NSEL says no discrepancy in e-series stock holdings in vaults
Moneylife Digital Team 05 September 2013

NSEL said it is in the process of providing an exit window for investor to liquidate the e-series units and realise cash payments

Crisis-ridden National Spot Exchange Ltd (NSEL) on Thursday said that its stock positions of gold, silver and platinum, for e-series contracts tallies with depository records and there are no discrepancies in e-series stock holdings in vaults.

 

"In order to facilitate the investors to liquidate the e-series units, NSEL is in the process of providing an exit window to sell their units and realize cash payments, subject to necessary approvals," the Exchange said in a release.

 

NSEL said it has also posted the relevant audit report by Sharp & Tannan Associates on its website.

 

Last month, NSEL sacked its chief executive Anjani Sinha, accusing him of having hushed up the fact that warehousing receipts (WRs) are not backed by physical stock of commodities.

 

According to a report from Business Standard, one crucial difference that everybody overlooked (in NSEL saga) was that these (forward) contracts should have been backed up by the goods in the warehouses. Nobody seemed to verify whether the goods actually existed or not. Brokers started giving out contract notes to hundreds of investors backed against just one warehouse receipt (you cannot split a receipt). The warehouse receipt acted as title to the stock. The broker was taking a risk on the warehouse receipt, the report said.

 

Since the middle of July 2013, trading in NSEL has been suspended. NSEL has failed to make payouts to investors and failed to recover money from those who were supposed to make pay-ins. It now appears that there is not enough stock of commodities in the warehouses of NSEL against which warehouse receipts were issues. In August 2013, trading in e-series was also suspended. This was of concern for large number of investors who had purchased e-series products like e-gold.

 

The Exchange owes its investors at least Rs5,600 crore against investments made in stocks warehoused by NSEL. As a precautionary measure, the government of India on 6th August directed the Exchange to suspend the e-series contracts from trading.

 

E-series contributed about 40% of NSEL’s Rs18,315-crore total turnover in June. E-series contracts is a unique market segment, which functions like the cash segment in equities, but offers commodities in the demat form in smaller denominations.

 

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