National Spot Exchange Ltd

8/12/2019 National Spot Exchange Ltd

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National Spot Exchange Ltd.

National Spot Exchange Ltd. (NSEL) is the national-level, institutionalized, electronic, transparentspot trading platform for commodities. It is a structured market place, set-up to transform thecommodity market by way of reducing the cost of intermediation and, thereby, improvingmarketing efficiency. Its state-of-the-art technology facilitates risk-free and hassle free purchaseand sale of various commodities. NSEL provides others, customized solution to farmers, traders,

processors, exporters, importers, arbitrageurs, investors and other stake holders, pertaining tocommodity procurement, storage, marketing, warehouse receipt financing, etc.

NSEL commenced Live trading on October 15, 2008. At present, NSEL is operational in 16states in India, providing delivery-based spot trading in 50 commodities.

In 2010, NSEL added a new dimension to commodity market by introducing investment productsin commodities in demat form. For the first time in the history of Indian commodity market, NSELlaunched a series of unique investment products, known as e -Series instruments. e -Gold, the first

product under e-Series umbrella, was launched on March 17, 2010. e-Series products provide anopportunity to small investors to invest in physical commodities (e.g. Bullion) in smallerdenomination in demat form. This segment is similar in functionality to the cash segment inEquities.


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Mission

To develop a pan-India, institutionalized, electronic, transparent common Indian market offeringcompulsory delivery-based spot contracts in various agricultural and non-agriculturalcommodities. With a view to reduce cost of intermediation by improving marketing efficiency and,thereby, improving producers realization coupled with reduction in consumer paid price.

Objectives

The main objective of NSEL is to develop a vibrant electronic spot market in various commoditiesand to offer a value proposition to different segments of the commodity ecosystem. The idea is toreduce cost of intermediation and create an electronic linkage between buyers and sellers acrossthe country. The Exchange provides counterparty guarantee in terms of quantity, quality and

payment. Hence, the participants get a safety net against credit risk and counterparty default.

USPs OF NSEL

Provides an effective method of spot price discovery in various commodities in atransparent manner

Provides a market where farmers/producers/importers/Government companies can sell theircommodities and realize proceeds at the best prevailing price in a risk-free manner

Offers a market where the processors, end-users, exporters, corporate (both private andGovernment) and other upcountry traders can purchase commodities at the mostcompetitive price without any counterparty and quality risk

Provides investment instruments in commodities for retail investors and HNIs Offers a transparent market where financiers, investors and arbitrageurs can invest money

in buying various commodities across the country without going through the physicalmarket hassles Provides authentic spot price of various commodities that can be used by the futures market

as the benchmark price for settlement of their contracts on the date of expiry Helps the futures exchanges, Forward Markets Commission (FMC) and the Government in

achieving the target of compulsory delivery in all agricultural produce by way of creating alinkage between physical market and futures market

Promotes grading and standardization of agricultural produce and facilitates warehousereceipt financing to farmers and traders by the financial institution

Creates a market for trading in negotiable warehouse receipts, both in physical and

electronic form


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Regulatory Set Up

NSEL commenced operation pursuant to the Gazette Notification dated June 5, 2007 issued by the Ministry of Consumer Affairs, Food and Public Distribution, Government of India,allowing it to conduct trading in one day duration forward contracts in commodities subject toconditions. Subsequently, the Ministry has issued Gazette Notification dated February 6, 2012to appoint Forward Markets Commission (FMC) as the designated agency to which allinformation or returns relating to the trade as and when asked for shall be provided by the

National Spot Exchange. In compliance with the conditions of the Gazette Notification, NSELsubmits specified reports, returns and information to the Forward Markets Commission (FMC)on regular basis.

Since marketing of notified agricultural produce is regulated by Directorate of Marketing ofrespective State Government, NSEL obtains licenses from State Governments under respectiveState APMC Acts, where it intends to launch Farmers Contracts for agricultural commodities.

NSEL has hitherto obtained licenses from the following State Governments:

Government ofMAHARASHTRA

The Director, Agricultural Marketing & Rural Finance, Government of Maharashtra, hasgranted license to NSEL as Private Market under the State APMC Act

Government ofKARNATAKAThe Director of Agricultural Marketing, Government of Karnataka, has issued license to NSELfor establishment of Spot Exchange in the State of Karnataka under the State APMC Act

Government ofGUJARATThe Director of Agricultural Marketing & Rural Finance, Government of Gujarat, has grantedlicense to National Spot Exchange as E -Market under the State APMC Act

Government ofMADHYA PRADESH (MP)The Managing Director, MP State Agricultural Marketing Board, Government of Madhya

Pradesh, has granted license to NSEL for establishing electronic trading facilities in MP

Government ofORISSAThe Director, Agricultural Marketing, Government of Orissa, has granted license to NSEL as aPrivate Market under the State APMC Act


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Government ofRAJASTHANThe Director, Agriculture Marketing, Government of Rajasthan, has granted license to NSELunder the State APMC Act as a Private Sub E-Market


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Major Achievements:

Milestones & Strategic Alliances

2013MAR

Agreement with Hadher Group of establishments LLC, Abu Dhabi, UAE for Joint businessdevelopment and marketing in commodities

JUN NSEL and SBI have tie up for the collateral Management Services

Coffee board of India signs pact with NSEL to create a Warehouse receipt based electronicSpot Marker for Coffee beans

JUL Tamil Nadu Co-operative Marketing Federation (Tanfed ) entered into an agreement with

NSEL to purchase potato, onion and ginger online2012FEB

Received Shariah certification for e-Lead, e-Zinc and e-Nickel

APR Launched e-Platinum under its investment product category e-Series

SEP Western Ghats Agro Growers Ltd. (WGAGL), Joint initiative of Kerala farmersand NSEL

was inaugurated by the Honorable Chief Guest Prof K. V. Thomas,Minister of State for

Consumer Affairs, Food and Distribution in Kerala. NOV

Signed an MoU with Belarusian Universal Commodity Exchange (BUCE), thelargestCommodity Spot Exchange in Republic of Belarus for developing bilateraldeals betweenIndia and Eastern European countries, especially Republic ofBelarus, Russia, Ukraine,Kazakhstan.

NAFED appointed NSEL as a State Level Supporter (SLS) for the procurement of cottonand processing of cotton by ginning and pressing to convert into cotton bales for the season2012-13 on its behalf.

DEC National Spot Exchange Limited (NSEL) has signed an agreement with Small Farmers

Agribusiness Consortium (SFAC) to provide the services of Technical and Logistic SupplyAgency (TLSA) for the Pulses Procurement Programme under MSP (PPPMSP).

2011JAN

Signed an MoU with Govt. of Gujarat under Vibrant Gujarat 2011


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FEB Received Shariah certification for e-Gold, e-Silver and e-Copper

2009JAN

Commenced cotton procurement in Andhra Pradesh under Price Support Scheme (PSS)

operation on behalf of NafedJUN

Signed an MoU with the Maharashtra State Agriculture Marketing Board, to create linkage between rural Primary Agricultural Cooperative Societies (PACS) godowns and spotmarket facilities

SEP Signed an MoU with Govt. of Orissa, for developing electronic market facilities in Orissa

2008JAN

Issuance of license by Govt. of MaharashtraMAY

Issuance of license by Govt. of Karnataka for setting up spot exchange in the State ofKarnataka

JUN Signed an MoU with the Gujarat Agro-Industries Corporation Ltd. (GAIC) to create a

strategic alliance for development of agri-business and providing an electronic market platform in the State

2007MAY

MoU with Govt. of Madhya Pradesh, for developing electronic market facilities in MadhyaPradesh

JUN Recommendation by the Ministry of Agriculture, Govt. of India about NSEL project

Issuance of Gazette Notification by the Ministry of Consumer Affairs, Govt. of India underSection 27 of the FCRA, 1952

OCT Issuance of license by the Govt. of Gujarat under Gujarat APMC Act

NOV

Signed an MoU with IL&FS for common service centers being setup under National E-Governance Project to be connected to NSEL project

Signed an MoU with Govt. of Rajasthan2005MAY

Incorporated as a company limited by shares under the Companies Act, 1956


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Services Offered

Electronic spot trading facility in various commodities with specific delivery Centres Trading in Commodity-based Investment instruments in demat form Grading, quality certification and standardization of commodities Facilitating Collateral financing against warehouse receipts Customized services relating to storage, transportation, logistics and shipment Procurement services to Corporates and Government agencies Electronic auction of various commodities on behalf of FCI, MMTC, etc. Scientific storage of commodities with warehouse receipt financing

Benefits

NSEL offers significant benefits to various stakeholders of the commodity ecosystem, such asfarmers, traders and the Government among others.

