BackNSEL to commence rematerialization of e-series contracts from 12 April
The move will allow investors to exit any holding in e-series contracts that were offered by NSEL till August last year
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Mumbai: National Spot Exchange Ltd (NSEL) on Friday said it shall commence rematerialization of its e-series contracts from 12 April, in order to allow investors to exit any holding in e-series contracts that were offered by NSEL till August last year.
The exchange will accept request for rematerialization from unit-holders from 12 April till 23 April, it said in a press release.
“ The exchange will provide the updated location, depository, and denomination-wise free stock position and the updated stock report on a daily basis, " added the release.
The completion of the rematerialization process, will be followed by financial closure of the balance stock from 6 May 2014.
The commodity markets regulator Forward Markets Commission (FMC) had on 27 March given it’s go ahead for the so-called rematerialization and financial close-out of NSEL’s e-series contracts. The commodity exchange is engulfed in a ₹ 5,574.35-crore payments crisis.
Rematerialization refers to the process of converting electronic holdings into paper certificates. NSEL had introduced e-series products in commodities for retail investors in 2010. These are investment products that enable investors to buy and sell commodities in demat form and hold them in their demat account.
Dematerialization of commodities implies that they are stored in exchange-designated vaults/warehouses and the record of the ownership is in electronic form, similar to trading in equity shares. This differs from physical delivery where a person receives a warehouse receipt.
Close to 33,000 investors had invested around ₹ 525 crore in NSEL’s e-series contracts.
NSEL is 99.99%-owned by Financial Technologies (India) Ltd (FTIL).
However the exchange said rematerialization is only feasible for those unit-holders who hold units which either match or exceeds the denominations offered by the Exchange of the underlying metals.
The settlement crisis at NSEL came to light on 31 July, when the exchange abruptly suspended trading in all but its e-series contracts. These were suspended a week later.
The closure of trading may have been prompted by an instruction from the ministry of consumer affairs to the exchange asking it not to offer futures contracts. A spot exchange isn’t supposed to do so, but NSEL was doing that.
NSEL tried to implement the change, but because its appeal was to investors and members who were not interested in spot trades, it eventually had to suspend all trading.
All trading on NSEL, it later emerged, happened in paired contracts, with investors, through brokers, buying a spot contract and selling a futures one for the same commodity. They pocketed the difference—around 18%.
The entities selling on spot and buying futures were planters or processors and members of the exchange. It turned out there were only 24 of them, and they used the paired contracts as a way to raise easy money. When the trading was suspended, the investors were left holding contracts that the members couldn’t buy because they didn’t have the money to do so.
On 14 August, NSEL proposed a payout plan, but it has been unable to stick to the schedule.
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