In your interest.
Online Personal Finance Magazine
No beating about the bush.
The NSEL scam has opened a big can of worms about the integrity of the entire regulation and supervision infrastructure, including the efficacy of the slew of independent regulators set up over the past 25 years.
After the Harshad Mehta scam of 1992, the National Stock Exchange (NSE) came into being, conceived and implemented by the late Dr RH Patil who combined sharp commercial sense with strong public spirit. The NSE, a professionally-run bourse, emerged as the best model to ensure fair and transparent trading systems. This seemed in line with global thinking that ‘professionals’ are ideally suited to run exchanges—not trading members and brokers who often take decisions that are self-serving. From there, it was a short step to thinking that high salaries for ‘professionals’ and linking their incentives to the profits earned by the bourses, would keep them focused on ensuring higher returns for shareholders, year after year. The next phase was to assume, as happened all over the world, that exchanges are commercial entities that could be promoted by entrepreneurs and made to compete.
So, over the next 25 years, we have seen the evolution of three different models of exchanges. The Stock Exchange, Mumbai (BSE) which was a broker-run club for over a century of its existence, was forced to turn into a professionally-run bourse by a series of regulatory changes.
The NSE was set up as a professionally-run bourse promoted by large institutions and banks. The game-changer was supposed to be the now-discredited, entrepreneur-led private model that was aggressively pushed by Jignesh Shah who grabbed the opportunity for private players to enter the commodity derivatives space. This former BSE employee from its technology department first succeeded with Financial Technologies (FT) which captured the market for brokers’ front-office software. He then made a success of the Multi Commodity Exchange (MCX) and went on to set up exchanges abroad, to position himself for a bigger role as an institution builder.
However, the Rs5,600-crore scam in the National Spot Exchange Limited (NSEL) may have ended those dreams. It has also opened a big can of worms which raises questions about the integrity of the entire regulation and supervision infrastructure, including the efficacy of the slew of independent regulators that have been set up in the financial sector.
For instance, the ministry of consumer affairs allowed NSEL to operate outside the purview of the commodities regulator; the ministry of corporate affairs (MCA) which allowed the creation of entities that gave the illusion of being public sector organisations or associations; the depositories which entered into dematerialisation agreements and various regulators, including the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and Forward Markets Commission (FMC), who ought to have questioned NSEL’s operation but chose to keep quiet. The same regulators found the FT group fit to run commodity and currency derivatives and equity trading bourses.
The professionally-run model is also creating fissures. On 23rd October, The Mint reported that a set of global private-equity (PE) firms has raised several pertinent questions about the NSE as well as India’s regulatory flip-flops with regard to the listing of bourses. The Mint quotes the letter as saying “These frequent changes in the regulatory fabric are arbitrary and unfair to investors and create a lot of uncertainty.” The investors claim to have invested in the NSE after the Justice Kania committee report which recommended listing of bourses. This report was overturned by the Bimal Jalan committee appointed by SEBI during chairman CB Bhave’s tenure. The Jalan committee’s recommendations were rejected by SEBI with a new set of rules. It is widely believed that these flip-flops were influenced by the two warring bourses—the NSE and MCX.
After the NSEL scam, there has been a flurry of actions, dictated by the finance ministry which is now in charge of administering the FMC, the commodities regulator.
In a directive, the FMC has asked that the articles of association of MCX be amended to ensure that no shareholder director is made a permanent director. It has also asked all directors of the FT-MCX group, including Jignesh Shah (its non executive vice chairman), to step down and has appointed a team of independent directors to run the bourse independently. Jignesh Shah has bought time until 30th October and may be examining his legal options.
There is also a contract with Financial Technologies guaranteeing that it cannot be removed as a technology partner for 33 years, failing which the bourse will have to pay a compensation of Rs1,800 crore. The contract itself raises some questions. Did the FMC, RBI and SEBI know there was such a contract guaranteeing FT’s business arrangement? FMC, as the primary regulator of MCX, ought to have objected to such a contract. RBI and SEBI, which permitted MCX-SX to launch the currency-derivatives segment, long before Jignesh Shah’s bruising court battle to force SEBI to allow him to start equity trading, seem to have missed the contract too. Did they fail to understand it, or was it deliberately hidden from them?
