The problems of traders who punted on the National Spot Exchange Ltd (NSEL) have hogged the limelight. But if this has impacted 13,000 investors, there’s another controversy brewing.

Over seven lakh small investors who put their money in NSEL’s e-series units are now demanding action against the exchange.

With trading on all e-series units suspended since early August, these small investors are agitated.

Buy and hold

The e-series units, unlike the NSEL contracts, were genuine investment products where one could simply buy gold, silver and platinum at spot prices in electronic form and hold the units as long as one wished. The NSEL undertook to buy precious metals and hold them in its warehouse. Investors could redeem units for cash or take delivery of the precious metal whenever they chose.

Investor groups now complain that, with the problems besieging the exchange, they are facing significant delays in getting delivery of physical gold and silver against their units.

Sudhakar, an investor from Hosur, Tamil Nadu, who holds 40 units of e-gold says he made a delivery request against his units in the first week of August. But he says he still hasn’t received a response from the exchange. He says, “The current value of my units is over Rs 1 lakh. I borrowed money from my wife to invest in e-gold. Now I’m in dire need of that money or the gold, but the exchange isn’t updating me on what is happening to my request.”

Though e-series contracts faced no regulatory problems, the Government banned trading on them on August 6, asking NSEL to first settle its dues to investors.

Alok Churiwala, Vice-Chairman, BSE Brokers Forum, explains: “NSEL tells us that they have cleared all surrender request forms on e-series received till August 21, but we doubt this. Their internal procedure requires the signatures of authorised signatories from NSEL and Indian Bullion Merchants Association for processing the delivery requests. But the earlier authorised signatories are no longer with NSEL. Most of the board members have either resigned or have been removed. The (new) board needs to resolve the matter.”

False comfort

Questions from investors about whether the gold, platinum and silver stocks underlying the e-series really exist, prompted NSEL to undertake an audit of warehouse stocks.

The auditors – Sharp & Tannan Associates – have said that the verification did not ‘reveal any discrepancy in the quantum of stocks’. But investors are still not satisfied and point to certain ‘hedged statements’ in the report. “This is a false comfort given to investors,” says Nagappan Valliappan, who heads a leading investor protection forum in Tamil Nadu.

The audit report, for instance, says that the purity of the bar was checked wherever the purity certificate was available. Now, what should the e-series investors do? Churiwala says that investors should write to the Forward Markets Commission, asking to expedite the delivery process.

The NSEL, meanwhile, has offered to settle the e-series contracts in cash. But investors aren’t comforted by this, given that the exchange has not been able to meet its commitments on its controversial spot contracts.