Ban on e-series: How govt brought NSEL to a grinding halt

The government has finally bit the bullet and asked the National Spot Exchange, which is struggling to settle dues to its members, to withdraw the e-series contracts too, the only ones now being traded on the exchange now.

This virtually brings the functioning of the exchange to a grinding halt.

E-series contracts allowed investors to buy and sell commodities in demat form.

A CNBC-TV18 report said the ban applies to gold, silver, zinc, lead, nickel and platinum contracts.

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According to a report in the Business Standard, these contracts had volumes of Rs 250-300 crore and formed 30 percent of the exchange’s overall volumes. This tumbled to just Rs10-15 crore after the precipitation of the crisis.

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So, as per the CNBC-TV18 report, this is unlikely to have any financial impact on the exchange, but the message that it should not function until the issues are resolved is loud and clear.

After the government’s directive on other contracts, the exchange also put the e-series under trade-to-traded segment, which disallowed intraday-day investors. The traders were also to settle the deals in 2 days after the transactions day.

Meanwhile, the regulator Forward Markets Commission (FMC) said the exchange has been told to give preference to small investors while settling dues.

According to a report in the Economic Times, of the 13,000 investors, around 7,000 have invested Rs 10 lakh or less in the contracts in which NSEL suspended trades earlier.

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However, the question that begs an answer still is why did it take so long for the government to act. The problems with the NSEL product was brought to its notice last year and the authorities dilly-dallied. By the time they acted, the damage was already done to a few investors and it only created panic in the market.

At least now, there is a sense of urgency. The CNBC-TV18 report says that that the FMC will finally be the regulator for the spot commodity exchanges and an announcement is likely anytime in the next few weeks.

Investors are eagerly waiting for the August 14 deadline, when the NSEL will come out with the settlement schedule.