In fact, various media leaks suggest that SEBI permitted MCX-SX to launch currency trading even though the finance ministry had repeatedly raised questions about it being ‘fit and proper’ to acquire shares in the Vadodara bourse. Ironically, the 2007 letter was written by MS Sahoo, a director in the finance ministry who became a whole-time member of the SEBI board after a brief consulting assignment with the NSE.
There is also the fact that MCX-SX was given permission to trade currencies by the same SEBI top brass which had charged him with dishonesty when it came to permitting him to launch equity trading. Unfortunately, the dirty war between the NSE and MCX-SX, as well as the partisan approach of the regulator under CB Bhave’s chairmanship, had muddied the waters leading to a complete lack of clarity about whether Jignesh Shah was being wrongly persecuted or was up to tricks himself.
Various regulatory actions following the NSEL scam seem designed to discourage listing or private ownership of bourses, marking a significant change in policy that is entirely dictated by the massive and embarrassing scam. In effect, just after India’s first independent regulator, the Securities & Exchange Board of India, celebrated 25 years of its existence, we are at the crossroads again. But can such far-reaching policy changes be made without any plan or public discussion? What happens to the PE funds and other high net worth investors who bought NSE shares on the expectation that it will be listed? Or the questions that they have raised about its gilded management? Will the next step for MCX be a delisting of its shares? Or being overseen by a randomly-chosen board?
The letter written by a law firm on behalf of PE funds accuses the NSE of making very moderate dividend payouts to investors while sitting on a cash pile of over a billon dollars. At the same time, top management salaries are not linked to performance and are sky-high. NSE’s vice chairman Ravi Narain’s last known gross remuneration was an stupendous Rs7.88 crore and managing director Chitra Ramakrishna also has among the highest paycheques in corporate India. Will the NSE be allowed to continue as a secretive, professionally-managed, unlisted entity with the support of key finance ministry bureaucrats and public sector entities?
Clearly, it is time for some fresh thinking on the future of bourses and this cannot be done by any single regulator or through a series of openly partisan committees. Ideally, this should have been the work of a group like the FSLRC (Financial Sector Legislative Reforms Commission). Unfortunately, with three of its key directors writing dissent notes to the report, the FSLRC’s two-year effort at the cost of over Rs8 crore is correctly buried, before it raised many uncomfortable questions about who exactly was dictating its recommendations. We now need fresh thinking on the regulation of bourses, but it is unlikely to happen before the next general elections, even as many fatwas with far-reaching consequences are being issued daily.
Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected]
Here is a forensic analysis based on facts and data available about the claims of 1,000 tonnes of gold. It is logistically impossible and thus hard to establish that 1,000 tonnes of gold was retrieved from Allahabad, transported to Bithur, stored there. Again transported to Daundia Khera and allowed to rest in peace there
Early October 2013, a Hindu sanyasi Swami Shobhan Sarkar (seer), who has an Ashram at a village named as Daundia Khera in Unnao district in Uttar Pradesh (UP) had a dream that there is gold underground to be taken out.
