NSEL crisis: Role of brokers

• Created structured product involving contract for buying and selling of commodities on NSEL platform
• Overlooked the exchange advice to inform risks involved in buying and selling of commodities to the clients
• Aggressive marketing and mis-selling in violation of Exchange's circulars
• Instances of funding clients
• As it was a business involving buying and selling of commodities principals of business income and
offsetting expenses were applied
• Have strong legal and compliance departments that made them aware of the nature of buying and
selling and risks involved
• Active as C&F agents for the Trading clients, they visited warehouses numerous times (nearly 50 times during a 36 month period) and yet not raised red flags any time
• Audit firms of broking firms showed inventories held in trading as annexures in the balance sheets of the respective firms.
• Instances of executing certain orders without client consent (approximately 3,00,000 client code
modifications)
• Did not once raise or bring to the notice of NSEL Board any irregularity
• Majority of the big brokers were C&F agents and verification of stocks on behalf of their clients was their responsibility

The management of NSEL

NSEL had a Board of Directors consisting of six non-executive directors drawn from different experiences in the agriculture economy and ecosystem. The day to day functioning of the management of the exchange was carried out by the one & only Executive Director i.e. the Managing Director and Chief Executive Officer under the Rules, Regulations and Bye-Laws of the Exchange.

ALL DECISIONS WERE TAKEN BY THE MD & CEO

All financial decisions related to the Exchange were made by him

All the operational & risk management matters for clearing, settlement and deliveries were framed by him

All the contracts were issued through Circular by him

All the Members were inducted by him

All the employee appointments were by him

All the Departmental Heads reported to him

Was supposed to implement the Rules and bye-laws of the Exchange

The business of NSEL

The National Spot Exchange Limited is a limited liability company promoted by MCX in the year 2005 and not by FTIL. Subsequently shares held by MCX and its nominees were transferred to FTIL.

In October 2008, NSEL commenced operations providing an electronic trading platform to willing
participants for spot trading of commodities, such as bullion, agricultural produce, metals etc. Like NSE and BSE, NSEL has its registered trading members, commonly referred to as brokers, who execute commodity trades on the NSEL platform on behalf of and in accordance with the instructions of their respective clients across India.

NSEL recovers Rs 1233 crores from 23 defaulters

National Spot Exchange Limited(NSEL) has recently secured recoveries from 23 defaulters. The defaulters owe a total amount of Rs 4515.93 crore out of which Rs 1233.02 crore has been recovered.
"We have already secured recoveries amounting to Rs 1233.02 crore by way of decree on admission against five defaulters and through injunctions from a total of 18 defaulters with outstanding of Rs 4515.93 crore as of December 31,2015. With this, we have moved another step in right direction, and look forward to similar decrees against other defaulters", NSEL Chief Executive Prakash Chaturvedi said in a newsletter to shareholders.
NK Proteins is the defaulter with the highest obligation of Rs 934.45 crore. It has paid only Rs 35.44 crore as of December 14, 2014. Out of 24 defaulting traders, 2 have almost cleared their dues of Rs 195.75 crore.
NSEL has disbursed Rs 542.99 crore to trading clients. Earlier, NSEL had settled the e-series contracts outstanding up to  98.48% by disbursing Rs 298.52 crore to around 40,000 e-series unit holders directly to their bank accounts. 

Injustice for Financial Technologies

The silent and sincere efforts of the Financial Technologies Group in trying in every manner to resolve the NSEL crisis within the four corners of the law, were overawed by the barrage of criticism, accusations, aspersions, all based on misinformation and misunderstanding that came from all over with no responsible authority trying to explain the real situation.

That is why it is thought that the NSEL/FTIL side of the story needs to be told to the world. For the accident originated/engineered by FMC/DCA and then to payment default(post August 4, 2013) committed by defaulters at one of its subsidiaries, the entire Financial Technologies Group is paying the price. Not only injustice was meted on the FTIL, but added to it are other painful measures such as the hurry to declare promoters not ‘fit and proper’, the vilification campaign, unverified rumours, which have pushed the Group into a corner gasping for a little justice.

The solution given by Ministry of Corporate Affairs, on recommendation of the FMC, is a complete contradiction to the democratic system against the tenets of corporate law. Thousands of shareholders of FTIL will be deprived to enjoy the benefits of wealth creation and the very business that stood against the global competition and sustained success will wither away.

Financial Technologies should be given a chance to explain their stand.