The country’s market regulator is speeding up the process of passing an order against five brokers in the case of misselling of products of National Spot Exchange Limited (NSEL), which collapsed following a Rs 5,500 crore scam.
The brokers involved are Geofin Commodities, Philip Commodities, Anand Rathi, Motilal Oswal and India Infoline Commodities.
The National Spot Exchange Ltd (NSEL), promoted by Financial Technologies India Ltd (FTIL), suspended trading on July 31, 2013 following a payment crisis. The two dozen-odd entities which had borrowed money from around 13,000 investors were not in a position to repay when erstwhile regulator Forward Markets Commission barred NSEL from issuing spot contracts. Later it turned out that the collateral deposited by the borrowers were near worthless, and in many cases there was no collateral at all.
Over the following months, a number of regulators and enforcement agencies launched independent probes into the NSEL case.
The regulator is of the view that this is a case of misconduct and therefore falls under the Code of Conduct for regulated entities. But there are also deliberations over whether Fraudulent and Unfair Trade Practices (FUTP) Regulations would be applicable on the NSEL brokers involved. This is because during the period when NSEL was operational, commodity broking entities were not regulated by SEBI, but by the Forward Markets Commission.
In the coming days, SEBI is expected to comply with the brokers’ request to inspect certain documents.
“The regulator has referred to and relied on certain documents and that were not in the public domain or available to the brokers,” a source told Moneycontrol. “Brokers had sought the opportunity to inspect these documents after receiving a second show cause notice.”
SEBI had recently sought details of parent companies and directors of the broking entities. The brokerages are concerned that SEBI may issue show cause notices to them for other segments – equities and currencies – that come under it.
“We would be happy if SEBI brings an end to this case as soon as possible,” a source close to the development told Moneycontrol.
The regulator had on August 3 impounded averted losses totalling Rs 125 crore through alleged insider trading in MCX and its erstwhile promoter FTIL by 13 persons with “prior information” about the NSEL case.
SEBI’s investigations showed that these individuals had “prima facie” traded in these stocks when in possession of “unpublished price sensitive information”.