Investigations by the market regulator SEBI showed that just two traders were generating a whopping $6 billion worth of trading volumes on the Multi Commodity Exchange (MCX) from Sikkim in 2022. SEBI has named Valley Distributors LLP and JMVD Market Solutions LLP as the two clients that generated over 99.6 per cent of MCX’s Sikkim-based trading volume during the review period.

“The same was also not verified (by MCX) during the inspection of trading members (TM). MCX allegedly failed to carry out additional due-diligence to ascertain the genuineness of the addresses of these Sikkim-based clients and thereby failed to carry out its role as the first-level regulator,” SEBI said in its order against MCX. SEBI found that MCX had failed to check the KYC of 50 clients.

“It is noteworthy to mention that, the West Bengal address of said LLP client is same as address of both Brokers of the said client. Also, as confirmed by noticee, partners of the said LLP client are also promoters of both the Brokers of the client (East India Securities and East India Commodities Ltd,” SEBI said.

Reportedly, a probe by the Enforcement Directorate has revealed that JMVD was a client of Pace Stock Broking, and the account of Valley Distributors was with East India Securities. The ED, in its public notice, also said that it found an evasion of ₹4.5 crore stamp duty by the brokers and their clients, and further investigations were on. The Financial Intelligence Unit (FIU) is also probing if MCX was required to file suspicious transactions reports and if it had done so, the sources said.

SEBI further rapped the Board of MCX for not conducting a forensic audit in the Sikkim trading matter. In its order, SEBI said, “It was observed that the Regulatory Oversight Committee (ROC) of MCX reiterated its decision to conduct a forensic audit, however the Board of directors went ahead and suggested a special audit and not the forensic audit. It may be mentioned that the Board of directors cannot interfere in the decision of a Committee which is empowered under SEBI circular. Hence, a forensic audit should have been conducted and implemented as per decision by ROC.”

In April 2022, businessline first revealed that Sikkim, which enjoys full tax exemption from the central government, had become a haven for commodity market speculators. After the report, the volumes fell to zero as authorities started their probe for tax evasion and money laundering. SEBI probe found that MCX had failed to detect the anomalies in the KYC documents of the traders from Sikkim. The tax exemption is for natives of Sikkim but was being misused by outsiders.