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Sebi bars five brokerage houses for six months

Source: PTI
November 29, 2022 23:15 IST
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Capital markets regulator Sebi on Tuesday barred five brokerage houses for up to six months from making fresh applications seeking registration as commodity brokers as they failed to meet 'fit and proper' criteria in the NSEL case.

Sebi

Photograph: Shailesh Andrade/Reuters

The affected brokerage houses include India Infoline Commodities, Anand Rathi Commodities and Geofin Comtrade (banned for 6 months each), and Phillip Commodities and Motilal Oswal Commodities Broker (for 3 months each).

"There were enough red flags for a reasonable person to come to conclude that what was being offered as paired contracts on NSEL were not spot contract in commodities," Sebi said in five separate orders.

 

These entities presumably driven by their desire to earn brokerages, provided a platform for their clients to access a product, which raised serious concerns in their ability to conduct proper and effective due diligence regarding the product itself, it added.

Accordingly, the five brokerage houses do not satisfy the fit and proper criteria under the Intermediaries regulations, Sebi noted.

In June this year, the Securities Appellate Tribunal (SAT) had set aside a Sebi order of 2019 that declared five brokerage houses as not a "fit and proper person" in the NSEL case and had directed the regulator to decide the matter afresh within six months.

The brokers had challenged the Sebi orders before the SAT.

NSEL (National Spot Exchange Ltd) also approached SAT saying that the regulator had failed to consider all the allegations and material in its complaint against brokers.

In 2019, Sebi had passed orders against these brokers in the NSEL case, declaring them "not fit and proper" to continue as a commodity brokers.

The regulator also observed that the brokerage firms were indulged in the so-called illegal paired contracts on the NSEL trading platform, which violated the norms of the Forward Contract Regulation Act (FCRA).

It was also alleged that the five brokers had indulged in illegal activities such as funding of clients and other related entities and that funding was disproportionate to the net worth and income level of these clients.

Also, it was alleged that the brokers have misused their in-house NBFC and have funded clients who have no capacity to take such exposure.

The brokers faced Sebi's action for trading in so-called prohibited paired contracts.

These orders followed a report from the EOW (Economic Offences Wing) and complaints filed by NSEL against the brokers.

In July 2013, NSEL was barred from launching any fresh contracts after it was found that it allowed paired contract on its platform, which were violating FCRA and the terms on which NSEL was granted registration as a spot exchange.

As a result, the exchange was unable to meet its settlement obligations of around Rs 5,600 crore to nearly 13,000 investors.

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