Hit by charges of short-sale on its platform, the National Spot Exchange (NSEL) has witnessed a sharp drop in turnover since Tuesday, when the government asked it not to launch any new products until further orders. The development comes at a time when the Multi-Commodity Exchange (MCX), the futures exchange promoted by NSEL?s owner Financial Technologies (India), is also witnessing a drop in turnover following the imposition of 0.01% commodity transaction tax (CTT).

The average daily turnover at NSEL in the last two days dropped 41% to R381.85 crore compared with R643.27 crore in the first half of July, according to exchange data. NSEL ? a subsidiary of Financial Technologies (India) ? had a 99.78% share in the country’s spot commodity market in the last fiscal through March. Its profits soared 338% last fiscal to R127 crore while FTIL?s net profit was to the tune of

R227 crore.

“The turnover has dropped in the past two days as members’ participation has been lower than usual. The turnover has been affected by media reports and government statements (about short-selling on the NSEL platform),” the company’s managing director and chief executive Anjani Sinha told FE on Thursday. He, however, expected turnover to rebound by next week. Sinha did not elaborate any further.

The turnover of MCX on Wednesday was R38,407.38 crore, down 36% from the roughly R60,000 crore of average daily turnover in February ? before the CTT was proposed to be levied during the Budget announcements for the 2013-14 fiscal.

On Tuesday, Sinha had said: “There is no impact on the existing business of the spot exchange. The government has asked us to give an undertaking that circular for launching new products should not be issued till a better regulatory framework is finalised.”

The Forward Markets Commission (FMC), which regulates futures exchanges, has been overseeing the functioning of spot exchanges since February last year. A new framework to regulate spot exchanges is expected in the next 3-4 months, Sinha had said.

NSEL has 67 running contracts, with sugar and rice accounting for most of its volumes.

In December last year, consumer affairs minister KV Thomas had told Parliament that the Forward Markets Commission had found that NSEL permitted trading on its platform without verifying whether the seller had stocks, in effect

allowing short-selling by members.

Short-sale refers to the selling of commodities that one does not own at the time of the contract, with the hope of buying them at a lower price before the delivery time. If the delivery period exceeds 11 days, it is called a futures trade.

The regulator had also discovered that the contracts traded on the exchange, for which the settlement period exceeded 11 days, were non- transferable specific delivery contracts, which was in violation of the Forward Contract Regulation Act, the minister had told the Rajya Sabha.

Spot exchanges were allowed to offer one-day forward contracts provided members would not resort to short-selling and outstanding positions at the end of the trading day would result in delivery.

The country has three national spot exchanges ? NSEL, NCDEX Spot Exchange and National APMC Spot Exchange.