FARMER GOVERNMENT TRADERSEnables seamless connectto the national market toensure sale of marketablesurplus

Enables better realization ofcess as NSEL submits astatement of all physicaldeliveries to the authorities

Provides a wider and liquidmarket, where huge quantitiescan be traded

Provides better pricediscovery and realization

Enables Govt. companies toenhance price realization byconducting auction ofcommodities through NSEL

platform

Eliminates counterparty risk,credit risk, and risk relating torejection at buyers godown atthe time of delivery

Empowers farmers to quotedesired selling price, whichis not available in mandiauction system

Promotes agro-industrial processing and exports asuninterrupted supply of rawmaterials is assured through

NSEL

Ensures elimination of posttrade risks

Enhances bargaining powerdue to availability ofalternative marketingchannel

Enables creation of importanttrading hubs that generatedirect and indirect employment

Provides easy access to bankfinance against warehousereceipts

Promotes grading andstandardization at farmgate, leading to grade andquality based pricerealization

All the aforementionedobjectives are achieved withoutany significant cost to theexchequer

Provides a grading system foreffectively using the futuresmarket for managing theirrisks

Increases holding capacitydue to availability ofwarehouse receipt financing

Offers opportunities toexpand activities to multiplecommodities with operationalease


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Operations

Trading NSEL provides an online, screen-based trading system, which can be accessed through VSAT,leased line or internet. The Exchange conducts trade through daily expiry commoditiescontracts. The positions outstanding at end of the day result into compulsory delivery.However during the day, the transactions of offsetting nature are netted off and delivery iseffected only with respect to the net quantity outstanding at end of the day. Terms relating toquality specifications, place of delivery, date of delivery and other conditions are specified bythe Exchange in advance. All contracts executed on the system are based on such terms only.Market remains open from 10:00 am to 11:30 pm.

Delivery, Clearing and SettlementAll trades executed during the day are netted off at the close of market hours as per theweighted average price of the last 30 minutes. The profit/loss arising thereon is settled on the

basis of Mark-To-Market (MTM) on either the same day or next day depending on the contractcondition. The net sellers have to give delivery by way of depositing goods in the Exchangedesignated warehouses/storage tanks as specified in the Circular. The buyer's account isdebited by the Exchange and delivery order is issued to him after ensuring that payment iscomplete. Thereafter, payout is credited to the seller's account.

In case the seller/buyer fails to honor his delivery obligation, the position is auctioned/closedout at the risk and cost of the defaulting party.

Risk Management, Margining and SurveillanceThe Exchange uses various tools for risk management, margining and surveillance to ensure

market integrity. All positions outstanding in the market are subject to margin payable by both buyers and sellers. However, margin is not applicable on the sellers who have deposited goodsin the Exchange-designated warehouses and pledged with the Exchange.

Settlement Guarantee FundThe Exchange guarantees performance of all contracts executed on the Exchange platform. Forthis purpose, the Exchange maintains a settlement guarantee fund. Notwithstanding default ofany member, payout is honored as per the Exchange schedule.

Technology

NSEL has the strategic advantage of having Financial Technologies (India) Ltd. (FTIL), as itstechnology partner for delivering technologically advanced solutions to market participants.FTIL has provided a robust technology platform to multiple domestic and internationalExchanges. The Exchange uses a client server application, which can be accessed throughVSAT, leased line, Internet as well as mobile phones. The hardware hosting the trading andsurveillance applications are fully fault tolerant systems with zero redundancy.


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Operational Flow chart regardingUse of NSEL platform by a Farmer


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Commodities Offered

NSEL provides a platform for trading in multiple commodities with multiple contracts. It also provides trading in such commodities, which are traded on futures exchanges. This has enabledseamless process of cash future arbitrage, enabling investors to buy Exchange-certified deliveries.Besides, there are some customized contracts to meet the specific requirements of an institutional

buyer or institutional seller. It has also launched a number of farmers contracts to provide aservice to the small and marginal farmers, where it does not charge transaction fee from small andmarginal farmers. As on Dec 31, 2012, the Exchange offers trading in 50 commodities.

Commodity Delivery CentresArecanut Shimoga, Channagiri (Karnataka)Bajra Jaipur (Rajasthan), HAFED Warehouse (Haryana)Barley Jaipur, Chomu, Sikar, Srimadhopur (Rajasthan)Basmati Rice (orRice)

Jakhal, Ratia, Raina - HAFED Warehouse (Haryana), Ludhiana (Punjab)

Basmati Paddy(or paddy)

Karnal, Nilokhari, Thanesar, Ladwa, Pehowa, Sirsa, Ismailabad - HAFEDWarehouse (Haryana), Warangal (AP), Ludhiana, Khamanon (Punjab)

Black Pepper Vandanmedu (Kerala), Saharanpur (Uttar Pradesh)Cardamom (Oiltype & Splits)

Vandanmedu (Kerala)

Castor Seed Palanpur, Kadi, Jagana, Mehsana, Patan, Chandisar, Visnagar, Panthawada,Gandhidham, Sidhpur, Dhenera, Deesa, Harij, Vadali, Mundra, Himmatnagar,Deodhar, Thara, Khedbrama, Vadgam (Gujarat)

Castor Oil Kandla (Gujarat)Chana/Desi

Chana

Delhi, Bikaner, Jaipur, Sri Ganganagar, Malpura (Dist. Tonk) (Rajasthan),

Ganj Basoda, Vidisha, Guna (Madhya Pradesh), Osmanabad, Jalgoan(Maharashtra), Gadag (Karnataka)ChanaKantawala/Chana Kabuli

Indore (Madhya Pradesh), Jalgaon (Maharashtra)

Coal Mangalore (Karnataka)Copra Tiptur, Arsikere & Tumkur (Karnataka)Coriander Guna (Madhya Pradesh)Copper Demat (e-Copper), DelhiCotton (Bales &Kapas)

Mumbai, Yavatmal-Arni, Gunj, Darwha, Wani, Digras, Nagpur-Narkhed,Wani, Kalameshwar, Amravati-Achalpur, Chandur, Akola-Telhara,Murtijapur, Khamgaon, Dhule, Balapur, Barshi Takli, Jalgaon-Raver,Erandol, Dharangaon, Pahur, Parola, Amalner, Aurangabad-Sillod, Beed -Georai, Sonpet, Parli, Ashti, Kaij, Buldana-Malkapur, Nandura, DeulgaonRaja, Hingoli-Aundha Nagnath, Jalna-Ambad, Jafrabad, Parbhani-Selu,

Nanded-Bhokar, Dharmabad, Ardhapur, Wasim-Karanja, Nisik-Shirpur,Osmanabad, Nandurbar, Kolhapur, Solapur, Latur, Aurangabad-Vaijapur(Maharashtra), Himmatnagar, Rajkot (Gujarat), Adilabad, Nizamabad,Khammam (Andhra Pradesh)


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Cottonseed WashOil

Kadi, Tramba (Gujarat), Shamshabad (Hyd) (Andhra Pradesh)

Gold Ahmedabad, Rajkot (Gujarat), Mumbai (Maharashtra), Kolkata (WestBengal), Hyderabad, Vijayawada (Andhra Pradesh), Chennai, Coimbatore(Tamilnadu), Jaipur (Rajasthan), Delhi, Indore (Madhya Pradesh), Patna(Bihar), Bangalore (Karnataka)

Groundnut Jaipur, Bikaner, Jodhpur (Rajasthan), Maliya Hatina (Gujarat)Guar Seed Bikaner, Jaipur (Rajasthan), Hissar, Sirsa, Adampur (Haryana), Deesa,

Chandisar (Gujarat)Guar Gum Jodhpur (Rajasthan)Jeera (Cuminseed)

Jodhpur (Rajasthan)

Lead Demat (e-Lead)Tur (Lemon,Malavi, Whole,Split Redgram)

Mumbai, Jalgoan (Maharashtra), Chennai (Tamilnadu), Ex-Godown Tandur,(Andhra Pradesh)

Maize Maheshkhoont (Bihar), Jalgaon, Khopate near Uran (Maharashtra), Umerkote(Orissa), Davangiri (Karnataka), Kota (Rajasthan)

Masoor/Lentil Kolkata (West Bengal), Mumbai (Maharashtra)Moong (GreenGram)

Mumbai, Jalgoan (Maharashtra)

Mustard Oil Jaipur (Rajasthan) Nickel Demat (e-Nickel)Pig Iron (ironore)

Jajpur (Odisha)

Platinum Demat (e-Platinum), Ahmedabad, Jaipur, Delhi, Hyderabad, MumbaiRajma (Kidney

Bean)

Ex-Godown (Andhra Pradesh)

Red Chilly Saharanpur (Uttar Pradesh), Khammam (AP)RBD Palmolein Mundra, Kandla (Gujarat), Kakinada (AP)RM seed(Mustard seed)

Jaipur, Jodhpur, Kota, Baran (Rajasthan), Narnaul, Rewari (Haryana)

Silver Ahmedabad, Rajkot (Gujarat), Mumbai, Solapur, Kolhapur (Maharashtra),Kolkata (West Bengal), Hyderabad (Andhra Pradesh), Chennai (Tamilnadu),Jaipur (Rajasthan), New Delhi (Delhi), Demat (e-Silver)

Soybean Ganj Basoda, Vidisha (Madhya Pradesh), Jalgoan, Nandurbar (Maharashtra),Kota, Pratapgarh, Baran (Rajasthan)

Soybean DOC Kota (Rajasthan)Soybean Oil(Crude)

Kota (Rajasthan)

