CASE ST U DY

ON
NSEL
PRESENTED BY:
MANSI
MANAV
 INTRODUCTI
ON
• National Spot Exchange (NSEL) Is A Commodities Exchange In India, And Is A Joint Venture
Of Financial Technologies (India) Ltd. (FTIL) And National Agricultural Cooperative Marketing
Federation Of India (NAFED). National Spot Exchange Commenced Its Live Trading
Operations In Different Commodities On Wednesday, 15 October 2008. It Began Trading In
Pre-certified Cotton Bales For Mumbai Delivery And Imported Gold And Silver Bars For
Ahmedabad Delivery Immediately, And Has Since Added A Number Of Commodities.

• National Spot Exchange's Stated Mission Is To Develop A Common Indian Market By Setting
Up A Nationwide Electronic Spot Market And Providing State Of Art Trading, Delivery, And
Settlement Facilities In Various Commodities. This Exchange Is Now In The Middle Of A
Controversy Due To A Major Commodity Scam And All The Trades Have Been Stopped.
 SERVICES
•
OFFERED
Selling - NSEL provides an electronic trading and auction platform to sell commodities
(Agri, bullion and Metals).

• Procurement - Bulk buyers can procure the agri-commodities directly from farmers
through electronic platform provided by the NSEL.

• Warehousing - NSEL provides warehousing facilities for various commodities and also
facilitate to sell it through the electronic platform to the bulk buyers and millers situated
across the country.

• Investment - NSEL provides investment instruments. E-series products launched by NSEL

can be bought by the investors for accumulation in the demat account, just like the shares
in the equity market. Currently, E-Gold, E-Silver and E-Copper are available to
investors.

• Arbitrage - A trader can do arbitrage using different prices available for the same
commodity.
 FACILITIES OFFERED
• Single day trading contracts
• Intra-day trading with settlement of obligation on net basis
• All positions outstanding at end of the day resulting into compulsory delivery
• Demat delivery facility available
• Fungibility of delivery between National Spot Exchange and MCX with common ICIN
nos

• Loan facility against pledge of demat / warehouse receipt

• Cash futures arbitrage opportunity.
 E-SERIES PRODUCT
• For the first time in India, National Spot Exchange has introduced E-Series products in commodities. Retail investors can
now trade and invest in commodities like they invest in equities. This will be a unique market segment, which will
function just like cash segment in equities, but offer commodities in the demat form in smaller denominations.

• The clearing and settlement pay-in and pay-out will be based on a settlement cycle as per the practice in the stock
market. This instrument will provide ample opportunity to the masses as secured investment in their product basket of
diversification.

• NSEL launched its first product under the E-Series as E-Gold on Wednesday, 17 March 2010. Clients/retail investors
who wish to purchase E- GOLD units are required to open their beneficiary account with NSEL empanelled Depository
Participants (DPs) and disclose their client ids and DP ids to their respective members to enable them to transfer the
units to the respective client’s accounts. On receipt of demat ICIN in the CM-POOL account, the member should transfer
the same to the beneficiary account of the respective client.

• NSEL has made necessary arrangements with National Securities Depository Limited (NSDL), and Central Depository
Services (India) Ltd. (CDSL) is the depository for holding commodity units in the electronic form.

• E-series trading has been suspended w.e.f 5 August 2013 till further notice.
EFFECT OF NSEL
FRAUD…
As an effect of the NSEL fraud, the share prices of its promoter company FTIL crashed by 60-70%
resulting in massive erosion in the company’s market cap.
• The share prices of the sister company MCX (Multi Commodity Exchange Ltd) also took a beating.
• The FMC has already issued an order on FTIL, Jignesh Shah, Joseph Massey etc. that they are not
fit and proper to run any exchange in India.
• Jignesh Shah and Joseph Massey on 9 October 2013, had to resign from the board of MCX-SX
stock Exchange.
• FTIL has sold 15% stake of MCX to Kotak on 20 July 2014.
• Subsequent to a High Court directive the FMC got a monitoring and Auction committee(MAC)
formed to dispose liquidate assets of NSEL
 NSEL SCAM
• The NSEL scam is estimated to be a Rs. 5600 crore (around US$ 0.9 billion) fraud that came out to light after
the National Spot Exchange failed to pay its investors in commodity pair contracts after 31 July 2013. .