Following are details of the dream
1. Rao Ram Baksh Singh was a Talukdar (chieftains) in Daundia Khera
2. During British raj, during and after 1857 war of independence, these chieftains either become British stooge or rebels (freedom fighters). Rao Ram Baksh Singh was one such rebel against British rule
3. As per the story told by a person close to the seer, the seer often narrates the story of a dream about the gold which was looted by some freedom fighters, led by Maulvi Liyaqat Ali, from the fort of Allahabad on 14 June 1857. Ali was a relative of the zamindars of Chail Pargana in Allahabad and also close to the talukdars of different states between Allahabad and Faizabad. He had declared major parts of Allahabad as independent from the British rule during the Mutiny of 1857. He handed over the looted gold to Nana Sahib Dhondu Pant, the adopted son of Maratha Peshwa Baji Rao II and chieftain of Bithur, to hide somewhere. When Brigadier General James George Smith Neill started searching for this gold, it was brought to Daundia Khera and buried somewhere on the campus of the fort of Rao Ram Baksh Singh. Ali was captured and awarded life imprisonment in 1872. He was sent to Port Blair jail. Rao Ram Baksh Singh was also captured by the British forces and hanged to death. "This gold was actually confiscated by the British from small Indian chieftains or collected in the form of lagaan (land tax) from farmers. This was the reason that the rebels during the Mutiny did not mind confiscating it from the fort of Allahabad," the source said
4. The dream says that the gold is 1,000 tonnes
5. Based on this background the Archeological Survey of India (ASI) started digging in the fort, at the place, described by the seer
TRUST BUT VERIFY
Some people believed the story completely, whereas some rejected it out-right doubting the veracity of dream. We are one of those, who neither believed nor disbelieved till we did some more analysis. Thus, we decided to do some scientific and forensics analysis of various elements of data, as available from various sources and try to collaborate these with stated historical facts, scientific and forensics analysis and common sense.
Here are our findings.
What Physics says
With this background, now let us do some scientific and logistic calculations and create some hypothesis and prove the/ these hypothesis for correctness of claims and counter-claims.
How much will be the volume of 1,000 tonnes gold?
The specific gravity of gold is 19.32. This means the gold is 19.32 times heavier than water at 4°C. This further means that one litre volume of gold will have a weight of 19.32 kilograms (Kg) or one metre cube of gold will have weight of 19.32 tonnes (metric tonnes).
With this basic physical fact, the total volume of 1,000 tonnes of gold will be 1,000/19.32 = 51.76 cubic metre (m3).
Now imagine that it will have 51 pieces of 1 metre x 1 metre x 1 metre with 0.76 cubic metres in hand. This means about 51.76 metre long wall of solid gold with 1 metre height and 1 metre width. Alternately, this can be viewed as 1,828 cubic feet. This means a road with a pure gold layer of 1/2 inch (12.5 mm) high, 12 feet wide and 3,656 feet (1114 metres or over one kilometre) long.
In pure solid state, this gold will occupy two rooms of 10ft x 10ft x 9ft, fully packed, without any space either between gold cubes and walls and roof. And with 28 cubic feet gold still left.
The assumption is that the gold is 24 carat pure and in solid state, and not in the form of coins, jewellery, utensils, etc. If it is in shape of round coins, the space will increase by atleast 21% to 27% depending upon configuration for storage. In case of jewellery, the volume of space required becomes 10-15 times. I checked this by visiting two jewellery show rooms in Mumbai. (names withheld at their request).
Now, just imagine, if this much of solid and pure gold is stored at the site, and ASI needed to do gold prospecting by using metal detectors and then light drilling. Why dig?
But, the above is a hypothetical condition, just to provide you an idea of volume of gold weighing 1,000 tonnes.
In reality, the gold may not be in solid state and as described above.
Based on above, it will be realistic if not optimistic, to assume the average weight of each chest as 500 Kg. With this, it comes to 2,000 chests for 1,000 tonnes. This number may vary 10%-20% on both sides depending upon the weight per chest. But, let us consider the number—2,000 chests now.
Now consider the chronology of events
Let us consider logistical requirements
If consignment was carried by road –
If the gold was carried by boats –
HYPOTHESIS - that the gold is 1,000 tonnes
Let us test the hypothesis that “the gold is 1000 tonnes”
We are not in a position to offer any alternate theory/story. Only history knows what had happened.
But, with the dream data made available by the sanyasi and other data available in public domain and as analysed above, it is logistically impossible and thus hard to establish that 1,000 tonnes of gold was retrieved from Allahabad, transported to Bithur, stored there. Again transported to Daundia Khera and allowed to rest in peace there, without any people, except Rao Ram Baksh Singh and Maulvi Liyakat Ali and Nana Saheb knowing it.