Soybean Oil(Refine)

Shamshabad (Hyd) (Andhra Pradesh)

Steel & SteelTMT

Raipur (Chhattishgarh), Jharsuguda (Orissa), Kurnool (AP), Mumbai(Maharashtra)

Sugar Kolhapur (Maharashta), Patna (Bihar), Kolkata (West Bengal), Ex-HAFED


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SUGAR MILL ASSAND, Ambala (Haryana), Dadariya, Dist. Vapi (Gujarat),Sunflower Seed Jalgaon (Maharashra)Sunflower Oil Shamshabad (Hyd) (Andhra Pradesh)Urad (BlackMapte) FAQ

Mumbai, Jalgaon (Maharashtra)

Wheat Rajkot (Gujarat), Jaipur, Chomu (Rajasthan), Delhi, Vidisha (MadhyaPradesh), Ex-Odisha, Jalgaon (Maharashtra)

Wool (Raw) Ludhiana (Punjab)Wool (top) Ludhiana (Punjab)Yellow Peas Mumbai (Maharashtra), Kolkata (West Bengal)Zinc Demat (e-Zinc), Delhi (Zinc Ingot)

E-Series

The Cash Segment of Commodities;

Investment Products for Retail Investors

For the first time in India, NSEL has introduced e-Series products in commodities forretail investors. These are investment products that enable investors to buy and sellcommodities in demat form and hold them in their demat account.

Retail investors now trade and invest in commodities like they do in equities. This is aunique market segment, which functions like the cash segment in equities, but offerscommodities in the demat form in smaller denominations.

The clearing and settlement, pay-in and pay-out mechanism is based on T+2 settlementcycle.

E-Series products provide opportunity for intra-day trading, coupled with dematdelivery in respect of positions outstanding at end of the day.

NSEL has launched e-Gold, e-Silver, e-Copper, e-Zinc, e-Lead, e-Nickel and e-Platinum. NSEL will continue to add more commodities under this segment.

Investors who wish to purchase e-Series products are required to open beneficiaryaccounts with NSEL-empanelled Depository Participants (DPs).

National Securities Depository Ltd. (NSDL) and Central Depository Services (India)Ltd. (CDSL), are the depositories for holding commodity units in the electronic form.

Industrial Products

NSEL provides the facility to sell processed/manufactured industrial products on its platform. The producer company gets listing of its products on the NSEL platform through a formal agreement,specifying the rights and obligations. The primary objective of allowing branded products on theExchange is to provide efficient marketability and mechanism to manage trading of the branded

products. At present, Hindustan Zinc Ltd. sells silver bars mined and refined at its factory on the


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NSEL platform under such arrangement. Similarly, Neelachal Ispat Nigam Ltd. (NINL) Orissasells Pig Iron produced in its mines, while MMTC sells branded gold coins on its platform.

Advantages of selling industrial products on NSEL platform

Accessible by large number of buyers spread across the country

Good market depth since it reaches every corner of the country Cost-effective method of electronic marketing with complete end-to-end solutions relating

to trading, delivery and settlement Transparent price discovery process Elimination of counterparty risk


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Membership

Membership of NSEL is available to individuals, partnership firms, corporate houses, HUFs,cooperative societies and other legal entities. Membership is granted to such entities, whichcomply with all requirements relating to admission fee, security deposit, annual subscription,qualification/experience and net worth criteria.

Members can trade on their own account or on accounts of their clients. They can also appointtheir sub-brokers, franchisees, authorized persons and remisiers. Members can also set up their

branch offices and franchises. Members/brokers can charge brokerage or commission from theirclients, as may be negotiated between them.

Corporate houses, willing to use NSEL platform for procurement or sale of commodities, caneither become a member directly or can trade through any of the members of the Exchange.

Membership Categories

Trading-Cum-Clearing Member (TCM)

TCM is a person/corporate who is admitted by the Exchange as a member, conferring upon him aright to trade and clear through the Clearing House of the Exchange, as a Trading-Cum-ClearingMember. TCM can appoint sub-brokers, franchisees, authorized persons and remisiers, as well asset up their branch offices. Members can charge brokerage or commission from their clients, asmay be negotiated between them.

Trading Member (TM)

TM is a person admitted by the Board who has the right to trade on his own account as well as onaccounts of his clients, but has no right to clear and settle such trades himself. All such tradingmembers must be affiliated with any one of the Institutional Trading-cum-Clearing Member(ITCM) or Professional Clearing Member (PCM), having clearing rights on the Exchange.

Institutional Trading-Cum-Clearing Member (ITCM)

ITCM is an institution/corporate which is admitted by the Exchange as a member, conferring uponit the right to trade and clear trades, as an Institutional Trading-Cum Clearing Member. Further,the ITCMs can also appoint sub-brokers, authorized persons, and Trading Members, who would beregistered as Trading Members on NSEL at the request of the ITCM. ITCM can clear and settletrades on behalf of the sub-brokers, authorized persons and such Trading Members, who areregistered on NSEL at their request, subject to the terms and conditions specified by NSEL.

Professional Clearing Member (PCM)

PCM is a Financial Institution, company or Bank admitted by the Exchange as a ProfessionalClearing Member, conferring upon it the right to clear and settle trades through the clearing house


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of the exchange, as a Professional Clearing Member. PCM is allowed to clear and settle trades ofsuch members of the Exchange who choose to clear and settle their trades through such PCM.However, PCMs do not have trading rights.


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Market Timing

Trading on the Commodities takes place on all days of the week (except Sundays and holidaysdeclared by the Exchange - Trading Holidays & Clearing and Settlement Holidays-2013)

The market timings for trading on the online platform of the Exchange are as under

Products Monday to Friday Saturday

AGRI 10.00 to 18.00 10:00 to 14:00

NON-AGRI 10:00 to 23:30 10:00 to 14:00

Intraday Contracts (Agri / non-agri)

10:00 to 16:00 -

E-Series Product 10:00 to 23:30 -

Auction Contract

Products Monday to Friday Saturday

Silver 16:00 to 16:40 13:00 to 13:40

HAFED - Bajra, Basmati Paddy,Paddy and Rice Contracts

12:00 to 15:00 -

NAFED- Rajma & Whole Toor 12:00 to 15:00 -

Ball Copra 12:00 to 15:00 -

Sugar 10:00 to 11:50and 18:00 to 19:30 -

FCI Wheat auction contracts for various Delhi FSDs traded from 10:00 AM to 11:50 AM on theWednesdays as notify by FCI.

Some other Contracts timings:

Commodity Symbol Trade timing

Monday to Friday Saturday

Gold Medallion MMTCGL8DEL 10:30 to 16:30 -

RBD Palmolein RBDGOKUL9RBDGOKUL9

10:00 to 17:00 10:00 to 14:00
http://www.nationalspotexchange.com/NSELUploads/ExchangeCircular/2012/December/976/NSEL235-2012.pdfhttp://www.nationalspotexchange.com/NSELUploads/ExchangeCircular/2012/December/977/NSEL236-2012.pdfhttp://www.nationalspotexchange.com/NSELUploads/ExchangeCircular/2012/December/977/NSEL236-2012.pdfhttp://www.nationalspotexchange.com/NSELUploads/ExchangeCircular/2012/December/976/NSEL235-2012.pdf


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RBDGUJOIL9

Masoor MASOORKOL5 10:00 to 19:00 -

Tur Malavi TURMLWCHE5 10:00 to 19:00 -

Kapas (Raw Cotton) FKAPASMAH0 10:00 to 20:00 10:00 to 14:00

Board of Directors


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Mr. Shankarlal Guru - Chairman

Mr. Jignesh Shah - Vice ChairmanVice Chairman - MCX, Founder of FTIL

Mr. B D Pawar - DirectorDirector - CITA

Mr. Ramanathan Devarajan - DirectorFinancial Technologies Group

Promoters

NSEL is promoted by Financial Technologies India Limited (FTIL) and National AgriculturalCooperative Marketing Federation of India Limited (NAFED).

Financial Technologies (India) Ltd. (FTIL)

FTIL is the flagship company of the Financial Technology Group. FTIL is a global leader increating and operating technology-centric, next generation financial markets that are transparent,efficient and liquid, across multi asset class, including equities, commodities, currencies, energyand bonds among others. It is a company listed on BSE and NSE.

www.ftindia.com National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED)

NAFED is the national level farmers federation registered under Multi State Co-operativeSocieties Act. It was set up on 2nd October, 1958 to promote co operative marketing ofagricultural produce to benefit the farmers.

www.nafed-india.com

NSEL Collapse
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Now, when the seller and buyer are far away from each other, how does the exchange guaranteedelivery? The idea is that the seller must come to an exchange-designated warehouse and give hisgoods, which are then tested and verified for quality and weight. He then gets a warehouse receipt(WR) that is used for electronic trading. When he sells on the exchange, the warehouse receipt istransferred to the buyer; this receipt entitles the buyer to take the goods out of the warehouse, or if

he chooses, to retain the goods there (to sell them later) by paying the warehouse rental charges.

