Markets regulator Sebi on Friday cancelled the registration certificates of Aasmaa Commodities Pvt Ltd and Banka Bullion Pvt Ltd for failing to fulfil the "fit and proper" criteria by allowing their clients to trade in illegal contracts on the National Spot Exchange Ltd (NSEL).
A number of entities, including the two brokers that are registered with Sebi as trading members/clearing members, were also members of the NSEL and had either themselves participated or had facilitated trading in "paired contracts" on the platform of NSEL markets.
This made the brokers not "fit and proper" to hold the registration as a stock broker.
Under the garb of the commodities spot market, the NSEL was running a range of financing transactions.
The scheme of paired contracts illegally traded on NSEL platform has inflicted a huge loss to the market to the extent of Rs 5,500 crore, Sebi noted.
Regarding Banka Bullion, Sebi said "once the Noticee got the taste of earning assured returns from execution of paired contracts under the garb of spot trading in commodities, the Noticee kept on entering into paired trades repeatedly".
It was so much so that in the end, it admittedly was left hanging in such a situation that an amount of Rs 49,47,750 of its own money was trapped in those trades when the NSEL ultimately committed the settlement default to the tune of Rs 5,500 crore.
The continuance of the registration of the brokers is detrimental to the interest of the securities market and they are no longer found to be "fit and proper" persons for holding the registration certificate, Sebi said in two similarly worded orders.
The common investors, who were lured by the NSEL with a promise of 'assured returns' with the help of the brokers who facilitated those transactions, are running from pillar to post to recover their hard-earned money that has been locked up in the settlement default, Sebi said.
In September 2009, the NSEL introduced the concept of "paired contracts" on its platform, which involved buying and selling the same commodity through two different contracts at two different prices wherein investors could buy a short-duration settlement contract and sell a long-duration settlement contract and vice versa, with the same counterparty at the same time.
Such contracts were ex-facie illegal and the NSEL was in effect running a financing transaction assuring a fixed rate of returns under the garb of paired contracts.
Conditional exemption was granted from the provisions Forward Contracts (Regulation) Act, 1952, for forward contracts of one-day duration for sale and purchase of commodities traded on the NSEL. And, the conditions placed an absolute bar on short sales and stipulated that all outstanding positions at the end of the day, must result in delivery of commodities.
Through five separate orders, Sebi has levied a fine of Rs 5 lakh each on Shubham Maheshwari, Nidhi Minni, Nilu Chopra, Abhiraj M Pujara and Rajendra Kumar Surana and Sons for indulging in non-genuine trades in illiquid stock options at the BSE.
Sebi conducted investigation into the trading activity in illiquid stock options on the BSE between April 2014 and September 2015 after observing large-scale reversal of trades in the stock options segment of the BSE.
By indulging in such trades, the entities violated the provisions of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms.