Forward Markets Commission wants Finance Ministry to look into NSEL case

MUMBAI: The commodity market regulator has recommended that the case of National Spot Exchange's default should be handed over to the ministry of finance amid fears that some of the transactions may require the assistance of central agencies. The Forward Markets Commission, the regulatory authority, is understood to have spelt this out in a report submitted to the ministry of consumer affairs on Monday.

As market intermediaries feared that the exchange may not be in a position to recover substantial funds, there are regulatory concerns that some of the less credit-worthy borrowers may have used the exchange's platform to draw credit lines and deploy funds in speculative activities. "The regulator is not aware how the money has been used. Here, some background check of borrowers and money trail becomes important...," said a market source.

FMC chairman Ramesh Abhishek was not available for comments. However, a senior finance ministry official said, "The finance ministry has no jurisdiction in this case."

NSEL, a spot exchange, has been operating in a regulatory void. Till recently, FMC had no powers to regulate the bourse and penalise its members. Many NSEL investors had traded through the Indian Bullion Market Association, a subsidiary of the exchange that also acted as a clearing agent for commodities. The entity's exposure to the exchange could be close to Rs 1,200 crore. In its report, the commission is also believed to have shared concerns voiced by organisations like the Commodity Participants Association of India, Association of National Exchanges Members of India and BSE Brokers Forum.

In a letter dated August 10 to the secretary, department of consumer affairs, the associations had suggested that all 24 member/processors need to be summoned by FMC with the involvement of other enforcement agencies to "influence them to fulfil their obligations". They also felt that urgent steps are needed to take control of all collaterals lying with NSEL in order to prevent pilferage of commodities.

According to market intermediaries, FTIL, which holds 99% in NSEL, and Jignesh Shah, the founder of the group, should be made accountable to make good the outstanding amount payable to investors.

"...there is an urgent need to put custody and control of assets and bank accounts of all the group entities and their promoters under the supervision of a committee to be formed by FMC and the government," said the letter.