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.

NSEL crisis: Over 30 brokers under regulatory scanner

 
As the NSEL crisis deepens, role of at least 32 brokerage firms has come under the scanner for allegedly charging high transaction charges and providing portfolio management and margin funding services to their clients in violation of regulations.

These brokers were apparently working as Carrying and Forward (C&F) agents as well for National Spot Exchange Ltd (NSEL) without checking the veracity of commodities lying in the warehouses, and kept investors in the dark about non-availability of commodities on which their clients were taking positions.

Margin funding is when brokers arrange to finance investors' purchases and charge money for such loans.

According to sources, various regulators including Sebi and FMC are looking into the role of these brokers, who were registered in both stocks and commodities markets.

Among the 32 brokers, 14 are from Gujarat, seven from Rajasthan and others are from states like Maharashtra, Delhi, Andhra Pradesh and Punjab.

These brokers, with a large outstanding on NSEL, were charging Rs 25 per lakh of transaction from their clients.

The regulators have received complaints that margin funding happened with the broking firms and their associates financing 80-90 per cent of exposure on NSEL, while balance was paid by high networth clients (HNIs), sources said.

The brokers were apparently charging Rs 100 per lakh as brokerage and additional commission for providing margin funding.

These stock brokers have come under regulatory scanner for inducing HNIs and other investors to trade on the spot market commodity exchange with promise of high returns.

They allegedly mis-sold the commodities forward contracts on NSEL to to their investors as lucrative investment products garnering fully secure returns of up to 18 per cent under portfolio management services.

The spot commodity bourse, promoted by Jignesh Shah-led Financial Technologies (FTIL), has been facing problems in settling Rs 5,600 crore dues of 148 member brokers, representing 13,000 investor clients, after it suspended trading on July 31 after government directions.

NSEL has so far settled about Rs 244 crore against about Rs 5,600 crore dues to 13,000 investors.

Earlier this week, police had attached properties of Shah, also a Director of NSEL and three others.

Besides Shah, properties of Joseph Massey, also a Director at the now defunct spot Exchange, and two others were attached by Mumbai Police's Economic Offences Wing (EOW) which is investigating the scam that came to light in late July.

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