Crisis deepening by day for NSEL, Financial technologies

The National Spot Exchange volcano is coming closer to erupting by the day, as multiple agencies and regulators unearth layers of dealings of the virtually defunct commodities exchange and its promoter, Financial Technologies (India) Ltd.

According to the most recent reports, the investigators are now looking into a possible collusion between NSEL officials, brokers and clients, including high net worth individuals and politically-connected entities.

Preliminary investigations conducted by the Securities & Exchange Board of India Ltd suggest that some brokers were touting structured financial products returns of 10-20 per cent to their wealthy clients under portfolio investment schemes.

The Forward Markets Commission (FMC) could issue a show-cause notice to FTIL as soon as next week questioning the group's ''fit and proper'' status.

The commodities regulator is in the final stages of drafting the notice which will be sent out next week, according to one report.

If the ''fit and proper'' tag is withdrawn, FTIL would have to sell its 26-per cent stake in the Multi Commodity Exchange (MCX), which is regulated by the FMC.

''In the eventuality of you losing your status as a fit and proper person, you cannot continue to hold directorship or shareholding in any of the recognised futures commodity exchange,'' the FMC told FTIL in a letter dated 20 August 2013.

The letter to the NSEL board said the non-settlement of outstanding trades on NSEL ''reflects on your credibility and reputation which is a key ingredient in meeting the fit & proper criteria''.

The Jignesh Shah promoted FTIL owns nearly 100 per cent of NSEL. The commodities exchange has been facing a Rs5,600-crore settlement crisis since late July.

Withdrawal of the ''fit and proper'' status could also have a bearing on FTIL-promoted equity exchange MCX-SX, which falls under the regulatory purview of SEBI.