There are rules governing commodity trading, which is regulated firmly by the Forward MarketCommission (FMC). Under the Forward Contracts Regulation Act, any contract that is calledspot must be settled within 11 days that is, both delivery of goods and transfer of money musthappen within 11 days (called T+11). The 11 days give the buyer and seller time to complete thecontract. Thus, this would then not become a forward contract.

Spot contracts, by their nature, were deemed to be out of FMC regulation by a small notification in2007 by the Department of Consumer Affairs. This exemption was given specifically for one-dayduration contracts or, technically those contracts that complete both delivery of goods andtransfer of money within two days, called T+2.

What NSEL Really Did

Instead of just making T+2 contracts, the spot exchange designed multiple contracts. Some of themwere T+2 settled, making them spot in nature. Others were the same product but settled after 25to 35 days, called T+25, or T+36 contracts. This was illegal such contracts are forward contractsand NSEL was not authorized to execute these, but it did. And no one stopped it.

And the concept got worse. NSEL sold what seemed to be arbitrage. You could buy the T+2

contract and sell the T+25 contract and the difference in prices gave you nearly 15 per cent peryear, annualized. Effectively, you would be the owner of half a ton of sugar or castor seeds or suchcommodities, for a period of about a month, which would get sold when you exited.

The exchange practically removed all constraints from investors during this period the goodswould lie in the same warehouse and be sold from there, and the price difference included a 15

percent net return after storage charges, VAT, etc.

This arbitrage was almost guaranteed. NSEL as an exchange stood guarantee, or so investorsthought.

Brokers peddled this product to their customers for over two years. The number of customers ballooned to over 15,000, each of whom put in at least Rs 2 lakh to get their superior returns.

What Was the Problem?

Who was on the oth er side? Thats the question that no one seems to be asking.


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Was the arbitrage genuine? It appears not. The contracts were always sold in pairs. Brokers havereported that no one was allowed by the exchange to just take one side of any contract youalways had to have a buy on the near contract and a sell on the far side.

A quick look at the Kadi contract for castor seeds, sold in pairs of T+3 and T+36, shows identicalvolumes and interest for both contracts in January 2013, and thats the case with every commoditythat had a near and far contract. This is hardly possible in a real market, so it points to the fact thatthese contracts were always executed in pairs.

The Ponzi Scheme

It turns out now that those on the other side were just 24 members of the exchange, called Plantersor Processors or Borrowers. These members owned plants that processed commodities or, atleast, they said they did. For instance, NK Proteins owned a plant to process castor seeds in Kadi,Gujarat. The contract the Kadi Castor Seeds contract was settled at an NSEL warehouselocated inside the Kadi plant of NK Proteins.

Processors like NK Proteins (and there were 23 other such members) were on the other side of thetrade. They would sell at T+2 and buy back at T+23, offering huge returns.

The fact that the contracts were executed in pairs indicates a financing program. Something is placed as collateral to borrow money for a short period of time. This used to be commonly knownas badla financing in the pre -2000 stock exchanges, where shares were collateral. (Badla is

banned now; the financing has moved to the futures market.)

Lets say I am a plant owner, and I cant get a loan from a bank. I can effectively borrow from youat 15-18 percent much cheaper than I can borrow from banks. And if Im smart, I know that thegoods I sell you will remain at a warehouse inside my premises, so why not cheat a little and tellyou that yes, Ive ad ded more goods to your warehouse, and you, on the other end of the phoneagree.In this situation I can invent stock that doesnt exist and borrow against it for 15 days; for theinterest, I might pay some out, but immediately get it back in a new contract when I add even moreimaginary stock. This was the Ponzi nature of the game.

Indeed, it turned out that some of these companies had poor balance sheets incapable of handlingsuch large loans loans of the size of Rs 900 crore. And the exchange did nothing.

Most investors rolled over their contracts. That is, when the contract was unwound after T+35,they would enter a fresh round of T+2 (buy) and T+35 (Sell). Meaning, the interest received wasalso ploughed back into further purchases; a borrower, on the other hand, was pretending to payinterest, but was simply creating warehouse receipts for the interest and trading them on theexchange, while rolling over the contract forever.

The End of the Game
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All this had to stop sometime, and the circular from FMC stopped it.

First, on 16th July the contracts were cut to T+10. But that would involve too many pair trades from one a month to three a month, each of which had higher transaction costs.

Next, some investors smelt a rat and didnt roll over their co ntracts.

The lack of a rollover shuttered the exchange. When the borrowers were told that they had to pay back all the money, they simply could not (or didnt want to). And it turns out they dont seem tohave the goods to back it up either.

On July 31, NSEL issued a circular saying all future contracts would be stopped. And becausethere was a settlement problem, they would have to delay payouts for a while.

Remember, some investors had bought goods on a T+2 contract, paying upfront. Now theyexpected that after their 25-35 days, the other contract would kick in and they would be paid backmoney at the higher rate on that contract.

At this point, the exchange should have stood guarantee. Thats the role of an exchange. But because it didnt get paid from the borrowers, it didnt have the capacity to pay.

Lies, Deceit and an Incestuous Web

The exchange started to lie. The CEO, Anjani Sinha said on August 1st that they had a SettlementGuarantee Fund of over Rs 800 crore plus they had all the stocks in the NSEL warehouses. In afew days they changed that position, stating they had only Rs 60 crore in cash and the rest of theguarantee fund was in stock. All entities were supposed to put a tiny amount up to 5 percent as margin until trade completion. This, too, was unavailable for some reason.

And then, after telling everyone that they would get their money back, the NSEL management saidthey had to auction stock to get the money. Soon, even that avenue was gone as there wasnt anystock.

Jignesh Shah, the founder of FinTech, which promoted the exchange, said in a press conferencethat they would have a high-powered committee, including an ex-SEBI chief, a senior policeofficer and the like, to ensure settlements happen. As it turns out, the committee was useless inactually enforcing the contracts.

NSEL next created a complex settlement program. After a few days, NSEL management offered asettlement calendar stretching 30 weeks where people would be paid back Rs 174 crore per weekfor 20 weeks, Rs 86 crore a week after that, and a big balloon payment at the end.

NSEL couldnt even make the first weeks payments properly it paid up just half. In the secondweek, to fend off investor aggression, FinTech dipped into its resources and paid Rs 177 crore tothose with less than Rs 10 lakh outstanding. There have been three payments till now of Rs 92
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crore, Rs 190 crore (including small investor payouts) and then, this week on Tuesday, 3rdSeptember, Rs 15 crore. But in the settlement program, NSEL had promised to pay Rs 174 croreon each of these three Tuesdays.

In the middle of all of this, it turned out that many of NSELs 24 Pr ocessor members were relatedto each other. One of the biggest borrowers, NK Proteins, is owned by the son-in- law of NSELschairman Shankarlal Guru. Then there was Indian Bullion Market Association, owned primarily by

NSEL, which participated as a member, allowing parties in the bullion space to buy through them.

The whole thing began to stink.

N Sundaresha Subramanian of Business Standard visited many of the defaulting members andfound strange results. There was a mall in the place where 2 lakh tons of sugar was supposed tohave been stored, at the address of a NSEL borrower called Mangla Shree Properties. In Ludhiana,where ARK Imports was supposed to have 12,000 tons of raw wool, there was apparently nothing. One borrower had vacated its premises months back, while another refused to admit they

owed anything.

NSELs investors involved clients from nearly every major broker in the country. Even the SaharaGroup, which is under RBI and SEBI fire, was found to have invested more than Rs 200 crore. Some NSEL board members were close to political bigwigs like Union Agriculture MinisterSharad Pawar. CEO Anjani Sinha had earlier in his career overseen defaults in two exchangesin Magadh and Ahmedabad.

Belling this cat will not be an easy task.

Where are the Regulators?

The FMC was supposed to control regulation of all forward contracts. Although NSEL hadreceived an exemption, it was only for the T+2 contracts and definitely not the T+35 contracts. Thenew FMC Chief, Ramesh Abhishek followed this up since 2012, but what about those before him?

The Department of Consumer Affairs was the de facto regulator when no one else was. It had beenmade aware of the situation over a year ago and should have taken action, and it didnt.

Even after the scam was unearthed, and the scale of the borrowing discovered, regulators remaintight- lipped about action. SEBI has barred some of the 24 borrowers from trading on the stockexchange, and FMC has ring-fenced MCX (a commodities futures exchange which shares thesame promoter, FinTech, with NSEL) from helping the beleaguered NSEL with its cash. However,any other actions have yet to come through.

Where is the RBI? Banks have lent to operations that involve stocks in warehouses. In fact, some photos of NSEL warehouses explicitly state that goods are pledged to certain banks. Are thesegoods there? Has the RBI asked banks to initiate a probe? Not yet.
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If FinTech is the promoter of NSEL, and NSEL has seen a huge default, the obvious next step is todeclare that FinTech is not fit and proper to run any other exchange, including MCX. This hasnot yet happened.

Given this is a huge fraud, it remains astounding that agencies like the CBI, the EconomicOffenses Wing or others have not been brought in to investigate. The failure of regulation could be

because there are too many agencies involved.

Were Brokers to Blame?

