FMC seeks auditors' list for e-series scan

Wants 3 names to choose from to do a forensic examination, on HC order, within 2 weeks

The Forward Markets Commission (FMC) has written to The Institute of Chartered Accountants of India (ICAI) for a list of auditors who can do a forensic examination of e-series contracts at the scam-hit National Spot Exchange (NSEL).

The accountants’ body is likely to recommend three names to choose from. The move comes after a Bombay high court order, directing FMC to take charge of the settlement of e-series contracts.

Unlike the NSEL paired contracts, embroiled in a Rs 5,600 crore payment crisis, e-series contracts are backed by dematerialised gold, silver and other metals. “The issue is of rematerialising these and paying the investors. But, given the experience we have had with the group, we did not want to decide anything without fully knowing what we are getting into. That’s why we decided to go for the forensic audit,” said a senior FMC official.

Unlike the earlier audit of paired contracts, FMC is likely to directly appoint the auditor and give it the terms of reference, say officials.

The auditor would have to work fast, as the court has directed the job to be completed in two weeks. FMC is said to be not too keen to assign the work to Grant Thornton,  already given the job to audit the Multi Commodity Exchange,part of the same group as NSEL.

About 30,000 investors are awaiting settlements in these contracts. In September, Sharp & Tannan, Mumbai-based chartered accountants, audited the precious metals stocks held by NSEL in the  vaults of a private service provider, Brinks Arya, in Mumbai, New Delhi, Kolkata, Hyderabad, Ahmadabad and Jaipur. The auditors had said the verification did not reveal any discrepancy in the amount of stock. They said the demat quantity of 910 kg of gold, 46,167 kg of silver and 19 kg of platinum matched with the physical quantities held in the vault

However, the auditor also recorded certain caveats in the verification methodology.

“At the Mumbai office, stock quantities were checked with the demat statement of NSDL and CDSL. In the absence of adequate weighing facilities, the weight mentioned on coin bars has been relied upon,” the report by Sharp and Tannan said.  It also said that owing to the huge quantity of silver stock involved, only about 36 per cent of the silver bars were checked for purity, refiner’s name, etc.

Under e-series, NSEL offered precious metals such as gold silver and platinum, and industrial metals such as nickel, zinc and copper, in the demat form in small denominations. The clearing and settlement pay-in and pay-out mechanism is based on a T+2 settlement cycle. This means the final settlement of transactions done on the trade day takes place on the second business day.

E-series products provide opportunity for intra-day trading, coupled with demat delivery in respect of positions not settled at the end of the day.

ON THE AGENDA

• FMC wrote to ICAI last week
• ICAI to recommend three names
• FMC will pick one from the list
• Auditor to give report within two weeks