The National Spot Exchange Ltd (NSEL) was engulfed in a major cash crunch on Thursday, forcing it to suspend most trades on its platform and prompting the government to order an enquiry by the commodity regulator FMC.
This resulted in a fall of nearly 65% to Rs. 350 in the shares of its key stockholder Financial Technologies India Ltd (FTIL), whose market value was wiped out by Rs. 476 crore.
Shares of Multi Commodity Exchange of India (MCEIL), another group firm, also fell by nearly 20%. While the Securities and Exchange Board of India said it was probing concerns about potential payout defaults by the exchange to brokers and clients, both FTIL and the Spot Exchange reassured markets that they were in a strong position to cover their liabilities.
The daily trading value on NSEL has almost halved to about Rs. 300 crore in the past two weeks. The NSEL, India’s largest exchange for spot trading in commodities, is promoted by FTIL, which is a group company of MCEIL.
NSEL on Wednesday suspended trading in its one-day forward contracts until further notice following a directive of the consumer affairs ministry last month asking the bourse to suspend all deals as it found violations of government norms in trading at NSEL. However, the “e-series” demat contracts will continue to be traded.
The government also said it is keeping a close watch on the issue. “I have talked to SEBI and secretary to the department of economic affairs on this issue. We are all in touch,” consumer affairs secretary Pankaj Agarwal said. “It is a major blow to FTIL and MCX. However, we have not heard any impact as of now on the commodity market.”
FTIL and MCEIL have, however ruled out any adverse impact on their businesses and financials. “FTIL states that this action of NSEL (suspension of trading) does not entail any financial liability on FTIL and that the business of FTIL is as usual,” FTIL chairman Jignesh Shah said. “We are confident that NSEL will resolve the situation within the contours of its bye-laws and rules,” he added.
NSEL said there were sufficient stocks to cover overall exposure.