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.

NSEL defaults for 10th time, pays Rs 30 lakh against Rs 174.72 cr

Crisis-hit bourse National Spot Exchange Ltd (NSEL) defaulted for the tenth straight time on Tuesday as it could pay only Rs 30 lakh to investors against a scheduled amount of Rs 174.72 crore.

NSEL, which is engulfed in a Rs 5,600-crore payment crisis, had previously defaulted nine times. On its seventh pay-out date, the bourse was unable to make any payment as its accounts were frozen by economic offences wing (EoW) of the Mumbai police.

With Tuesday's pay-out, NSEL settled about Rs 180 crore against Rs 5,600 crore dues to 13,000 investors.

"The total amount being disbursed today in a proportionate manner is Rs 30 lakh," an NSEL spokesperson said.

According NSEL data, MSR Food Processing made a payment of Rs 5 lakh and Metkore Alloys & Industries made payment of Rs 25 lakh to the exchange.

NSEL had availed a bridge loan of Rs 177.23 crore from its promoter Financial Technologies (FTIL) to make payments on priority basis to small investors.

NSEL, promoted by Jignesh Shah-led FTIL, is facing the problem of settling Rs 5,600 crore dues to 148 members after it suspended trade on July 31 on the government direction.

The bourse plans to settle the entire dues in 30 weeks time, by paying Rs 174.72 crore for first twenty weeks followed by Rs 86.02 crore in next ten weeks.

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.

Amid NSEL crisis, MCX-SX begins search for new CEO

MCX Stock Exchange (MCX-SX) has begun its search for a new managing director and CEO to head the bourse, whose group entities remain embroiled in a major crisis emanating from Rs 5,600-crore payment default at the National Spot Exchange (NSEL).

The exchange was set up by Jignesh Shah-led Financial Technologies (FTIL) group, which has also promoted NSEL and commodity bourse MCX, among others.

Earlier this month, Joseph Massey resigned as MD and CEO of India's newest exchange while Shah also had to quit from its board.

In a public announcement on Monday, MCX-SX invited application from "suitably qualified and experienced" candidates for the post of Managing Director and CEO.

It is the country's newest stock exchange and began operations in currency derivatives segment from October 2008 while it commenced operations in capital markets trading in February this year.

MCX-SX said: "The candidate must be qualified in the fields of capital market, finance or management and possessing sufficient experience in related fields for at least 15 years."

The MD and CEO would report to the board of directors and would be responsible for conduct of affairs of the exchange under the direction and supervision of the board. He/she shall also be responsible to perform various functions under the bye-laws, rules and regulations of the exchange and also to comply with various statutory and regulatory requirements, it added.

The appointment will be subject to approval of Securities and Exchange Board of India (Sebi) and the candidate shall hold office for a term of three years which could be extended, the exchange said.

The candidate's age should not be more than 50 years as on October 31, it said adding that age and experience limits may be relaxed for deserving candidates at the discretion of the selection committee.

While renewing MCX-SX's licence for another one year, capital markets regulator Sebi had in September asked the exchange to set up a panel of independent directors to oversee its operations in the wake of questions being raised about 'fit and proper' status of its promoters.

After both Shah and Massey resigned, MCX-SX had said that U Venkataraman, whole-time Director, would assist the special committee of public interest directors in carrying out the functions of the exchange.

The group has seen a string of resignations in the past few weeks at its various entities.

Last week, commodity bourse MCX managing director and chief executive officer Shreekant Javalgekar also submitted his resignation.

EOW likely to defreeze NSEL escrow account on Thursday

The economic offence wing (EOW) of Mumbai Police is likely to defreeze an escrow account of National Spot Exchange Ltd (NSEL) by Thursday morning. NSEL's escrow account was among those 58 bank accounts which was frozen by EOW on Tuesday, to investigate Rs.5,500 crore NSEL payout crisis.

Crisis-ridden NSEL had opened an escrow account after direction by the government to ensure payouts on priority to about 8,000 small investors stuck after the exchange halted trading. But on Tuesday, NSEL failed its payout seventh time in a row - giving a reason that EOW had frozen its settlement and escrow accounts, both.

In an email statement, NSEL had said, "Due to freezing of bank accounts, NSEL is unable to make any payouts on Tuesday. NSEL has informed the FMC of this development. NSEL is taking legal advices to defreeze the settlement bank accounts. Investors and members will be notified in due course."

Talking exclusively to Headlines Today, senior EOW official admitted, "It was our mistake to freeze escrow account on Tuesday. At that point of time, when all 58 bank accounts were getting freezed, we were unaware which are escrow account and which are settlement accounts." But he assured,"

For the benefit of investors, we would defreeze the escrow account at the earliest. Wednesday is public holiday, therefore, on Thursday we would communicate to the bank and will ensure NSEL's escrow account gets defreezed soon."

