The Securities and Exchange Board of India (Sebi) on Tuesday imposed a six-month ban on five brokerages from obtaining fresh registrations as commodity brokers for their involvement in the National Spot Exchange (NSEL) scam.
Sebi’s fresh decision is being viewed as a partial relief to the five commodity brokers. This is because the designated authority in the show-cause notice had suggested barring them for two-three years.
In his order, Sebi whole-time member Ashwani Bhatia noted that there were enough red flags to conclude that what was being offered as ‘paired contracts’ on NSEL was not spot contracts in commodities. Also, the brokers were presumably driven by a desire to earn brokerage from clients.
‘Paired contracts’ offered by NSEL were an entirely different product that was removed from spot trading. This is because they did not result in compulsory delivery of commodities.
“The act of the noticee (brokers) in offering access to ‘paired contracts’ also calls into question the integrity, honesty and lack of ethical behaviour,” said Bhatia.
The market regulator noted — in its order — that NSEL was publicising such contracts as an alternative to fixed deposits.
Also, the return offered was 16 per cent across all commodities, irrespective of the nature of the contract or the duration. The high returns being promised should have raised suspicion with the brokers, said the Sebi order.