After NSEL scam, govt withdraws waiver given to spot bourses

Wiser after the Rs 5,600-crore NSEL scam, government today withdrew the exemption granted to all spot commodity exchanges for launching one-day forward contracts in agri and non-agri items with immediate effect.
In August 2013, the payment scam surfaced at National Spot Exchange Ltd (NSEL) after it was found violating the exemption.
Through a gazette notification dated September 19, Finance Ministry today said the waiver granted to three national spot exchanges - NSEL, NCDEX Spot Exchange (NSPOT) and National Agriculture Produce Marketing Company of India Ltd (National APMC) has been withdrawn with immediate effect.
"Having examined the activities of such entities and on the basis of the experience gained, the central government is of the view that such entities which were granted exemption under section 27 of the said Act, thereby facilitating unregulated forward trading on their platform, have failed to serve the purpose for which they were created," it said.

In view of various risks associated with trading in such unregulated entities, the forward trading in such unregulated entities is not in public interest, it added.
The exemption was utilised only by the NSEL, while the other two exchanges never used it. So the withdrawal of the exemption may not have impact on any exchange, a senior Finance Ministry official said.

In 2007, the government had exempted one-day forward contracts offered by spot exchanges from the purview of the Forward Contracts Regulation Act (FCRA).
The waiver was given with a condition that the exchanges would not permit short sales -- selling a commodity without owning it -- and ensure that all outstanding positions at the end of the day resulted in delivery.

While Financial Technologies (India) promoted NSEL was granted exemption on June 5, 2007, NSPOT and National APMC received exemptions under the same provisions on July 23, 2008 and August 11, 2010 respectively.