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Anirudha Dutta
I tell you stories beyond the numbers

The Ridiculous demand for Nationalisation of NSEL

JigneshShah_MCX

Jignesh Shah, Chairman and Group CEO, Financial Technologies

It was with dismay I read that Indian brokers have demanded that the government nationalise NSEL, the exchange started by Financial Technologies (FT) (Brokers on the warpath against FT group, NSEL).  I asked a broker, “Are you guys serious?” The response was, “If JS (Jignesh Shah) does not pay up, then he is not fit to run the exchange.  Nationalize MCX too.”

Just after the NSEL fiasco started, Business Standard reporters visited some of their warehouses and found that stocks were much lower than being reported, their values were inflated. Many warehouses had not seen much activity and in one case, if my memory serves me right, the salaries of the security guards had been delayed (Jeera stock at NSEL’s Unjha warehouse pledged to ICICIWarehouses for Jeera stocks tell a different storyThe great vanishing trick). As the reports indicate, some of the stocks may have been spoiled. How much the banks will lose on the pledged stocks is a question that has not yet been asked. The trade guarantee fund has also overnight dwindled.

Proponents of free market, market economy, privatization, less government now want the government to bail them out. So are profits private and losses social, as another friend asked? Brokers were selling risk-free trading products on NSEL and raking in profits. Relationship managers regularly called retail investors to avail of this opportunity. And why not? The managers’ pay is linked to the commissions generated. That’s the nature of financial services business. Readers of “Liar’s Poker” would probably recollect the story where Michael Lewis is egged on by the rest of the desk in London to sell dud corporate bonds, to an unsuspecting French institutional investor.

Brokers claim they do not have proprietary positions and were not funding their clients. But they are worried that their clients will demand money, even as NSEL could delay payments or default. Many brokers knew that something was rotten within NSEL. A few had closed their proprietary positions and stopped funding trades. But by then several retail investors were hooked to ‘risk free’ profits. The small investor after all is not always an innocent victim.

Before someone reaches for my neck, let me give an example. A few months ago, a cousin I met over dinner told me that he and his wife trade on NSEL in commodities, to make risk-free profits. I told them that there is no such thing. They, however, had stories of how straw was being converted to gold, bit-by-bit and trade-by-trade. They bought a commodity in the spot market (presumably from the farmer, say rice, and the same was stored in warehouses of NSEL) and simultaneously sold it forward (presumably to an actual user like say a rice miller) for a neat profit. You kept doing this and voila, you had risk-free profits. My cousin and his wife were small investors, but they are also reasonably well-informed. One of them works in a metals/ mining company and was certainly not ignorant. I advised them to withdraw and not to take leverage.

When I checked back with my broker, his response was – “We do not recommend that our clients trade on NSEL. I do not think anything will go wrong immediately, but we have not received satisfactory response either on warehouse stocks or trade guarantee funds.” I told my cousins, that they had better stop trading.

I had forgotten about this conversation, till the NSEL scandal broke last week. Reaching out to my cousins, my worst fears were confirmed – they still had open positions, and are stuck now for payments. They also have e-series contracts on silver, which have been suspended. My broker friend says, many of his clients had wanted to buy these, despite their advice to the contrary.

In any market, greed often drives risk- taking. This has been the case historically, and will always be so. Government bailouts cannot cure this. They will, if anything, only encourage such behaviour. Fear of AIDS and death, for instance, often does not change sexual behavior and this has been the subject matter of research by many economists.

There is also no case for a bailout of brokers. They have to face music from their clients. My broker friends are often at the receiving end of regulators and politicians, in the name of protecting the small investor. But nationalisation of losses is ridiculous. How can it be that my greed is good as long as someone is making money. I have assiduously avoided such products, so why I should I foot the bill to pay out the mythical small investor? The government or the regulator may have a role to play to ensure that settlements happen smoothly. And let NSEL fold up, if need be. But there is no need to takeover NSELs liabilities and make it good.

