Indian brokers said a lack of oversight allowed the nation’s biggest spot commodity exchange to stretch settlement dates, prompting a government clampdown that sparked a two-day, 73 percent crash in its parent’s shares.
The National Spot Exchange Ltd. suspended some contracts after the government on July 14 asked the bourse not to start new obligations until further notice. The NSEL broke rules by allowing settlement longer than 11 days and permitting sale of goods traders didn’t keep in its warehouses, according to the Forward Markets Commission, which regulates futures trading.
“There was some leeway in the rules,” Harish Galipelli, head of commodities and currencies at JRG Wealth Management Pvt., said in an interview from the southern city of Hyderabad. “The argument NSEL was following was that the contract takes place now and delivery takes place after 20 days.”
Regulators globally are expanding scrutiny of markets from power to metals after banks rigged the London interbank offered rate, a benchmark for $300 trillion of global interest-rate contracts. The suspension by the Indian exchange followed two weeks of communication between the NSEL and authorities, and prompted the government to ask the FMC to oversee a settlement between the brokers and the exchange.