• It was subsequently concluded that most of the underlying commodities never did exist, and the buying and the
selling of commodities like steel, paddy, sugar, ferrochrome etc. was being only conducted only on paper. The
pair trades in various commodities were offered in one-day forward contracts of T+2 and T+25 (sometimes
even T + 35) payment terms (bought and sold at the same time).

• Such pair trades offered an arbitrage opportunity of about 12-15% return per annum. The investors, who
honored the T+2 payment obligation, found that the National Spot Exchange neither had the money, nor the
commodities, to honor their T+25 dues. Around 24 borrowers were given the funds by the NSEL, without any
underlying commodity deposited by those borrowers. One of those borrowers who borrowed around Rs. 1000
crores is a company named NK Protein Ltd., and is owned by the son-inlaw of the former Chairman Shankarlal
Guru of NSEL.
• An estimated number of 15000 investors, along with public sector units like MMTC and
PEC, were victims of this NSEL scam. The ROC report on NSEL fraud has come down heavily
on the promoters and the FTIL, as it was found that a majority of minutes of meetings of
the NSEL board were fabricated, as cell phone location data of the said board members did
not match to the meetings’ locations.

• Some of the warehouses mentioned on the NSEL website were found to be physically non-
existent, and the SGF (Settlement Guarantee Fund) – of around Rs 839 crores (about US
$140 Million), as on 29 July 2013, vanished into thin air.

• Anjani Sinha, the sacked CEO and the MD of the company, attempted to take the blame for
the fraud in order to exonerate other promoters, and filed an Affidavit. Mr. Anjani Sinha's
wife, Shalini Sinha, though being a related party, traded on MCX for about Rs. 40000
crores in one year through her company SNP Designs P Ltd. However Anjani Sinha after
arrest retracted his earlier affidavit and filed a fresh affidavit pinning the blame on the
board of NSEL stating that they fully knew what was going on at NSEL.
 EOW MUMBAI POLICE ACTION
• The EOW (Economic Offences Wing) of Mumbai police is presently investigating this fraud and the Mumbai police
has conducted various raids. An FIR (First Information Report) has been filed against the directors of the NSEL,
and the directors of their promoters i.e. Financial Technologies India Ltd, along with various other brokers allegedly
involved in the fraud. On 9 October 2013, Amit Mukherjee, the Assistant Vice-President (Business Development)
of NSEL, was arrested by the EOW of the Mumbai police marking the first arrest in the scam. Subsequently, a day
later on 10 October 2013, the EOW of Mumbai Police arrested Jai Bahukhandi, the former Assistant Vice-
President of NSEL. Former CEO and MD, Mr. Anjani Sinha, was the third arrest in the case; he was arrested a
week later on 17 October 2013. The EOW has since invoked the MPID (Maharashtra Protection of Investors
Deposit) Act, under which it can attach properties and assets of the accused, for the interest of the investors. Mr.
Nilesh Patel of NK Protiens Ltd., the biggest borrower from the NSEL, was arrested on 22 October 2013 who got
out on bail subsequently. Mr. Surinder Gupta of PD Agro-processors who owns Dunar brand rice has been arrested
by EOW on 5th March 2014. Mr. Gupta tried various delaying tactics with EOW , NSEL and investors.

• Soon after the news of the scam broke, FTIL claimed that the server that housed sensitive data related to the
company has crashed. The EOW was, however, able to access the mirror server on which forensic and investigative
tests are being conducted.
 ROLE OF THE MINISTRY OF CONSUMER
AFFAIRS, FMC & THE GOVERNMENT
• In a show cause notice, on 27 April 2012, based on the data provided by the Forward Markets Commission (India),
the Ministry of Consumer Affairs asked the NSEL to answer why legal proceedings should not be carried out against
the company given it was conducting illegal trades, and that there the company did not provide any apparent
mechanism to verify commodity stocks. However, until 12 July 2013, that is close to 15 months after the show
cause notice, no action was taken by the Ministry. The lack of early government intervention allowed the scam
amount to balloon to Rs. 5600 crores.

