Five brokers named in NSEL scam may not get unified licences: Sources

The Securities and Exchange Board of India (SEBI) may not grant a unified trading licence to five brokers who were served show cause notices by the regulator for allegedly misselling National Spot Exchange Limited (NSEL) products, sources told Moneycontrol. A unified trading licence allows the broker to transact in shares as well as commodities. The brokers are Geofin Commodities, Philip Commodities, Anand Rathi, Motilal Oswal Commodities and India Infoline Commodities. Investors who had lent money on the NSEL platform suffered huge losses when the borrowers defaulted on repayment. In what appeared to be a well-planned fraud, the collateral that borrowers were supposed to deposit in warehouses, turned out to be worthless or altogether absent. In all, 231 brokers were doing trades in NSEL products for their clients when the Financial Technologies-promoted exchange suspended trading on July 31, 2013 following a payment crisis. “On what basis has SEBI picked the five brokers for investigation since over 200 brokers were providing the same trading platform to investors?,” a source close to the development said. “SEBI has given a clean chit to other brokers despite the fact that Serious Fraud Investigation Office (SFIO) is investigating them, including Jignesh Shah and 63 Moons (earlier known as Financial Technology). Some brokers that exited just before the NSEL scam was unearthed have also not come under the scanner of the regulator,” said another source. The markets regulator has not been able to pass any order against these brokers in the past two years and they are still waiting for a personal hearing. Forward Markets Commission (FMC) was merged with SEBI on September 28, 2015. Prior to that, FMC was the commodity markets regulator. As per the regulation the FMC couldn't take action against brokers who traded on NSEL. Hence, the commodity exchanges were directed to look into the matter. Since the traders hadn't carried out any faulty trades on their bourses, the exchanges didn't have a case against them, either. SEBI is of a view that this is a case of misconduct and therefore falls under the Code of Conduct for regulated entities. But there are also deliberations over whether Fraudulent and Unfair Trade Practices (FUTP) Regulations would be applicable to the NSEL brokers involved. This is because, during the period when NSEL was operational, commodity broking entities were not regulated by SEBI, but by the Forward Markets Commission.