The Forward Markets Commission (FMC) on Sunday appeared to have averted a possible payments crisis on the National Spot Exchange (NSEL) following the suspension of settlements since July 31. While NSEL has confirmed that around 40% of the outstandings on the exchange of Rs 5,599 crore will be honoured,FMC chairman Ramesh Abhishek was,at the time of going to press,attempting to persuade other members to pay up as soon as possible. Abhishek met with brokers and NSEL officials in a five-hour-long meeting to try and hammer out a solution to a possible payments default. It was not,however,clear whether the FMC had been able to verify whether NSEL has the Rs 6,200 crore of stocks that it claimed to have. Earlier in the day,NSEL said eight of its members had agreed to to pay R2,181 crore or 39% of the total outstanding position of R5,599 crore on or before September 13. At the meeting,the FMC attempted to persuade 13 others who had requested for three to five months time to pay up earlier. These 13 members have dues of R3,107 crore and had offered to pay 5% of the amount every week. The FMC is understandably reluctant to wait for post-dated cheques to be encashed NSEL had said it has post-dated cheques worth R4,900 crore from processors against their obligations. The exchange is also talking to three processors whose dues are Rs 311 crore. While talks were on at the time of going to press,brokers appeared to be satisfied with the discussions. We are reassured after the talks and are hopeful our clients will receive their money on time, said India Infoline chairman Nirmal Jain. On Saturday,NSEL officials met Abhishek and submitted details of how it planned to settle the outstanding contracts. There has been concern in the financial and commodities markets that NSEL might not have adequate stocks to settle outstanding contracts the exchange has said it has stocks worth Rs 6,200 crore. Last Wednesday,NSEL was forced to suspend new contracts,except e-gold and e-silver,and defer settlements after the government said the exchange was violating rules by allowing contracts of tenures longer than 11 days. However,in case of any default by a member,which would lead to a long litigation process,the options have been proposed and the final decision would be taken after due consultation with all stakeholders,the exchange said. Although the exchange says it has stocks to auction in case of default,the process will be time-consuming because then the government may intervene to oversee the entire process of settlement. Moreover,a market source said auctioning stocks to settle the dues may not augur well for NSEL because those who will participate in the process may quote significantly lower prices for the commodities in an attempt to take undue advantage of the crisis. Such distress sales may fetch far less and may hurt NSEL further,which is why the exchange may prefer to keep auction as the last option. Abhishek clarified on Friday that it was the responsibility of the exchange to ensure that stocks were in place,adding that in the event of any default,the exchange would auction stocks to ensure transactions were settled.