ULIP schemes have been mis-sold by life insurance companies and their brokers aggressively for many years. Since brokers have not suffered any losses and the retail investor is not organized, no one has yet said that all private life insurance companies be nationalised and losses be made good. But who knows. As Pratap Bhanu Mehta writes elsewhere in Forbes India, “Indian capitalism is the single biggest obstacle to further economic reform. It still inhabits a world of deals rather than rules.”

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Few Observations / Comments : 1. The Name - National Spot Exchange Ltd. itself expressely indicates it's activity. 2. If it was not a Exchange - who allowed them to continue. 3. If FMC was not regulating it before, why the exception notification were issued in 2007 by FMC.? 4. If one still considers FMC had no power to regulate then they had no power to give exceptions. 5. In early 2012 many department of the Indian Government wanted to regulate the Spot Exchange space and today every other department says - it does not come into their jurisdiction. What needs to be done ? To start with, Based on money trail, declare the ultimate benefeciary of this whole rotten business. Ring fence all the assets of everyone concerned in this issue. There has to be someone from the political masters to bureacracy to be held responsible for this mess and to be penaliesed. To always blame Brokers for anything going wrong is becoming fashionable. Lets not get into blame game and punish the culprit.
Thank you, Ashit. Agree with you on what needs to be done. To some of your observations in the beginning: 1. The name doesn't mean anything. There used to be a company called National Steel run by the Ruchi Soya group. 2. Notification was issued by the Ministry of Consumer Affairs and not FMC. FMC did not give any exception.
the discussion seems to be getting hot. but if we read the contract notes things would be more clear. the brokers are against nsel not for investors sake but for saving their own skin n thats that is wat investors should do press their brokers. investors can file their cases against their brokers under section section 409 or 405( please consult lawyer for finer details. the contract not clearly suggests the settlement date n net amount due to us so it means they were short selling. if there is short fall i think brokers should be made responsible too. whoever wrote this article clearly had no knowledge how the trades were being executed. buy sell trades were executed simultaneously so its was clear arbitrage as the brokers promised. nationalisation seems to be good idea because if exchanges start to default then it causes distrust n as long as it is in the hands of private companies or promoters this risk would always be there. impact will be at the country's economy. with rising npa dont think even fd would be safe even debt funds are loosing money. so please think broadly if exchanges loose trust can u even think of expected growth. markets are general index how a country is growing
Mr.Dutta, Please do not compare apples with oranges.Saradha or Sahara are different cases where illicit political money is brought back in the system.I do not justify that Sahara or Saradha is ok and Government should definitely do something about it. In the present case of NSEL,there is a danger of loss of reputation for the Indian Capital Markets.Constant wrongs have been going on by GOI like you have pointed out in Telenor and others.That does not mean that we will continue to do more wrongs. We need to set things in order and it is very necessary that we start at some point.NSEL matter is being handled too very casually with the promoter being too smart.I doubt if Mr.Jignesh Saha is in country or has already run away to some Middle east country and enjoy his life comfortably with his family. Why is the GOI silent.Seems some political game is there.
Hi Rajat, I agree with your comment. While the comparison is strictly not valid, you may know or suspect illicit money, but believe me many small investor's are not as wise. We should not continue to do more wrongs (we all know this government has done enough). Regarding FT group there have always been rumours of political linkages and who knows if a political game is on. The GoI should have indeed acted more swiftly because with every passing day recovery of funds or siphoning of funds is a possibility.
Dear Readers, Since most of the comments have raised similar issues I am putting my reply as one comment rather than replying individually. Firstly, NSEL was approved by the concerned ministry but never regulated by FMC. It's this loophole that has been exploited very well. The ministry's letter states as much and is there on the NSEL website. NSEL in fact was not regulated. All brokers knew that very well. The exchange and brokers in spite of that lured investor's in with promises of riskless trade. That's the reason why I referred to the conversation with my cousins who are now stuck, in spite of the sound advice that I relayed from my broker. Of course, there is an implicit trust in what the government has approved. Tell me then what should be done for all the moneys lost by investors in Sharadha, or moneys (at least some) that will be lost if Sahara group is not able to pay up as per SC directions? Should all such institutions be nationalised and government make good the payments? An exchange is a different matter. And I for one am not saying that the exchange, its promoters and its officials should not be held accountable. In fact I am surprised that the assets of the promoters and group companies apart from the exchange itself is not placed under the government's control or