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Could any body explain about the issue of NSEL that is in news now. Thanking you in advance.
Regards, Sandeep
NSEL provides a platform for auction and trading of various commodities from Agri products-metals-bullion and energy.
NSEL is a spot exchange, means one can have a trade with a short term delivery of physical commodities, while trading was done in electronic version.
What went wrong?
Phase I
>To increase their trading (volume/brokerage/avail money) they created electronic versions of precious metals, without having them in tangible form and assured investors that the investment is safe and risk free.
>The amount collected was used in loaning business/lending across the country without the knowledge of the investors about the actual utilization of money (whether the business owners used the money for buying the respective commodities or used the money for other purposes)
Phase II
>Instead of being a SPOT exchange they made forward contracts (which was not opposed by FMC) with the business owners who availed the loans on the basis of the warehouse receipts, which created an ALM (Asset-Liability Mismatch) problem and was likely to default for payments.
> The total of such contracts which aren't backed by any commodity crossed Rs 5500 crores, total investors 13000 and the money is now with those business owners.
>Most of the money was channeled to known business owners/family relatives/etc.
>Brokerage charged was 5-6% which is 5-6 times of equity spot (Intraday) trading.
They announced bailout but yet to fulfill those promises.
PS: Other members are welcome to rectify mistakes.
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Comments
NSEL is a spot exchange, means one can have a trade with a short term delivery of physical commodities, while trading was done in electronic version.
What went wrong?
Phase I
>To increase their trading (volume/brokerage/avail money) they created electronic versions of precious metals, without having them in tangible form and assured investors that the investment is safe and risk free.
>The amount collected was used in loaning business/lending across the country without the knowledge of the investors about the actual utilization of money (whether the business owners used the money for buying the respective commodities or used the money for other purposes)
Phase II
>Instead of being a SPOT exchange they made forward contracts (which was not opposed by FMC) with the business owners who availed the loans on the basis of the warehouse receipts, which created an ALM (Asset-Liability Mismatch) problem and was likely to default for payments.
> The total of such contracts which aren't backed by any commodity crossed Rs 5500 crores, total investors 13000 and the money is now with those business owners.
>Most of the money was channeled to known business owners/family relatives/etc.
>Brokerage charged was 5-6% which is 5-6 times of equity spot (Intraday) trading.
They announced bailout but yet to fulfill those promises.
PS: Other members are welcome to rectify mistakes.