Commodity arm of Anand Rathi, Geofin Comtrade 'not fit and proper': Sebi

Last week, Sebi had also declared commodity arms of Motilal Oswal Financial Services and Indian Infoline 'not fit and proper'

Markets regulator Securities and Exchange Board of India (Sebi) on Tuesday declared the defunct commodity subsidiaries of broking firms Anand Rathi (ARCL) and Geofin Comtrade (formerly Geojit Comtrade) (GCL) “not fit and proper” in relation to the Rs 5,600-crore National Spot Exchange Ltd (NSEL) scam. Earlier, the regulator had last week taken a similar action against the commodity arm of leading equity brokers Motilal Oswal Financial Services and India Infoline.

In two separate orders, Sebi found the commodity arms of ARCL and Geofin guilty of gross violation of provisions of the erstwhile Forward Contract and Regulation Act 1972 (FCRA). After the merger of the commodity markets regulator Forward Markets Commission (FMC) with the Sebi in September 2015, the regulator had issued showcause notices to these brokers seeking to know why they should not be declared “not fit and proper” for their involvement in the NSEL scam.

Apart from Sebi, the Central Bureau of Investigation (CBI), Enforcement Directorate (ED) and the Economic Offences Wing of the Mumbai Police (EOW) have been investigating the NSEL case.

“The notices had violated the provisions of FCRA and made false representation of assured/risk-free return, arbitrage opportunity in the spot market by way of paired contracts, making assurances with risk-free returns on assured collateral of commodities. Also, these noticees had done client code modifications with manipulative artifice. Hence, these noticees are not fit and proper person to hold, directly or indirectly, the certificate of registration and therefore, cease to act, directly or indirectly as commodity derivative brokers,” said the Sebi orders.

The regulator ordered that with their involvement in NSEL scam, their reputation has seriously eroded. “Thus, Sebi finds the noticees not fit and proper to be granted registration to operate as the commodity derivatives broker,” the order stated.

Interestingly, some of these brokers already shut down their commodity broking firms immediately after the NSEL scam erupted in 2013 and forayed into this business again under the new company name. The new entity has been generating sizeable business in the commodity derivatives markets with the membership of leading commodity exchanges.

ARCL and GCL could not be immediately reached for their comments. Attempts to reach Anand Rathi, chairman of the Anand Rathi Group, did not elicit any response.

Markets sources fear similar actions on the remaining broking firms named by various investigating agencies for their alleged involvement in the NSEL scam.

Earlier, the erstwhile regulator FMC had declared NSEL, along with its directors and promoters not “fit and proper person”.

The stock price of Motilal Oswal Financial Services declined in early trade on Tuesday by 1.78 per cent to trade at Rs 589 apiece. Also, the share price of IIFL Holding fell by 3.44 per cent to Rs 349 apiece in early Tuesday trade. The decline in both stocks was the second day in continuation.