a suitable body appointed by the government and the same be utilised to repay the liabilities. An orderly and speedy settlement should take place here as happened when Satyam went belly up. Here I agree with my broker friend that the promoters clearly are not fit to run the exchanges. If FT group has made misrepresentations about NSEL being regulated, as one reader has commented, and for their other wrong doings, there should be criminal prosecution initiated. I am not even once remotely suggesting that the promoters and senior management should go scot free as investors wring their hand in helplessness. But I do not agree with the suggestion that the exchange should be nationalised. The brokers who are saying from the roof top today that they do not have proprietary position, why do you think they made their proprietary positions zero? Because they knew something was wrong or at the very least everything was no right. Some of them also stopped margin funding. But their clients kept trading on their own accounts. Why? It's the clients money and the client can do whatever they want with it. They (the brokers) now are demanding nationalisation because in some cases their clients will be at their door asking for money and I am sure in many other cases the brokers have proprietary positions. I maintain government funds should not be used for a bail out. A reader has raised the issue of investor confidence in India. Last five years has savagely damaged that. I have written about it in this blog and elsewhere for some time and so have others. Look at 2G scam. Telenor came in good faith presumably and invested with Unitech in Uninor. It assumed if the government of India has granted telecom licenses, it must be all fine. Should it now be compensated by the government of India for what Raja and Unitech had allegedly indulged in? What confidence will a foreign investor (or any investor) have in a license that has been issued under the seal of the government of India? As far as the question of an exchange defaulting is concerned, BSE has a history of annulling trades and cancelling settlements in specific stocks. All that stopped only after NSE (National Stock Exchange) came in. So yes, a smooth settlement should go through and the same promoters should not be allowed to run exchanges and also they should be prosecuted. As early as April this year, there are numerous articles in respected daily newspapers that had raised issues about the goings on at NSEL. A simple google search will reveal that. And surely investor's who read annual reports carefully, read daily newspapers. If investor's deliberately ignored those warnings, as it because of greed or because their brokers told them to ignore such warnings or was it some other reason? I fully sympathise with investor's who may lose some of their hard earned money. It's unscrupulous promoters and management's that damage investor sentiments towards financial products. But I still do not think that the government should pay the bill. An I as an investor in a brokerage am also losing thanks to market cap erosion, although this should not concern anybody!
Please stop comparing other scams to what has happened at NSEL. If you are comparing scams like Sharadha, please note that investors where aware that they were giving money to a company. In case of NSEL, investors did not know the borrowers. It was a counter guarantee given by an exchange that was approved by Government that instilled confidence in minds of people. So please get your facts right before you reply. Better still, better get your facts right when you write an article.
Perfect with your reply. I appreciate this. Many entities who have never been in this business have started to comment without understanding the basic premises or tenets of this product. It is now that they have started to get the knowledge (ill - informed). NSEL and its promoters and may be if the government and ministry are involved should be squarely blamed and before any legal proceedings and prosecution is done, we should ensure that the entire money WITH INTEREST till present date of settlement should be made good. We then take them up to task.
WITH INTEREST, you must be joking. You will be lucky if you can get back something. 13000 lenders vs 24 borrowers, this is gonna be a lottery on who will get back anything at all. The numbers doesn't add up and where is the emergency fund of 836 crore, ops! it just became 63 crore.
Great...now you think it is 'ridiculous'. If it was an illegal exchange, your point is completely valid. You must understand that people traded in the exchange only because it was approved by the government. Your article clearly shows that you neither have knowledge about Indian laws not do you have any sympathy for people who have lost their money because of NSEL. Just because you did not invest your money, it does not mean others were fools. People who invested money in this exchange were made to believe that exchange was holding these agricultural commodities in their warehouse and if the borrower defaulted, these commodities could be sold to realize their payment. If the exchange commits fraud who is responsible. So, please don't come up with such ridiculous and meaningless articles. This will only affect your reputation and more importantly the reputation of Forbes India.
