NSEL says safety fund intact, but consists mostly of commodities

Aug 10 2013, 04:49 IST
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Anjani Sinha, NSEL managing director & CEO Anjani Sinha, NSEL managing director & CEO
SummaryThe National Spot Exchange said on Friday its settlement guarantee fund was worth Rs 720 crore, though its composition had changed with a higher share of warehouse receipts.

The National Spot Exchange (NSEL) said on Friday its settlement guarantee fund (SGF) was worth Rs 720 crore, though its composition had changed with a higher share of warehouse receipts. NSEL has suspended trading and settlements of one-day forward contracts since July 31.

Speaking to FE, NSEL MD and chief executive Anjani Sinha said the fund — made up of the initial margin, ad hoc margin and security deposits of members and a part of the exchange’s income — had not seen any significant drop in value.

“The slump in the SGF is a misconception and it’s just the composition that has changed. Since members are also allowed to provide cash, warehouse receipts, FDs or guarantees as margin, some members have provided warehouse receipts instead of cash. So there is around Rs 720 crore in the SGF but the cash component has fallen,” Sinha explained.

Of the roughly Rs 720 crore in the SGF last month, before trading was suspended, Rs 670 crore was in cash which is now down to R65 crore. Warehouse receipts currently account for the largest chunk of the fund, at Rs 665 crore.

Following the exchange’s decision on July 22 to confine all contract settlements to 11 days and the government’s direction to settle running one-day forward contracts and stop fresh contracts, the market equilibrium was disturbed, causing a liquidity crunch for buyers, Sinha said. Some of the sellers have been given cash and NSEL took warehouse receipts between July 22 and 31, he explained. When the buyers pay up, the warehouse receipt will be endorsed in their favour, he added.

Currently, outstandings on NSEL stand at R5,580 crore. NSEL has said it has stocks of commodities worth R6,039.35 crore; as of Tuesday, it had 1.37 million tonnes of commodities, with sugar and paddy making up close to 70%.

NSEL said last Sunday that eight of its members were willing to pay Rs 2,181 crore, or 39% of total outstanding positions, on or before scheduled dates, which may stretch up to September 13. It also said 13 other members, with a combined outstanding of Rs 3,107 crore, had offered to pay 5% of their total dues every week while negotiations were going on with three processors who owed it Rs 311 crore. Moreover, it claimed to be holding post-dated cheques worth R4,900 crore submitted by buyers.

After a meeting of officials with the Forward Markets Commission (FMC) and NSEL along

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