FMC to take action against NSEL for violating norms: Thomas

Commodity markets regulator FMC will soon issue orders against the National Spot Exchange Ltd (NSEL) for violating certain rules while offering commodity contracts, Consumer Affairs Minister K V Thomas said today.

The ministry has asked FMC to take necessary action against NSEL, he added.

Last year, the ministry had issued a show-cause notice to Financial Technologies-promoted NSEL after it found violation of some conditions set by the government for operating the exchange.

"The ministry has already issued a directive that NSEL should strictly follow the law. Wherever the exchange has violated, FMC will examine and take suitable action," Thomas told PTI.

The Forward Markets Commission (FMC) is the competent authority and it will soon issue the orders against the exchange, he added.

Financial Technologies India Ltd (FTIL) is also the promoter of the Multi Commodity Exchange of India Ltd, the country's largest commodity bourse.

Spot exchanges, including NSEL, were allowed to offer one-day forward contracts provided that members would not resort to short sales and that outstanding positions at the end of the trading day would result in delivery.

In December 2012, Thomas informed Parliament that FMC has found that the NSEL allowed trading on its platform without verifying whether the seller had stocks, in effect allowing short sales by members.

Short-selling is the sale of commodities that one does not own at the time of a contract with the hope of buying them at a lower price before the delivery time. If the delivery period exceeds 11 days, it is called a futures trade.

FMC also found that the contracts traded on the exchange, for which the settlement period exceeded 11 days, were non- transferable specific delivery contracts, which was in violation of provisions of Forward Contract Regulation Act, Thomas had said in a written reply to the Rajya Sabha.

The country has three national spot exchanges. NSEL, NCDEX Spot Exchange and National APMC Spot Exchange.