SEBI hesitates to move against big NSEL defaulter brokers

Ashow cause notices to the five for their alleged involvement in the NSEL crisis, asking them why action should not be taken against them, and more importantly, why they should not be declared not “fit and proper”. And then sat back

Odd. For it was in 2015, when the then Additional Commissioner of Police and chief of EOW, Rajvardhan Sinha submitted his report to Forward Markets Commission, which, for reasons not known, was suppressed. This action has gone unchallenged by the government. This report stated that top five brokerages were allegedly involved in large-scale irregularities such as indulging in financing deals, trading without client permission, illegally changing unique client codes and re-routing funds through multiple accounts. Yet they seem to have a charmed life. Who are the VIPS who have given them such immunity from action by the agencies? Why have they bought the self-serving argument that action to uphold the law and ethics would damage rather than cleanse the share market?

The brokers have been accused of creating every possibility to trap small brokers to become part of the problem, when it is claimed by investigators that the whole non-compliance is on their side. While the punitive action that awaits these brokers would be declaring them not “fit and proper” for grave irregularities, the show cause notices sent to the other 300 brokers are only for illegal trading, which could attract minuscule penalty, if proven guilty. However, the Big Five brokers are now trying to club this to make it as an “industry issue”, using industry forums such as Association of National Exchanges Members of India (ANMI) and BSE Brokers Forum (BBF) to boost their cause.

SEBI remains silent. Is there anything more that remains to be investigated against these top five brokers? In Mumbai, it’s common talk that influential folks are building huge pressure to shift the spotlight solely back to NSEL. As a result, a former NSEL non-executive director, Joseph Massey has been arrested, while the same probe agency, EOW, reported that the proceeds of the crime have been traced to the actual defaulters. Actions against NSEL, FTIL and its promoters have been quick, including declaring them not “fit and proper” to a forced merger order of NSEL with FTIL. But when it comes to the big brokers the SEBI probe seems to have slowed down considerably.

Those close to the big brokers are claiming that any action against brokers could jeopardise market operations. The million dollar question is: Are top brokerages above the law? If so, the law should be amended to reflect such a reality. It’s high time that SEBI, as a prudent and unbiased regulator, adopted a proactive approach and decided whether the big brokers are or are not “fit and proper” in all market segments. It will be a path-breaking move, and will work to establish India as a country of law and not immune influentials. Market manipulators will get the message that no one is above law. India needs clean and transparent exchanges, and action against the big NSEL defaulter brokers will promote such a process. Wake up, SEBI!

Shantanu Guha Ray is Special Editor-investigations, Business Television India.