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Mumbai: India’s commodities markets regulator is strengthening its scrutiny of some group companies of Jignesh Shah-led Financial Technologies (India) Ltd, following the 5,574.35 crore payment crisis at the National Spot Exchange Ltd (NSEL).

The Forward Markets Commission is setting up a cell to monitor the escrow account of the spot exchange that is being used to settle the dues of small investors affected by the payment crisis.

It has also directed that the special auditor of Multi Commodity Exchange of India Ltd (MCX), a Financial Technologies group company, should “exhaustively" probe all trades done by the National Bulk Handling Corp. Ltd and the Indian Bullion Market Association (IBMA) on MCX.

The National Bulk Handling Corp. is the warehousing arm of Financial Technologies, which controls the spot exchange, which in turn holds a 60.88% stake in IBMA.

The regulator has ordered a special audit of the book of accounts of MCX in connection with the payment crisis at NSEL.

In a 7 November letter to MCX, the commission has set out the terms of reference for the special audit of the commodity stock exchange. A copy of the letter, reviewed by Mint, said the auditor will look into “all transactions entered into by the exchange with the related parties and decisions taken by the board of directors" regarding such transactions, signalling a growing concern about the group companies of Financial Technologies.

It has defined the term “related parties’ as an entity or a person in which Financial Technologies, the anchor investor, and its subsidiary companies or any other group companies have a shareholding, and any person related directly or indirectly to MCX in any capacity, according to the letter.

The auditor, according to the regulator, will also look into the “details of cases identified /found by the exchange of entities/individuals ‘acting in concert’ to violate the regulatory direction on client level position limits and action taken by the exchange" against such parties.

Besides, it has directed the forensic auditor to review “all individual transactions of expenses incurred above 25 lakh and nature of such expenses, nature of services received and other relevant details to establish genuineness of the expenditure".

“Since inception, the Forward Markets Commission has been carrying out regular audits on all the exchanges and the member brokers besides conducting regular surveillances on the exchanges and its trades," an MCX spokesman said in an emailed response. “We cannot comment further on it at this juncture."

The commodity exchange, which is in the process of short-listing an external auditor for the special audit, will have to seek the approval of the regulator before appointing the auditor.

The special audit of MCX will include scrutiny of the defaulting members of the commodity exchange since its inception, counter-parties of such members and the action taken by MCX against the defaulters, the commission said in a 7 November letter. The commodity markets regulator has also said the current terms of reference for the special audit are not “exhaustive" and it will “from time to time" communicate other issues to the auditor.

“The issues discussed (by the board and its committees) under the head any other items or any such similar items of the agenda of the board meetings may be specifically examined," the letter read.

The settlement crisis at NSEL came to light on 31 July when the course abruptly suspended trading in all but its e-series contracts. These, too, 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 the National Spot Exchange was doing that.

It 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. It later emerged that all trading on the spot exchange happened in paired contracts, with investors, through brokers, buying a spot contract and selling a futures one for the same commodity.

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, the exchange proposed a payout plan, but it has been unable to stick to the schedule.

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