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Home / Companies / News /  NSEL was operating outside regulatory purview: Ramesh Abhishek

Mumbai: Ramesh Abhishek, chairman of the Forward Markets Commission (FMC), the commodities futures market regulator, speaks in an interview about the payments crisis at the National Spot Exchange Ltd (NSEL). The regulator is overseeing the settlement process at the exchange. Edited excerpts:

What were FMC’s main concerns about NSEL?

Our main reservations were that they permitted trading members to sell on their platform without confirming that they had goods in their possession—this amounted to a short sale. Secondly, we disagreed with the contract duration of over 11 days in a spot exchange. Even futures exchanges have a settlement cycle of only about 3 to 5 days. What was the need or justifications for a 35-day settlement?

Market participants say FMC regulated NSEL. Can you clarify?

It came to our notice earlier this year that NSEL was claiming FMC as its regulator. We instructed them to remove this misleading information from their website, which they complied with.

Why were market participants not warned?

We had met trading members of futures exchanges in Delhi and Kolkata in December 2012 and March 2013 as part of our regular stakeholders’ consultations and, in reply to questions, made it clear that NSEL is operating outside regulatory purview. By then our reservations on the exchange’s contract design were also public. (FMC’s concerns about NSEL were published in a financial daily.) In view of this, it is a matter of conjecture as to what level of due diligence was being done by market participants.

Why isn’t FMC acting decisively in the NSEL matter?

The government has given us the power to supervise the settlement process and issue directions to NSEL as needed. We cannot go beyond what the law permits us to do, as some people seem to be suggesting.

What about FMC’s warning to NSEL directors regarding their “fit and proper" status?

We are serious about our letter which stated NSEL’s promoters’ and directors’ “fit and proper" status is at serious risk. Having said that, given the seriousness of the matter as well as the fact that the group has exchanges regulated by other regulators, we will take a collective view, and it will also come up for discussion in the government-appointed committees.

Some defaulting members have written to FMC disputing NSEL’s claims. Will you look into these complaints?

The exchange has to deal with its defaulters as per its bylaws. Our stated view is that the exchange stands as the counterparty and must ensure settlement. It can’t expect government agencies to get involved in the recovery process.

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