Commodities market regulator FMC, which analysed the trading data of NSEL, had found that National Spot Exchange allowed trading on its platform without verifying whether the seller has stocks with him or not, thus in effect allowing 'short sale' by members
New Delhi: The union government is examining the reply of Financial Technologies-promoted National Spot Exchange Ltd (NSEL) to a show-cause notice issued for offering commodity contracts allegedly in violation of law, Food Minister KV Thomas has said, reports PTI.
Spot exchanges, including NSEL, were allowed to offer one-day duration forward contract under Section 27 of Forward Contract Regulation (FCR) Act, subject to conditions, like the member of exchange would not resort to 'short sale' and outstanding positions at the end of trading day would result in delivery.
"A show-cause notice was issued to NSEL for non-compliance of stipulated conditions of the notification dated 5 June 2007. NSEL has submitted the reply to the notice, the same is under examination of the government," Thomas said in a written reply tabled yesterday in Rajya Sabha.
Commodity markets regulator Forward Markets Commission (FMC), which analysed the trading data of NSEL, had found that the exchange allowed trading on its platform without verifying whether the seller has stocks with him or not, thus in effect allowing 'short sale' by the members, the minister said.
Short-sale means selling commodities, which one does not own at the time of contract, with the hope of buying at a lower price before the delivery time. If the period of delivery is more than 11 days, it is called future trade.
The FMC had also found that the contracts traded on the exchange platform for which settlement period exceeded 11 days were non-transferable specific delivery (NTSD) contracts, which was in violation of provisions of FCR Act, he added.
Asked if a scheme promoted by member of NSEL resulted into an illegal non-banking financial company transaction (NBFC), Thomas said: "A complaint has been received by FMC that an investment scheme promising assured returns to retail investors is being marketed by a member of NSEL."
FMC is examining whether the scheme is violating the condition mentioned in the 2007 notification that all the outstanding positions of the trade at the end of the day should result into delivery, he said.
"Regarding the scheme resulting into an illegal NBFC transaction, the issue is being examined in consultation with Finance Ministry," the minister said.
The country has three national spot exchanges. NSEL and NCDEX Spot Exchange started operating since 2008, while National APMC Spot Exchange is yet to commence its operation.