National Spot Exchange, FMC to meet brokers today

Meeting to address payment crisis and aims at arriving at a consensus, satisfactory solution for settlement of dues in accordance with rules

The beleaguered Financial Technologies (India)-promoted National Spot Exchange Ltd (NSEL), along with the officials of the Forward Markets Commission (FMC), will meet 21 entities (planters) and member brokers of the exchange on Sunday to resolve a payment crisis, arisen out of a sudden suspension of trading in forward contracts.

Early last week, NSEL suspended trading in all forward contracts beyond (T+10) affecting thereby large chunk of its business. The development triggered a panic in the market about the investors’ money, which feared a default. Trading in e-series contracts, however, went as usual.

“NSEL yesterday (Friday) submitted required information to the FMC. Subsequently, the officials of the FMC and the board of NSEL met today,” NSEL said in a note.

“It was decided that the FMC and the exchange officials would meet with 21 entities and member brokers on Sunday with an agenda to arrive at a consensus and satisfactory solution for settlement of dues in accordance with rules and bylaws. This meeting is also aimed to ensure avoiding any incidence which may have consequential impact on larger market,” said the note.

The meeting assumes significance as the wary investors with an estimated blocked amount of Rs 5500 crore are seeking smooth recovery of their money. Although the NSEL assured the commodity derivatives regulator with adequate physical underlying stocks of commodities worth Rs 6,200 crore, which is sufficient to cover the default, if any, yet investors seek payment through involvement of the FMC.

In addition, the exchange also assured the FMC that an additional amount of Rs 800 crore can be utilised, which has been parked in the settlement and guarantee fund.

NSEL on Friday submitted a detailed road map to the FMC for investors’ payment. But the commodity derivatives market regulator understandably expressed apprehensions about the use of money under the settlement and guarantee fund which, according to existing regulations, can be used for settling the account of the contributor to the account only. This means, one broker’s contribution cannot be used for settling the account of another broker. The FMC raised apprehensions on this ground.

Under direction from its parent ministry, the ministry of consumer affairs, the FMC is also working on to check the physical stocks held by the company in various commodities in various locations.

The FMC officials have also asked for details of members, planters and other participants, who are not cooperating with the exchange in resolving the matter related to settlement cycle. The FMC, along with other government agencies, will work together to ensure a safe and secure settlement of dues.