Sebi cancels registration of 4 brokers in NSEL case

Sebi on Tuesday cancelled the registration of four brokerage houses for facilitating its clients to trade on the platform of the now defunct National Spot Exchange Ltd (NSEL) in illegal ‘paired contracts’.

The brokerages whose registrations were cancelled were Share India Commodity Brokers, Sharewealth Commodities, CIL Commodities and Eureka Commodity Brokerage.

By providing such a facility of taking exposure to ‘paired contracts’, the brokers exposed their clients to the risk involved in trading in a product that did not have regulatory approval, Sebi said in four separate orders.

The acts by the brokers raised doubts on their competence to act as a registered securities market intermediaries, the orders noted.

Accordingly, the regulator noted that these entities do not satisfy ”fit and proper person” criteria for holding the certificate of registration as brokers in the securities market and cancelled the registration of the brokerage houses.

This comes a day after Sebi cancelled the registration of Vertex Commodities and Finpro Pvt Ltd and Way2Wealth in the same matter.

In November 2022, the Securities and Exchange Board of India (Sebi) imposed a six-month ban on five brokerages from obtaining fresh registrations as commodity brokers for their involvement in the NSEL scam.

The brokerages were Anand Rathi Commodities, Motilal Oswal Commodity Broker, Phillip Commodities India, India Infoline Commodities and Geofin Comtrade.

In September 2009, NSEL (now defunct) introduced the concept of ‘paired contracts’ for trading which allowed buying and selling in the same commodity through two different contracts at two different prices on the exchange platform.

Under this arrangement, investors could buy a short duration contract and sell a long duration contract and vice versa at the same time and at a pre-determined price.

Further, it was noticed that trades for the buy contract and the sell contract used to happen on the NSEL on the same day at the same time and at different prices, involving the same counterparties.

The scheme of ‘paired contracts’ traded on the NSEL ultimately caused a huge loss to investors to the extent of Rs 5,500 crore, the orders noted.

In a separate order on Monday, Sebi cancelled the registration of BRH Wealth Kreators Ltd for not complying with stock brokers’ norms.

Sebi found that BRH Wealth Kreators had misutilised funds of its clients and failed to redress investor complaints within the stipulated time among others.

This comes after NSE submitted the final forensic audit report (FAR) in the matter to Sebi in March 2020.

The period covered under the audit was from April 2016 to September 2019. Also, an inspection of the books of accounts and other records of BRH, for the period April 2017, to July 2018, was carried out by Sebi along with BSE, NSE and depositories CDSL and NSDL.