Slow recovery of NSEL investors money main concern: Ramesh Abhishek

Written by Banikinkar Pattanayak | Updated: Aug 2 2014, 07:04am hrs
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 didnt 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 from defaulting members of NSEL is likely to happen through the process of the MPID Act. We are also pursuing the matter with NSELs board of directors so that they make all possible efforts to expedite such recovery. The Board has been asked to file recovery suits against all defaulters, pursue cheque bouncing cases under Negotiable Instruments Act, strengthen the recovery team and closely co-ordinate with the committee of investors and members formed by the FMC to assist in settlement of outstanding contracts.

The turnover of commodity futures exchanges has been falling since the 2012-13 fiscal. What steps have been taken to improve participation in the market

Turnover of the exchanges went down by 40% in 2013-14. The reduction in July last year was also consequent to the introduction of commodity transaction tax (0.01%) with effect from July 1, 2013. The hit to investors sentiments due to the NSEL crisis has been largely addressed by now. A number of steps have been taken in the mean time to strengthen the risk management system, including warehousing, to boost the confidence of market participants. FMC has also approved forward trading in two commodities at NCDEX. These would be 100% delivery-based trades. Strengthening of the regulatory regime, introduction of contracts like option and index trading and participation of banks and other institutional players will have to wait for legislative changes.