Commodity markets regulator FMC has asked crisis-ridden NSEL to go ahead for the time being with its plan to settle Rs 5,600 crore of dues to investors and questioned the credibility of the accounts and information provided by the exchange.On 14 August, the National Spot Exchange (NSEL) had submitted the plan to the Forward Markets Commission (FMC) to clear dues to 13,000 investors over a period of seven months.
Noting that the NSEL's settlement plan does not inspire confidence, the FMC asked the exchange 'to go ahead with the 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 have raised serious doubt on its authenticity. You (NSEL), are therefore directed to appoint a forensic auditor firm to establish the credibility of books of account, record maintenance by the exchange in next 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 been asked to update the amount deposited in the escrow account on a daily basis to the regulator and on its official website.
While the exchange is required to guarantee the settlement of all financial obligations, the NSEL mentioned 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 of guaranteeing the financial settlement. Whereas the exchange has the sole responsibility of settlement of trade on the exchange...It cannot simply depend upon the realisation of pay-in obligation from buyers.'
The NSEL, promoted by Jignesh Shah-headed Financial Technologies India Ltd (FTIL), was engulfed in a crisis after its suspended trade on 31 July, raising concerns about possible default of Rs 5,600 crore due to investors, including 7,000 small investors. FMC said the settlement plan submitted by NSEL to the regulator is different from a payment schedule announced in a press release on 4 August and this 'has raised serious doubts on credibility of the commitments made by buyers.'
Also, the exchange hasn't given details of post-dated cheques collected from these participants or any bank guarantee against their financial obligation, it added.
As per the settlement plan submitted to the regulator, FMC said: 'No borrower has agreed to meet its obligation as per the original settlement schedule and only 12 buyers from whom Rs 1,774 crore are to be received have agreed to pay over a period of 20 weeks and other 10 buyers have extended the payment of Rs 2,580.60 crore to 30 weeks.'
Also, two buyers with total pay-in obligations of Rs 1,219 crore have not given any payment schedule, it said.According to the original payment schedule, NSEL had said that eight buyers had agreed to pay Rs 2,181 crore before 13 September, while 13 buyers had agreed to pay 5 per cent of their total dues of Rs 3,107 crore every week, it added.
NSEL, which appointed SGS, a collateral management firm, to assess the quality and quantity of stocks in warehouses, has been asked by the FMC to submit the terms of the appointment.
The regulator also directed the exchange to submit the list of members who failed to meet their pay-in obligations and the reasons for not initiating default proceedings against such members, if any.
Noting that the NSEL's settlement plan does not inspire confidence, the FMC asked the exchange 'to go ahead with the 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 have raised serious doubt on its authenticity. You (NSEL), are therefore directed to appoint a forensic auditor firm to establish the credibility of books of account, record maintenance by the exchange in next 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 been asked to update the amount deposited in the escrow account on a daily basis to the regulator and on its official website.
While the exchange is required to guarantee the settlement of all financial obligations, the NSEL mentioned 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 of guaranteeing the financial settlement. Whereas the exchange has the sole responsibility of settlement of trade on the exchange...It cannot simply depend upon the realisation of pay-in obligation from buyers.'
The NSEL, promoted by Jignesh Shah-headed Financial Technologies India Ltd (FTIL), was engulfed in a crisis after its suspended trade on 31 July, raising concerns about possible default of Rs 5,600 crore due to investors, including 7,000 small investors. FMC said the settlement plan submitted by NSEL to the regulator is different from a payment schedule announced in a press release on 4 August and this 'has raised serious doubts on credibility of the commitments made by buyers.'
Also, the exchange hasn't given details of post-dated cheques collected from these participants or any bank guarantee against their financial obligation, it added.
As per the settlement plan submitted to the regulator, FMC said: 'No borrower has agreed to meet its obligation as per the original settlement schedule and only 12 buyers from whom Rs 1,774 crore are to be received have agreed to pay over a period of 20 weeks and other 10 buyers have extended the payment of Rs 2,580.60 crore to 30 weeks.'
Also, two buyers with total pay-in obligations of Rs 1,219 crore have not given any payment schedule, it said.According to the original payment schedule, NSEL had said that eight buyers had agreed to pay Rs 2,181 crore before 13 September, while 13 buyers had agreed to pay 5 per cent of their total dues of Rs 3,107 crore every week, it added.
NSEL, which appointed SGS, a collateral management firm, to assess the quality and quantity of stocks in warehouses, has been asked by the FMC to submit the terms of the appointment.
The regulator also directed the exchange to submit the list of members who failed to meet their pay-in obligations and the reasons for not initiating default proceedings against such members, if any.