NSEL laced with optimism of a bounce back

 
If you go to FT Towers and Exchange Square in Mumbai, the picture will be clear. The state of the art office building is exemplified by the rise of its main promoter, Jignesh Shah. What Shah had lost in the last one week could be in millions in monetary terms. But more than his zeal to regain his lost market capitalization, the crux of the matter is to gain back the confidence of his exchange members, market participants and investors.

If you thought NSEL will bring its main promoter Jignesh Shah to heels, think again. NSEL has been the main earner for FTIL, its main holding company. India’s unregulated and immature spot markets and a mix of Futures into the spot made things tough for Shah to handle. But from MCX to MCX SX to DGCX, Jignesh Shah owns a huge empire in commodity futures. And he has made his fortunes the good old way, sweating it out!


If you go to FT Towers and Exchange Square in Mumbai, the picture will be clear. The state of the art office building is exemplified by the rise of its main promoter, Jignesh Shah. What Shah had lost in the last one week could be in millions in monetary terms. But more than his zeal to regain his lost market capitalization, the crux of the matter is to gain back the confidence of his exchange members, market participants and investors.
In a swift move, NSEL announced phase wise payment structure and also the list of its main participants. Questions are being asked whether these participants, with their turnover less than what they owe to the exchange, can pay back or not.
But Shah is confident and so is FMC. Now the question comes, what time it will take the money to come back? May be 6 months or perhaps a year. But the settlement is mandatory for a CBM – Confidence Building Measure – for other entities to prosper.
Under the directions from India's commodity market regulator, Forwards Market Commission, NSEL came up with two payment options to address the settlement issues. This has got the FTIL, its holding company, back to the market gaining high of 30% and closing at 197.95.
Under the first option, NSEL said of eight brokers and processors who are ready to make payments to the tune of Rs.2181 cr in full. Another 13 of brokers who harbour a collective due of Rs.3107 cr are ready to pay their dues at the rate of 5% every week; this means, the dues would be settled in a time frame of 5 months. There are also three processors with whom the exchange is carrying out negotiations for the receipt of Rs.311 crore.
The exchange has a second option of payment using Post Dated Cheques (PDCs) from different processors that add to Rs 4,900 crore against their settlement obligation. But given the fact that settlement employing PDCs may not be as smooth as the first option, it is the first option that has gained currency.
The options were discussed in a meeting convened on Sunday by FMC, attended by buyers and sellers.
The speed at which NSEL acted along with FMC and also bringing transparency by releasing companies with exposure to it was a smart move, according to market watchers. They believe more than paying back, it is the promise to pay back and the action thereon which will help gain the market confidence.
Further, Jignesh Shah has promised that strict action would be taken against members who don't cooperate with the rules. In a press conference, he said a schedule for the payment would be announced by August 14.
He said an independent committee has been formed to ensure payment takes place and said payments would be made in five months which is the maximum. Delayed payments to the exchange would have to bear 16% in interest. The exchange would also come out with regular report to FMC on payment plan as well. An independent committee would be formed for overseas settlement process.
The Management of the Exchange will report to this committee for implementation of the process.
The committee consists of: Sharad Upasani, IAS (Retd.), Justice R. J. Kochar (Former Judge, Bombay High Court), G. N. Bajpai (Former Chairman, SEBI), D. Sivanandan, IPS (Retd.).
On being asked about the future of the NSEL, Shah said the Exchange would remain active and it is only a segment that has been closed down; the rest of the operations would continue.