• It has been claimed that some political manoeuvring was done by various government entities to keep this SCN in
abeyance and that cost the investors their hard-earned money. Interestingly, a committee headed by Shri Arvind
Mayaram suggested that the entire system was an 'unregulated exchange' and the HNIs (High Net-worth
Individuals) invested with open eyes, pointing out the scam was the fault of the investors. However, the committee
ruled so ignoring the role of FMC – the designated agency to supervise NSEL from early 2012. Apparently, FMC
was aware of 'NBFC like activities' going on at NSEL and it is also claimed that FMC declined to file FIR against
NSEL in spite of being aware of SGS finding that there were not enough commodities in the NSEL warehouses.

• A panel of high-level officials, and headed by the Economic Affairs Secretary Arvind Mayaram, submitted to the
Finance Minister P. Chidambaram its report on the alleged irregularities at the NSEL. However, the report did not
reveal key shortcomings and acts of omission and commission by the bureaucrats of DCA and FMC was claimed to be
more of a cover up.
 FORENSIC AUDITS BY GRANT THORNTON ,
CHOKSI AND CHOKSI AND PWC
• At the behest of the Forward Markets Commission (FMC), the NSEL asked Grant Thornton to conduct a forensic audit
of the books of NSEL. The report, though not complete and with insufficient cooperation from NSEL, brought out
various glaring irregularities. On the basis of the Grant Thornton report, the FMC served a show cause notice to the
promoters of NSEL about their 'fit and proper' status to run exchanges.

• There are still wide differences between the books of the NSEL, and those of the most borrowers. The Grant Thornton
report also pointed out how Mr. Anjani Sinha wrote an internal email to stop using IBMA for rigging MCX prices, and
to use SNP Designs P Ltd (his wife Shalini Sinha's company) to conduct proprietary speculative trades on the exchange.

• As an inference, it was clear that the whole group NSEL/IBMA/MCX and the FT were working in tandem. Grant
Thornton has also been asked to conduct a forensic audit of MCX. Subsequent to a court petition by some investors of
NSEL, FMC has been directed by the Mumbai High Court to conduct a forensic audit of E-series bullion contracts of
NSEL.

• After petitions from certain NSEL pair trade investors, the Bombay high court directed the FMC to appoint a forensic
audit of E-series products of NSEL. An audit firm by the name of Choksi and Choksi was given this assignment and their
audit report has damning revelations against the promoters and FT group.

• The FMC also asked PWC to conduct an audit of MCX where after the audit a lot of related party trades and other
deviations were found which raised serious questions about the integrity and functioning of the FT group. It was learnt
that MCX paid Rs 17.76 crore either as donations or as professional charges to entities to which Sunil Daga Khairnar —
former director of NBHC and NSEL
 EFFECT OF FRAUD
• Asan effect of the NSEL fraud, the share prices of its promoter company
FTIL crashed by 60-70% resulting in massive erosion in the company’s
market cap. The share prices of the sister company MCX (Multi Commodity
Exchange Ltd) also took a beating.

• • The FMC has already issued an order on FTIL, Jignesh Shah, Joseph Massey
etc. that they are not fit and proper to run any exchange in India. Jignesh
Shah and Joseph Massey on 9 October 2013, had to resign from the board
of MCX-SX stock Exchange. Jignesh Shah was also compelled to resign from
MCX on 31 October 2013.
 POST SCAM
SCENARIO
• Over 30,000 investors in the e-series metal contracts that were suspended by
National Spot Exchange since August last year following a payment crisis of Rs
5,500 crore on the bourse will be able to either convert the units they
purchased for underlying metal or seek financial closure.

• Remat will commence from April 12 through April 23 and those who cannot
convert units into metals will be paid money in lieu of bullion or other metals
like platinum, zinc, lead, copper and nickel from May 6.

• NSEL said on Friday that rematerialization will only be feasible for those who
hold units either matching or exceeding the denominations offered by the
exchange of the underlying metals. All unit-holders can check the denomination-
wise stock availability as updated on www.nationalspotexchange.com/eseries .htm
before placing the request for rematerialization
• The investors, many of whom are not as well off as their counterparts in the so-
called paired or buy-sell contracts, which are at the heart of the NSEL scam,
can heave a sigh of relief after National Spot Exchange's announcement for
Remat and financial closure on Friday.

