Probe panel puts NSEL in a spot

Wants various departments to look into law violations; FMC might reassess fit & proper criteria on promoters

The panel chaired by Economic Affairs Secretary Arvind Mayaram to probe the crisis in  the National Spot Exchange Ltd (NSEL) has given its report to the finance minister.

Officials said the report has recommended an inquiry by various bodies into violation of laws by various entities in NSEL — the need to do by the enforcement directorate (ED), income tax (I-T) department and Serious Fraud Investigation Office has been mentioned. It has also suggested the Forward Markets Commission reassess the “fit and proper criteria” of the NSEL promoters, they said.

The report is also understood to have called for segregation of ownership and management in commodity exchanges, termed de-mutualisation.

“The report details long-term measures,” Mayaram told reporters here. The report is based on two earlier ones, given to the panel by two sub-groups, one headed by the ED and the other Reserve Bank deputy governor K C Chakrabarty.

The latter report had said there might be minor systemic repercussions from the crisis. It had also called for de-mutualisation in commodity exchanges.

The ED report alleged violations of various laws, such as the I-T Act, Prevention of Money Laundering Act and Foreign Exchange Management Act, among others. If FMC decides the promoters of NSEL fail the ‘fit and proper’ criteria, they might be asked to sell or reduce their 26 per cent stake in the Multi Commodity Exchange, as the promoter of both NSEL and MCX is Financial Technologies (India) Ltd.

Since FTIL is also a promoter of the MCX Stock Exchange, the Securities and Exchange Board of India might also be asked to take action.

On the policy front, regulatory gaps should be filled in spot commodity exchanges, the report suggests. As for a de-mutualised structure, one already ecists in these exchanges to an extent but single entities might now be asked to have a stake only up to a certain limit.

Besides, the concept of angel investors might go. Currently, angel investors in comexes are asked to reduce stake up to 26 per cent over five years.