India gripped by commodities exchange woes India's government would seem to have enough to worry about with its diving currency and growing concerns about economic stability. But the deepening anxieties are being compounded by a more local worry: the shutdown of a commodities exchange that has left prominent domestic brokerages facing potentially heavy losses and has led to broker demands for a government rescue package for the bourse. National Spot Exchange Limited (NSEL) suspended trading earlier this month after a government investigation over alleged trading violations, which prompted investors to pull out funds, leaving Rs55bn ($868m) in unpaid liabilities. The ensuing row has gripped India's domestic financial community, pitting aggrieved brokers and their clients against NSEL's owners - bourse operator Financial Technologies and its backer Jignesh Shah. Initially the suspension was interpreted as a cautionary tale of lax oversight in India's often-opaque financial markets, as it emerged that clients of the brokers had been allowed to take out unregulated longer-term forward contracts, rather than spot contracts in commodities such as sugar and wheat, the type of physical trade that the bourse was established to handle. As a result, questions arose over whether there was actual delivery of the commodities that were being traded. "The problem was there was no regulator for this, but some of these brokers were well aware that things here were not kosher for quite a few months now, so the idea they should be bailed out is bizarre," say Anirudha Dutta, a former head of India research at brokerage CLSA. But gradually people realised that the commodities that were meant to be used as collateral in these deals may not all have been there and people panicked . . . the whole thing had a pretty wild west feel about it. While the debacle has been seen as a sideshow to the recent turmoil in the country's currency market over worries about the country's economic problems - slowing growth, rising inflation and its current account deficit - some analysts have suggested that it is contributing to the wider turbulence, and could further exacerbate the country's difficulties. "The notion that this may present a larger systemic risk, especially given the current market, is being underplayed," says Praveen Chakravarty, chief executive of Anand Rathi Investment Banking. The question is can this now become a larger problem in which exchanges, small agri commodities traders and local brokers might come close to failure, or in which these liquidity problems cascade to other asset classes, including private equity. If I were a foreign investor, I would be concerned about this. A number of Indian brokerages have exposure to NSEL. The commodities brokerage division of Mumbai-based Anand Rathi group and a number of its clients are owed more than $100m of the total liabilities. On Tuesday the out-of-pocket brokers are set receive the first in a series of repayments from NSEL, which has denied wrongdoing and pledged to repay its liabilities, although many analysts doubt its ability to do so and continue to express concerns over the wider implications of its difficulties. "I think it's probably an add-on rather than a direct cause of the market's fall today and last week," says Andrew Holland, chief executive of Ambit Investment Advisors in Mumbai. But it is definitely an additional problem that India really doesn't need to be dealing with right now.