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Commentary

Jignesh Shah Has A Press Conference, Creates a Committee, Spends Seven Hours.

Jignesh Shah, promoter of FT which in turn manages NSEL, the exchange that has defaulted on settlement (*), has had a press conference. The important point was: they had a seven hour marathon meeting on Sunday with the “planters”/“plant owners” and the “members” and all that, and something awesome came out of it, except we don’t really know what.

* Of course it has defaulted. A delay in settlement is a default other than a 1-2 day move – this one is five months!

First, Shah’s contention is that any disruptive move, even if correct, can be hugely limiting for settlement. People who’ve expected rollovers can’t suddenly find money, and you can’t liquidate the goods without serious impact. So they need some time.

The payment plan will be disclosed on August 14.

This makes sense – unwinding will take time, but it should not be done by the exchange – it should be done by the FMC, and they should take over the exchange completely during that time. It should also come with serious consequences such as a huge penalty to the exchange so it doesn’t become routine. Already, it’s established that the exchange was doing something illegal – providing forward contracts when it was not allowed to.

Also please note that they had a SEVEN hour meeting on Sunday.

Next, they’ve appointed a four member committee made of people some of whom have worked with MCX earlier, including GN Bajpai (ex-chairman SEBI), D. Sivanandan (IPS, retd), Sharad Upasani (IAS, Retd), Former Judge R.J. Kochar to oversee the settlement process.

Okay but what will these people do if plant owners default. Remember, many NSEL warehouses are on the same land as these plants, which are located in distant places. Just having this committee, but having no broker or FMC member on board is useless. FMC or SEBI should just take this over and be the committee instead.

If you’ve not been listening, they had a seven hour meeting on Sunday. Seven continuous hours.

One thing Shah said was, when he castigated another newspaper for saying that NSEL owed Rs. 5600 cr, mentioning that it was the plant owners who owned it. Get this Mr. Shah: An exchange is supposed to be responsible, not the plant owner. That’s why we come to an exchange, so you’ll guarantee the trade. NSEL certainly owes all the money to its brokers, it is not just a middleman, it is the counterparty for all parties involved. Let’s not get misled.

None of the plant owners want to deliver stock – all want to return the money. This is a clue: they don’t want to have that stock examined by anyone, in all probability.

My view: This is an exchange default of gargantuan proportions and massive shady financing. Think about it. Just 24 companies have got financing of Rs. 5,600 crores! And apart from this, they might even have bank loans. Some of them are BIFR entities (effectively, prior defaulters). The exchange did illegal things like forward contracts when it was not allowed to,

In that regard, why are we even listening to Shah? The FMC or SEBI should get their act in and take over the board and manage the unwinding operation. The management of NSEL should be taken to task separately for all the wrong doing already known. All defaulters should see an RBI note of no-further-loans (including all promoters).

The default is regrettable, but what matters now is our reaction. We need to show our investors that our exchanges are safe, but I think it will take action from the Finance ministry to actually investigate and prevent further abuse.

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