National Spot Exchange brings down settlement period in 40 contracts

Financial Technologies promoted National Spot Exchange Ltd (NSEL) has reduced delivery, payment and settlement period in 40 live contracts in various commodities to less than 11 (T+10 or less) days, wherever settlement schedule was extending beyond 11 days.

"NSEL had 40 such live contracts out of 86 launched in various commodities that had over 11 days of settlement period including 25 days, 34 days etc. In these contracts, the settlement period has been brought down to 11 days," said Anjani Sinha, MD and CEO of the company.

The point of contention of the Forward Markets Commission (FMC), the commodity derivatives markets regulator and the Ministry of Food was the delivery period, despite it was not specified anywhere under the law including the Forward Contract (Regulation) Act (FCRA).

The law, however, spells out that the contract should not surpass the 11 days limit for settlement without specifying any specific delivery period.

“This was a bone of contention. We resolved the issue without going into legal confrontation with the FMC or Food Ministry. Through this we ensured smooth functioning of our online spot exchange,” said Sinha.

NSEL has modified the existing circulars dealing with trading, delivery and settlement procedures notified by the exchange from time to time for this purpose. The idea is to ensure smooth and non disruptive business activities at the exchange, so that no member or client faces any problem in respect of trading, delivery or settlement.

All trades executed till July 22 will be settled as per their scheduled delivery and settlement day. However, with effect from July 23, 2013, there will be no contract available for trading, where delivery and settlement goes beyond 11 days period.

The exchange has further decided to reduce cost of transaction in respect of all these contacts by 80%. The cumulative cost of transaction, delivery and warehouse receipt transfer was earlier Rs. 100 per 1 lac of turnover, which has been brought down to Rs 20 per Rs 1 lac of turnover.

This is done with an objective of making the market more cost efficient, so as to incentivize large number of physical market players to avail the services of NSEL in respect of commodities procurement or disposal.

Further, it decided to convert all the existing contract on “trade for trade basis”, which means that every trade must result into delivery. In other words, intra day trading in any of the contracts will not be allowed. In any case, the Exchange ensures that all outstanding position at end of day must result into delivery. The Exchange has also strictly prohibited short sale.

However, prevention of intra-day trading by converting all existing contracts on “trade for trade” implies that now even intra-day squaring off transactions are ruled out. In other words, its implication is that a sale transaction cannot be squared off and it has to result into delivery.

The exchange has implemented all these modifications with immediate effect in the best interests of the market participants, so that market can function without any disruption. We believe that this will enhance participation of large number of members and clients on the exchange platform, Sinha added.