NSEL asked to cut settlement calendar

FMC wants forensic audit of exchange's books, questions credibility of its claims

In its first decisive step after getting powers to regulate the National Spot Exchange Ltd (NSEL), the Forward Markets Commission (FMC) has asked the exchange to shorten the settlement calendar announced by it on Wednesday.

In a letter written to the exchange on Friday evening, FMC has also ordered a forensic audit of the exchange’s books and questioned the credibility of the exchange’s claims, saying NSEL has given varying explanations to the same issue at different meetings with the regulator.

The NSEL’s settlement calendar of 30 months, the regulator said, “has not inspired confidence, as the exchange has gone back to its earlier commitment, which raises serious doubts on the credibility of the commitment of buyers.”

Sources said FMC has also suggested to the consumer affairs ministry to issue a directive to the Central Warehousing Corporation to inspect NSEL’s warehouses, as it suspects the stock position claimed by the exchange might not be true. FMC has also suggested a multi-agency probe into the whole issue.

The regulator has, in Friday’s letter, directed the exchange to go ahead with its current settlement plan (the pay-in for which started on Friday) for the time being, as the pay-outs have already been “seriously delayed, which is causing deep anxiety and resentment among sellers”.

The exchange had earlier said it would collect Rs 2,181 crore from eight buyers before September 13, and 13 buyers with dues of Rs 3,107 crore had agreed to pay five per cent of the amount every week. Contrary to the settlement calendar of NSEL, FMC said in its letter uploaded on its website, “two buyers having total pay-in obligation of Rs 1,219.71 crore have not given any payment schedule.”

Citing several meetings with NSEL executives, including its Managing Director Anjani Sinha and FT group promoter Jignesh Shah, FMC said the exchange’s explanation had several discrepancies.

FMC said the forensic audit by a reputed firm, to be appointed with the regulator’s consent, was necessary in the next seven days to “establish the credibility of the books of accounts”.

Regarding concerns on the quality and quantity of commodities lying at its various accredited warehouses, NSEL had appointed a collateral management firm, SGS, to make a detailed assessment of quality and quantity of stocks of commodities at all the accredited warehouses. In this regard, FMC has directed the exchange to submit the terms of appointment, a letter of appointment of SGS and preliminary findings, if any, of SGS.

FMC has asked the exchange to update on its website on a daily basis the party-wise amount deposited in an escrow account. FMC has asked several pointed questions to the exchange, citing its own by-laws that why members who have not made their payments in time have not been declared defaulters and why commodities and other collateral were not auctioned in time to recover dues. The exchange’s bylaws say, “The exchange is duty-bound to complete settlement as per by-laws, according to which it stands guarantor for all financial obligations for trade executed on the exchange”.

In an indication of toughening the stand against the buyers not paying their dues, the regulator directed NSEL to give details of all such members.