The capital market regulator, Securities Exchange Board of India (SEBI), has initiated the process of sending supplementary notice to 300 brokers trading in NSEL.
The Serious Fraud Investigation Office (SFIO) has highlighted wrongdoings in the investigation of the ₹5,600-crores NSEL scam, which has led the SEBI to issue supplementary notices to the brokers alleged to be involved in the scam.
According to the SFIO probe report, brokers are alleged for luring in clients to trade in the NSEL products, and also for not informing them about the risks involved while trading in NSEL commodities. The report adds that the brokers failed to verify if the trading commodities were available at the NSEL warehouses.
The case dates back to 2012 when NSEL failed to repay 13,000 investors who were trading on the platform. The exchange also did not have adequate goods in its warehouse to back trades. On April 4, 2015, the Economic Offences Wing asked SEBI to take appropriate action in the NSEL case. The erstwhile commodity market regulator, Forwards Market Commission, was merged with SEBI on Sept 28, 2015.
The five brokers, namely Anand Rathi Commodities, India Infoline Commodities, Geofin Comtrade, Motilal Oswal Commodities and Philip Commodities, made an application to SEBI for registration as a commodity broker. SEBI had appointed J Singh & Associates, a chartered accountant, to carry out an inspection of these brokers. Based on its findings, the regulator initiated inquiry proceedings against the brokers and appointed a bench to inquire.
The bench recommended that the application of the brokers should not be considered in the interest of the securities market and the applications should be rejected. SEBI issued a show cause notice to the five brokers in April, who sought to withdraw their application for registration and objected to SEBI’s legal action against them citing it didn’t have jurisdiction over them.
SEBI’s ruling could have a bearing on these brokers’ license to operate in the equities segment as well.