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The investors who have lost their money in the National Spot Exchange Ltd scam have a lesser chance of getting a bailout from the government.
A working group, under the Chairmanship of K.C. Chakrabarty, Deputy Governor of Reserve Bank, is not in favour of providing financial assistance to them. In September, the group, in a report to the Department of Economic Affairs, had said since a number of investors in the exchange are high net worth individuals (HNIs), tax payers’ money should not be used for bailing them out and settling the liabilities of the exchange. The report, which was seen by Business Line , said that HNIs were aware of the investment risks in the exchange, therefore financial help is not necessary. The amount involved in the NSEL crisis was ‘not significant’ enough to pose a systemic concern to the market, it said.
On the other hand, the report pointed that banks, which have lent to the investors and brokers or those who have lent against the security of warehouse receipt, could face losses.
The group, with Chakrabarty at the helm, was assisted by Ramesh Abhishek, Chairman of the Forward Markets Commission, and Rajeev Kumar Agarwal, member of the Securities and Exchange Board of India.
The report has also recommended that exchanges and other market infrastructure should not be allowed to be set up unless a regulatory framework was in place. Exemptions from laws and statutes should not be granted if it results in a regulatory vacuum.
Taking a strong view on the use of the word ‘National’ while naming stock exchanges, the report said that the Registrar of Companies should insist on a ‘No Objection Certificate’ before an entity is allowed to use the term ‘Stock Exchange’ in its name.
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