• The move, said NSEL, follows a no-objection to the settlement by commodity

market regulator(FMC), following results of a forensic audit, which found that
metals backing the units existed and that money used to purchase them prima
facie did not belong to investors in paired contracts.

• Subsequent to the rematerialization process, the exchange will commence the

'financial closure' of the balance units of e-series starting from May 6. Details of
the procedure have been updated on the NSEL website. The settlement of the
contracts was stalled following a complaint by a few National Spot Exchange
investors in the Bombay High Court, which ordered a forensic audit before the
contracts can be rematerialized.
 CONCLUSION

• The first lesson from the NSEL crisis is that if someone promises
easy money, there must be something wrong somewhere.

• Investors must seek complete clarity when any product promises

to give high returns for very long periods.

• There is nothing called a risk-free return if someone claims that

he is giving more than bank fixed deposits.
NORTH AFRICA (ALL COUNTRIES)
IMPORT & EXPORT
WITH INDIA
 EXPORT FROM INDIA TO ALL COUNTRIES OF NORTH AFRICA
S.No. Country 2010-2011 2011-2012 %Growth 2012-2013 %Growth 2013-2014 %Growth 2014-2015 %Growth 2015-2016 %Growth 2016-2017 %Growth 2017-2018 %Growth

1 ALGERIA 3,55,787.00 3,99,229.96 12.21 5,93,469.61 48.65 6,45,013.91 8.69 6,49,379.34 0.68 5,13,489.40 -20.93 5,64,343.84 9.9 5,30,692.45 -5.96

2 CANARY IS 63.91 2.58 -95.97 3.68 43 1.57 -57.4 11.34 623.05    

       
3 EGYPT A RP 9,02,643.27 11,73,550.17 30.01 15,71,394.15 33.9 15,56,074.22 -0.97 18,44,254.03 18.52 15,27,181.28 -17.19 13,85,513.44 -9.28 15,42,054.35 11.3

4 LIBYA 60,130.48 30,207.42 -49.76 1,17,077.46 287.58 1,73,359.68 48.07 99,870.23 -42.39 80,121.74 -19.77 80,457.47 0.42 78,655.52 -2.24

5 MOROCCO 1,44,923.07 1,78,911.73 23.45 2,32,115.60 29.74 2,32,978.98 0.37 1,99,260.59 -14.47 2,24,581.86 12.71 2,50,709.16 11.63 2,78,912.62 11.25

6 SUDAN 2,22,413.79 3,40,626.09 53.15 4,11,556.32 20.82 5,21,298.39 26.67 5,39,457.01 3.48 5,10,963.50 -5.28 5,02,101.20 -1.73 5,30,258.97 5.61

7 TUNISIA 1,28,162.45 1,36,882.73 6.8 1,62,992.28 19.07 1,66,031.59 1.86 1,52,610.65 -8.08 1,45,889.41 -4.4 1,71,246.69 17.38 1,81,649.74 6.07

  Total 18,14,123.97 22,59,410.67 24.55 30,88,609.10 36.7 32,94,758.34 6.67 34,84,843.19 5.77 30,02,227.18 -13.85 29,54,371.79 -1.59 31,42,223.65 6.36
India's Total 11,36,96,426.3 14,65,95,939.9 28.94 16,34,31,828.9 11.48 19,05,01,108.8 16.56 18,96,34,841.7 -0.45 17,16,38,440.4 -9.49 18,49,43,355.3 7.75 19,56,51,452.8 5.79
8 6 6 6 6 4 4 0

%Share 1.5956 1.5413 1.8898 1.7295 1.8377 1.7492 1.5974 1.606

             

Interpretation – Export from India to all countries of north Africa shows an positive growth in the year 2010-15 as compared to their previous
years but in the year 2015-17 it shows negative trend in growth, but again the year 2017-18 it shows an upward trend in growth
 IMPORT IN INDIA FROM ALL COUNTRIES OF NORTH AFRICA
S.No. Country 2010-2011 2011-2012 %Growth 2012-2013 %Growth 2013-2014 %Growth 2014-2015 %Growth 2015-2016 %Growth 2016-2017 %Growth 2017-2018 %Growth

