FTIL shares surge on payout clarity

Mumbai: Embattled Financial Technologies (India) Ltd (FTIL) founder Jignesh Shah went on television to defend beleaguered subsidiary National Spot Exchange Ltd (NSEL) after two days in which the FTIL stock got a battering. As Shah put forth his defence, the FTIL stock rose, ending Monday up 30.88% after having dropped 72% in the last two trading sessions.

add_main_imageMeanwhile, some clarity emerged on the payout schedule at NSEL after a series of meetings with Forward Markets Commission (FMC) through Sunday and Monday.

Of the ₹ 5,500 crore outstanding faced by the spot exchange, the first tranche of payments will be made in the next 10-15 days, said a person with direct knowledge of the discussions with the exchange’s borrowers and FMC. NextMAds

“FMC suggested NSEL to first make payments to investors whose dues are below ₹ 10 lakh. NSEL finds it doable in the next 10-15 days. This will be the first tranche of payment and will clear dues of 50% of investors,” the person said. He declined to be identified as a formal announcement on this was yet to be made at press time.

Shah said at the Mumbai press briefing carried live on TV channels that it would take about five months for investors on NSEL to get their money.

According to a Reuters report, Shah told reporters that trading members who do not fulfil their payment obligations would be charged a 16% interest, without clarifying on the time frame in which it would be applied.

The spot exchange had previously been supposed to issue a detailed settlement and payout schedule by 14 August. However, following widespread criticism after NSEL’s suspension of trading in all one-day contracts, except e-series ones, and the unprecedented crash in the stock price of FTIL and group company Multi Commodity Exchange of India Ltd (MCX), things moved faster.

CNBC-TV18 reported late on Monday that the government had barred e-series contracts on spot exchanges. A release was awaited as of press time.

E-series contracts refer to contracts and activities such as e-auction, e-procurement and MSP (minimum support price) operations on behalf of government agencies. They were designed to allow people to invest in commodities in demat form. E-gold and e-silver were the first securities to be introduced by NSEL as part of this.sixthMAds

Under constant pressure from FMC, which is soon expected to get statutory powers to regulate spot exchanges, NSEL’s members and borrowers were made to provide the forwards market regulator details of their payout plan to calm investors and mitigate the crisis.

Almost all of NSEL’s 24 members, who are supposed to honour the payouts amounting to at least ₹ 5,500 crore, met FMC and came up with two payment options, which soothed investor nerves, pushing the FTIL stock to close at ₹ 197.95 apiece on BSE.

MCX, however, continued to fall, ending 10% down at ₹ 368.70 on BSE. Over the last three trading sessions, the stock has dropped 42.39%. Over the weekend, BSE cut the circuit filter for the stock to 10% from 20%. The 30-share benchmark Sensex edged 0.1% higher to 19,182.26 points on Monday.

The commodity exchange on Sunday had said that its settlement guarantee fund corpus, which is typically meant for handling any crisis in the event of a default by a buyer or a seller, has shrunk to ₹ 60 crore from the ₹ 800 crore announced earlier. It didn’t elaborate on this reduction.

NSEL, which was assumed to be potentially facing a risk of default after trades in most contracts were suspended on 31 July, has formed an independent committee to advise and monitor settlement of trade amounting to about ₹ 5,500 crore.

The decision to set up the committee was taken after a joint meeting of FMC and NSEL with investors on Sunday.

“NSEL constituted an independent committee of eminent persons for the purpose of advising and monitoring the progress of financial close-out plan,” the exchange said in a statement.

Members of the committee include former Company Law Board chairman Sharad Upasani, former Bombay high court judge R.J. Kochar, former chairman of the Securities and Exchange Board of India and Life Insurance Corporation of IndiaG.N. Bajpai, and former director general of police in Maharashtra D. Sivanandan.

FMC and NSEL held joint meetings on Sunday with members of the exchange and planters/processors in order to arrive at a consensus and satisfactory solution for settlement of dues in accordance with exchange rules and byelaws.

The head of a Mumbai-based brokerage firm who attended the meeting told Mint that the processors seemed genuine and there was no apparent risk of default by them. He didn’t want to be named owing to the sensitivity of the issue. Members of the spot exchange who need to honour the payouts are called processors.

According to an NSEL release on Sunday, the exchange will collate the payment plans from buyers and finalize pay-ins and payouts in consultation with FMC and then announce it to the market.

As the first option to meet payout obligations, the exchange had said on Sunday that eight entities were willing to pay about ₹ 2,181 crore as per the scheduled due date or earlier. Another 13 entities have offered to pay about ₹ 3,107 crore in weekly instalments, while negotiations were on with three others for payment of ₹ 311 crore.

Under the second option, the exchange said it was in possession of post-dated cheques (PDCs) from various processors amounting to ₹ 4,900 crore against their settlement obligations and the remaining parties had confirmed regular payments.

“While PDCs are a commitment, the payout process may not roll out smoothly in a month’s time. Hence, the market participants have proposed option 1 as a safer alternative,” the NSEL release added.

Last Wednesday, while suspending trading of all one-day contracts, NSEL had mentioned that delivery and settlement of the contracts were deferred by 15 days and a detailed payout schedule will be issued by the exchange after 15 days, i.e., by 14 August.