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New Delhi: A day before the first payout by National Spot Exchange Ltd (NSEL), the Forward Markets Commission or FMC pulled up the exchange for failing to comply with its directives, and for furnishing incorrect information even as the exchange listed the obligations of its members for unsettled positions in terms of receivables and payables.

The spot exchange abruptly suspended trading on 31 July, resulting in a settlement crisis, and finally submitted a settlement plan on 14 August.

Payments are scheduled to start on Tuesday and will go on for the next seven months.

FMC has found serious gaps in NSEL’s settlement plan. In a three-page letter sent to the exchange’s chief executive and managing director and put up on its website on late Monday evening, the commodities market regulator lambasted NSEL for not informing FMC how much money is being put into an escrow account created for the purpose daily, among other things.

It also warned NSEL that “any further instance of non-compliance with the directions of the commission or submission of incorrect information would be viewed seriously and necessary action would be initiated".

On 16 August, FMC gave NSEL specific directions to inform the commission on a daily basis about party-wise amounts deposited in the escrow account and also disclose this on the exchange’s website. “But, till-now you have not complied with the directions of the commission," the FMC letter said.

The 17 August letter also points out that NSEL has to pay 1,159.55 crore to Indian Bullion Market Association Ltd (IBMA), but its client-wise details submitted to FMC on 16 August pegged the amount at 1,171.36 crore, “which was further revised to 1,170.10 crore".

FMC has directed the exchange to immediately reconcile the differences in the payout obligation to IBMA and display it on its website.

“It is observed…that despite several directives by the commission, NSEL had given different information on different occasions, even just one day prior to the first scheduled pay out date — 20 August… This casts serious doubt on the reliability of the figures submitted by the NSEL and also raises doubt on the seriousness of the management and board of the NSEL regarding settlement of the outstanding obligations," FMC said

It directed NSEL to reconcile its numbers; display the names of all trading members supposed to receive payouts; disclose party-wise amounts deposited in the escrow account with Axis Bank Ltd on a daily basis; and submit details of value-added tax amount due to various members and also mention whether this amount is included in the pay-in amount of 5,572.74 crore.

Meanwhile, NSEL listed the obligations of its members for unsettled positions in terms of receivables and payables, but the move failed to reassure investors.

Among planters, NK Proteins Ltd owes the highest to the exchange ( 967.15 crore), followed by Ark Imports Pvt. Ltd ( 719.42 crore), PD Agroprocessors Pvt. Ltd ( 644.55 crore), Mohan India Pvt. Ltd ( 575.08 crore), Yathuri Associates ( 424.64 crore), Loil Continental Food Ltd ( 335.15 crore), Tavishi Enterprises Pvt. Ltd ( 333.01 crore), Loil Health Foods Ltd ( 289.12 crore), Lotus Refineries Pvt. Ltd ( 252.56 crore) and Juggernaut Projects Ltd ( 220.20 crore).

According to the list, 148 brokerage firms have exposure to the exchange. IBMA has the highest exposure of 1,159.55 crore, followed by Anand Rathi Commodities Ltd ( 629.21 crore,) Geojit Comtrade Ltd ( 313.25 crore), Motilal Oswal Commodities Broker Pvt. Ltd ( 262.88 crore), MMTC Ltd ( 220.08 crore) and AUM Commodity Pvt. Ltd ( 214.71 crore).

About 15,000 investors are embroiled in the payment crisis.

“This annexure to the settlement schedule means nothing, as it has not provided the details on post-dated cheques and letter of commitment which FMC has asked for," said Anshuman Tanna, a member of NSEL Investors Forum, a lobby group.

“It would be quite stressful for all investors to wait every week to see whether their cheque has been cleared or not," said Tanna.

The exchange had on 31 July suspended trading in all contracts except the e-series ones without assigning a clear reason. Later, it suspended trading in its e-series products too, bringing the spot exchange to a complete halt. E-series contracts are those in which retail investors can buy and sell commodities in demat form. Last week, NSEL said trading in e-series contracts would stay suspended until further directions from the government and FMC.

NSEL on 14 August released the settlement schedule to clear dues of investors and Monday’s list is an annexure to that schedule.

The exchange plans to settle 5,574.31 crore over the next 31 weeks. According to the plan, over the next 20 weeks, an amount of 174.72 crore will be settled by the exchange’s 24 processors every week. Thereafter, 86.02 crore of dues will be settled every week till the 30th week and the remaining 1,219.71 crore will be settled in the 31st week, which falls after 11 March 2014.

During the settlement period, some members will pay their dues by selling their commodities or physical assets.

The spot exchange made the settlement calendar public after a meeting with FMC, saying that the pay-in process will happen every Friday and payout will happen every subsequent Tuesday.

A PTI report on Monday cited consumer affairs secretary Pankaj Agarwal as saying “Friday (16 August) was the first day of payment and there might have been defaulters. We have asked NSEL to declare the list of defaulters and action taken against them as per their own bye-laws".

“NSEL being a guarantor has been told to behave like a guarantor and that the exchange must meet the commitments," Agarwal said. The ministry is contemplating to have NSEL stocks lying in warehouses audited by government agencies, he said.

“It is too early to comment whether the exchange will meet its payment obligation…one has to wait for at least two-three weeks. Also it is unclear how the exchange will make its payment as its borrowers do not have enough stock in its warehouses," said Sumeet Bagadia, assistant vice-president for commodities and currency at CD Commosearch, a commodity trading firm..

“Credibility of the stock exchange is already gone…I will be sure whether the exchange will stick to its settlement schedule only when I get payment," said C.P. Krishnan, whole-time director of Geojit Comtrade.

It is not just investors, but also the exchange’s promoters themselves who have expressed scepticism about the value of the stocks held in warehouses. Observations made by FMC on the settlement plan submitted by the exchange on 16 August and put up on its website, say that “during the meeting with the commission on 13th August, 2013, Mr. Jignesh Shah, director, NSEL and Mr. Joseph Massey, director, NSEL inter alia raised the concern on the quality and quantity of commodities lying at the various accredited warehouses of NSEL and they have informed that they have appointed a collateral management firm, SGS to make detailed assessment of quality and quantity of stocks of commodities lying at all the accredited warehouses of NSEL".

Not all brokers are pessimistic about the payment schedule.

“I am sure the exchange will meet its payment obligation as it has done its homework and with FMC constantly watching over it," said Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services Ltd.

“The first payment, which is to be made tomorrow, is most important as it will send a right signal that things are falling in place," said N.S. Ramaswamy, whole-time director and head of commodities at Ventura Commodities Pvt. Ltd.

Shares of NSEL-promoter Financial Technologies (India) Ltd gained 0.6% to 151.90 on BSE, while the exchange’s benchmark Sensex fell 1.56% to close at 18,307.52 points.

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