 "Sebi, Securities and Exchange Board of India")
Markets regulator Sebi has cancelled the registration of brokerage house CNB Commodities for participating in illegal 'paired contracts' launched by the now defunct National Spot Exchange Ltd (NSEL).
In addition, Sebi has asked the broker to allow its existing clients to withdraw or transfer their securities or funds held in its custody within 15 days.
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 of such clients to another broker within a period of the next 15 days thereon under the advice of the said clients.
The case relates to the participation of CNB Commodities, which was a member of the NSEL, in 'paired contracts that did not have regulatory approval.
The alleged transactions were carried out by the broker on the NSEL platform in 2012-13 and 2013-14.
In its order, Sebi said there were enough red flags for a reasonable person to come to conclude that what was being offered as 'paired contracts' on NSEL were not spot contracts in commodities.
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"I am constrained to conclude that the Noticee's (CNB Commodities') participation in paired contracts offered on the NSEL platform raises serious questions on the ability of the notice to conduct proper and effective due diligence regarding the product itself," Sebi Chief General Manager Anitha Anoop said in her order on Friday.
By indulging in such an act, Sebi noted that CNB Commodities does not satisfy the fit and proper person criteria specified in Intermediaries Regulations and accordingly cancelled its registration.
In September 2009, NSEL (now defunct) introduced the concept of 'paired contracts' for trading, which allowed buying and selling of the same commodity through two different contracts at two different prices on the exchange platform.
Under this arrangement, investors could buy a short-duration contract and sell a long-duration contract and vice versa at the same time at a pre-determined price.
Further, it was noticed that trades for the buy contract and the selling contract used to happen on the NSEL on the same day at the 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 investors to the extent of Rs 5,500 crore, the order noted.
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