The Economic Offence Wing of the Mumbai police has registered a case against 300 members of defunct National Spot Exchange Ltd (NSEL) for illegal trading.
The case was registered under the Forward Contract Regulation Act, 1952 on a complaint filed by Puneet Panchal, Assistant Manager, SEBI.
Earlier this month, the markets regulator had issued a show-cause notice to 300 members, including a few who are now brokers in the equity market, to prove that they were ‘fit and proper’ in the backdrop serious allegations on their involvement in the NSEL scam. Based on the complaint, the EoW will now summon each of the 300 members for interrogation, said sources.
SEBI initiated adjudication proceedings and appointed a designated authority on September 21 to inquire into the alleged violation of the ‘fit and proper’ norms.
In June 2007, the Centre granted exemption to NSEL for complying with the provisions of the Forward Contracts (Regulation) Act (FCRA) subject to certain criteria.
While facilitating trading on the exchange, the members bought commodities in T+2 contracts and sold them as T+25 contracts at a substantial premium. This acted as an easy funding programme for a few corporate houses. These paired contracts, which violated norms, led to investors suffering losses of ₹5,600 crore. After this, the then regulator, the Forward Markets Commission (FMC), shut down the exchange in 2013. Incidentally, all the investigating agencies probing the scam for the last five years have achieved little progress.
In September 2015, the government merged the FMC with SEBI for better regulation. SEBI allowed brokers to integrate their commodity broking subsidiaries with their equity broking outfits last year.
This led to many brokers transferring their commodity business to security arms and taking membership of futures exchanges such as like MCX and NCDEX.
Earlier, SEBI had asked five leading brokers on NSEL — Anand Rathi Commodities, Geofin Comtrade, Phillip Commodities, Motilal Oswal Commodities and IIFL Commodities — to explain their alleged role in the scam, and why they should be deemed ‘fit and proper’. The broking firms had denied any role in the scam.