What did the 'open eyes' see in NSEL?

NSEL in its website and other promotional material projected Nafed as its promoter. To find that Nafed had only 0.01% shareholding, would have required a little more than just open eyes

Investors are being accused of putting money in the National Spot Exchange (NSEL) with 'open eyes'. Let us see some of the things these open eyes would have seen. The first thing the eyes of the investor would see is the name of the entity. It contains the word 'National'. The website of ministry of corporate affairs www.mca.gov.in lists some common reasons for rejection of a name proposed by a company when it comes up for registration. One of the reasons enlisted is "proposed name includes words like National, Central, Union, Federal, etc, which are considered as undesirable."

But the registrar of companies, Mumbai, with "open eyes" knowing well that the company is promoted by a private party allowed the exchange to use the word National in its name.

Then, what is the next thing the "open eyes" of the NSEL investors see? They saw the names of the owners. One was Financial Technologies, a company that was promoted by the leading personalities in the commodities market and the second and more important was National Agricultural Cooperative Marketing Federation of India (Nafed). Nafed was directly under the ministry of agriculture. The ministry appointed its top officials.

A PTI report of August 2010 quoted Nafed Chairman Bijender Singh saying the following, "On July 29, I met agriculture minister Sharad Pawar and requested him to appoint a new managing director in Nafed. I am glad he has accepted my demand and made Sanjeev Chopra, an IAS officer of the 1985 batch, as the new MD."

Thus, the "open eyes" saw IAS officers running the show at Nafed and these were appointed by the minister himself. NSEL in its website and other promotional material projected Nafed as its promoter. To find that Nafed had only 0.01 per cent shareholding, would have required a little more than just open eyes. Yet, with "open eyes" Nafed and its brass were mute spectators to what was happening.

What else did the "open eyes" of an NSEL investor see? The open eyes saw that the ministry of consumer affairs had issued a gazette notification allowing the exchange to operate certain "one-day forward contracts" subject to certain conditions. The notification is for exemption. It does not say that the exchange is "unregulated" and therefore "unsafe" in so many words. Any unsuspecting person of ordinary mental ability would expect the ministry laying down these conditions to take necessary steps to ensure that these conditions are followed. But it turns out that the ministry of consumer affairs with "open eyes" watched when the conditions were being breached. The "open eyes" of NSEL investors saw the mission statement of NSEL. Among other things it said, "The exchange provides counterparty guarantee in terms of quantity, quality and payment. Hence, participants get a safety net against credit risk and counterparty default."

At last, the "open eyes" could also see the clout of the promoters of NSEL in the government during the months leading up to the issuance of licence for another exchange promoted by the same promoters to trade in the equity markets. The "open eyes" saw the regulatory orders being reversed, the authors of these orders being thrown out. The eyes were wide open, like the minister said, but what they saw was completely different from what they see today.