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Commentary

The NSEL Settlement Fund is just 60 Cr?

ET reports the story on the quasi-settlement and has a very disturbing data point:

Adding to the sense of crisis, it has emerged that NSEL’s settlement guarantee fund has dwindled to Rs 60 crore from Rs 800 crore.

WTF? How does a guarantee fund fall like this? Were there defaults? When? Apparently not really recently:

Funds at the exchange’s settlement guarantee fund have dwindled to about Rs 60 crore from Rs 800 crore. Explaining the decline, Anjani Sinha, the managing director of the exchange, said the depletion is after adjusting for liabilities of the March settlement.

March! That was more than four months ago! How come just a few days back (August 1, Business Standard), the CEO Of the exchange says:

The exchange also has a settlement guarantee fund of Rs.800 crore.

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How is this not an outright lie? If the guarantee fund had dwindled to 60 cr. in March, why did he say that there was 800 cr. in it on August 1?

Or was it that March is just an excuse and the more well connected and powerful people have yanked off their own money upfront, leaving everyone else to hold the bag?

I know we are a third-world, corrupt country, but really, is this how we do things, by lying ? You want to complain about FDI again, about why they don’t want to invest in India?

Everyone that was part of this mess who is guilty of a fraud needs to go to jail. I don’t know whether legally this is “fraud” or not, but I believe this is pretty much as close as it gets.

  • Niftytrader says:

    This is outright fraud. You are correct. The guys close to Mr Shah have been bailed out.

  • Jose says:

    This looks so scary ! Whom do you trust ? No regulatory framework and no reporting ? Crazy. This is an outright ponzy exchange ! How do you trust the data of holdings in the warehouse ? its all on the basis of Warehouse receipts ? Will this be the next BIG one to crack up, when they do a physical verification ? The Govt or FMC must seal the warehouse and do a quick audit physically…or even there you may find only 10 % available to be auctioned.

  • I guess he’d included brokers’ margins in that figure of 800 Crores (IF at all they add up). This is simply misleading because brokers’ margins-which is often not hard cash but is in form of bank guarantees/financial securities belongs 100% to them/their clients. It cannot be utilized for settling defaults on the exchange. SGF is something entire different and formed by an initial capital interest earned on the same and any fines and penalties levied by the exchange goes to SGF-however I have serious doubt on 60 Crores too-not that it matters in the scheme of things.
    The fundamental promise of an exchange is this: “It is seller to every buyer and buyer to every seller.” Since the platform is anonymous and counterparties are matched by the exchange, there’s no way that one can pick and choose their counterparts in the trade-and hence the onus of settlement is on the exchange. Having earned it’s transaction charges due to this promise, NSEL cannot now make these trades bilateral and limit it’s responsibility to ‘best efforts’. In short-it has to pay up to rightful recipients NOW and deal with the defaulters at it’s own cost and convenience.
    In hindsight one can say that the ‘investors’ should’ve done their due diligence but it’s not a reasonable expectation that they’d inquire whether a product on offer at a national level exchange is not violative of any of the regulations. How many of us have bothered to ascertain if Nifty futures on NSE are compliant in all aspects? Beyond a point we just take is for granted. Although NSEL is a private entity but it’s an exchange that’s recognized by the govt of India and has been formed under the relevant laws. If the govt. doesn’t act fast and take-over NSEL and it’s parent FT in the manner it took charge of Satyam, it’ll leave a dent on credibility of Indian markets that’ll be difficult to repair any time soon.