NSEL ‘paired contracts’ case: SEBI cancels registration of Shri Parasram Commodities

NSEL’s paired contracts were declared illegal after they were found to have violated the Foreign Contribution Regulation Act.

The market regulator has cancelled the registration of Shri Parasram Commodities Private Limited, for facilitating the trade of ‘paired contracts’ on the now-defunct National Spot Exchange (NSEL).

The order issued by the Securities and Exchange Board of India (SEBI) stated, “The noticee does not satisfy the ‘fit and proper person’ criteria specified in Schedule II of the Intermediaries Regulations and therefore, the continuance of the noticee as a broker will be detrimental to the interest of the securities market”.

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The brokerage has been asked to immediately inform its existing clients, if any, about this direction issued by the market regulator.

The SEBI order has also added that “the noticee shall allow its existing clients, if any to withdraw or transfer their securities or funds held in its custody, within 15 days from the date of this order. In case of failure of any clients to withdraw or transfer their securities or funds within the said 15 days, the noticee shall transfer the funds and securities of such clients to another broker registered with SEBI within a period of next 15 days thereon, under advice to the said clients”.

NSEL’s paired contracts were declared illegal after they were found to have violated the Foreign Contribution Regulation Act (FCRA) and the conditions that the central government had set to allow exemptions under the Act.

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In 2007, the central government had given an exemption to all forward contracts of one-day duration for the sale and purchase of commodities traded on NSEL from 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”. But the Forward Market Commission (FMC) that had looked into NSEL’s functioning found that the exchange had violated the no-short-sale clause and was allowing contracts that had settlement periods that extended beyond the set limit.