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The regulatory oversight committee (ROC) of the Multi Commodity Exchange (MCX) has recommended a forensic audit of various approvals granted by the exchange to traders from Sikkim, sources told BusinessLine.
Trading volumes on the MCX from the state of Sikkim came under the scanner for alleged money laundering and tax evasion after BusinessLine first reported about it on April 3. Over the past one month, the Sikkim government and the Enforcement Directorate (ED) have started a deep probe into the matter and sought details from MCX with regard to the identity of the traders and other data.
MCX witnessed trading volumes worth around $6 billion from Sikkim, nearly 5.5 per cent of the total turnover of MCX for February. But after the BusinessLine report, the share of Sikkim-based traders on the MCX dropped to just 0.75 per cent in April. Now, the ROC of MCX is looking into whether the exchange followed all norms in approving and allowing traders from Sikkim to conduct trade on the exchange platform, the sources said.
Previous audits
The exchange has undergone forensic audits earlier, including for unauthorised data sharing and issuing dubious technology contracts. Grave lapses were discovered in both audits and hence, the ROC did not want to take a chance this time, the sources said.
The MCX ROC meeting was held between May 11 and May 13. Key members who made a recommendation for the forensic audit include Shankar Aggarwal, Saurabh Chandra, CS Verma and Suresh Gupta.
Trading volumes from Sikkim on the MCX shot up only during Covid, mainly after the exchange issued a notice about stamp duty waiver to Sikkim-based traders.
All stock and commodity exchanges have to follow rigorous know your client (KYC) procedures before allowing clients to trade, and must also file suspicious transaction reports (STRs) in case of dubious activities. But in the case of Sikkim, the required procedures were lax as the state was given exemptions from vital KYC norms such as PAN requirement. Sikkim traders on MCX also enjoyed a stamp duty waiver which, tax officials say, implies no urgency for maintaining record of trades from the state. Moreover, the Indian Income Tax Act is not applicable on Sikkim, making it a hot favourite for speculators and hawala operators.
Using state as a base
Sikkim CM Prem Singh Tamang has said that traders from other states were using Sikkim as a base to trade on the MCX. Sources told BusinessLine that the Sikkim has also learned that brokers and traders from other states were being shown as Sikkim residents. An FIR has been registered by Sikkim into the matter.
MCX management has defended its position by saying all the norms were followed and volumes from Sikkim were genuine.
Sources say that so far, the probe has revealed that two clients — Valley Distributors LLP and JMVD Market Solutions, registered with Delhi and Kolkata-based brokers — have emerged as the key suspects who were generating a majority of the Sikkim volumes on MCX. The probe so far has shown that JMVD was a client of Pace Stock Broking and the account of Valley Distributors was with East India Securities.
MCX has not yet replied to email queries from BusinessLine.
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