India’s largest spot commodity exchange was shut down as regulators investigate possible trading violations

August 6, 2013, 2:19 p.m. ET

India Halts Spot-Metals Trade

Commodities Exchange Shut Down in Trading-Violations Probe


MUMBAI—India’s largest spot commodity exchange was shut down on Tuesday as regulators investigate possible trading violations. The government banned trading in all contracts operated by the National Spot Exchange, including gold, silver and base metals, Ramesh Abhishek, chairman of the Forward Markets Commission, told The Wall Street Journal. Mr. Abhishek didn’t say how long the suspension would remain in place. Tuesday’s ban was the final blow for the National Spot Exchange, which was forced to suspend trading in sugar, rice and other commodities last week after regulators alleged that the exchange allowed trades to be settled more than a month after they were made. Under India’s regulations, spot exchanges must settle trades within 11 days.The suspension of precious-metals trading on the National Spot Exchange had no effect on global gold prices, because the exchange’s $25 million daily bullion volume represents just a fraction of the gold traded in India.

Regulators are also investigating whether commodities were being traded on the exchange without the actual delivery of goods, Mr. Abhishek said.

As a spot market, the National Spot Exchange is supposed to facilitate the physical exchange of commodities, with buyers and sellers striking deals on goods deposited at warehouses.

In a statement Tuesday, the National Spot Exchange said it hadn’t received the government order on the metals-trading ban but it would suspend trading in all contracts as a precautionary measure.

Although the Forward Markets Commission oversees commodities trading in India, it suffers from a lack of staffing and must get permission for punitive action from the consumer-affairs ministry, which issued the ban on the National Spot Exchange.

The absence of any strong regulator directly responsible for overseeing spot exchanges led to the current situation, said Sudeep Bandopadhyay, managing director of Destimoney, a financial-services company.

“Probably something like this was required to wake up authorities and bring in proper regulation and ensure smooth functioning of the market.”

In New Delhi, K.V. Thomas, the minister of Consumer Affairs, Food and Public Distribution, said the government would look into the matter and take steps to strengthen the rules.

With the halt in trading, the National Spot Exchange is also facing a payment crisis.

The exchange has to facilitate payments of more than 55 billion rupees ($904 million) owed by buyers to sellers for the suspended contracts, Chief Executive Anjani Sinha said Thursday.

That amount is set to rise now that it has stopped bullion trading as well.

The exchange said Sunday that it has proposed to the regulator and its clients to settle most of the outstanding amount of the suspended contracts within the next five months.

Vice Chairman Jignesh Shah said the exchange would disclose details of the plan by Aug. 14.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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