The only thing ridiculous is the authors knowledge on the subject! NSEL must be nationalized and investors must be paid out 100% immediately. This is the cleanest and swiftest solution and in the best interest of India's capital markets. Firstly, Govt of India has given special permission in 2007 to Jignesh Shah / FTIL to setup a commodity spot exchange without regulation. If I or someone else wants to set up an exchange with regulation, we cannot, but Jignesh Shah / FTIL was allowed to do so and in fact, was allowed to call it National Spot Exchange Ltd. Secondly, Jignesh Shah & his cronies went around convincing all brokers that NSEL was connecting farmers/small mills/grain processors with HNIs and was doing the country a great service. Farmers/mills who were borrowing at 25-30% from money lenders can now deposit their paddy, wool, oil etc. at NSEL godowns and borrow against the same using forward contacts at 13-14% interest. HNIs were assured that their investments were safe since there was 100% collateral against the lending, the quality and quantity of which was checked and assured by the exchange. Moreover, both parties had to deposit 15% margin money or goods to prevent default in case of adverse price fluctuations. Please note, HNIs are not stupid. They participating, not because they were greedy regarding 3-4% extra interest versus fixed deposit but because they were guaranteed that their money was safe as they were transacting through a Govt approved exchange and that the promoter had been given permission by Govt to set up multiple exchanges. HNIs could easily invest in NCDs being offered by real estate developers with 18-22% interest and 200% collateral with trusted banks such as IDBI as custodians. Still they invested in NSEL so dont tell that HNIs were greedy. VAT, transport charges, insurance etc. was being paid on the commodities and receipts were being given to the investors to give them impression that genuine transactions were taking place. It was the promoters that were greedy and instead of ensuring the quality and quantity of collateral, i.e. the paddy, wool, oil etc. they created bogus companies and siphoned off the investors money under the guise of an exchange. They never bought/sold commodity. All were book entries. What they did with the money, nobody knows. The HNIs or brokers were never given access to information on who the counterparties were, i.e. who the borrowers were. All the time, they were told, exchange is counter party, dont worry, we have collateral, we have 15% margin and we have 800cr settlement guarantee fund. No HNI is so dumb to lend money to BIFR/ shell companies at 13-14% interest. This is a clear case of criminal fraud and cheating by NSEL and its promoters, Jignesh Shah and FTIL. Now, the Govt has two choices: (a) Do nothing and witness silently as investors lose thousands of crores, Jignesh gets away scot-free, hundreds of legal cases filed against brokers, exchange, FMC etc. which will be huge embarrassment for country and the capital market goes back in time by 5-10 years (b) Government steps in, arrests Jignesh and his cronies, gives a secured loan to NSEL, pays out the investors 100% and then recovers the loan by selling the stocks of commodities and whatever balance there is by tracing the money trail using SFIO/CBI. It is but obvious that (b) is the correct option. On one hand PM is talking about reviving animal spirits in the economy and FM is talking about wooing FIIs and domestic retail investors by launching innovative schemes like RGESS and on the other exchanges are defaulting and thousands of crores of investor money is getting washed away? If that is the situation, which investor (foreign or domestic) will want to ever invest in the capital markets? We all will be better off buying gold and keeping it under our pillow! Is that the message that the Govt wants to send to the investor community. The only people who are against Govt taking over NSEL are people who are happy seeing that somebody else has lost money and that they were not so dumb and hence their money is saved. It is the perfect "we told you so" rationale. These people don't object when tax payer money is used to bail out non-tax paying farmers. But when tax payer money is to be used for benefit of tax-payers they create hue and cry. What irony!
Hi Spartan, Your solution (b) is what should be done and that doesn't tantamount to nationalisation. Also government rather than advancing funds, in a matter of weeks dispose off the stocks (if they exist) and other assets and pay of the investors. My detailed reply appears on the comments section.
I completely agree with Mr. Rajat, if an exchange in a country can go Bust and everyone says that you were informed than we are not informed of anything going on on MCX or even BSE or NSE, we never know who is buying our stocks when we sell and it is only the exchange who knows the same. As a small investor I sell my stocks through broker but advice him to sell on an platform which is approved by Government. It is the responsibility of exchange to see that the buyer pays the money and if he fails than exchange has enough guarantee money or anything from which it can pay my dues. How can an exchange even think of defaulting. Its the duty of the exchange to see to it that the payment is recovered from the buyer and given to the seller and at any point of time if the buyer fails than exchange has to pay. This is why it has been permitted to become a platform and trade. This is total BREACH OF TRUST and if government can't make NSEL pay than its a default on the path of Government. Than nothing is safe in INDIA. Than investing in anything is just foolish. NSEL, Jignesh Shah, FT, MCX everyone should be made liable and government should make them pay to Small investors immediately. If there were problems than were the regulators Sleeping. Enough of this mess everytime its the small investor who loses his hard earned money and people say you were informed. Are we here to check on each and every trade and guarantee money and STOCKS of every exchange, than what is the exchange doing? What is going on.......
