Financial Tech shares dive 60% after National Spot Exchange halts trading

Stocks of Financial Technologies and Multi-Commodity Exchange today took a severe beating after one of the group companies, National Spot Exchange, suspended trading of all contracts, except ‘e-series’, until further notice.

With the Financial Technologies stock falling a whopping 60 per cent to Rs 192, and the stock of MCX, another arm of Financial Technologies that operates in the commodity futures segment, plunging 20 per cent to Rs 512, market regulator SEBI stepped in to order a probe into the fall and possible default by any player.

Huge settlement

Financial Technologies and MCX stocks were walloped over fears about the spot exchange, NSEL facing settlement of Rs 5,500 crore. Anjani Sinha, Chief Executive Officer of the spot exchange, said that it is in the process of reconciling the trading data to ascertain the outstanding positions. “The exchange has commodities valued at a similar amount in warehouses, so settlement should not be an issue,” he said.

NSEL, which deals in agricultural commodities, suspended the contracts following a directive from the Forward Markets Commission, the commodity markets regulator. However, it will continue trading in e-series of commodities, including gold and base metals, which are held in electronic form.

The developments caught the Union Consumer Affairs Ministry, under which the functioning of the commodity markets falls, and the FMC by surprise.

Probe ordered

The Centre has asked the FMC to probe the issue and submit a report by Friday. The Consumer Affairs and Finance Ministries are monitoring the situation, said Food and Consumer Affairs Minister K.V. Thomas. FMC Chairman Ramesh Abhishek told Business Line: “We will get to know what kind of arrangements the exchange has made to pay the sellers. It is the responsibility of NSEL to ensure smooth payments.”

The crisis is a fallout of the Centre bringing the functioning of the spot exchange under the FMC a few weeks ago. It was asked to stop offering forward contracts in the spot market.

Industry sources said they had been raising the issue of the spot exchange’s forward contracts the last couple of years but the Commission had expressed its inability to act as it did not have the powers.

“The problem is that you cannot allow settlement to be made after 10 days. If that happens, then it is treated as forward or futures trade,” said a trader, who did not want to be identified.

Ajay Kumar Kedia of Kedia Commodity Comtrade, which facilitates trading in the spot exchange, said the suspension of trading has come as a shock. “Investor confidence will be shattered if the issue is not resolved at the earliest,” he said.

Asking investors not to panic, NSEL CEO Sinha said the exchange would resume trading after getting the Government’s clarification on the T+10 contract being traded on the exchange.

“We are expecting to settle the entire outstanding payment by the first week of September, as some of the T+25 and T+30 (trade plus 25 and 30 days) contracts will expire only by that time,” he said.

But trade sources said the worry was over the deferment in payment. “It has never happened before in any market. There is suspicion over stocks in warehouses, too,” a trader said.

(With inputs from Chennai Bureau)

(This article was published on August 1, 2013)
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