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The ministry of finance and the Forward Markets Commission have initiated the process to withdraw the one-day carry-forward facility given to spot exchanges. On spot exchanges, sale orders have to result in delivery and buy orders have to be settled by making payment. However, in 2007, to promote spot exchanges, a facility of cancelling sale or purchase deals intra-day was permitted by allowing the spot exchanges one-day carry-forward trades.
This facility was, however, widely used only by the now scam-hit National Spot Exchange (NSEL) floated by Financial Technologies, while spot exchange NCDEX never used the exemption. The third spot exchange by Ahmedabad-based derivative exchange NMCE never started operations. Now, FMC has moved to withdraw this exemption.
In a show-cause notice issued to NSEL, the regulator has said the facility is not in use and asked why it should not be withdrawn. This is the second such notice to NSEL. The previous one was sent in 2012, in which NSEL was asked the same question. NSEL had replied to that but the ministry of consumer affairs, regulating spot exchanges, had not taken any action.
FMC is set to withdraw the one-day carry-forward facility given to all spot exchanges. This will, however, not change life for any of them as the facility is not in use.
NCDEX had earlier requested the government to withdraw the facility as it was not using the same. The exchange has not received any show-cause notice from FMC in this regard. It has received a communication from the ministry of finance, though. In November, the exchange had requested the government to withdraw the exemption. NCDEX spot exchange had never used the exemption, said an NCDEX spokesperson.
An NSEL spokesperson said, “Yes, NSEL has received this letter from the ministry of finance. We understand from media reports that a similar letter has been issued to other spot exchanges as well. This letter does not discard the response given by NSEL regarding the show-cause notice issued in April 2012. The letter will be placed before the board for appropriate advice and next action. We are examining the letter and as per the deadline given, we will respond in 15 days’ time.”