Interestingly, as of now, NSEL's escrow account has only Rs.18 crore. That means - payout failure was quite imminent. NSEL was supposed to make a scheduled payment of Rs.174.72 crore to investors on Tuesday.

According to settlement plan, NSEL would pay Rs.3,494.4 crore this year in installments of Rs.174.72 crore every Tuesday. The exchange has defaulted on payouts for the past six weeks and has settled about Rs.150 crore so far.

EOW has frozen total 58 bank accounts of promoters of FTIL and NSEL - which also includes personal accounts of Jignesh Shah, Anjani Sinha, Joseph Massey, Shantilal Guru, B D Pawar, Amit Mukherjee, M C Pandey, Shrikant Jawalgekar, Neerav Pandey, NSEL's auditor Mukesh Shah and others.

Read more at: http://indiatoday.intoday.in/story/eow-likely-to-defreeze-nsel-escrow-account-on-thursday/1/312804.html

CBI set to probe NSEL crisis

With Finance Minister P Chidambaram on Thursday saying the Central Bureau of Investigation (CBI), the Forward Markets Commission (FMC) and the Ministry of Corporate Affairs (MCA) will look into the payment crisis at National Spot Exchange Ltd (NSEL), the probe net on the exchange looks set to widen.

Chidambaram said the three would look into different aspects of the troubles at NSEL, “which flouted rules from Day-1”, and take action under their respective jurisdictions. He added the income tax department was also checking the financial details of NSEL investors to see if any black money was involved.

A committee headed by Economic Affairs Secretary Arvind Mayaram had on Monday given its report on NSEL to the finance minister.

“The Mayaram panel report has suggested CBI, FMC and MCA must take appropriate action. They have listed the irregularities... They will take action,” Chidambaram said at a press conference here.

FMC might file its report in a couple of days, after which the three bodies would decide on the action, he said.

A CBI official said the agency was in the process of verifying the NSEL complaint. It was looking into the aspect of criminal offence to find out if there was an instance of fraud or cheating.

The government had received a complaint from investors but not referred the matter to CBI yet. The agency, therefore, was also trying to establish whether the probe in this matter came under its jurisdiction, a senior CBI official said.

Ruling out similarities between the crises at Satyam and NSEL, Chidambaram dropped hints that the government might not bail out the people that had put their money in the exchange, saying they invested with open eyes, knowing full well they were investing in an unregulated entity. “The government does not come into the picture at all,” he added.

Chidambaram said NSEL was not a registered or recognised association under FMC; it got exemption even before it started its business.

“In the way NSEL started business, there’s much more than meets the eye. People seem to have given money to NSEL promoters, knowing fully well that it is not a regulated entity... Many of them made money in initial stages and some lost money now... I have seen the exemption order. Now, whether it is valid or not has to be examined.” he said.  of the 17,000 investors who put their money in NSEL — which is now grappling with a Rs 5,600-crore payment crisis — 9,000 traded through eight top brokers, including Anand Rathi, Motilal Oswal, India Infoline and Systematix. According to the finance minister, the investors would definitely move court, as it is a matter between them and the company.

The government had in 2007 exempted NSEL from provisions of the Forward Contracts Regulation Act (FCRA) to operate one-day forward commodity contracts.

The exemption was given on some conditions, including delivery of commodities within 11 days and a bar on short-selling by members of the exchange. “From Day-1, NSEL was violating the very conditions under which it claimed it could do business,” he said.

The Mayaram panel had suggested NSEL’s troubles had no systemic risk of an impact on other markets. However, Chidambaram said he had asked both the Securities and Exchange Board of India (Sebi) and FMC to keep a careful watch. NSEL, part of the Jignesh Shah-led Financial Technologies group, had to suspend trading on July 31 after a government directive. It had committed itself to clearing its dues to investors in tranches through weekly payments. But it has so far defaulted on its weekly obligations for six weeks in a row.

Two other trading platforms — Multi Commodity Exchange and MCX-Stock Exchange — are also Financial Technologies-promoted entities. On whether the government was looking at changing the management of other entities with the same promoters, Chidambaram said: “Let us wait for the regulator’s report.”


Supreme Court order on tainted MPs: FM accuses BJP of changing stand
Under attack from the Opposition for bringing an ordinance to protect lawmakers from immediate disqualification, the Centre on Thursday hit back, accusing BJP of changing its stand on overturning a Supreme Court judgment on the issue. Finance Minister P Chidambaram had said in an all-party meeting on August 13 that there was a “unanimous demand” that something be done in relation with the Supreme Court judgment on Sections 62(5) and 8(4) of the Representation of People Act. “They are entitled to change their mind but they should not ask everybody to do so,” he said on Thursday.

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.”