The capital market regulator SEBI (Securities and Exchange Board of India) has suspended the registration of three commodity brokers -- JV Commodity, Jyothi Commodities, and Ashika Commodities and Derivatives -- for up to three months for facilitating trade in ‘paired contracts’ on now defunct National Spot Exchange (NSEL).
In its orders passed separately against these brokers, SEBI says the trading activities of the noticee in ‘paired contracts’ for their clients on the NSEL had "serious ingredients jeopardising the reputation, belief in competence, fairness, honesty, integrity and character of the noticee in the securities market".
The NSEL was incorporated in May 2005 as a spot exchange for trading in commodities. The central government had exempted all forward contracts of one-day duration for the sale and purchase of commodities traded on the NSEL from the operations of the provisions of the FCRA subject to certain conditions, including “no short sale by the members of the exchange shall be allowed” and “all outstanding positions of the trades at the end of the day shall result in delivery”.
However, the Forward Market Commission (FMC), in its probe into NSEL's functioning, found a total of 55 contracts offered for trade on the NSEL platform violated relevant provisions of the FCRA. The FMC probe revealed the condition of ‘no short sale by members of the exchange shall be allowed’ was being not complied with by the NSEL and its members.
The SEBI order said the brokers traded in ‘paired contracts’ for its clients. "The main allegation against the Noticee is that by facilitating the trading in ‘paired contracts’ on NSEL platform during the relevant period as a Trading Member/Clearing Member, the continuance of the registration of the Noticee as a broker is detrimental to the interest of the Securities Market and the Noticee is no longer a ‘fit and proper person’ for holding the certificate of registration as a broker in the Securities Market, which is one of the conditions for the continuance of registration".
In order to continue to become a SEBI-registered intermediary, the brokers must satisfy the conditions of eligibility, which included "fit and proper person" criteria. "The above condition to be a fit and proper person is a preliminary condition applicable at the time of seeking registration."
The market regulator said when the ‘fit and proper’ criteria changes, these brokers will be required to comply with the criteria revised in November 2021.
The registrations of these brokers will stay cancelled for the specified period or till the ceasing of FIRs against them or until they get acquitted in the cases pending before the court. The SEBI order said the noticee will, after receipt of the order, immediately inform its existing clients about the latest SEBI order, which will come into force with immediate effect.
