. Trading activity on the MCX has fallen nearly 50% to an average of 1.6 crore contracts in July compared to 3 crore in the first six months of 2013. Even average monthly turnover has dropped to R6.3 lakh crore from a six-month average of R12.2 lakh crore.