Just five buyers accounted for 70% of the outstanding of Rs 5,599 crore at the National Spot Exchange (NSEL) after the bourse suspended the trading of one-day forward contracts on July 31, exchange data show. However, at R4,196 crore, the value of collateral in the form of commodity stocks at the exchange-designated warehouses of these members exceeded the dues of R3,920 crore.
However, auctioning the stocks to settle contracts could be a tough option for the exchange. A source close to the development said the auction process, which can be done only after members defaulted on payments, will also take time to pan out due to fears of litigation.
?More important, the apprehension is that auctioning stocks may fetch less returns than the actual stock value (NSEL said it had stocks worth R6,200 crore) because interested buyers may quote lower prices for the commodities to take undue advantage of the crisis. This may result in distress sales by the exchange,? the source said. This is why the exchange is trying its best to persuade members to clear the dues on time by negotiating on different options, he added. NSEL said on Sunday eight of its members were willing to pay R2,181 crore, or 39% of total outstanding positions, on or before scheduled dates. It also added 13 other members, with a combined outstanding of R3,107 crore, had offered to pay 5% of their total dues every week, while negotiations were going on with three processors who owed R311 crore.
After a meeting of officials with the Forward Markets Commission (FMC) and NSEL, along with members and processors, on Sunday, it was decided that those who offered to pay the dues in a staggered manner would have to offer the interest. FMC chairman Ramesh Abhishek said the exchange was hopeful that 95% of the total outstanding would be settled by the first week of September.
The move came in the wake of concerns in financial and commodities markets that NSEL might not have adequate stocks to settle outstanding contracts, although the exchange stressed it had stocks worth R6,200 crore to deal with any exigencies.
On July 31, NSEL was forced to suspend new contracts, except the e-series ones, including e-gold and e-silver, and defer settlements after the government said the exchange was violating rules by allowing contracts of tenures longer than 11 days. On Tuesday, 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. While the exchange said it would resume trading only after the new regulations governing the spot commodity exchages are in place, consumer affairs minister KV Thomas said the priority now is to ensure smooth settlement.
The consumer affairs ministry issued a notification on Tuesday designating more power to FMC to oversee the NSEL settlement process. ?Settlement of all one-day forward contract at NSEL shall be done under the supervision of FMC and any order issued by FMC shall be binding on the NSEL,? the notification said. ?Right now, we want NSEL to concentrate on settlement. We do not want to complicate the issue,? consumer affairs secretary Pankaj Agrawala said.
Rush for delivery
With the halting of trading in e-series contracts, investors are finding it tough to sell demat certificates, commodity brokers say. This has sparked a rush to convert them into physical delivery, especially gold. Exchange officials say investors may be given an exit opportunity by allowing them to take delivery or square off holdings at market price.