National Spot Exchange scam derailed commodity market in 2013

 

Product Futures market's nightmare run came to a stop the progress of in 2013 as a Rs 5,600-crore rip-off in Jignesh Shah-led National Spot Exchange (NSEL) and obligation of operation levy on non-farm items vulnerable the augmentation of business, with earnings probable to immerse by 30 per cent to Rs 125 lakh  crore.

The year began with economics Minister P Chidambaram imposing 0.01 per cent product deal tax (CTT) in financial statement on non-agri products and processed food items, a growth that did not go well with the production.

The tax that came into might from July 1, artificial the trading volume in 21 article of trade futures interactions, together with the two leading  bourses - Multi article of trade swap over (MCX) and NCDEX.

July was also hectic as a big scam at the unfettered NSEL came in the communal frown during the month, adulteration the figure of the decade-old futures advertise.

The Centre, which had issued a show-reason notice to the NSEL last year for successively a advance contracts in infringement of law, finally balanced trading at the blemish replace that unearthed a fiddle of immense virtually Rs 5,600 crore - flush superior than Harshad Mehta safety market fiddle.

while many as 24 NSEL members (buyers) owe this sum to 13,000 investors, with no store in warehouses as guarantee. So remote, about Rs 276.14 crore has been compensated to investors with NSEL evasion for the 19th time in a string in its broadsheet imbursement.

Sequence of measures that spread-out later than the ban shook the investors assurance in the product markets as multi- agencies look into originate out irregularities at NSEL foremost to capture of crown officials together with its MD and CEO Anjani Sinha.

Environment and enormity of cheat was such that the purchaser dealings bureau did not have wherewithal to explore this topic and valve Forward Market Commission (FMC) was transfered  to the economics ministry for management the enquiry.

Jignesh Shah, who was on a high at the begin of this year with government's acquiescence to start stock exchange, could not flight liability for this huge imbursement calamity and had to walk out from two exchanges - MCX and MCX-SX - that he founded and nurtured. He has near lost organize over both these bourses with regulators FMC and Securities and Exchange timber of India (Sebi) appointing their nominees on board.

At the fag conclusion of the year, Shah conventional another bump when FMC confirmed him and his rigid FTIL flabby to run any replace in the kingdom.

in front of arraign of being the "highest beneficiary" in the trick, Shah has challenged this classify in the Bombay High Court, which will heed the subject untimely next year.

"Investors self-belief was at an all-time low in 2013," said analysts with a most important brokerage rigid while referring to the unhelpful bang of NSEL rip-off and obligation of CTT.

"Returns from the merchandise market was lesser as compared to the equity markets. bullion, hoary and a few agri-freight performed shoddily in the year," brokerage compact SMC Comtrade Chairman and Managing Director DK Aggarwal said.

Bombay HC decides to hear petition of FTIL, Jignesh Shah on Jan 8

The Bombay High Court on Saturday fixed for hearing on January 8 a petition filed by Financial Technologies India (FTIL) and its Chief Jignesh Shah challenging an order of Forward Market Commission (FMC) that held that both were not "fit and proper" to run any exchange.

The petition was mentioned by FTIL Counsel Janak Dwarkadas before a bench headed by Chief Justice Mohit Shah which asked the market regulator to file reply by January 6.

The petition has requested for quashing the FMC order that held FTIL is not 'fit and proper' to hold anything more than 2 per cent shareholding in Multi-Commodity Exchange (MCX). FTIL has 26 per cent shareholding in MCX.

The petition has also asked for interim relief to the extent of granting a stay on the FMC order until the matter is finally decided by the HC.

In its 80-page order, the Forward Markets Commission (FMC), which went into the running of NSEL following payment defaults of Rs 5,500 crore to investors, said that Shah was "practically the highest beneficiary of the fraud perpetrated at the NSEL Exchange".

FMC said, "Jignesh P Shah is not a 'fit and proper' person to hold any position in the management and the Board of any Exchange recognised or registered by the government of India/Forward Markets Commission under FCRA, 1952".

FMC had directed that neither Shah individually, nor though any company/entity controlled by him, either directly or indirectly, should hold any shares in any association/exchange in excess of the threshold limit of the total paid-up equity capital as prescribed under FMC guidelines.

Other petitioners are Joseph Massey and Shreekant Javalgekar, former directors of MCX, against whom also FMC held that they were not fit to hold any position in the management and the Board of any Exchange.

Shah founded MCX in November 2003 and then went on to set up a stock exchange this year. He is the Chairman of FTIL, which owns and runs National Spot Exchange Ltd (NSEL), currently hit by a scam.

