Friday, October 18, 2013

NSEL SCAM: FMC unleashes slew of actions to shake up MCX functioning

Appoints 2 independent directors, clears appointment of IFCI’s Tomar and Corporation Bank’s
Commodities markets regulator Forward Markets Commission (FMC) on Thursday appointed G Anantharaman and Pravir Vohra as independent directors on the Multi Commodity Exchange of India (MCX) board.

FMC has also approved the appointment of IFCI chief credit officer Shivendra Tomar and Corporation Bank General Manager P Paramashivam as institutional shareholder directors on the board of the exchange.

Other institutions are likely to nominate directors soon.

Through the next few days, FMC is planning a slew of measures that would change the face and functioning of the country’s largest commodity bourse.

The FMC action is part of its efforts to clean up the bourse, which accounts for about 85 per cent of trades in the country, and insulate it from risks emanating from the 5,600- crore payment crisis at National Spot Exchange Ltd (NSEL).

Anantharaman, former member, Securities and Exchange Board of India (Sebi), would hold the position till June, when he turns 70.

FMC has set 70 as the upper age limit for directors of commodity exchanges. Anantharaman brings with him rich experience in the legal and market surveillance areas, which he dealt with while at Sebi. He has also dealt with sensitive investigations in his earlier role as director general of income tax.

Till recently, Vohra was chief technology officer, ICICI Bank. He is experienced in information technology strategy and enterprise architecture, according to his published profiles. “ These new directors will join the nominees from shareholder institutions such as IFCI and banks, which are expected to come in soon,” said an FMC official.

FMC would also address stakeholders’ concern that board- level changes cannot address the operational management of the exchange, as this was still under the control of those appointed by the exchange’s tainted promoters. “ We will remove certain key employees in the coming days for allowing IBMA, a related party, to trade... Both Shreekant Javalgekar, managing director and chief executive, and Dipak Shah, its head of surveillance, will have to go,” the official added.

Javalgekar was on the board of IBMA, which was trading on both MCX and NSEL. Earlier this week, an MCX spokesperson had told Business Standard, “ MCX has an automated trading system, with virtually no human interference. Calls for margin money are automated, with adequate provisions for informing members about their margin requirements and settlement dues. Moreover, the system does not waive or lower margin money for members’ leveraged trades. Members are not allowed to take new positions without the requisite margin requirements and the system automatically squares off all such outstanding positions.” A temporary managing director and chief executive would be appointed and an oversight committee to supervise the functioning of this temporary management would also be constituted.

FMC would also direct the board to initiate a special audit. Grant Thornton, the global consultancy that conducted a forensic audit on NSEL, is likely to conduct the special audit. “ We are happy with the work done by them on NSEL. The terms of reference for this special audit would be decided by us,” the regulator said.

Paramashivam as institutional shareholder directors, orders special audit by Grant Thornton
National Spot Exchange Ltd’s promoters, directors and defaulters now face attachment of movable and immovable properties from the economic offences wing ( EOW) of the police here, in connection with the ₹ 5,600- crore payment disputes case.

The EOW has got a recommendation it had sought from the collectors of Mumbai District and Mumbai Suburban District for the invocation of provisions of the Maharashtra Protection of Interest of Depositors in Financial Establishments Act, 1999, against these people. This would enable it to take action in this regard.

EOW deputy commissioner Balsing Rajput told Business Standard: “ We will issue notices from Friday onwards to the NSEL promoters, directors and defaulters under the Act’s provisions. (We) will be in a position to attach the movable and immovable properties of those against whom the FIR ( police case) has already been lodged, on charges of cheating, forgery and breach of trust.’’ Deputy collectors from the two districts will be the ‘ competent authority’ in line with the Act’s provisions. Once attachment is done by EOW, the competent authority comes into the picture for disposal of these through auction. The said Act envisages, on conviction, punishment for a promoter, partner, director, manager or any other person or employee of a financial establishment for afraudulent default with jail up to six years and a fine up to 1 lakh.

The government can conduct the attachment exercise through the appointment of a competent authority, pending further orders from the designated court.
SANJAY JOG, Mumbai, 17 October

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