Brokers might have known something was wrong. After all, you dont get an exchange everydaywhere you have to coordinate between a buy and a sell on the phone.

Many, though, fell prey to the machinations themselves.

They promised investors a return of, say, 12 percent, and then took that money to NSEL anddecided to make the 3 percent extra that NSEL promised.

Now, when NSEL has defaulted, brokers want to put the blame on the exchange but just like theexchange, they promised the money, which they have to pay. SEBI must act and ensure these

brokers pay.

Also, brokers are expected to be fiduciary agents of their customers should they have exercisedmore caution before recommending such an investment?

Where is the Money?

The short answer is: we dont know.

The Enforcement Directorate and a Mumbai Police Special Investigations Team (SIT) are trying tofind the money. Its gone abroad through hawala, says the SIT. Others claim it has gone to fundreal estate, where there is no swift liquidity. Yet others claim the money was used to prop upFinTech and MCX shares in the stock market so when those stocks fall, the amount of moneythat can be recovered reduces. It is also believed the money was siphoned for political interests orfor personal gains of the personalities involved.

Jignesh Shah, the ambitious promoter of FinTech, started out as an engineer on the BOLT systemfor the Bombay Stock Exchange in 1989. After learning the ropes, he set up FinTech in 1995 and

established a presence in brokerage back-office and terminal software across India. Then he set upMCX and a slew of other exchanges in India and abroad.

Shah won a battle against SEBI in 2012 about a circumvention of regulation in their new MCX-SXstock exchange. He had aggressively taken away market share from other exchanges. He had sued

people who wrote against him and kept m edia as a friend with a big advertising budget. NSELs
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exemption from the Department of Consumer Affairs was attributed to Shahs influence. But it isnow apparent that everything is not clean in the FinTech empire.

It would be a surprise if someone with S hahs business sense let all this happen without knowingwhere the money has gone.

What Happens to MCX and FinTech?

FinTech, at Rs 111 per share, is down over 70 percent from its 31st July price of Rs 540. It deriveda large portion of its profits from NSEL the trades resulted in outsized earnings throughexchange fees. But the sudden lack of profit is not its only problem. If it is declared unfit to runexchanges and it has about nine of them that would destroy the enterprise. Apart from this,there are potential fraud charges if more dirt is discovered.

MCX is a well- regulated commodities futures exchange. The volumes in it havent come downquite as much as one would suppose. Its share price fell 60 percent after NSELs shutdown

announcement on July 31 but has now recovered to a mere 40 percent fall. The expectation is thatregardless of what happens to its promoter FinTech, MCX will be sold and there are willing buyers.

The Future?

The NSEL crisis shows the investment community one thing: we do not have adequate regulationor enforcement. That if there is a crisis, the agreement will not be sacrosanct; it will be secondaryto the interests of the parties who have better political and business connections.

This default will trigger other issues, and in a country already branded as crony capitalist, the lack

of will to enforce laws and put people in jail for fraud will hamper future investment. Decisiveaction is required, but the window for action is fast shrinking. There is a political fallout to thiscrisis, but the details on that are sketchy at best.

The problem really is: we have lost trust. The entire financial system is based on trust forexample, if everyone tried to withdraw his or her bank deposits at once, wed have to shuteverything down. Every attempt to undermine this trust must be dealt with heavily.

NSELs getting away will leave us all with a deficit worse than a fiscal or current account one:the Deficit of Trust.

'Wrongdoers' removed, steps being taken, NSEL assures HC

National Spot Exchange Limited (NSEL) today assured the Bombay High Court that it was takingsteps to protect investors' interests, and an oversight committee had been appointed to look into thealleged Rs 5,500 crore scam.
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It also said that "wrongdoers" had been now removed from its management.

The division bench of Chief Justice Mohit Shah and Justice M S Sanklecha was hearing a petitionfiled by Indian Council of Investors seeking direction to NSEL that it should safeguard the rightsof the investors after the bourse plunged into a crisis in July this year.

The PIL also seeks that commodity market regulator Forward Market Commission and otherauthorities should take immediate custody and control of commodities stated to be lying in thewarehouses.

Senior counsel Janak Dwarkadas, appearing for NSEL, today told the court that it had taken somesteps.

"The previous employees who were responsible for the scam have been removed. A freshmanagement has been appointed. An oversight committee comprising a former judge and formerMaharashtra Director Generalo f Police D Sivanandan has been appointed," he said.

"It is not that the NSEL is not doing anything. The wrongdoers are not in control anymore. Sixcomplaints against the errant employees and borrowers have been lodged with the city police'sEconomic Offences Wing," he said.

Dwarkadas added that so far Rs 850 crore of the guarantee fund had been used to pay back theinvestors' dues.

The bench directed NSEL, government and other respondents to file affidavits-in-reply within fourweeks. Judges also said that if any bail/ anticipatory bail petitions were filed by the accused in thecase, the present bench would hear them.

NSEL, promoted by Jignesh Shah-led Financial Technologies (India) Ltd, is facing the problem ofsettling dues of Rs 5,500 crore of 148 members/brokers, representing thousands of investor-clients,after it suspended trading on July 31 on the government's direction.

NSEL's settlement guarantee fund stood at only Rs 85 lakh

National Spot Exchange Ltds latest annual report, published in the bourses website for the firsttime since the crisis broke out a month ago, shows the exchange had set aside only a fraction of theamount it claimed to have had as Settlement Guarantee Fund.

Against varying claims its SGF ranged from Rs 839 crore (Rs 8.39 billion) to Rs 62 crore (Rs 620million), between July 29 and August 14, the bourse had Rs 84.66 lakh (Rs 8.46 million) in theactual SGF.

In its annual report, the exchange termed it security guarantee fund, and it appeared under thehead reserves and surplus.
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SGF is a separate fund maintained by exchanges, in addition to the margins they collect.

This fund has to be created out of the exchanges own profits, to enable settlements in case ofdefault.

From NSELs annual report, it is clear the exchange first tried to project the margins it collectedfrom investors as the SGF but later changed the practice and set aside a portion of its reserves.

This real SGF was miniscule compared to the unsettled amount -- about Rs 5,600 crore (Rs 56 billion).

According to note 35 in the annual report for 2012- 13, the bourse said, Various state APMCs(agricultural produce marketing committees), while issuing a licence for establishing an e-market/private market spot exchange, have laid down to maintain a settlement guarantee fund tomeet exchange obligations, but have not given any guideline for the constitution of the SGF.

In view of such a requirement, an amount of Rs 64,66,448 had been apportioned out of the initialmargins of the members to SGF NC and shown under current liabilities in financial year 2011- 12.However, in 2012-13, it changed the practice.

The report added, In the current year, the said amount has been transferred back to initial marginsfrom members accounts and an appropriation of an equal amount has been done, out of theopening balance of reserves and surplus of the company.

The company has appropriated for a security guarantee fund an additional amount of Rs 20,00,000for financial year 2012- 13.

Elsewhere, in the annual report, the bourse said it had a settlement fund of Rs 706 crore (Rs 7.06 billion).

As of March 31 2013, the company has maintained a settlement fund amounting to Rs70,69,044,892 (previous year Rs 36,06,046,920).

The fund comprises of total of initial margin, fixed deposits and bank guarantees collected from

the members, the annual report said.

This, however, isnt the same as an SGF in the spirit of the term, as it already had positions builton it and could not be used to fill in case of a default.

This was exposed when the exchange was unable to make good payment defaults by borrowers forthe second consecutive week.


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The magic behind the shrinking fund NSEL claimed to have Settlement Guarantee Fund of Rs 839 crore (Rs 8.39 billion) as of July 2 9 It gave varying figures during first two weeks of August confusing regulators, investors Annual Report shows actual settlement guarantee fund was just Rs 84.66 lakh (Rs 8.46 million)

as of March 31 NSEL had Settlement fund of Rs 706 crore (Rs 7.06 billion) comprising margins paid in byinvestors But this is not same as Settlement guarantee fund, which has to be set aside from exchange's

profits/reserves


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NSEL submits Rs. 5,600 crore settlement plan, FMC to take final call

Crisis-ridden National Spot Exchange Ltd (NSEL) on Wednesday submitted a seven-month planwith regulator Forward Markets Commission (FMC) for settling dues worth Rs. 5,600 crore toinvestors.

The regulator said it will take a decision on the settlement plan after getting views from brokersand investors while directing NSEL not to make payments to related-entity Indian Bullion MarketAssociation (IBMA) without prior approval.

As per NSEL, the settlement process could start from August 16 and run till March 11, next year.Earlier, the exchange had said it would settle the payments to over 13,000 investors over the nextfive months.FMC has been empowered to oversee the settlement process.

"Today, we have finalised the detailed settlement plan... Starting this Friday, August 16th, therewill be pay-in every Friday and pay-out every subsequent Tuesday," Anjani Sinha, managingdirector and CEO of NSEL, said in a statement.

As per the plan, Rs. 3,494.4 crore would be settled this year in weekly instalments of Rs. 174.02crore. Another Rs. 860 crore will be paid in ten weekly instalments of Rs. 86.02 crore each duringJanuary-March quarter next year.