Thank you, Kapil. government making NSEL, its promoters and associate company pay is not the same as government paying. My detailed reply is in the comments section.
Kapil, You are right.Just mover out of FT ,MCX and anything remotely connected with this group. Not seen a bigger and a smarted fraudster like our Jignesh. Sab ko chuna laga kar maje mein.
Why is it that the PMO is simply saying of forming a committe and so on.Why not a Satyam like situation is being done to salvage what is there and the GOI stepping in to salvage the reputation on the Indian Capital Markets. Please remember that NSEL is after all an exchange approved by GOI and not an illegal satta den or dabba trading going on.
Rajat, thank you for your comment. I agree as you will see from my detailed comment in this section. In Satyam government funds were not used to bail out anyone.
Sir, Please look at how Mahindra Group has progressed after it stepped in for Satyam. Bailouts happen with lot of assurances.If the GOI wants it,it can do anything.
i read Dutta's article on nsel with disbelief & finally utter contempt. He seems to be as ill informed about the facts as my neighbors pet dog. 1. in a highly regulated nay, often over regulated environment like India, people have invested money in the belief that this exchange, which was operating glitchfree for a few years, was as sound as the BSE or NSE. 2) Keep in mind, if an investor wants to buy even a Re. worth of stock in this country, he/she has to make various statutory declarations about himself before he can open a demat account & invest. In such an environment, is it even conceivable to an ordinary investor that an "exchange" be specifically mentioned in a Govt of India gazette as exempt from certain category of contracts under the Forward Contracts Regulation Act, get operational after statutory approvals, have thousands of investors, , and yet be directed to shut down by the very authorities that licensed and regulated it, since inception, as they suddenly woke up to the fact that it was executing "forward" contracts - which it was not authorised to, but was nevertheless doing so for a few years now. Were the authorities asleep or complicit ? (3) The overwhelming demand from brokers and investors is not that the exchange be nationalised, but that it's administration be taken over, audit of stocks & accounts be carried out by some reliable govt appointed body / persons, and amounts due be disbursed by them. Evidently the author has not even bothered to check out the NSEL website before writing his article. Hopefully Forbes will insist on some proof of credible research by this author before publishing again - if at all it choses to.
Hi Sunil, Thank you for your comments. Which portions of the NSELs website would you like me to read? I have read what I believe are the relevant sections including the CA certificates on stock verification. Please read the broker interviews carefully - they have clearly asked for nationalisation of the exchange, unless their definition of nationalisation is different from what the dictionary tells us. As far as ordinary investors investing in commodity transactions (spot and forward), you must be aware that less than 5% of India's savings are in financial assets. Let's not even discuss where ordinary investors invest.
Truth is, all the brokers knew NSEL is not regulated by any agency. Brokers also knew that with the amount of trading that happens daily, its practically impossible to deposit commodity equivalent to that amount in a single location by a single depositor. In short they knew it is a fraud product & it will get exposed some day. But they all relied on the trade guarantee given by the Exchange. Brokers have put in their huge money (proprietary trade) but withdrew during last 1-2 months due to news coming from the govt questioning the contracts. However they never passed these info to their clients & ultimately clients are caught in the web. Jignesh Shah knows the trick to run an exchange by hook or by crook!!! He & his companies should be made responsible for returning investors money.
Thank you, Krish. That is exactly what my point is.
Please realise that if an exchange goes up like this,then what is the creditibilty of the Indian Capital Markets.As it is the Indian Government is on the hunt for dollars and if the FII realise that if today an exchange approved by the Govt of India can go belly up,then tomorrow even National Stock Exchange and Bombay Stock exchange can even default. Nowhere in the world in the history of capital markets has an exchange defaulted.In Oct 1987 after the world wide markets crash,Hong Kong forward exchange was in deep trouble and HK government nationalized it to save it from default and also from the risk of the HK Capital Markets going haywire. Why are the passports of Jignesh Sah and Anjani Sinha not being impounded before they run away from the country.What is the gurantee of trades on MCX.The GOI has been sleeping since long and that is why the country is in a mess and is going deeper and deeper in the mess. In the interests of the Indian Capital Markets,it is best that the GOI takes over the NSEL matter and some creditibility is lent back to the Indian Capital Markets.
As an employee of MCX, I can say with 100% sureity that there will be problems with the NSEL payout. The companies owned by the group FTIL are managed by completely unprofessional tools! This group has no future!
