NSEL 'paired contracts' probe: Sebi suspends registrations of 3 commodity brokerages

Three separate orders on each of the brokerages were passed by the Securities and Exchange Board of India (Sebi) on July 6.

The market regulator has suspended the registration of three commodity brokers - JV Commodity, Jyothi Commodities and Ashika Commodities and Derivatives - for three months or earlier, depending on the outcome of two ongoing enquiries, for facilitating the trade of paired contracts on the now defunct National Spot Exchange (NSEL).

Three separate orders on each of the brokerages were passed by the Securities and Exchange Board of India (Sebi) on July 6.

About all the brokerages, the Sebi order stated that their trading activities in the contracts for its clients on the platform “have serious ingredients jeopardizing the reputation, belief in competence, fairness, honesty, integrity and character” of the three.

Also read: Why this commentator says Sebi’s NSE order is a 'letdown', lost opportunity

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 Foreign Contribution Regulation Act (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.

In the order, the regulator’s Executive Director Manoj Kumar stated that the brokerages’ conduct was “detrimental to the interest of the Securities Market”. In the order on JV Commodity, the director said, “The fact that is undeniably clear before me is that the involvement of the Noticee in trading/ facilitation of trading in ‘paired contracts’ on NSEL is certainly a conduct which was not permitted by the Exemption Notification nor by any of the applicable provisions of the FCRA and therefore, such a conduct, as has been displayed by the Noticee in its trading on NSEL platform, is detrimental to the interest of the Securities Market.” It was a similar sentiment he echoed in the orders on Jyoti Commodities and Ashika Commodities and Derivatives.

Also read: Sebi cancels broking registration of Emkay Commotrade for facilitating NSEL's 'paired contracts'

The suspension of the registrations will be for the period specified or on the ceasing of FIR against the brokerages filed by the Economic Offences Wing or the acquittal of the brokerages in a case pending before a court, whichever is earlier, said the order.