During this period, NSEL said some members would settle their dues worth nearly Rs. 1,220 crore

through sale of commodities, fixed assets and land among others.

There are 24 buyers required to complete funds pay-in obligation to ensure smooth settlement,Sinha said, adding the focus should be on these buyers/processors for realisation of pending dues.

"FMC has asked NSEL to share their settlement plan through their website and get feedback ofinvestors and brokers. FMC will take a view after receiving their feedback."

"We have asked NSEL for certain information on IBMA which is their related entity and not tomake any disbursement to them without our approval," Forward Markets Commission (FMC)

chairman Ramesh Abhishek told PTI.

NSEL is engulfed in a crisis after the national spot commodity bourse suspended trade on all itscontracts, raising concern over the possible defaults of Rs. 5,600 crore dues to about 13,000investors.


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According to the NSEL, 21 entities owe nearly Rs. 5,600 crore to investors, with the maximumliability of Rs. 929 crore from N K Proteins.

NSEL forms settlement panel

The National Spot Exchange Ltd (NSEL), which faces a risk of default after suspending trade,today said it has formed an independent committee to advise and monitor settlement of tradeamounting to about Rs 5,500 crore.

NSEL will come out with the settlement plan by August 14, Jignesh Shah, Chairman andManaging Director of Financial Technologies India Ltd (FTIL), one of the promoters of NSEL,told reporters here.The exchange has been in a crisis after it suspended trade in most contracts on July 31. Thedecision to set up the committee was taken after a joint meeting of the regulator Forward MarketsCommission (FMC) and NSEL with investors yesterday.

"NSEL constituted an independent committee of eminent persons for the purpose of advising andmonitoring the progress of financial close-out plan," the exchange said in a statement.

Members of the committee include former Company Law Board Chairman Sharad Upasani,former Bombay High Court judge R J Kochar, former Sebi and LIC Chairman G N Bajpai, and DSivanandan, former Director General of Police in Maharashtra.

NSEL said the exchange will collate the payment plan from buyers and finalise pay-in and pay-outin consultation with the FMC and then announce it to the market.

Yesterday, the exchange said eight entities are willing to pay about Rs 2,181 crore as per thescheduled due date or earlier.

Another 13 entities have offered to pay about Rs 3,107 crore in weekly installments, whilenegotiations are on with three others for payment of Rs 311 crore.

FMC okays NSEL settlement plan; questions accounts credibility

Commodity markets regulator FMC has asked crisis-ridden NSEL to go ahead for the time beingwith its plan to settle Rs 5,600 crore of dues to investors and questioned the credibility of theaccounts and information provided by the exchange.

On August 14, the National Spot Exchange (NSEL) had submitted the plan to the Forward MarketsCommission (FMC) to clear dues to 13,000 investors over a period of seven months.


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Noting that the NSEL's settlement plan does not inspire confidence, the FMC asked the exchange"to go ahead with your settlement plan for time being as the payouts are already seriously delayed,which is causing deep anxiety and resentment among the sellers."

The FMC came down heavily on the NSEL for not taking guarantees for the financial settlement

and providing different sets of information at different times.

"The credibility of information given and the books of account/records maintained by NSEL haveraised serious doubt on its authenticity. You (NSEL), are therefore directed to appoint a forensicauditor firm to establish the credibility of books of account, record maintenance by the exchange innext seven days," the regulator said in a letter to the NSEL.

The FMC directed the exchange to appoint the auditor with its consent. The NSEL has also beenasked to update the amount deposited in the escrow account on a daily basis to the regulator and onits official website.

While the exchange is required to guarantee the settlement of all financial obligations, the NSELmentioned in its settlement plan that the dues would be cleared subject to realisation of funds from

payers.

To this, the FMC said, "As such, exchange appeared to have disowned its responsibility ofguaranteeing the financial settlement. Whereas the exchange has the sole responsibility ofsettlement of trade on the exchange...It cannot simply depend upon the realisation of pay-inobligation from buyers."

The NSEL, promoted by Jignesh Shah-headed Financial Technologies India Ltd (FTIL), wasengulfed in a crisis after its suspended trade on July 31, raising concerns about possible default ofRs 5,600 crore due to investors, including 7,000 small investors.


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NSEL Payments Defaults

NSELs first settlement defa ult

Commodity bourse National Spot Exchange (NSEL), promoted by Financial Technologies,defaulted in its very first part settlement to its clients on Tuesday, bringing true their worst fears.

The commodity exchange, which had last week given a detailed schedule to pay Rs5,574 crore in30 weeks through part payouts, managed to collect only half of the amount planned for the firstweek from 15 members. As against a payout obligation of Rs174.72 crore, it received Rs92.13crore.

The exchange could not recover anything from nine members.

These include top defaulting members such as NK Proteins, Ark Imports, Yathuri Associates and

Tavishi Enterprises, which owe Rs967.15 crore, Rs719.42 crore, Rs424.64 crore and 333.01 crore,respectively.

The failure to meet the very first payout means the exchange may take longer than the sevenmonths it has sought to complete the entire settlement, unless the government intervenes earlier.

The exchange will pay the Rs92.13 crore to 148 clients in proportion of their dues. Indian BullionMarket Association, Anand Rathi Commodities, India Infoline Commodities and Geojit Comtrade,which have large amounts of money stuck with the exchange, will receive Rs19.17 crore, Rs10.50crore, Rs5.34 crore and Rs51.3 crore, respectively.

Meanwhile, in order to save its face, the beleaguered exchange sacked Anjani Sinha, the MD andCEO, and other six heads of department.

The board decided that the current key management team headed by Anjani Sinha, MD & CEO,and other relevant heads of departments be removed from their current assignments, pending anenquiry. Anjani Sinha will cease to be the MD & CEO of NSEL with effect from August 20 andwill be a special officer assisting in recovery process, said an NSEL release.

The move comes after the Forward Markets Commission made known its displeasure over the waythings were being handled at NSEL.

Despite several directives by the Commission, NSEL had given different information on differentoccasions, even just one day prior to the first Scheduled pay out date. This casts serious doubt onthe reliability of the figures submitted by the NSEL and also raises doubt on the seriousness of the


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Management and Board of the NSEL regarding settlement of the outstanding obligations, FMChad said in a release on Monday.

Sensing trouble, market participants heavily dumped the stock of Financial Technologies, whichclosed at Rs141.30 its lowest since November 2004.

The NSEL board has appointed P R Ramesh, a former Sebi official with over 20 years in legal practice, as the officer on special duty (OSD) to exercise all powers of a CEO of the company andreport directly to the board.

NSEL said it is also conducting a special investigation under the OSD to identify various lapsesthat may have been caused in the operation of the exchange and to suggest corrective andconsequential actions for recovery of outstanding dues.

Two days after the Forward Markets Commission (FMC) directed the National Spot Exchange

Ltd. (NSEL) to take punitive action against those who have defaulted payment for claimsettlement, the exchange declared nine members as defaulters.

They are: ARK Imports Pvt Ltd., Loil Overseas Foods Ltd., Lotus Refineries Pvt Ltd., N KProteins Ltd., NCS Sugars Ltd., Spin Cot Textiles Pvt Ltd., Tavishi Enterprises Pvt Ltd.,Vimladevi Agrotech Ltd. and Yathuri Associates.

These members (buyers) have been declared as defaulters as per the rules of the exchange, NSEL said in a circular.

These members had failed to meet their financial commitment for the first settlement dated August20, 2013.

As per the settlement plans finalized by NSEL, investors were to get Rs. 174 crore every weekfrom the buyers till clearance of the total dues amounting to Rs. 5,600 crore.

However, for the first settlement, the exchange could mop up only Rs. 92 crore which has beendistributed among investors.

On August 21, the FMC had asked NSEL to auction the commodities lying as collateral in thewarehouses to recover dues from defaulting members. The exchange was asked to proceed toliquidate all realizable assets of the defaulters .


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NSEL defaults in 2nd payout; takes loan to pay small investors

As it defaulted for the second consecutive week in paying its investors, crisis-ridden National SpotExchange (NSEL) today said it has received over Rs 177 crore from its main promoter, JigneshShah-run FTIL, which will be used to clear payments due to small investors.

NSEL today defaulted for the second consecutive time in meeting its weekly payment obligationof Rs 174 crore. Payout today was about Rs 12.60 crore as against Rs 174 crore due. As per theschedule drawn, the exchange was to pay investors every week for 20 weeks beginning August 20.Forward Marketing Commission (FMC) Chairman Ramesh Abhishek did not say what action itwill take against NSEL but said the FTIL funding to NSEL was outside the the payment schedule.

Together with Rs 12.60 crore in borrowers had deposited in the escrow account, NSEL has Rs 190crore for payments to 7,000 investors.

NSEL in a statement said it will pay 100 per cent amount to 608 investors who were to receiveamounts up to Rs 2 lakh as on July 31 this year.

These investors will receive the remaining amount proportionately as per the settlement plan, itadded.

The announcement has came on the second day of the pay-out when exchange is supposed to payRs 174.02 crore.

The beleaguered bourse has availed a bridge loan from its promoter Financial Technologies (India)

Ltd (FTIL) for this disbursement.

