SEBI issues show cause notices to five leading brokerages

Capital markets regulator SEBI has begun issuing show cause notices to five leading brokerages namely, Anand Rathi Commodities, IIFL Commodities, Motilal OswalBSE Commodities, Geofin Comtrade and Phillip Commodities India, as to why action should not be recommended against them for mis – selling and misrepresentation to clients and client code modification among others, in the Rs 5600 crores NSEL payment crisis of July 2013. Spokespersons from Geofin Comtrade and Anand Rathi Commodities orally confirmed having received the show cause notices. The brokers will be given the customary three weeks to respond to the notice, following which they will get a personal hearing by SEBI. SEBI can then issue interim orders against them, if it sees fit.

A three member designated authority comprising Suresh Menon, D Sura Reddy and Rachna Anand was appointed by SEBI last month to issue the SCNs under SEBI (Intermediaries) Regulations, 2008 against the five after an investigation into their alleged role in the Rs 5600 crore scam on NSEL that surfaced in July 2013. Designated authorities questioned why the five brokers did not run their due diligence,knowing fully well’ that the contracts offered on the exchange were in violation of the then existent regulations. The government licensed NSEL to function as an electronic spot exchange subject to six conditions, key of which were that it should not offer forward trades and should not permit short sales. NSEL had violated both these conditions which caused the ministry of consumer affairs to direct it not to launch fresh contracts in July 2013, months after issuing a show cause notice to it. The bubble burst as the exchange failed to ensure that 24 counterparties had the collateral against Rs 5600 crores they raised from 13000 investors! Read more on Scams

Return on investments is something almost every investor desires dearly. The fact that NSEL had allowed these five brokers were allowed to raise Rs. 5600 crores from 13000 investors without showing the collateral is truly despicable! The fact that the five brokers accepted the contract offered by the exchange, which they knew fully well was in violation of the then existent regulations is also despicable. Because of the NSEL scam, investors had lost Rs. 5600 crores in investments. Unless the five brokers and NSEL show proper cause as to why action should not be taken against them for mis – selling and misrepresentation to traders, they must be appropriately punished under the law. It is the only way, PM; Narendra Modi can fulfill his electoral promise of rooting out corruption in India (“Na lootenge Na lootne dhenge”). Read more on Startup News

SEBI issues show cause notices to five leading brokerages
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