1 ALGERIA 8,27,286.04 10,18,718.86 23.14 3,71,539.82 -63.53 5,23,166.26 40.81 3,37,952.50 -35.4 1,97,212.09 -41.65 4,05,542.09 105.64 8,13,219.02 100.53

2 EGYPT A RP 6,15,785.56 14,35,052.72 133.04 13,85,426.15 -3.46 14,39,114.11 3.88 10,64,543.80 -26.03 7,92,178.69 -25.59 7,81,042.81 -1.41 8,33,268.83 6.69

3 LIBYA 4,40,249.32 19,642.56 -95.54 9,98,030.08 4,980.96 2,64,475.55 -73.5 41,920.23 -84.15 5,644.55 -86.54 5,001.11 -11.4 65,269.87 1,205.11

4 MOROCCO 3,84,221.35 8,00,377.87 108.31 7,12,677.65 -10.96 5,38,786.44 -24.4 5,72,474.35 6.25 7,05,110.98 23.17 5,32,201.46 -24.52 5,02,532.51 -5.57

5 SUDAN 2,79,262.03 2,01,034.09 -28.01 69,302.80 -65.53 2,69,720.53 289.19 3,44,046.56 27.56 96,408.84 -71.98 1,63,660.76 69.76 2,91,730.41 78.25

6 TUNISIA 1,37,587.09 79,294.41 -42.37 1,16,567.60 47.01 55,730.38 -52.19 1,19,128.29 113.76 89,854.34 -24.57 76,858.72 -14.46 90,263.36 17.44

  Total 26,84,391.39 35,54,120.51 32.4 36,53,544.10 2.8 30,90,993.27 -15.4 24,80,065.75 -19.76 18,86,409.48 -23.94 19,64,306.97 4.13 25,96,284.00 32.17
India's Total 16,83,46,695.56 23,45,46,324.44 39.32 26,69,16,195.68 13.8 27,15,43,390.73 1.73 27,37,08,657.82 0.8 24,90,30,553.77 -9.02 25,77,67,536.67 3.51 30,01,03,343.34 16.42

%Share 1.5946 1.5153 1.3688 1.1383 0.9061 0.7575 0.762 0.8651

             

Interpretation – Import in India from all countries of north Africa shows an positive growth in the year 2010-13 as compared to their previous
years but in the year 2013-16 it shows negative trend in growth, but again the year 2016-18 it shows an upward trend in growth
IMPORT & EXPORT
OF
COMMODITIES
OF
NORTH AFRICA
WITH INDIA
 EXPORT OF COMMODITIES FROM INDIA TO ALL COUNTRIES OF NORTH AFRICA
S.No. HSCode Commodity 2016-2017 2017-2018 %Growth

1 87 VEHICLES OTHER THAN RAILWAY OR TRAMWAY ROLLING STOCK, AND PARTS AND 3,81,893.47 4,03,900.23 5.76
ACCESSORIES THEREOF.  

2 84 NUCLEAR REACTORS, BOILERS, MACHINERY AND MECHANICAL APPLIANCES; PARTS 2,13,528.63 2,27,313.28 6.46
THEREOF.  

3 2 MEAT AND EDIBLE MEAT OFFAL.   2,74,969.00 2,01,010.37 -26.9

4 52 COTTON.   1,65,699.61 1,96,327.23 18.48
5 29 ORGANIC CHEMICALS   1,86,523.66 1,78,903.67 -4.09
6 39 PLASTIC AND ARTICLES THEREOF.   1,59,988.57 1,49,608.79 -6.49
7 27 MINERAL FUELS, MINERAL OILS AND PRODUCTS OF THEIR DISTILLATION; 83,299.75 1,46,763.12 76.19
BITUMINOUS SUBSTANCES; MINERAL WAXES.  

