The Hindu Business Line : National Spot Exchange sets up settlement fund

Hyderabad, July 4 The National Spot Exchange (NSEL) has set up a Settlement Guarantee Fund with an initial corpus of Rs 50 crore, which will act as a cushion for losses on account of auctions.

The NSEL is jointly promoted by MCX (Multi Commodity Exchange), Financial Technologies and NAFED (National Agricultural Cooperative Marketing Federation of India).

There is an in-built mechanism in the exchange that provides for auction of the produce the same day in case of payment or sales defaults. If the auctions could not realise the required amount, the exchange would tap the fund.

“This will insulate the farmer and the trader against risks,” Mr Anjani Sinha, Managing Director and Chief Executive Officer, NSEL, told Business Line.

“We are going to allow transactions beginning from a quintal. While it benefits even small and marginal farmers, the system allows for accumulation of such small quantities by traders,” he added.

Launch

The exchange, which would provide a nation-wide electronic platform for its members, would begin operations in the third of August.

“We have begun a membership drive on June 1. We have so far received applications from 250 traders and an equal number of enquiries. After completing the process, we will train our members on the exchange functioning ahead of its launch,” he said.

The exchange charged an admission fee of Rs 5 lakh and a deposit of Rs 5 lakh for giving membership. It expected that 60-65 per cent members from the MCX membership community, with the remaining members representing the physical markets (traders and processing companies).

Mr Sinha was here to discuss the exchange with traders and farmers. The NSEL has received licences from Gujarat, Maharashtra and Gujarat Governments for starting trading at the mandis.

“We have approached all the States for permission. Some States don’t have a clause in their respective Acts with regard to electronic markets. For example, we submitted to Andhra Pradesh Government that electronic market place is also a form of private market,” he explained.

Unless the exchange gets the permission, it can’t trade in commodities in the markets of that State.

Price discovery

By giving a panoramic view of the prices of commodities in different parts of the country, the exchange would give the farmer a better bargaining power. This, in turn, would disarm the local traders, who used to influence and wield control, putting the farmers in a disadvantageous position.

“However, the process would not eliminate the local traders completely. It in fact would bring in rationalisation in prices of commodities, giving better returns to the farmer,” he said.

The NSEL, through National Bulk Holdings Corporation (another subsidiary of FTL), would offer warehousing facilities.