Mr. Dutta should very well be aware that this government gave permission to NSEL to operate as exchange in the first place. If now... the exchange fails to honour its obligation of settling all trades done on its platform... who is to be held responsible? Why should investors suffer for irregular running of an exchange? If FMC and consumer affairs ministry can put a sudden and heavy hand of stopping its operations.. it should also ensure that all outstanding obligations of the exchange are met... successfully.
Thanks, Rajesh. Please read my detailed reply separately in this section.
I cannot but totally agreed with Deepak and Prashant. The exchange act as a counter party. Either a buyer/seller, the opposite party is always the exchange. And all trades/settlements are guarantee by the exchange. The problems lies with NSEL to ensure and check all the commodities are properly graded and safely stored at the warehouse. And if there is a major default, how to liquidate these asset to convert to liquid cash in the shortest time frame, usually less than a week. With an exchange, efficiency is the primary concern. News had indicated there are 24 borrowers vs 13000 lenders, so as to speak. To a normal person, doesn't these figures disturbing. Don't they have a "Counter-Party Risk department in the "NSEL" to see the buyer/sellers and the questionable flow of the money trails. If one put the lenders/borrowers on a scale, it will definitely tip the scale to one side. And very clearly if I see these figures, I am going to be freaking worry. Why nobody sounded the Alarm in the Exchange? Therefore, the problems lies with the Exchange and its promoter with this default. There is nothing to do with 13,000 investors. Investors will only want to invest and made money but who doesn't. These investors traded on a legal exchange, approve by Forward Market Commission, it got nothing to do with greediness. It got to do with the Organization that setup these exchanges. Where are checks and counter checks to made these exchanges safe for regular folks to trade on?
If the GOI does not do something the capital markets will go in a tailspin.Already people are worried about trading on MCX. Please look at the stockmarket data since Aug 1 when the so called NSEL news broke out --how the markets have behaved.After some consolations on Aug 5 and 6,the markets moderated.Today again the markets have tanked like anything. It is high time that the GOI,PMO,FM step in and solve the matter immedaitely.If these be the case,I am equally worried about keeping money in mutual funds as to what is the audit standards of respective AMCs is also questionable as anything is possible in India. Mera Bharat Mahaan,Jai Hind.
Rajat Kandoi: "RUN before the shit hit the ceiling". One question that will always remain in the public investor mindset, "Is it to safe to trade on Financial Technologist's Exchanges?" If I am still holding positions on FT exchanges, I will liquidate all and keep my monies. I rather be safe than sorry. Monies are hard earn, why foolishly listened to others and lose it? First time is called silly, second time is called stupid. Money in the pockets, warm, warm, is better than you says a thousand words. I have been trading for almost 25 years, been through a lot of financial and political crisis. Thoughts for the Investors: "First person to get panic, get everything and last to Panic, get nothing." Most important "HERO DIE YOUNG"
Thanks, Michael. Please do read my detailed reply in the comments section.
bijal tejas shah
i fully agree
I fully agree with Prashant. Nobody would have invested had it not been the Exchange recognised by the Govt. In annual report of Financial Technologies for 11-12 it is clearly mentioned that it is regulated by Forward Market Commission. Besides, there was no greed on the part of retail investors as they used to get something better than the bank rate. I know investors have got annual rate of returns between 13 to 14 per cent. Mr. Dutta dose not know the meaning of an Exchange! Can you ever think Exchanges like BSE or NSE ever default? That sort of credibility any exchange should have! Looking at NSEL fiasco I wonder whether investors have given their life savings to the Exchange managed by bunch of crooks with govt approval. All the brokers, investors, Associations should demand corporate guarantee from Financial Technologies being the parent company of NSEL in case of default in pay out schedule as approved by FMC.
Thanks, Deepak. My detailed reply elsewhere in the comments section.
Ill-informed article. Dutta has to realize it's called "NATIONAL Spot Exchange" authorized by the govt. of INDIA. Dutta's argument holds good if a single buyer/planter did default but it's the responsibility of the Exchange to clear Settlements. The bottom line is that investors would not have invested had it not been to the EXCHANGE. So Mr. Dutta, if the NSE defaults on your DP settlements, what would you do?? Write off 1 Trillion $ of Assets? A journalist should know better than this.
Ill-informed article. Dutta has to realize it's called "NATIONAL Spot Exchange" authorized by the govt. of INDIA. Dutta's argument holds good if a single buyer/planter did default but it's the responsibility of the Exchange to clear Settlements. The bottom line is that investors would not have invested had it been to the EXCHANGE. So Mr. Dutta, if the NSE defaults on your DP settlements, what would you do?? Write off 1 Trillion $ of Assets? A journalist should know better and this chap doesn't know.
Thanks, Prashant for your comment. My detailed reply also in the comments section.
It is more the FMC to blame- Why a Spot Exchange to be allowed to undertake a transaction beyond T+2, which is the definition of Spot. None of the risk management framework for a futures exchange like in the case of MCX, NCDEX etc is available in NSEL and even then NSEL was allowed to go beyond spot transactions. Whether FMC was a good regulator that way?
 
