The National Spot Exchange Ltd (NSEL) today said it will not offer contracts where settlement and delivery of commodities is done beyond 11 days, a move that comes after the Centre ordered the bourse not to launch new contracts following violation of certain rules.

Last week, the Consumer Affairs Ministry had asked the exchange not to launch any new contracts till further instructions and also sought undertaking from the NSEL in this regard.

“NSEL reduces delivery, payment and settlement period of all contracts traded on the exchange to less than 11 days (T+10 or less), wherever settlement schedule was extending beyond 11 days,” the exchange said in a statement.

The exchange has banned ‘intra—day trading and intra—day squaring off of transactions’ It means every trade executed in all existing contracts (such as e-gold, e-silver, e-copper, e-zinc, e-lead, e-nickel and e-platinum) will result into delivery.

Besides, the exchange “also strictly prohibited short sale,” the statement said. Short-selling is the sale of commodities that one does not own at the time of a contract with the hope of buying them at a lower price before the delivery time.

NSEL, however, clarified that all trades executed till yesterday will be settled as per their scheduled delivery and settlement day.

In existing contracts, such as castor kadi and castor oil, the funds and commodity settlement will take place after two days.

NSEL, which has seen huge drop in turnover following the government orders, has decided to reduce the cost of transaction for all contracts by whooping 80 per cent to boost volumes on its platform.

“The cumulative cost of transaction, delivery and warehouse receipt transfer was earlier Rs 100 per 1 lakh of turnover, which has been brought down to Rs 20 per Rs 1 lakh of turnover,” the statement said.

Last year, the Consumer Affairs Ministry had issued a show—cause notice to Financial Technologies—promoted NSEL after it found violation of some conditions set by the government for operating the exchange.

NSEL had allowed short sales by members and offered contracts for delivery exceeding 11 days.

(This article was published on July 23, 2013)
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