NSEL first violated rules in April 2012
1 min read . Updated: 29 Nov 2013, 11:34 PM IST
PremiumMinistry of consumer affairs had issued show cause notice to NSEL for violation of FCRA conditions
Mumbai: The ministry of consumer affairs was aware as early as in April last year that the National Spot Exchange Ltd (NSEL) had violated conditions of the exemption it was given from operation of the Forward Contracts (Regulations) Act, 1952 (FCRA), documents reviewed by Mint showed.
In a letter dated 27 April 2012, the ministry of consumer affairs, food and public distribution said NSEL had violated conditions restricting short sale for members of the exchange.
NSEL was on 5 June 2007 given exemption from the operation of FCRA subject to a few conditions for all contracts of one-day duration for the sale and purchase of commodities traded on its platform.
The letter signed by Brij Mohan, director, information technology, in the ministry of consumer affairs, cited the commodity markets regulator’s findings, which said: “The NSEL has not made it mandatory for the seller to actually deposit goods in the warehouse before he take(s) a short position through a member of the exchange. The exchange system has no stock check facility which validates the member position. The exchange allows trading on the Exchange platform without verifying whether the seller member has the stocks with him or not. In this way, the exchange has violated the conditions stipulated that no short sale for the members of the exchange shall be allowed."
The ministry also said that NSEL had violated one more provision of FCRA by allowing 55 contracts for trade whose settlement period exceeded 11 days. The government denied in the letter NSEL’s claims that it had granted exemptions for such contracts.
