 "NSEL case: Sebi cancels registration of K R Choksey Commodity Brokers")
Capital markets regulator Sebi on Friday cancelled the registration of K R Choksey Commodity Brokers for facilitating its clients to trade on the platform of the National Spot Exchange Ltd (NSEL) in the illegal 'paired contracts'.
By providing such facility of taking exposure to 'paired contracts', the broker exposed its clients to the risk involved in trading in a product that did not have either statutory sanction or regulatory approval, Sebi said in its order.
"The conduct displayed by the noticee as a market intermediary, by indulging in participation/ facilitation in the trading in 'paired contracts' on the NSEL, by turning a blind eye to all the illegalities associated with those contracts and the fraudulent manner which trading in those 'paired contracts' taking place on the exchange platform of the NSEL, has seriously belied the trust of the Regulator in the integrity and intent of the platform of the NSEL," Sebi said.
The noticee refers to K R Choksey Commodity Brokers.
After committing such grave misconduct, K R Choksey Commodity Brokers can no longer be called a 'fit and proper person' for holding the certificate of registration as a commodity derivatives broker in the securities market, it added.
Sebi has asked the broker to allow its existing clients to withdraw or transfer their securities or funds held in its custody within 60 days.
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In case of failure of any clients to withdraw or transfer their securities or funds within this period, the broker will transfer the funds and securities to another broker within 30 days thereon, under advise to the said client.
In September 2009, NSEL (now defunct) introduced the concept of 'paired contracts' for trading which allowed buying and selling in same commodity through two different contracts at two different prices on the exchange platform, wherein the investors could buy a short duration contract and sell a long duration contract and vice versa at the same time and at a pre-determined price.
It was further noticed that trades for the buy contract (T+2 / T+3) and the sell contract (T+25/ T+36) used to happen on the NSEL on the same day at same time and at different prices, involving the same counterparties.
The scheme of paired contracts' traded on the NSEL ultimately caused a huge loss to the investors to the extent of Rs 5,500 crore.
In a separate order, Sebi has penalised Money Mishra Financial Services, Money Mishra Overseas, Awanish Kumar Mishra and Jitendra Kumar Tiwari in a matter involving unauthorised transfer of mutual fund units and their misutilisation towards margin money/collaterals.
Money Mishra Financial Services (MMFS) is a partnership firm where Mishra and Tiwari are its partners. Similarly, Money Mishra Overseas Pvt Ltd (MMOPL) is a private limited company where Mishra and Tiwari are directors.
The regulator has levied a fine of Rs 50 lakh each on MMFS, MMOPL and Mishra and Rs 5 lakh on Tiwari. In addition, Sebi has barred MMFS, MMOPL and Mishra from the capital markets for two years, while the same for Tiwari is one year.
"In order to meet their huge margin requirements to the tune of Rs 368.45 crore, the Noticees have indulged in such illegal activities involving unauthorized transfer of MF units from the demat accounts of the beneficial owners to their own accounts and again through their demat accounts, ultimately to ISSL (clearing member) for meeting their margin requirements," Sebi noted.
By indulging in such acts, they violated the provisions of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms.
The case relates to transfer of units during the period 2017 to 2019.
Through three separate orders, Sebi has imposed a penalty of Rs 5 lakh each on Nidhi Kunj Baheti, Manish Kandhari HUF and Karuna Retails for indulging in non-genuine trades in illiquid stock options at BSE.
Separately, the capital markets watchdog has slapped a fine of Rs 3 lakh on Rajesh Chopra for violating insider trading rules in the matter of Varun Beverages.
Rajesh Chopra was an employee of Varun Beverages at the time of violation of rules.
The regulator had conducted an examination in the scrip of Varun Beverages for the period commencing January 2017 to April 2018.