The government will soon take action against the National Spot Exchange Ltd (NSEL) for violating certain rules while offering commodity contracts, Food and Consumer Affairs Minister K.V Thomas said today.
In October, 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 should strictly follow the law. Wherever it has violated, we will take action soon. The orders to this effect will be issued shortly,” Thomas said.
The decision in this regard was taken at a meeting held last week with the Forward Markets Commission (FMC), the commodity regulator, he added.
Financial Technologies India Ltd (FTIL) is also the promoter of the Multi Commodity Exchange of India Ltd., the country’s largest commodity bourse.
Spot exchanges, including NSEL, were allowed to offer one-day forward contracts subject provided that members would not resort to short sales and that outstanding positions at the end of the trading day would result in delivery.
However, the FMC found that the exchange allowed trading on its platform without verifying whether the seller had stocks, in effect allowing short sales by members.
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. If the delivery period exceeds 11 days, it is called a futures trade.
The FMC also found that the contracts traded on the exchange for which the settlement period exceeded 11 days were non-transferable specific delivery contracts, which was in violation of provisions of Forward Contract Regulation Act.
The country has three national spot exchanges. NSEL, NCDEX Spot Exchange and National APMC Spot Exchange.