"NSEL has availed a bridge loan from FTIl, the promoter company to make these paymentsaggregating Rs 177.23 crore," the statement added.

Meanwhile, the NSEL will also make a pay-out of Rs 12.60 crore under the settlement plan,through the escrow account, out of the money recovered from the members with outstanding dues.

The exchange added that it has appointed Grant Thornton appointed as the forensic auditors whohave commenced the audit today.

"NSEL is actively pursuing recovery of the dues from the members with outstanding dues. Thisincludes initiation of civil and criminal proceedings against the defaulting members besides takingactions under the Rules and Bye-laws of the NSEL," the statement added.


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NSEL DEFAULTS ON 3RD PAYOUT

National Spot Exchange Ltd (NSEL) on 3 September, 2013 has again defaulted for the third timeto meet their obligations in the payment of Rs. 174.72 crore to investors as only Rs. 15.37 crorecould be paid. NSEL in its settlement plan submitted to the Forward Markets Commission (FMC)had committed to pay out Rs. 174 crore to investors. Out of which NSEL has already defaulted inthe first two payouts as in the first payout it received only Rs. 92.73 crore from members and insecond payout it received only Rs. 12.05 crore. Further, notices have been issued to 14 defaultersfor bouncing of cheques for settlement.

Out of 24 members, only five members have paid in Rs. 15.37 crore and the remaining 19members has been declared defaulters. As per NSEL notice, the recovery from these defaultingmembers would be done by selling commodities lying in the warehouses, sale of assets offered bythese members or by payments made by the defaulting members through their own resources.

As per the exchange, the payments from the defaulting members would depend on actual receiptsof payments based on the above process and not in a predefined schedule. NSEL has an obligationof Rs.5,700 crore dues settle, with 148 members and brokers who represent 13,000 investors. Theexchange has to settle the entire amount to investors by paying Rs. 174.72 crore every week inseven months time.

NSEL defaults for 4th time

National Spot Exchange Ltd (NSEL) defaulted for the fourth consecutive week as it could pay onlyRs 7.77 crore on Tuesday to investors out of scheduled Rs 174.72 crore.

Crisis-ridden NSEL had defaulted in payments on three previous occasions as well.

"The commodities which are lying in warehouses under the control of NSEL are being auctionedafter calling for sealed bids. So far, Rs 7.77 crore has been realised and pay-out is being made ofthese proceeds on Sept 10, 2013. Auction of other stocks are in process," NSEL said in astatement.

With today's pay-out, NSEL has been able to settle only Rs 128 crore out of Rs 5,500 croreoutstanding to the 13,000 investors. The exchange had availed a bridge loan of Rs 177.23 crore

from its promoter Financial Technologies (FTIL) to make payments on priority basis to smallinvestors.

NSEL was engulfed in a crisis when it stopped trading on all contracts on July 31 followinggovernment directives. It raised concerns about the possible default of Rs 5,500 crore to investors.

Later, NSEL announced a seven-month plan to settle the dues to investors.


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NSEL said it is actively pursuing recovery of outstanding dues from the members with pay-inobligation.

"This includes initiation of civil and criminal proceedings against defaulting members besides

taking actions under the Rules and Bye-laws of the Exchange. So far, 19 members have beendeclared defaulters and legal proceedings have commenced under the Rules and Bye-laws," NSELsaid.

While 13 defaulters out of the 19 have met the exchange officials during the last two weeks, six areyet to meet the officials, NSEL said.

Legal notices against 14 defaulters have been issued under Section 138 of Negotiable Instruments(NI) Act for bouncing of cheques for settlement.

"So far, 5 defaulters have minuted their commitment to provide their properties as collateral fordisposing of the same. The outstanding liability of these 5 defaulters stands at Rs 1,328.48 and thecollateral offered is Rs 1,458 crore as per the defaulters, however, it is subject to due diligence andvaluation," NSEL said. .

NSEL added that Chartered Accountant firm Sharp and Tannan Associates, have confirmed that payouts have been made by NSEL to the bank accounts of the defaulting members.

"The liability is confirmed by the CA firm at Rs 5,574.25 crore as on August 12, 2013. Sharp andTannan have also conducted physical audit of gold, silver, platinum and base metals in respect ofe-series contracts and have found the physical to be in order with the outstanding e-series units,"the statement added.

NSEL has appointed Grant Thornton as forensic auditors and, additionally, internal investigationhas also been initiated against the management team of the exchange.

The exchange has also appointed SGS to assay the quantity and quality of goods lying in variouswarehouses of the defaulters.

According to the audit done by the agency, significant stock shortage has been found in the ninewarehouses relating to 7 defaulters, however in 29 warehouses relating to 11 defaulters, the SGSaudit team was not allowed inside the premises, it added.


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NSEL defaults for fifth time

The National Spot Exchange Ltd (NSEL) today made the fifth straight payment default, as it could pay only Rs. 8.57 crore to investors out of the scheduled amount of Rs. 174.72 crore.

Crisis-ridden NSEL had defaulted in payments on four previous occasions as well. With today's pay-out, NSEL has been able to settle just about Rs. 137 crore out of Rs. 5,500 crore outstandingto the 13,000 investors.

"The total amount being disbursed today is Rs. 8,57,88,539," NSEL said in a statement.

Members of the exchange are advised to disburse the amount in the same proportion to all the pending clients having receivable amount against their unsettled obligations, it said.

According to the NSEL data, four members out of 24 have paid in Rs. 8.57 crore today to the

bourse, against the the pay-out requirement of Rs. 174.72 crore.

The four members include Metkore Alloys & Industries (Rs. 4.5 crore), N K Proteins (Rs. 2.1crore), Sankhya Investments (Rs. 1.4 crore) and Yathuri Associates ( Rs. 58 lakh)

The beleaguered NSEL has already defaulted in the last four pay-outs as it could gather only Rs.92.73 crore in the first pay-out (August 20), Rs. 12.05 crore in the second pay-out (August 27), Rs.15.37 crore in third pay-out (September 3) and Rs. 7.77 crore in the fourth pay-out (September 10),out of the scheduled Rs. 174.72 crore each time.

The bourse, however, had availed a bridge loan of Rs. 177.23 crore from its promoter FinancialTechnologies (FTIL) to make payments on priority basis to small investors.

NSEL, promoted by Jignesh Shah-led FTIL, is facing the problem of settling Rs. 5,500 crore duesto 148 members after it suspended trade on July 31 on the government direction.NSEL defaults sixth time

Crisis-ridden National Spot Exchange Ltd (NSEL) on Tuesday made the sixth straight paymentdefault, as it could pay only Rs 11.45 crore to investors out of the scheduled amount of Rs 174.72crore.

NSEL bourse had defaulted in payments on five previous occasions as well. With today's pay-out, NSEL has been able to settle just about Rs 148 crore out of Rs 5,500 crore outstanding to the13,000 investors.

"The amount being disbursed today is Rs 11,45,09,931.73," NSEL said in a statement.


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Members of the exchange are advised to disburse the amount in the same proportion to all the pending clients having receivable amount against their unsettled obligations, it said.

According to the NSEL data, only 10 members out of 24 have paid in Rs 11.45 crore so far to the bourse, against the pay-out requirement of Rs 174.72 crore.

The beleaguered NSEL has already defaulted in the last five pay-outs.

It disbursed Rs 92.73 crore in the first pay-out (August 20), Rs 12.05 crore in the second pay-out(August 27), Rs 15.37 crore in third pay-out (September 3), Rs 7.77 crore in the fourth pay-out(September 10) and Rs 8.57 crore in the fifth pay-out (September 17) out of the scheduled Rs174.72 crore pay-out each time.

The bourse, however, had availed a bridge loan of Rs 177.23 crore from its promoter FinancialTechnologies (FTIL) to make payments on priority basis to small investors.

NSEL, promoted by Jignesh Shah-led FTIL, is facing the problem of settling Rs 5,500 crore duesto 148 members after it suspended trade on July 31 on the government direction.

NSEL bank accounts frozen; bourse defaults for 7th time

The Economic Offences Wing (EOW) of the Mumbai Police has frozen 58 bank accountsconnected with the Rs 5,500-crore payment crisis at the National Spot Exchange Ltd (NSEL).More accounts are likely to be frozen as the investigation unfolds.

The NSEL said on Tuesday that it failed to execute its seventh weekly payout as its bank accounts,including the settlement account, were frozen. However, Rajvardhan Sinha, AdditionalCommissioner of Police (EOW) said, "The escrow accounts in which their money is to be paidhave not and will not be touched. There should be no confusion about this aspect."

The action comes a day after the police registered an FIR in connection with the payment crisis at NSEL, promoted by Jignesh Shah-led Financial Technologies.

Meanwhile, the CBI has started an inquiry into the irregularities by NSEL. "We have registered a

preliminary inquiry to look into all aspects," said Kanchan Prasad, CBI spokesperson.

The EOW, which has registered a complaint against directors and trading members of theexchange, has been conducting search and seize at warehouses, offices and residences of theaccused.


