INSUBCONTINENT EXCLUSIVE:
The Economic Offences Wing (EOW) of the Mumbai police has registered a case against 300 brokers on the now defunct spot exchange NSEL on a
complaint by Puneet Panchal , assistant zonal manager SEBI
The brokers allegedly conducted trades that violated the then extant Forward Contracts Regulation Act (FCRA) of 1952 which allowed the
exchange to offer contracts of only one day duration
Against this the exchange allegedly permitted clients to enter into pair trades with 24 counterparties on NSEL through their brokers
In the first leg the client purchased a commodity contract from one of the 24 counterparties on a trade plus two day basis (T+2) , through
In the second leg he sold the contract back to the counterparty on a T+25 day basis at a higher price, which meant this was a futures trade
and not a spot contract which has to be settled in 11 days
The ministry of consumer affairs, which through Forward Markets Commission (FMC) regulated trading in commodity futures, exempted exchanges
like NSEL from the provisions of FCRA so long as the contracts were of one day duration and were not short sold
The UPA government directed NSEL to suspend trading for violating the 2007 circular for spot exchanges in July 2013.This caused the exchange
to go belly-up since commmodities underlying the contracts were absent in almost all the cases
In September 2015, to better regulate commodity exchanges, the government merged FMC with SEBI
SEBI had three years through Sep 28, 2018 within which to carry out pending actions initiated under the FCRA
The complaint against the brokers falls within the three year ambit
EOW investigated the role of these brokers post the scam and even arrested officials from three of them, who are out on bail
The brokers, sources said, argued before SEBI that they could not have been privy to confidential information between FMC and consumer
affairs ministry about the violation of FCRA and illegality of the contracts until the consumer affairs ministry directed NSEL to suspend
trading for violating the exemption under FCRA through a circular
to 300 brokers on NSEL who it registered post the FMC merger
Incidentally SEBI allowed brokers to integrate their commodity broking subsidiaries with their equity broking outfits last year
This led to many brokers transferring their commodity business to their security arms and taking membership of commodity futures exchanges
