NSEL fiasco: Forward Markets Commission to order special audit of Multi Commodity Exchange

MUMBAI: Amid arrests of National Spot Exchange Ltd (NSEL) officials and unraveling of the fraud, the commodity market regulator is preparing to widen its probe.
Forward Markets Commission (FMC), the regulatory authority, has decided to order a special audit of Multi Commodity Exchange (MCX), the listed commodity futures bourse and cash cow of Jignesh Shah's empire.The audit will focus on a detailed examination of trades on MCX by related parties, particularly by the FT group entity Indian Bullion Markets Association (IBMA), a source with direct knowledge of the decision told ET.
The scope of the proposed independent inspection may be extended to cover whether margin money brokers have to chip in for leveraged trades were lowered or waived to benefit some of them. The Rs 5,400-crore scam at the FT-owned National Spot Exchange Ltd, which is not regulated by FMC, has also turned the glare on commodity futures exchanges that are under the commission's direct supervision.
It's believed that FMC is taking a closer look to find out if sharp and often fraudulent transactions at NSEL had influenced trading volumes on MCX. Based on market intelligence and complaints from the trading community, the regulator, it's learnt, is finalising a set of new rules on expenditures and disclosures for all commodity futures bourses. Money spent by futures exchanges on publicity, donations and sponsorship of events have to be disclosed and expenditures of more than Rs 25 lakh will have to ratified by the board and, in case of urgency, by the audit committee.
"This could well be an attempt to discourage an exchange to pay off brokers and other influential authorities using a circuitous route like donations or sponsorships. Such pay offs to brokers indirectly increases their leverage. Since an exchange cannot officially lower the margin amount, which is fixed by the regulator, these can be ways to compensate them," said a senior official with a market intermediary. Under the new rules that are expected to be announced soon, all related party dealings will have to be reported to the board of the exchange. The board will also have to be kept informed on risk management practices, margins, Settlement Guarantee Fund, audits of warehouses where commodities are stocked, defaults, violations and show-cause notices.