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Commentary

Will Pay Back in 20 Weeks: NSEL

NSEL might settle in five months, says Hindu BusinessLine.

The embattled National Spot Exchange Ltd (NSEL) has agreed to settle Rs 5,400 crore due to over 10,000 investors within five months (20 weeks), at the rate of about 5 per cent every week.

This is good. However these investors – the guys who get their “principal” back at 5% a week aren’t coming back to this market. You can’t move back after the move from a high return *on* capital to a fear of return *of* capital.

But there are chinks in the plan, says Business Standard:

NSEL on Friday submitted a detailed road map to the FMC for investors’ payment. But the commodity derivatives market regulator understandably expressed apprehensions about the use of money under the settlement and guarantee fund which, according to existing regulations, can be used for settling the account of the contributor to the account only. This means, one broker’s contribution cannot be used for settling the account of another broker. The FMC raised apprehensions on this ground.

  • ARP says:

    The biggest beneficiary it seems is the GoI. In the castor oil example you gave (ref Ventura), the GoI makes nearly Rs 36,000 on every settlement – (VAT of 5% on contract value of Rs 7,30,000 approx).
    The GoI earns Rs 36,000 every 44 days per contract, which works out to nearly Rs 3 lakh per year.
    So ironically, an “investor” investing Rs 10L would earn around Rs 1.5L at the end of the year, whereas GoI gets at least Rs 3L risk-free without doing anything.

    • Adheer – the government doesn’t have to “do” anything. you don’t pay them for using hte roads, do you? Or for running the army? But you pay through taxes, which is what VAT is…

      • ARP says:

        @Deepak,
        When I meant “without doing anything”, it was in the context of regulating this exchange.
        Looking at the trading volumes on NSEL, the VAT generated seems to be pretty good revenue stream for the GoI considering that NSEL was more or less a virtual ecosystem.
        Why kill the golden goose suddenly instead of gradually regulating it ?

        • Oh the department that regulates them is way different from the department that collects the revenue so there are very different incentives at work here 😉