We have another hypothesis that some amount (somewhere, between few hundred kilos to few tonnes) of Gold was retrieved from Allahabad and transported to Bithur and then to Daundia Khera. Else why Neill would have come in search of gold? The quantity has to be very much lower than 1,000 tonnes as claimed by seer.
If people in the area do not know about it and only a few knows then it may be maximum few chests, which can be carted on horses with or without human or travelled in few bullock carts covered with grain or lighter material. Grain also has weight, thus the weight of gold reduces per cart. May be due to this reason, Neill has also not searched more deeply at Daundia Khera as stakes were not high.
How does 1,000 tonnes of gold compare with well known structures?
Total weight of Eiffel Tower (Paris) is – 7,000 tonnes of steel
Total weight of Boeing 747-200B Jumbo jet – 165 tonnes
Weight of largest whale – 200 tonnes
Elephant weighs – 10-20 tonnes
Total weight of Statue of Liberty, NY – 225 tonnes (made of copper)
(Due to difference in density between gold and steel, 17,175 tonnes of Gold will be required to build Eiffel Tower of pure gold. Technically, Eiffel Tower of gold can not stand due to softness of gold)
(About the authors –
Rakesh Goyal is PhD in Cyber Security; MBA from IIM-Bangalore and AMIE (Mech. Engineering). He has earned certificates - CISA, CISM, CFE, CCCI, CMC and Chartered Engineer.
He is an IT consulting entrepreneur since 1985 as MD of Sysman Computers P Ltd, Mumbai, a CERT-In and CCA empanelled firm (www.sysman.in). He is also the Director General of 'Center for Research and Prevention of Cyber Crimes'. Before that, he worked with BHEL, WIPRO and MNC Bank between 1972 and 1985.
Pallavi Goyal is BE from Mumbai University. She is certified as CCNA and ISO27001 LA. She has been active in Cyber Security consulting specially in Web-application and network security for over three years. She has done Vulnerability Assessment and Penetration Testing of over 200 web and other applications and over 10 networks. She has been working with Sysman Computers Private Limited for last 3 years and assisted Rakesh Goyal in many forensics assignments.
Nomination is one of the most important aspects of succession and estate planning. Yet few investors and people know about it, and its implications. Here’s a guide to nomination for investors wishing to plan better
Nomination ensures comfort for the family to a free, easy and unfettered access to your money by your family in the occurrence of an unfortunate event. It is not only your right but also your responsibility to ensure that you do not leave behind headaches and have the money ‘frozen’ at a time when it is most needed.
Nomination is a simple exercise: at the end of every document contains a form which you are required to fill in indicating the name, relationship and address of the person who will be entitled to get your money, then sign it along with a witness. You should retain a copy. Those not opting for the facility too are required to put it in writing.
Please remember, express mandated nomination provisions are always available, be it for a savings bank or fixed deposit accounts, insurance policies, life and health, investments in shares or mutual funds, deposits for utilities like telephones or gas or other company deposits.
While nomination formalities are invariably carried out at the opening of the account/investment/payment stage, nonetheless it can be done at a later time also. It can even be modified or cancelled. However, it can be done only by the individual signing the documents and not by others. It is not applicable to trusts, societies, firms, HUF or its kartas or power of attorney holders.
It is possible to make out nominations in multiple names by specifying the percentages. Minors, trusts, government, local authorities and non-residents too can be nominees.
In the case of bank deposits and investments you can always make out nominations in different names. In the case of savings account, it can be one and for different deposits to different nominees, where different beneficiaries are contemplated for different deposits. No one can insist on registering only one nominee.
Effecting transmission on demise
1. Submit a letter in duplicate with the original and xerox of the death certificate along with the originals of the accounts to be transmitted. In death cases it is ‘transmission’ and not ‘transfer’.
2. Ensure proper identification of the nominee/beneficiary with KYC verifications.
3. In case the amount to be transferred exceeds Rs1 lakh, an Indemnity Bond may be sought.
4. In the absence of any nomination the claimant may be called upon to submit a Will, heirship certificate, and no-objection certification (NOC) from other heirs, letter of administration or succession certificate and indemnity bond.