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Top brokers on Tuesday went all out in their attack on the Financial Technologies (FT) group and promoter Jignesh Shah over the crisis surrounding National Spot Exchange Ltd (NSEL). Four broker associations accused the FT group of keeping them in the dark on the progress in dues settlement, while NSEL Investor Forum, which represents more than 15,000 investors, called for the government to take over the operations of the beleaguered exchange — like it did in the case of Satyam Computer Services after the accounting scandal at the information-technology firm.
Representatives of brokers, including IIFL Chairman Nirmal Jain and Motilal Oswal Financial Services CMD Motilal Oswal, alleged at a press meet on Tuesday that the exchange did not have adequate stock in its warehouses to meet obligations. At the stormy meeting, they sought explanation on the whereabouts of the Rs 5,600 crore NSEL owed its brokers and investors.
“There are apprehensions the stock is not even there, a lot of firms involved are shell companies and the money to be paid is still not coming in,” said IIFL’s Jain.
The brokers suggested the exchange would be able to repay only Rs 500 crore of the Rs 5,500 crore due.
Investors’ money has been stuck in NSEL contracts, as the exchange, on a directive from the consumer affairs ministry, suspended transactions in all contracts. Leading brokers are facing the ire of their clients after the move, which made it impossible for them to settle their claims. Brokers had hard-sold a scheme based on NSEL’s derivative contracts as a product that could fetch better returns than fixed deposits.
However, NSEL took a tough stand on the issue. In a late-evening statement, MD & CEO Anjani Sinha said 23 buyers were required to meet their pay-in obligations and any default would be dealt with according to legal default proceedings. “The management of NSEL, under the supervision of the board, is making all attempts to ensure settlement is achieved. This institution has been used by industry satisfactorily for three years. Exclusively holding the promoter responsible now is inappropriate,” he said.
Brokers, at the press conference, declined to share the responsibility in the matter, saying they acted as ‘facilitators’.
“The brokers’ responsibility in a transaction is restricted to ensuring client KYC and other such things... if you think the broker is underwriting... for a minimal brokerage... that is not the law — either in this country or anywhere else,” said IIFL’s Jain.
In the wake of the latest protests, the department of consumer affairs on Tuesday again asked the commodity derivatives regulator, the Forward Markets Commission (FMC), to look into investors’ grievances. Last week, the government had asked FMC to look into the settlement issue between NSEL and investors.
Sharad Kumar Saraf, who said he was an investor and acted as the spokesperson of the forum, expressed lack of confidence in the committee set up to oversee the settlement process. “The committee has been set up by NSEL. It has no sanctity,” he said.
The NSEL Investor Forum was contemplating a class-action suit if the group defaulted on payments, said Saraf. A class action, or class-action suit, is a process by which a large number of people collectively bring a single legal claim against an entity.
“If money doesn’t come, we will,” said Saraf. He said preliminary legal consultations on the possible action had already been made.
Brokers and investors said they had approached the Central Bureau of Investigation, as well as senior government officials, over the matter.
Anand Rathi Financial Services Chairman Anand Rathi said the overall confidence in commodity trading had been shaken after the NSEL debacle.
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“If the payment is not scheduled properly, business in FT Group’s other exchanges will also be affected. This has already started happening, with lower volume in MCX,” he said. “As in the case of all financial frauds, we will take a legal action, for which we have already consulted lawyers.”
The broker associations, in a joint press release, raised concerns on whether Jignesh Shah and his team were ‘fit & proper’ to run their exchange business.
“Why should MCX’s licence not to be suspended and why should these promoters be allowed to run international exchanges and risk India’s reputation,” asked a joint press release of NSEL Investors Forum, Commodity Participants Associations of India, Association of National Exchanges Members of India and BSE Brokers Forum.
The broker associations sought clarity on how the trade guarantee fund of Rs 800 crore got reduced to Rs 5 crore. “Which borrowers did the margin money belong to, and where has it been appropriated,” the release asked.
In a press note issued on Tuesday, NSEL Investors Forum in association with Commodity Participants Associations of India (CPAI), Association of National Exchanges Members of India (ANMI) and BSE Brokers Forum (BBF) sought explanations from NSEL, Jignesh Shah, Forward Market Commission (FMC) and the Government on the following ten questions:
1) Why NSEL and Mr Jignesh Shah have been so slow in making public details of the progress of payments and checking of stocks?
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2) Why are authorities not making public the money trail, that is, in which accounts investors’ money, to the tune of Rs5500cr, was transferred and from those accounts, where has money gone?
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3) Clear explanation to be made public on how trade guarantee fund of Rs800cr dwindled to Rs65cr and is now currently only Rs5cr. The margin money belonged to which borrowers and where has it been appropriated?
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4) Why all information is not made transparently available on website with regards to collections in the Escrow account and status of all payments by borrowers.
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5) NSEL had stated publically on August 4, 2013 that 2,181 crore borrowers have been paying on time. And also they stated that balance will be paid in 20 weekly instalments of 5% each. By now, therefore, Rs800cr should have been collected. What is the status of these collections and explanations for delays?
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6) Have authorities summoned the 24 borrowers and confirmed their liabilities? In case they have not appeared before FMC and the Government, have they used their executive powers to get them to explain their position? What is the action plan of FMC and the Government to bring these to books?
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7) NSEL, MCX and FT have common promoters and directors. NSEL, FT and Mr Jignesh Shah have been evading and dodging clear explanations and we understand that even FMC has not received any information from them. For instance, no explanation has come on media reports about missing stocks and shell companies being borrowers. If this is true, then there is no transparency and there is a lack of adequate and timely information flow from NSEL and FT. Why should regulator and the Government not ring fence assets of FT and the promoter, Mr Jignesh Shah and family to meet shortfall of the investors funds?
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8) On July 10, 2013, Mr. Jignesh Shah himself made presentation to FMC Chairman, FMC officials and Secretary, Mr. Pankaj Agarwala that there is foolproof risk management and NSEL is extremely safe. How can he now put blame on professional management?
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9) Is Mr. Jignesh Shah and his management team still ‘Fit & Proper’ to run commodity, currency and stock exchanges and risk several thousand crores of public and institutions’ money? Why should MCX license not to be suspended and also why should these promoters be allowed to run international exchanges and risk India’s reputation as well?
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10) Why should existing management not be superseded and replaced by a respectable Board led by somebody like Mr. Deepak Parekh?
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