Proceed with auction of collateral: FMC

Took serious note on cheques collected by exchange and dis-honoured

A day after raising doubts on the reliability of the commitment given by the crisis-ridden National Spot Exchange Ltd (NSEL), the Forward Markets Commission (FMC) on Wednesday directed the former to commence auctioning of realisable assets of defaulters on its platform.

In a statement on Wednesday addressed to NSEL’s board of directors, FMC asked for a start to the auctioning of commodities in accredited warehouses as collateral. The regulator said the exchange had defaulted on July 31 itself, when they merged all settlements. It has also said the report of SGS, appointed by the exchange for verification and valuation of warehouses and stock, should be given to it when it comes.

NSEL had on Tuesday removed its top officials, including managing director Anjani Sinha and chief financial officer Shashidhar Kotian.

FMC has said the settlement plan given by NSEL on August 14 had not been adhered to. There was a shortfall in the pay-in commitment made by various buyers and many of the cheques collected from these parties had been dishonoured, the statement said.

In the settlement plan given by NSEL to FMC last week, the exchange had committed to receive a minimum pay–in of Rs 174.72 crore on August 16 and disburse this on August 20 among investors proportionately. However, the exchange informed FMC, it had received just Rs 92 crore.

The regulator had on August 16 asked NSEL three things — why positions of members who could not meet their pay-in obligations, were not closed out in the auction, why they were not declared defaulters and why default proceedings were not initiated against them. On Wednesday, FMC said it was yet to get a written explanation from NSEL on these issues.

Citing exchange rules, FMC has directed NSEL to ask every defaulter to hand over his documents, assets and so forth, to be vested with the exchange for the benefit of the creditors. The exchange, therefore, should proceed to liquidate all realisable assets of the defaulter member/s to meet the pay-in obligations.

“Any deficiency being found by the collateral management agency appointed by NSEL with regard to quality and quantity and value of stocks in the accredited warehouses of NSEL should be brought to the Commission’s notice,” the statement said.

The proceeds of the auctions should be deposited in an escrow account in the shortest possible time, to pay to selling members with the approval of the commission, it added.

The FMC asked NSEL to take punitive action as per the law of the land under intimation to the commission based on the findings of the collateral management agency.