Despite the NSEL's (National Spot Exchange Ltd) decision to pay out Rs 177 crore to small investors, brokers remain an unhappy lot since small investors’ dues account for very marginal portion of the total outstanding dues to brokers.
NSEL’s disbursement to small investors in the second week of the settlement cycle accounted for less than 5% of the total receivables of 10 of the 13 brokers that have individual exposures of more than Rs 50 crore.
For example, Anand Rathi Commodities received a total of Rs 7.73 crore from this disbursement against its total outstanding of Rs 641 crore. Further, most of this payouts came for investors whose exposure ranged from Rs 2 lakh to Rs 10 lakh. Similarly, AUM Commodity, Systematix commodities and Geojit Commtrade received just about 0.6% to 1.5% of the total receivables by these brokers ranging between Rs 215 crore and Rs 313 crore.
Market observers say that a majority of NSEL investors can be categorised as high networth individuals given that many businessmen traded these products. Further, some brokers are beleived to have taken proprietary positions on these products to earn quick returns. However, in the last three weeks since the crisis was uncovered, most brokers have denied this, except Motilal Oswal securities which is believed to have Rs 250 crore worth of proprietary funds stuck.
Regulatory loopholes allowed brokers to aggressively market NSEL products, which often lured investors with the promise of returns of 12% to 15%, much higher than investment options like bank fixed deposits, liquid funds and fixed-maturity plans.
“Among the investors were importers, exporters and commodity traders who utilised their spare cash flow of R10-15 crore in these short-term products to earn attractive returns,” said a broker.
Earlier on Tuesday, after the NSEL announced this payment option, brokers argued that average investment required for the NSEL investment product was R5 lakh to Rs 6 lakh. “We don’t have clarity on why NSEL strayed from a pro-rate settlement. This action may lead to litigation given that most brokers won’t be happy with this option,” said CP Krishnan, whole-time director of Geojit Comtrade.