National Spot Exchange Ltd is confident of settling the Rs 5,600-crore (Rs 56-billion) dues to investors earlier than the 30-week schedule it had declared last week.
“The time schedule declared by us is based on the minimum amount committed by buyers.
“But many of them have said they will pay earlier than the time committed,” Anjani Sinha, managing director and chief executive of NSEL, told Business Standard on Sunday, two days after the Forward Markets Commission sent a letter to the exchange, expressing unhappiness over the long settlement calendar.
While calling for a forensic audit of NSEL’s books, FMC had noted the exchange had earlier said payments would come much earlier than promised in the settlement calendar.
Sinha said the exchange would send a formal reply to the regulator in the next couple of days.
“Several problems had emerged after some sudden developments to which there was a panic reaction from the market.”
For example, the letter from the ministry of consumer affairs asking for an undertaking from the exchange not to launch fresh contracts and settle existing contracts on maturity.
This was followed by the exchange’s decision to convert all contracts into trade for trade.
Asked whether that move was a mistake on the part of the exchange, Sinha said the exchange had thought the market would show confidence and support its decision, but the reactions were substantially different, prompting the exchange to suspend trading.
Meanwhile, the sellers or financiers of the deals on the exchange started withdrawing money at a time resulting in disruption of market process, Sinha said, adding this had created payment problems.
On FMC’s query in the letter why buyers were not declared defaulters when they could not make payment on settlement day, Sinha said: “When the whole market disrupts, all members who had to make payment could not be declared defaulters as it would have led to several other legal issues, including auction of stocks.
“In such a case, we decided to first recover money and pay the sellers.” In its showcause notice, FMC had also raised doubts about the credibility of the exchange as it provided different numbers on the settlement and guarantee fund--the first figure given out was Rs 862 which got changed to Rs 62 crore (Rs 620 million) later.
Sinha explained the discrepancy by saying when trading was going on initially, some defaults took place as finance was getting withdrawn on fears.
“We tried to settle claims from the funds, but the money was replaced by warehouse receipts (resulting into the reduction in cash component) given by the buyers.
“Hence, the total value of collateral in the fund has not come down”, he said.
The exchange will soon finalise and suggest names of the forensic auditor to the regulator.
FMC has also said no payment towards dues of Rs 1,159 crore (Rs 11.59 billion) shall be made without its approval to the Indian Bullion Market Association, in which NSEL holds 61 per cent equity.
The exchange, Sinha said, has already explained to the FMC that IBMA is a clearing company, which means it gives money from clients to the exchange and pays clients their dues after getting it from the exchange.
A total of 150 traders were using clearing facilities from IBMA, while others were using the clearing facilities of large broking houses that were trading and clearing members on the exchange.
The exchange is also facing a court case from Kirit Somaiya, president of Investors’ Grievences Forum, which has alleged that NSEL also had benami transactions and resorted to money laundering on the exchange’s platform and it has named Juggernaut Projects Ltd as one such company.
Mohit Agrawal, promoter and owner of Juggernaut, however, said his company’s net worth was Rs 150 crore and it had diversified interest in steel and coal.
Juggernaut’s exposure is over Rs 200 crore (Rs 2 billion) on behalf of its clients and directors of the company are professionals.
Jaggernaut is part of the Ashtha group owned by Agrawal
Image: Jignesh Shah; Photograph: Punit Paranjpe/Reuters