NSEL scam: RBI says targets Jignesh Shah, says no promoter should control any exchange

Dec 30 2013, 22:19 IST
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With a solution to 5-month-old Rs 5,600 crore NSEL scam still elusive, RBI has said it is not advisable to let a single group of shareholders to dominate the functioning of any exchange. Reuters With a solution to 5-month-old Rs 5,600 crore NSEL scam still elusive, RBI has said it is not advisable to let a single group of shareholders to dominate the functioning of any exchange. Reuters
SummaryRBI report says Jignesh Shah-led bourse involved in so-called NSEL scam highlighted gap in regulation.

With a solution to 5-month-old Rs 5,600 crore NSEL scam still elusive, the Reserve Bank of India (RBI) has said it is not advisable to let a single group of shareholders to dominate the functioning of any exchange.

"The (NSEL) episode has emphasised the need for ensuring that no single shareholder or a group of shareholders is permitted to dominate the functioning of the exchange or exercise management control," the RBI said in its half-yearly Financial Stability Report released today.

The scam, which encircles the Jignesh Shah-led companies, has "revealed certain systemic concerns with regard to ownership and governance arrangements in exchanges and common ownership of exchanges and existing technology platforms."

The RBI view comes within a fortnight of the sectoral regulator FMC in a report stating that the promoter Shah and promoter company Financial Technologies are not eligible to run the crippled exchange, an order challenged by the group in the Bombay High Court.

The RBI report says the NSEL scam highlighted the gap in the regulation of commodity spot exchanges and added that "we need to comprehensively address the problems in commodity spot markets."

It can be noted that the government on July 30 ordered closure of the NSEL following irregularities, which later revealed that the spot exchange owed a whopping Rs 5,600 crore in dues to thousands of investors and dozens of brokers/ intermediaries.

On December 18, in a severe indictment of the NSEL promoters, commodity market regulator FMC said Jignesh Shah and his firm Financial Technologies were not 'fit and proper' to run any exchange in the country and charged him with being the "highest beneficiary" in the NSEL scam.

In an 80-page order, the FMC held that Financial Technologies India Ltd (FTIL) is not a 'fit and proper entity' to hold anything more than 2 per cent shareholding in the Multi Commodity Exchange of India Ltd (MCX). FTIL currently has 26 per cent stake in MCX, the country's largest commodity exchange, and will need to cut its stake following the FMC order.

On December 20, NSEL defaulted for the 19th time in a row paying only Rs 12.64 crore against an agreed amount of Rs 174.72 crore. With that pay-out, the exchange has so far settled only about Rs 276.14 crore against about Rs 5,600 crore dues to 13,000 investors.

As a result of the unearthing of the scam, the

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