Spot contracts that weren't exactly spot; commodity trading that was actually financial dealing — the National Spot Exchange Limited presented the first major scam in the commodity markets. A year on, as much as R5,334.81 crore of the R5,600 crore-settlement crisis is yet to be recovered from 22 defaulters. In an interview with FE's Banikinkar Pattanayak, Forward Markets Commission chairman Ramesh Abhishek, whose team unearthed the violations at NSEL, says the shifting from the consumer affairs ministry to finance ministry following the crisis has brought FMC in the mainstream of financial sector regulations and helped improve co-ordination with other regulators. Excerpts:
FMC was the first to detect violation of rules at NSEL even when it didn’t have the authority to regulate the commodity spot market. A year since the exchange stopped its trading, how do you look at the crisis?
In the last year, a number of developments have taken place. The modus operandi followed by NSEL has been brought in the public domain by the commission by forcing it to disclose information and through forensic audits. Based on the available information, the commission also found promoters of NSEL not 'fit and proper' to run commodity exchanges. The recovery of money from defaulting members has been slow and that is the main cause of concern today. However, the re-materialization/financial closure of e-series contracts has been almost done, benefiting over 33,000 investors. Criminal investigations are in progress in the matter and action is also being taken under the Maharashtra Protection of Interest of Depositors (MPID) Act for recovery of fu-nds for payment to investors.
How has the role of FMC as a regulator evolved in the past one year?
After the NSEL crisis, the FMC was moved to the finance ministry from the consumer affairs ministry. It was also made a member of the Financial Stability Development Council which has helped in improving co-ordination with other regulators and has brought FMC in the mainstream of financial sector regulations. The commission is about to hire experts, which will be helpful in discharging its duties. The FMC has also taken steps during this year to streamline regulation of commodity exchanges. Some important steps in this regard are: revising norms of equity structure of commodity exchanges, improving corporate governance in the exchange, setting up settlement guarantee funds in the exchanges and strengthening the warehousing system.
What steps are you considering to ensure all investors get their money back?
Recovery of funds