Mumbai, Aug 1(): NSEL’s (National Spot Exchange Ltd) chances of defaulting payments on open contracts is minimal, said the chairman of India’s Forward Markets Commission.
The regulatory body said that it did not foresee any such happening after exchange stopped trading in forward contracts following an inquiry by the department of consumer affairs. NSEL is an exchange where agricultural commodities and bullion can be bought and sold through e-commerce.
Most of the transactions are done as investment purpose and are on a short-term basis. Forward Technology Ltd, the promoter of this exchange listed in BSE has lost 80% value of stocks. Though FTL and NSEL exude confidence, the investors are dumping the stocks.
Today it traded at a 52 week low of Rs 132. Yet another exchange the MCX (Multi commodity exchange) promoted by FTL took a 20% hit in BSE. Investors are not sure about the time limit that NSEL would take to pay the customers and until then, the stocks will be on a decline. Traders are advising those who want buy stocks of FTL to wait since the prices are low. FTL’s 36% revenue came from NSEL accounting for Rs 740 crore.
SEBI is closely monitoring National Spot Exchange and is in talks with Economic Affairs. There were many violations of rules in contracts and finally the Consumer Affairs Ministry called for a halt to any trading except in e-trading.
Following weeks of problems related to its various contracts, the NSEL late last night announced suspension of trade on its all contracts except for ‘E-series’ products. Rs 5500 careers are riding on NSEL trading that has stopped functioning for two weeks.
The Forward Market Commission is the regulator of commodities trading but many of the products are out of their purview. NSEL has to give SEBI their plan to settle payments and the liquidity position.
NSEL maintains that producers who had commodities got finance through the exchange for 30 days time. FMC changed the rule and said only a 10-day time could be given. The producers were found to be unable to raise this money to the tune of Rs 5000 crore. They opted for the badla route to mop up money but it did not happen.
NSEL says that after selling stocks to clear the dues, it still has Rs 1200 crore in its kitty. Badla is a transaction by which the stocks are kept with the person who financed it and is given back when the money is returned with interest rate fixed by the stock market for a 70 day period. In 2001, this form was banned.