8 89 SHIPS, BOATS AND FLOATING STRUCTURES.   64,33,032.44 1,37,894.19 2.14

9 17 SUGARS AND SUGAR CONFECTIONERY.   1,09,987.14 1,35,676.10 23.36
10 30 PHARMACEUTICAL PRODUCTS   1,27,671.64 1,21,880.74 -4.54

Top Commodities having HS code 87,84,52,27,89,17 have increasing growth Trend in latest year where as top commodities
having HS code 2,29,39,30 shows an negative trend in growth.
 IMPORT OF COMMODITIES TO INDIA FROM ALL COUNTRIES OF NORTH AFRICA
S.No. HSCode Commodity 2016-2017 2017-2018 %Growth
1 27 MINERAL FUELS, MINERAL OILS AND PRODUCTS OF THEIR DISTILLATION; BITUMINOUS 9,34,319.40 16,07,167.07 72.01
SUBSTANCES; MINERAL WAXES.  

2 28 INORGANIC CHEMICALS; ORGANIC OR INORGANIC COMPOUNDS OF PRECIOUS METALS, OF 4,41,816.14 4,32,765.27 -2.05
RARE-EARTH METALS, OR RADI. ELEM. OR OF ISOTOPES.  

3 25 SALT; SULPHUR; EARTHS AND STONE; PLASTERING MATERIALS, LIME AND CEMENT.   2,06,995.66 2,00,965.89 -2.91
4 52 COTTON.   42,021.58 50,838.51 20.98
5 12 OIL SEEDS AND OLEA. FRUITS; MISC. GRAINS, SEEDS AND FRUIT; INDUSTRIAL OR MEDICINAL 51,295.01 47,953.97 -6.51
PLANTS; STRAW AND FODDER.  

6 7 EDIBLE VEGETABLES AND CERTAIN ROOTS AND TUBERS.   48,299.08 29,648.73 -38.61
7 76 ALUMINIUM AND ARTICLES THEREOF.   12,086.62 24,722.57 104.54
8 70 GLASS AND GLASSWARE.   13,178.67 23,342.69 77.12
9 8 EDIBLE FRUIT AND NUTS; PEEL OR CITRUS FRUIT OR MELONS.   20,566.42 16,771.98 -18.45
10 44 WOOD AND ARTICLES OF WOOD; WOOD CHARCOAL.   8,754.49 16,606.99 89.7

Top Commodities having HS code 27,52,76,70,44 have increasing growth Trend in latest year where as top commodities having
HS code 28,25,12,7,8 shows an negative trend in growth.
FUTURE PROSPECTS OF NORTH AFRICA
 1. YOUNG POPULATION WITH GROWING LABOUR FORCE

A highly valuable asset in an ageing world. In 2034, Africa is expected to have the
world’s largest working-age population of 1.1 billion. In recent times, it has had some
success in creating jobs – 21 million new stable (formal, wage-paying) jobs over the
past five years, and 53 million over the past 15. Stable jobs grew at a rate of 3.8%
between 2000 and 2015, 1% faster than growth in the labour force. This is still far
from the job-creation trajectory North Africa needs to fuel future growth, but it is
progress.
2. NORTH AFRICA IS STILL URBANIZING

• NORTH AFRICA IS STILL URBANIZING AND MUCH OF THE ECONOMIC BENEFIT

LIES AHEAD. PRODUCTIVITY IN CITIES IS THREE TIMES AS HIGH AS IN RURAL
AREAS AND, OVER THE NEXT DECADE, AN ADDITIONAL 187 MILLION AFRICANS
WILL LIVE IN CITIES, ACCORDING TO THE UNITED NATIONS. THIS URBAN
EXPANSION IS CONTRIBUTING TO RAPID GROWTH IN CONSUMPTION BY
HOUSEHOLDS AND BUSINESSES.
• THE IMF STILL FORECASTS THAT NORTH AFRICA WILL BE THE SECOND-FASTEST
GROWING REGION IN THE WORLD BETWEEN 2016 AND 2020 WITH ANNUAL
GROWTH OF 4.3%. WHAT THE PAST FIVE YEARS HAVE PROVED, HOWEVER, IS THAT
AFRICA’S ECONOMIC LIONS NEED TO IMPROVE THEIR FITNESS IN ORDER TO
MAKE THE MOST OF THEIR POTENTIAL AND CONTINUE THEIR MARCH TOWARDS
PROSPERITY.
THANKQ