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"As of Tuesday evening, we have completed searches at 54 places in various parts of the countryand they are still going on. The houses and offices of the chairmen of NK Proteins, Hyderabad,and Mohan India, Delhi were also searched on Tuesday, as were seven to eight warehouses," saidSinha.

"We are basically dealing with the flow of money and trying to gauge the net worth at hand. Theentire process of search and seizure will take at least two more days, after which we will beginanalysing the data that our men have been tasked to collect," Sinha added.

Meanwhile, more than 100 complainants claimed to have been allegedly cheated by NSEL onTuesday. The number is expected to rise. The main complainant is Pankaj Sutar, who formed the

NSEL Investors' Forum and had approached the crime branch around a month ago.

NSEL defaults eighth time

Crisis-ridden National Spot Exchange Ltd (NSEL) today made the eighth straight payment default,as it could pay only Rs 2.85 crore to investors against scheduled amount of Rs 174.72 crore.

NSEL bourse had defaulted in payments on six previous occasions as well, while in the last(seventh) pay-out exchange was unable to pay as its account was frozen by economic offenceswing ( EoW) of the Mumbai police.

With today's pay-out, NSEL has been able to settle just about Rs 152 crore out of Rs 5,500 croreoutstanding to the 13,000 investors.

"The total amount being disbursed today in a proportionate manner is Rs 2.85 crore," NSEL said ina statement.

Members of the exchange are advised to disburse the amount in the same proportion to all the pending clients having receivable amount against their unsettled obligations, it added.

According to the NSEL data, only one member out of 24 members have paid in Rs 2.85 crore sofar to the bourse, against the pay-out requirement of Rs 174.72 crore.

The bourse, however, had availed a bridge loan of Rs 177.23 crore from its promoter FinancialTechnologies (FTIL) to make payments on priority basis to small investors.

NSEL, promoted by Jignesh Shah-led FTIL, is facing the problem of settling Rs 5,500 crore duesto 148 members after it suspended trade on July 31 on the government direction.


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The bourse plans to settle the entire dues in 30 weeks time, by paying Rs 174.72 crore for the first20 weeks followed by Rs 86.02 crore for next ten weeks.


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Government Interference

PMO (Prime Minister Office) plans to set up special team to look into NSEL issue

With a payment crisis engulfing the National Spot Exchange Ltd (NSEL), the Prime Minister'sOffice is planning to set up a special team headed by the Economic Affairs Secretary to look intothe issue.

Besides Economic Affairs Secretary Arvind Mayaram, the team would comprise of secretaries ofDepartment of Consumer Affairs and Ministry of Corporate Affairs, sources said.It would also comprise of officials of RBI, SEBI, Directorate of Revenue Intelligence andEnforcement Directorate.

The mandate of the committee would also be to see that there are no systemic threats.

NSEL has to settle Rs 5,600 crore of dues to investors after it suspended trading in all contractsrecently on directions from the government. The exchange has said it will submit a settlement plan

by today and has set up a four-member panel to monitor the process.

The government has empowered the Forward Markets Commission (FMC), the commodity marketregulator, to oversee the settlement.

According to the NSEL, 21 entities owe nearly Rs 5,600 crore to investors, with the maximumliability of Rs 929 crore from N K Proteins.

Eight of the entities have said they will pay their liability on time and 13 have agreed to pay 5 percent of their total dues every week. In addition, there are three entities, with total liabilities of Rs311 crore, which are yet to decide on the payment schedule.

Mayaram submits report on NSEL

A high-level panel, headed by Economic Affairs Secretary Arvind Mayaram, on Mondaysubmitted to Finance Minister P. Chidambaram its report on the alleged irregularities at the

National Spot Exchange Ltd (NSEL).

The panel is said to have recommended two sets of measures to deal with the NSEL issue and alsothe problem of regulatory gaps in oversight of spot exchanges. Enforcement action has beenrecommended against NSEL and the persons behind the company, it is learnt.

The main issue was whether NSEL violated the Government exemption for one-day forwardtrading and also the ban on all short sales.


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The panel is said to have spelt out the immediate measures to be taken against NSEL in the contextof the investigations by various agencies. Several agencies such as the Enforcement Directorate,the Serious Fraud Investigation Office, the Income-Tax Department and the Forward MarketsCommission were involved in the NSEL probe.

For the long term, the report has made certain recommendations to strengthen the functioning ofthe Forward Markets Commission, which regulates commodities markets.

The Commission, which has come under the administration of the Finance Ministry, had no powers to regulate spot exchanges.

It was only a nominated agency till the NSEL crisis broke out. Since then the Consumer AffairsMinistry has armed the FMC with special powers to look at the NSEL payments crisis and takeaction.

The Mayaram committee report is said to have recommended a regulatory framework for spotexchanges. But closing the regulatory gaps around spot exchanges will be the long-term solution.

NSEL, part of Jignesh Shah-led Financial Technologies group, is facing a crisis in settling duesworth Rs 5,600 crore.

ED submits report to finance ministry

The Enforcement Directorate in its status report submitted to the finance ministry on Thursday onalleged financial law violations by National Spot Exchange indicated that the crisis-ridden bourse

may have violated money laundering laws and a few foreign exchange procedures.

The Enforcement Directorate (ED) was one of the two working groups that was looking into the payment crisis on the commodity exchange."The ED has finalised its report and submitted thesame to the finance ministry. The report speaks about detected violations in a few instances andnecessary regulations that possibly were not complied with," people familiar with the developmentsaid.

People with direct knowledge of the matter said once the finance ministry and a panel ofsecretaries, headed by economic affairs secretary Arvind Mayaram, go through the contents of the

report, legal action could be initiated against those involved in the operations of National SpotExchange (NSEL).

The ED, according to sources, could register cases under the Prevention of Money Laundering Act(PMLA) and may also launch a preliminary inquiry to probe forex violations under the ForeignExchange Management Act (FEMA).


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The ED has prepared the report after obtaining data from the Income Tax department and theForward Markets Commission (FMC) which have probed and gleaned through the finances of theexchange.

The I-T had conducted surveys on two dozen entities which were involved in the exchange lastmonth. The role of few individuals belonging to NSEL, whose names could not be obtained, figurein the status report. The other working group probing the same case has been constituted under adeputy governor of the RBI.

The NSEL, promoted by Jignesh Shah-led Financial Technologies (India) Ltd, is facing the problem of settling Rs5,600 crore dues to 148 members/brokers, representing 13,000 investorclients, after it suspended trade on 31 July on the government direction.

The Prime Minister's Office (PMO) had last month suggested setting up of a special team led byDEA.

The panels were constituted to check possible systemic fallout of the NSEL crisis on the financialsystem, members of the panel include company affairs secretary, consumer affairs secretary andrevenue secretary.

CBI set to probe NSEL crisis

With Finance Minister P Chidambaram on 26 september,2013 saying the Central Bureau ofInvestigation, the Forward Markets Commission and the Ministry of Corporate Affairs will lookinto the payment crisis at National Spot Exchange Ltd, the probe net on the exchange looks set towiden.

Chidambaram said the three would look into different aspects of the troubles at NSEL, whichflouted rules from Day- 1, and take action under their respective jurisdictions.

He added the income tax department was also checking the financial details of NSEL investors tosee if any black money was involved.

A committee headed by Economic Affairs Secretary Arvind Mayaram on Monday given its reporton NSEL to the finance minister.

The Mayaram panel report has suggested CBI, FMC and MCA must take appropriate action.

They have listed the irregularities. . . They will take action, Chidambaram said at a pressconference in New Delhi.

FMC might file its report in a couple of days, after which the three bodies would decide on theaction, he said.

A CBI official said the agency was in the process of verifying the NSEL complaint.


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It was looking into the aspect of criminal offence to find out if there was an instance of fraud orcheating.

The government had received a complaint from investors but not referred the matter to CBI yet.

The agency, therefore, was also trying to establish whether the probe in this matter came under its

jurisdiction, a senior CBI official said.

Ruling out similarities between the crises at Satyam and NSEL, Chidambaram dropped hints thatthe government might not bail out the people that had put their money in the exchange, saying theyinvested with open eyes, kn owing full well they were investing in an unregulated entity. Thegovernment does not come into the picture at all, he added.

Chidambaram said NSEL was not a registered or recognised association under FMC; it gotexemption even before it started its business.

In the way NSEL started business, theres much more than meets the eye. People seem to havegiven money to NSEL promoters, knowing fully well that it is not a regulated entity. . . Many ofthem made money in initial stages and some lost money now... I have seen the exemption order.

Now, whether it is valid or not has to be examined. he said.

Of the 17,000 investors who put their money in NSEL -- which is now grappling with a Rs 5,600-crore payment crisis -- 9,000 traded through eight top brokers, including Anand Rathi, MotilalOswal, India Infoline and Systematix.

According to the finance minister, the investors would definitely move court, as it is a matter between them and the company.

The government had in 2007 exempted NSEL from provisions of the Forward ContractsRegulation Act to operate one-day forward commodity contracts.

The exemption was given on some conditions, including delivery of commodities within 11 daysand a bar on short-sellin

National Spot Exchange Ltd

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Transcript of National Spot Exchange Ltd