Shah, on October 9, quit as Vice-Chairman and Shareholder Director of MCX-SX, the third major stock exchange in the country. Few weeks later, he also resigned as Vice Chairman of MCX.

Jignesh Shah to stay on MCX Board for now

MCX promoter Jignesh Shah has managed to retain his position on the board in a crucial meeting held in Mumbai on Tuesday.

The Multi Commodity Exchange on Tuesday appointed three new share-holder directors, namely Union Bank of India's K N Raghunathan, Corporation Bank's P Paramasivam and Bank of Baroda's Sanjay Agarwal, and two new independent directors in G Anantraman - Ex- Sebi and Pravir Vora - ICICI, CIO, sources said.

Jignesh Shah managed to convince the MCX board and will continue to stay on for now as he has sought more time to step down, they said.

The market was anticipating Shah's resignation against the backdrop of the payment crisis of Rs 5,600 crore in the group company National Spot Exchange (NSEL).

The board has accepted and supported his request till the time the market regulator Forward Markets Commission (FMC) decides on 'fit and proper status' of shah.

A fortnight ago, shah and Joseph Massey were forced to opt out from the board of the stock exchange arm of the FTIL, MCX-SX. Massey was an MD on the stock exchange. MCX MD Shreekant Javalgekar had also resigned last week.

The board appointed deputy managing director Praveen Singhal as managing director to oversee functions till new managing director is appointed, exchange sources said.

The board has appointed a five-member oversight committees with Chairperson Pravir Vora (ICICI, CIO), sources said.

The promoter of exchange Jignesh Shah and Paras Ajmera continue to remain directors on the board, sources said.

With the induction of five new directors, the strength of directors has become 12 as against a full strength of 14 members in a period of 2 months. The slew of resignations came in following the NSEL scam and the market regulator's new norms on board composition.

As per the FMC's norms, MCX board with a strength of 14 members can only have one anchor investor director.

Financial Technologies' exchanges abroad under lens

Laxity in enforcing KYC and allied norms suspected; money laundering gaps also on probe panel’s mind

The role of global exchanges floated by the Financial Technologies group has also come under the government’s scanner.

Several investors are said to be holding positions on the Multi Commodity Exchange, while the same investors were offered similar positions on international exchanges floated by the Financial Technologies group, to take arbitrage advantage. While these facilities were offered by brokers, the government is looking at whether there was any laxity on the part of these overseas exchanges floated by the FT group regarding Know Your Clients (KYC) or other processes.

If such linkages are found, that would be also considered violation of the foreign exchange and money laundering laws.

“The government is now looking at pare trades in FTIL-controlled exchanges NSEL, MCX and also exchanges owned by it outside India,” said a government official. The FT group had floated Bahrain Financial Exchange, Singapore Mercantile Exchange and Dubai Gold and Commodity Exchange. All these three have been offering gold contracts.

An FT spokesperson said, “We’ve not received any communication from any authorities/regulators on such investigations and, hence, cannot comment.”

A sector official said investors and traders having positions abroad without the knowledge of the Indian authorities had been happening and these also hold positions in other names, with US-based Comex and the London Metal Exchange being common destinations. In those exchanges, Indian authorities have no say but they are investigating this.

Officials in the know said one of the high-powered working groups constituted by the government on the NSEL crisis, headed by the RBI deputy governor, was looking into the possibility of money laundering among firms trading on this exchange, MCX and also exchanges in foreign lands controlled by FTIL. "All these possibilities are within the realm of the committee and working groups constituted by the government on August 26 and we are looking at the matter from every possible issue and involving all sister-concerns of NSEL," a senior official said.

The chain of exchanges, domestic and global, are under the scanner of other regulators as well, following the forward Markets Commission (FMC)’s warning to the NSEL board that their ‘fit and proper’ status was at risk. The warning was given by the regulator last week, after  NSEL defaulted on its commitment to make the first week’s agreed payout.

A former regulator told Business Standard, “Once the promoter loses s status as a fit and proper person to run the exchange, other regulators have to reconsider if promoters of the entities regulated by them have the same promoter that have lost this status. Global regulators  generally follow.” So, if the NSEL promoters lose their fit and proper status there, the commodity, stock and power exchanges set up by the same promoters might face similar action.

A source in FMC said, “The decision to withdraw the fit and proper status on the NSEL board of directors is under consideration and task forces appointed by the government will also look into it, as it has implications for other regulators, too.”