 "Govt provides teeth to FMC to probe NSEL fiasco")
Ministry of consumer affairs has vested more powers to the Forward Markets Commission (FMC) to probe the NSEL crisis.
The powers given to FMC by a notification say that orders and directions issued by the FMC will be binding to the NSEL as well as any person, intermediary or warehouse connected with the NSEL.
FMC had so far no legal powers to solve the crisis as NSEL is the spot exchange and FMC was not legally in a position to audit warehouses and stocks, neither members/intermediaries were falling under the FMC’s purview.
In a separate move, NSEL today declared stock lying in its godowns and its value. As per the exchange’s disclosure, stock lying with it in warehouses was valued at Rs 6,032.44 crore and total outstanding as on that day is Rs 5,570.84 crore.
Two set of such data diclosed by the exchange dated as on July 31 and as on August 6 suggest that stock value has come down in a week by Rs 20 crore while outstanding has also fallen by Rs 10 crore.
When NSEL disclosed stock data in afternoon todat stock share price of Financial Technologies, the promoter of NSEL, jumped. It opened on Wednesday at Rs 153.25 and hit the day’s high of Rs 194.40 on the news of stock data being comfortable before closing at Rs 168.10, a gain of 5.62 per cent from Tuesday.
However, fall in prices from high was because later some players said that the valuation is done by the exchange which should be from a third part auditor.
Stocks of another FT group company, MCX, opened with a lower circuit of 10 per cent at Rs 298.70 apiece and remained untraded later throughout the day.
With the fresh powers now FMC will be able to get the stock audited as warehouses connected to NSEL will also have to honour the orders of FMC. It is reliable learnt that the FMC, however, is contemplating to send its team to examine physical stocks at various locations.
As per stock data, the eight members held outstanding almost equivalent to the total stocks of underlying commodities they had in exchange warehouses. This is seen as an indication of risk management norms not being followed on the National Spot Exchange Ltd (NSEL).
In a circular on stock positions as on August 6, 2013, the exchange showed that NCS Sugars had a total cumulative outstanding amount of Rs 59.68 crore against the value of its stocks at Rs 59.69 crore.
Similarly, Lotus Refineries’ value of underlying stock of refined palm oil stood at Rs 247.50 crore as against equivalent amount of cumulative outstanding. Topworth Steel & Power Ltd and Vimladevi Agro Tech too had outstanding equivalent to the worth of their underlying commodities in the NSEL godowns.
This indicates that the exchange did not take the minimum safeguarding precautionary measures to call for collateral higher than the worth of outstanding amount. This poses a great risk to the commodity trading system on the exchange platform given the fear of quality deterioration in agri commodities over a period of time resulting into fall in their value.
In case of price fall, the exchange would require to call for margins to cover client’s position adequately. If the price of the traded commodity declines heavily which is possible given the nature of turbulence in fundamentals, and clients defer margin calls then they will default.
To avoid the risk, however, the exchange should have covered sufficient client’s trade position through higher underlying stocks as collateral, said an analyst.
“since the exchange has not for additional collateral we have not submitted. However, We are committed to pay five percent of the outstanding amount every week for 20 weeks,” said Abhay Lodha, Chairman, Topworth Steel & Power Ltd.
Meanwhile, with the transparency in stock position as declared by the exchange, has brought the payment crisis to an end, albeit temporarily. These stocks are verified by the company before reporting it to the Forward Markets Commission (FMC), a reporting authority the NSEL. The exchange said that state levies including cess and value added tax (VAT) to the respective state governments as and where applicable on the stored goods have already been paid.
The payment crisis arose after NSEL suddenly halted trading in forward contracts on July 31 followed by suspension of its last leg of e-series contract on August 6.
The powers given to FMC by a notification say that orders and directions issued by the FMC will be binding to the NSEL as well as any person, intermediary or warehouse connected with the NSEL.
FMC had so far no legal powers to solve the crisis as NSEL is the spot exchange and FMC was not legally in a position to audit warehouses and stocks, neither members/intermediaries were falling under the FMC’s purview.
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The notification dated 6 august gives all required powers now to FMC.the ministry by the notifications specified that trading will remain suspended on NSEL including e-series.
In a separate move, NSEL today declared stock lying in its godowns and its value. As per the exchange’s disclosure, stock lying with it in warehouses was valued at Rs 6,032.44 crore and total outstanding as on that day is Rs 5,570.84 crore.
Two set of such data diclosed by the exchange dated as on July 31 and as on August 6 suggest that stock value has come down in a week by Rs 20 crore while outstanding has also fallen by Rs 10 crore.
When NSEL disclosed stock data in afternoon todat stock share price of Financial Technologies, the promoter of NSEL, jumped. It opened on Wednesday at Rs 153.25 and hit the day’s high of Rs 194.40 on the news of stock data being comfortable before closing at Rs 168.10, a gain of 5.62 per cent from Tuesday.
However, fall in prices from high was because later some players said that the valuation is done by the exchange which should be from a third part auditor.
Stocks of another FT group company, MCX, opened with a lower circuit of 10 per cent at Rs 298.70 apiece and remained untraded later throughout the day.
With the fresh powers now FMC will be able to get the stock audited as warehouses connected to NSEL will also have to honour the orders of FMC. It is reliable learnt that the FMC, however, is contemplating to send its team to examine physical stocks at various locations.
As per stock data, the eight members held outstanding almost equivalent to the total stocks of underlying commodities they had in exchange warehouses. This is seen as an indication of risk management norms not being followed on the National Spot Exchange Ltd (NSEL).
In a circular on stock positions as on August 6, 2013, the exchange showed that NCS Sugars had a total cumulative outstanding amount of Rs 59.68 crore against the value of its stocks at Rs 59.69 crore.
Similarly, Lotus Refineries’ value of underlying stock of refined palm oil stood at Rs 247.50 crore as against equivalent amount of cumulative outstanding. Topworth Steel & Power Ltd and Vimladevi Agro Tech too had outstanding equivalent to the worth of their underlying commodities in the NSEL godowns.
This indicates that the exchange did not take the minimum safeguarding precautionary measures to call for collateral higher than the worth of outstanding amount. This poses a great risk to the commodity trading system on the exchange platform given the fear of quality deterioration in agri commodities over a period of time resulting into fall in their value.
In case of price fall, the exchange would require to call for margins to cover client’s position adequately. If the price of the traded commodity declines heavily which is possible given the nature of turbulence in fundamentals, and clients defer margin calls then they will default.
To avoid the risk, however, the exchange should have covered sufficient client’s trade position through higher underlying stocks as collateral, said an analyst.
“since the exchange has not for additional collateral we have not submitted. However, We are committed to pay five percent of the outstanding amount every week for 20 weeks,” said Abhay Lodha, Chairman, Topworth Steel & Power Ltd.
Meanwhile, with the transparency in stock position as declared by the exchange, has brought the payment crisis to an end, albeit temporarily. These stocks are verified by the company before reporting it to the Forward Markets Commission (FMC), a reporting authority the NSEL. The exchange said that state levies including cess and value added tax (VAT) to the respective state governments as and where applicable on the stored goods have already been paid.
The payment crisis arose after NSEL suddenly halted trading in forward contracts on July 31 followed by suspension of its last leg of e-series contract on August 6.