Sebi cancels Way2Wealth Commodities registration in NSEL scam case

Capital markets regulator Sebi on Monday cancelled the registration of Way2Wealth Commodities for facilitating its clients to trade on the platform of the now defunct National Spot Exchange Ltd (NSEL) in illegal 'paired contracts.

By providing such a 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 regulatory approval, Sebi said in an order.

"The noticee (Way2Wealth Commodities) provided a platform for its clients to access a product which raised serious questions on the ability of the noticee to conduct proper and effective due diligence regarding the product itself.

"In failing to dissociate itself from, and continuing to facilitate participation in the said paired contracts, the noticee failed to act with due diligence," Sebi said.

Accordingly, Way2Wealth Commodities can no longer be called a "fit and proper person" for holding the certificate of registration as a broker in the securities market and cancelled the registration of the brokerage house.

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 to another broker within the next 15 days thereon, under advice to the said client.

In November 2022, the Securities and Exchange Board of India (Sebi) imposed a six-month ban on five brokerages from obtaining fresh registrations as commodity brokers for their involvement in the NSEL scam.

The brokerages were Anand Rathi Commodities, Motilal Oswal Commodity Broker, Phillip Commodities India, India Infoline Commodities and Geofin Comtrade.

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. Under this arrangement, 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.

Further, it was noticed that trades for the buy contract and the sell 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 the investors to the extent of Rs 5,500 crore, the order said.