NSEL crisis: Defaulters barred from trading in stock markets
Mumbai: Stock exchanges have decided to bar defaulters, who caused Rs 5,500-crore payment crisis at NSEL, from all trading activities as per direction from markets regulator Sebi in the latest crackdown against such entities.
While action has been initiated against nine defaulters so far, more entities would face similar fate if they fail to pay the money owed by them to the National Spot Exchange Ltd (NSEL) investors, officials at stock exchanges said.
The decision to this effect has been taken by various stock exchanges in consultations with the capital markets regulator Sebi (Securities and Exchange Board of India).
Sebi is already probing various aspects of NSEL crisis, including the role of some brokers for possible mis-selling of forward contracts at the spot exchange in violation of regulations related to portfolio management services and prevention of fraudulent and unfair trade practices.
It is also suspected that some brokers might have diverted clients' funds to take positions on NSEL, while their roles are also being probed for possible collusion with persons with insider information for trading in the shares of two listed group entities --- Financial Technologies (FTIL) and Multi Commodity Exchange (MCX).
NSEL was set up to provide an electronic platform to farmers and others for spot market trading in agriculture and other commodities, but it later emerged that some short- duration forward contracts were also being traded there.
As a payment crisis involving an amount of over Rs 5,500 crore emerged at the exchange late last month, it had to suspend trading following a government directive.
As the crisis continues to deepen, NSEL on August 22 declared nine entities as defaulters after they failed to pay their dues.
Subsequently, the stock exchanges have asked their trading members not to register any of these nine defaulter entities as their clients till further notice.
These nine entities include ARK Imports, Loil Overseas Foods, Lotus Refineries, N K Proteins, NCS Sugars, Spin Cot Textiles, Tavishi Enterprises, Vimladevi Agrotech and Yathuri Associates.
"In consultation with Sebi and other exchanges, as a proactive measure, to protect market integrity, to safeguard market participants' interest and as a risk management measure, it has been decided to disable Unique Client Codes (UCC) of above 9 entities from trading with immediate effect," BSE and MCX-SX said in similar circulars.
Three of these nine entities -- Loil Overseas Foods, N K Proteins and NCS Sugars -- are registered as clients of BSE's trading members and the stock exchange has decided to disable the Unique Client Codes (UCCs) of these three entities.
UCCs are a must for any entity to trade in the stock market.
Separately, MCX-SX also said that Lotus Refineries, N K Proteins and NCS Sugars are registered as clients of its trading members and their UCCs are being disabled.
MCX-SX began operations as a full-fledged stock exchange this year and it was set up by Jignesh Shah-led Financial Technologies, which also happens to be the promoter of National Spot Exchange (NSEL) as also that of leading commodity bourse MCX.
The nine defaulter entities were declared 'defaulters' by NSEL after directions from the commodity markets regulator FMC (Forward Markets Commission), after they failed to pay their dues on the first day of settlement on August 20.
NSEL needs to pay dues totalling Rs 5,500 crore to 148 members/brokers, representing 13,000 investor clients.
As a payment crisis emerged late last month at the spot exchange, which was providing an electronic platform for spot trading in commodities, and it suspended all trades on July 31 on a government directive.
The spot exchange later announced a seven-month plan to settle the dues, but it was able to pay only Rs 92 crore on August 20, the first pay-out day as per the settlement calendar, as against a scheduled payment of Rs 174.72 crore.
FMC has also directed NSEL to liquidate the assets of those who have defaulted on their payments.
Meanwhile, Income Tax department has also conducted searches on the business premises of two dozen NSEL members.