National Spot Exchange chief executive Anjani Sinha said his bourse has enough physical stock in the form of warehouse receipts to tide over any liquidity problems.
In an interview to CNBC-TV18, Sinha said that the value of outstanding contracts to be settled because of the revised DCA rule, is around Rs 5,400-5,500 crore.
“The total exposure is covered by the stock, the current value of stock held by the exchange is 6,200 crore,” he said, adding ” the stock is more than sufficient to cover the overall exposure, in fact there is nothing to worry for the participants or members or clients.”
Rumours of a payment crisis at the NSEL has been doing the rounds over the last couple of days after the exchange said it would be merging delivery and settlement of all pending contracts, other than e-series, and deferring pay-out by 15 days.
“Right now, there is no default so we have not liquidated any stock but in future in the process of the settling, if we have to liquidate the stock then we will do that,” Sinha said.
Below is the edited transcript of Anjani Sinha's interview with CNBC-TV18
Q: Could you tell us what the outstanding amount is and how much of it is covered by guarantees, inventory?
A: The total exposure is covered by the stock, the current value of stock held by the exchange is 6,200 crore.
Q: How much is the outstanding position?
A: If we calculate all the exposures on the system it will be due for a settlement over a period of next one- one-and-a-half month. So, that figure will not be more than 5400-5500 crore. Therefore, that way stock is more than sufficient to cover the overall exposure, in fact there is nothing to worry for the participants or members or clients.
Q: What was your trade guarantee fund, how much money is there in your guarantee fund?
A: It is around Rs 800 crore guarantee fund.
Q: You are saying that the Rs 6,200 crore is the amount of warehouse receipts you have?
A: It is a physical stock what we hold.
Q: Have you had to liquidate any of these physical stocks?
A: No, right now we have this stock. That will be liquidated over a period of time in case there is any default. Right now, there is no default so we have not liquidated any stock but in future in the process of the settling, if we have to liquidate the stock then we will do that.
Q: Whatever Anjani Sinha has said at least for the present gives comfort. Only thing is that this entire process needs to be done on a warfront basis and you should not wait for 15 days to start paying the people based on each date on which even after seven days if they start repaying for the first day of which the payout did not happen then people will get a lot of comfort in the entire process?
A: It is the process that we are following. We are not saying that it will happen only after 15 days. Rather this 15 days period is required for the purpose of conducting auctions and settlement and all.
Q: If such a large amount comes into the market, will your auctions fetch you less than what the stuff is worth?
A: The entire amount is not required to be auctioned. A lot of people are still paying money and based on that settlement will keep on happening. Option will be reported only in case there is a difference and only in case person is not able to pay for the spot buying. Otherwise, if people keep on paying, we will keep on declaring payout. As soon as the auction takes place or money is paid by people, we will keep on declaring payouts.
Q: What are the approximate amounts you can settle now like today, tomorrow or in the next seven days? Can you give a ballpark figure as to how much probably your members will be able to arrange?
A: Today we are taking stock of the situation. We are speaking to all parties involved and connecting cash margin and pay-in amount from them. By end of today or tomorrow, we will be declaring the schedule of pay-in and payout.
Q: If you are saying that you are comfortable with the stock in the warehouses and you have enough margin in hand then why have you suspended trading and settlement process? Where do you see the default coming in from? Did you get indications from brokers that they will be defaulting and they will not be taking delivery of the stock? Why did you pre-empt the entire issue without facing any default crisis?
A: The reason is that when we got the directive from Ministry of Consumer Affairs that we should not launch any fresh contracts and existing contracts should be settled on due date after that we submitted our undertaking. We have also clarified that we will be converting all the existing contracts into T+10, so there is no ambiguity relating to delivery period.
Our expectation was that market will take it in the same manner, all participants will participate and there will be no disruption in the market but because of this regulatory issue still a lot of people have not participated. They feel that there should be some clarification coming from department that there is no issue relating to T+10 contracts. If such clarification comes then function levels will be restored and market will resume in the same manner.
Q: What is the clarification that you are seeking from the department?
A: That we modified all existing contracts into T+10, so in T+10 contract the department doesn’t have any regulatory issue.
Q: Have you sought such a clarification from the department, when you say department do you mean the finance ministry?
A: Department of Consumer Affairs.
Q: Is there any external agency which is regulating the stock, which you are having in the warehouses, how can we come to know that you have that stock worth Rs 6,200 crore which is lying in the warehouses because they are having question marks in terms of validity of goods in the warehouses in the last few days? How much cash you are sitting on and will there be any need to use any cash from either your books or FT’s books because they owe nearly 100 percent in your company, if the entire programme that you said of liquidation of the stock in next 15 days does not happen?
A: Basically it is like this that most of the liquidity will come by way of money paid by the payable brokers. In case of any difference arising from there, money will come by way of auction of commodities. In case of any difference arising out of difference in prices, the settlement guarantee fund will be used to that extent. So far as the stock position is concerned, that is well published on our website. It also includes the quantity and stock held in various warehouses in various commodities. It is also revised on week-to-week basis.
Q: Who are the top five trading members for NSEL?
A: The biggest exposure right now in terms of big broking houses would be Anand Rathi Commodities, Motilal Oswal and other broking houses. The total membership of the exchange consists of around 800 members with large number of trading terminals.
Q: Am I right to say and Anand Rathi, Motilal Oswal which you mentioned, they could be having exposure over Rs 500 crore each as the biggest trading members on NSEL?
A: No, we cannot say that. The exposure is pertaining to the client. So clients take position based on their own comfort. What is the current figure of a specific broker, I will not be able to tell you right now.
All the leading broking houses are members of our exchange and they keep on participating based on the client’s response.
Q: There are other few names like Edelweiss, India Infoline, Religare, are these also comes under the top 5 trading members for NSEL?
A: Yes, most of them are – we can say top 25 members consist of all broking houses.
Q: So who are you regulated with now because after the T+10 settlement coming in wherein you moved into T+10, who will be the regulating body in terms of seeing everything whatever happens in the next 15 days?
A: That will depend upon the new regulatory framework, which was in pipeline and that maybe announced in near future. Right now the exchange functions under the various notifications issued by department of consumer affairs.
Q: The forward markets commission which will check whether you have adequate stocks whether you have been maintaining your trade guarantee fund?
A: They can do anything. There is no issue.