A 2009 board meet of the National Spot Exchange (NSEL), where related party Indian Bullion Merchants’ Association (IBMA) was allowed to trade on the NSEL, has emerged as one of the most concrete charges against the promoters of NSEL.
The Forwards Market Commission (FMC) has found that all directors of NSEL, including Jignesh Shah, were present at the 2009 board meet, which approved a decision to allow IBMA to trade on the exchange despite this being against the rules.
The charge is one of the many that have been included in a 40-page show-cause notice sent to the promoters of NSEL late on Friday, questioning their fit and proper status.
The notice has been sent to Financial Technologies (FTIL); FTIL chairman and group CEO Jignesh Shah; MCX stock exchange MD & CEO Joseph Massey, and MCX MD & CEO Shreekant Javalgekar.
All parties have been given two weeks to respond to the notice, after which the FMC will take a final call. If their fit and proper status is withdrawn, FTIL will have to sell its 26% stake in commodity futures exchange MCX and give up directorship on any exchange regulated by the FMC.
“The show-cause notice holds the board fully responsible for the acts of omission and commission at the NSEL,” said a senior FMC official privy to the matter. “FTIL was the ultimate holding company and a large part of their business came from NSEL,” the official added.
NSEL has been embroiled in a R5,600-crore settlement crisis that came to light in late July.
The show-cause notice also cites nearly 2,000 cases of default that took place over a period of two years. The notice states that not only were these defaults ignored, the defaulters were allowed to continue trading on the exchange. “In some instances, margin requirements were waived to allow the defaulters to continue trading,” explained the senior official. In two cases, the FMC found that NSEL gave a corporate guarantee to borrowers in order for them to avail of funds from private banks.
Other instances cited in the notice include the fact that the NSEL board was asked to set up 10 oversight committees to oversee functioning of the exchange. However, nine of these committees never saw the light of the day.