FMC to bar brokers named in NSEL scam from bourses

The Forward Markets Commission plans to ban brokers involved in the National Spot Exchange (NSEL) scam from commodity exchanges.

The FMC has forwarded the interim investigation report on brokers from the Economic Offences Wing of the Mumbai police to MCX, NCDEX and NMCE for their views on banning these brokers.

Unlike the stock market regulator SEBI, the FMC does not have the powers to regulate brokers directly. Hence, it is acting through the exchanges.

NSEL has disclosed that brokers had modified over three lakh client codes just four months before the scam came to light, in 2013, and claimed that the modifications amounted to ₹2,230 crore, or nearly half the ₹5,600-crore default.

Prakash Chaturvedi, Joint Managing Director, NSEL, said the EoW has arrested top officials of three broking firms and their remand applications talk about the malpractices indulged in by the brokers.

“Along with the EOW report, we have also sent a copy of the NSEL letter asking to take action against five of the brokers who are also members of other commodity exchanges. We have received responses from a few commodity exchanges and are examining them,” said a source in FMC. To a questionnaire from BusinessLine , NCDEX said that as it would submit its views to the FMC soon, it was not in a position to reveal the details.

It is learnt that the exchanges have questioned how the brokers can be barred for something that happened outside their trading platform. This apart, there is no clarity or concrete proof against the brokers, the exchanges said.

On the delay in taking action against brokers, the FMC said that it had requested the EOW to share a copy of the forensic audit report conducted on the brokers in September 2014, but received an interim report only this April and the same was forwarded to the exchanges in May.

The FMC has questioned the delay by NSEL in invoking its by-laws to recover the shortfall in settlement guarantee fund from its members.

“The matter (by-laws) is subject to various law suits in the Bombay High Court. Brokers are liable to bear residual loss, if any, after recovery from defaulters,” said NSEL’s Chaturvedi.