It may be curtains for the National Spot Exchange Ltd which is facing a crisis in settling dues of Rs 5,600 crore to investors.
With the Government planning to bring in necessary legislative changes to ensure that only regulated entities are allowed to use the term ‘exchange’ as part of their nomenclature, NSEL may not be able to resume business, at least in its current avatar.
“If the recommendations are accepted and the necessary amendments are done, then no one other than a regulated exchange can use the term. When you say no one, it means from that day onwards (the date of notification to the amendment),” a senior Finance Ministry official told
Panel report
The move emerged after a committee appointed by the government to examine the NSEL issue, submitted its report last week.
The panel was headed by Economic Affairs Secretary Arvind Mayaram.
Implementing the move will require amending the Securities Contract Regulation Act (SCRA) and adding a provision in the pending Forward Contract Regulation Act (FCRA) Amendment Bill. These changes will allow only authorised, regulated entities to use the word ‘exchange’ in their names, the official added.
This may also mean that only the entities regulated by the Securities Exchange Board of India (SEBI) and the Forward Markets Commission (FMC) will be permitted to use the word ‘exchange’. This will be in line with the use of the word ‘bank’, which can only be used by Reserve Bank of India (RBI)-regulated entities. However, an exemption has been made for blood banks.
The official said the word ‘exchange’ had some significance, which is why there was need to restrict its use. In market parlance, ‘exchange’ refers to a regulated marketplace where capital market products are bought and sold through intermediaries. Accordingly, stock exchanges are recognised under Section 4 of SCRA and are regulated by SEBI.
However, for the commodity market, the word ‘association’ has been used for a regulated marketplace conducting forward trade under FCRA.
That’s why there is a view that the word ‘exchange’ should be substituted by ‘association’ in the relevant regulations for forward contracts in commodities, the official said.
“Foreign media reported that an exchange had failed in India. This gave bad publicity to our stock exchanges, which are well regulated and working smoothly,” the official added.
NSEL was set up to provide one-day contracts in commodities and was exempted from regulation by the FMC. In fact, there was no regulator for this exchange.
Even Finance Minister P. Chidambaram had said that NSEL was not a registered or recognised association under the FMC and had got exemption even before it started its business.
The FMC does not regulate the online commodities market, and can only regulate the forward market of commodities. SEBI has control over both spot and forward trading in equities. SEBI is under the Finance Ministry and now FMC, too, has been brought under the same Ministry.