The National Spot Exchange or NSEL, run by the promoters of the Multi Commodity Exchange (MCX), was set up as a spot commodity exchange to create a delivery-based, pan-India spot market for commodities. It was promoted by the Financial Technologies India Ltd (FTIL) and the National Agricultural Co-operative Marketing Federation of India Ltd (NAFED) so that it would have the NAFED brand to present the exchange as a ‘farmers’ market’. NSEL offered a pair of contracts where one settlement was due in two days and the second in 25-50 days. This allowed speculators to make financial returns without actually taking physical possession of commodities. Ideally, the commodity is required to be delivered physically, but the exchange facilitated the use of electronic warehouse receipts, enabling investors to avail of the arbitrage without taking physical possession of the goods.
Interestingly, NSEL did not try to stop this round tripping. In fact, it made it easier in some contracts. For example, the contract specifications said, “Storage charges are waived off for those members and their constituents who sell jeera on JEERUNJH25 out of the delivery receivable against the purchase position of JEERAUNJH2 contracts”.
The NSEL scam is estimated to be to the tune of Rs 5,600 crore, which came to light when the Exchange failed to pay its investors in commodity pair contracts after 31 July 2013. A commodity exchange is an association or a company or any other body corporate organising futures trading in commodities. Individuals can trade on the spot exchange platform by buying/selling commodities at the current market price.
By Mahalakshmi Hariharan