 
Anirudha Dutta
Anirudha Dutta is former head of research at CLSA India Limited, a leading foreign brokerage house. While every number tells a story, there are many stories beyond numbers and both are equally important. This blog will attempt to tell some of these stories.
 
 
 
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July 28, 2014 14:28 pm by pareeksha
It is more the FMC to blame- Why a Spot Exchange to be allowed to undertake a transaction beyond T+2, which is the definition of Spot. None of the risk management framework for a futures exchange like in the case of MCX, NCDEX etc is available in NSEL and even then NSEL was allowed to go beyond spot...
September 01, 2013 07:54 am by Anirudha Dutta
Thank you, Ashit. Agree with you on what needs to be done. To some of your observations in the beginning: 1. The name doesn't mean anything. There used to be a company called National Steel run by the Ruchi Soya group. 2. Notification was issued by the Ministry of Consumer Affairs and not FMC. FM...
August 31, 2013 21:25 pm by ASHIT KOTHI
Few Observations / Comments : 1. The Name - National Spot Exchange Ltd. itself expressely indicates it's activity. 2. If it was not a Exchange - who allowed them to continue. 3. If FMC was not regulating it before, why the exception notification were issued in 2007 by FMC.? 4. If one still co...
August 20, 2013 14:19 pm by Nitin
the discussion seems to be getting hot. but if we read the contract notes things would be more clear. the brokers are against nsel not for investors sake but for saving their own skin n thats that is wat investors should do press their brokers. investors can file their cases against their brokers un...
August 19, 2013 22:44 pm by Anirudha Dutta
Thank you, Krish. That is exactly what my point is.