PALAK SHAH Top five commodity brokers, who were issued show cause notices (SCNs) by SEBI in the ₹5,500-crore National Spot Exchange scam, will together appear before the market regulator in April to present their case.
A SEBI whole-time member (WTM) has given these brokers four dates in April to choose from and asked them to come together to SEBI to hear their arguments, sources close to the development told BusinessLine .
The five broking firms are: Anand Rathi Commodities, India Infoline Commodities (IIFL), Geofin Comtrade, Motilal Oswal Commodities and Philip Commodities. It is believed that the meeting of the brokers with SEBI could be the beginning of a final hearing in the matter, before the regulator issues its final order, the sources said.
‘Fit and proper’ criteria
SEBI has established lapses at five broking firms in the NSEL scam. According to an audit finding, the brokers failed to meet the “fit and proper” criteria and were also found to be in violation of certain securities regulations.
SEBI’s fit and proper rules require the market intermediary to have a code of conduct in place, sound reputation and financial integrity. The erstwhile commodity market regulator FMC that was merged with SEBI post NSEL fiasco had declared several top executives of Financial Technologies and its promoters as ‘not fit and proper’ in the NSEL matter, which led to their debarment from dealing in the market and holding equity stake in commodity bourses. If the brokers too are declared ‘not fit and proper’ in the matter, it could severely affect their business as they would be barred from operating in the market.
Questions over jurisdiction
According to sources close to brokers, the SEBI meeting in April may not be taken as final, since a regulator’s inspection in the matter was still pending.
“Another argument of the brokers is that SEBI does not have jurisdiction over NSEL, which was a spot commodity exchange, hence it cannot decide on the matter,” one of the source said. Since SEBI has granted registration to all other brokers, who were active on NSEL, how can it now put restrictions on a few of them,” the source added.
Among the five brokers, Anand Rathi had an exposure of ₹629 crore to NSEL, IIFL ₹326 crore, Geofin Comtrade ₹313 crore, MOSL ₹263 crore and Philip Capital had ₹140 crore.
The NSEL scam came to light in July 2013, when the exchange was unable to repay 13,000 investors who were trading on the platform. The exchange did not have adequate goods in its warehouses to back trades. Nor did the settlement guarantee fund have enough money for repayment.