NSEL halts e-series ahead of ban order

Consumer affairs minister KV Thomas said on Tuesday the government has decided to ban e-series contracts at the National Spot Exchange (NSEL) although a formal notification will be issued in a day or two.

?We decided to stop trade in e-series as we want to see NSEL settles the dues first,? he said, clarifying that a formal order is yet to be issued.

?We haven?t received the government order, but as abundant precaution, we will not commence trade in e-series at 10 am. We will check with authorities to find out the facts. In any case, we will fully comply with the government order,? the exchange said on its website on Tuesday amid media reports that the government has already banned the e-series contracts.

The consumer affairs ministry decided on the ban on Monday late evening.

E-series contracts function like the cash segment in equities and offers commodities in the demat form in smaller denominations. With the halt in e-series contracts, which have a T+2 settlement period, all of NSEL?s trading has been stopped. The exchange used to attract turnover of around R650 crore a day before the government crackdown started last month, roughly 10% of which came from e-series contracts.

The minister said the government was waiting for a right time to initiate action against NSEL, otherwise the settlement dues would have been more than three times of the current level.

?Had we asked them to stop trade at that time, the settlement dues would have been huge, say about R21,000 crore. We were waiting for appropriate time.” The exchange said on Sunday it has total outstanding of R5,599 crore. The minister said FMC could be empowered by withdrawing the exemption that keeps spot exchanges to be out of the jurisdiction of the commodity futures market regulator. In 2011, the FMC was permitted by the government to only seek information from spot exchanges.

Trouble started in April last year, when the Forward Markets Commission (FMC) discovered that NSEL permitted trading without verifying whether sellers had stocks, in effect allowing short-selling by members.