Sebi to take action against brokers in NSEL case soon
Regulator ruled out action against NSEL under CIS regulation; issue discussed at last Sebi board meeting
Markets regulator Securities and Exchange Board of India (Sebi) will soon decide action against five brokerages, whose clients lost significant amounts of money in the ~5,600-crore National Spot Exchange Ltd (NSEL) scam.
The brokerages are Anand Rathi Commodities, Motilal Oswal Commodities, India Infoline Commodities, Geofin Comtrade and Phillip Commodities.
However, Sebi has ruled out action against the NSEL under the collective investment scheme (CIS) regulation. It said the spot exchange trading model should not be equated with any illegal Ponzi or CIS scheme. The regulator had apprised its board members of its stand in the February 11 board meeting held in New Delhi.
According to Sebi, an internal committee has been constituted to examine the role of brokers in the matter. Subsequently, Sebi had appointed auditors to conduct an audit of the book of accounts of brokers whose names have appeared in the interim report of the Mumbai Police’s Economic Offences Wing (EOW).
Based on the report, Sebi had initiated probes against these brokers. “Although the audit of members of NSEL does not directly fall under Sebi's purview, the role of brokers who have traded on the spot exchange platform and also registered as commodity derivatives brokers is being examined on the basis of preliminary report of EOW, which contained prima facie evidence of wrongdoings by some of the brokers,” the market regulator said in its board note.
Further, it has appointed a bench of designated authorities which issued show-cause notices to these brokers on October 28 last year.
Sebi is said to have shared the findings of its investigation with the EOW, Enforcement Directorate (ED), respective departments of revenue and consumer affairs and also with the Reserve Bank of India (RBI) for necessary action.
The regulator has also granted the entities concerned an opportunity of inspection of the relevant documents, after which they were asked to submit their replies to the show-cause notice issued by Sebi. "Replies from all the five brokers have been received and they are currently being examined by Sebi," according to the board note.
The finance ministry also asked Sebi to ensure its representation at the meetings held for reviewing the progress in the NSEL issue.
At the same time, the ministry also clarified that since spot markets and ready delivery contracts were not being regulated by the Forward Markets Commission, Sebi was also not expected to take upon itself any regulatory function with regard to such markets.