Markets regulator Sebi cancels registration of 3 brokers in NSEL case

Markets regulator Sebi on Friday cancelled the registration of three brokerage houses for facilitating its clients to trade on the platform of the now defunct National Spot Exchange Ltd (NSEL) in illegal 'paired contracts'.

The brokerage houses, whose registrations were cancelled, are Paterson Commodities, Blue Crest Commodities and Fair Intermediate Products.

In three separate orders, Sebi found that these entities have either participated or facilitated the trading in 'paired contracts' on the NSEL platform.

By providing such a facility, they exposed their clients to the risk involved in trading in a product that did not have regulatory approval. The acts by the brokers raised doubts about their competence to act as registered securities market intermediaries, the orders noted.

As per the order, Fair Intermediate Products started trading in the alleged paired contracts in 2012 after 3 years from the date on which NSEL launched these contracts in September 2009.

Accordingly, the regulator noted that these entities do not satisfy the "fit and proper person" criteria for holding the certificate of registration as brokers in the securities market and cancelled the registration of the brokerage houses.

In September 2009, NSEL (now defunct) introduced the concept of 'paired contracts' for trading, which allowed buying and selling in 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 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 investors to the extent of Rs 5,500 crore, the orders noted.

On Tuesday, the regulator cancelled the registration of five brokers -- Jhaveri Credit and Capital Ltd, Time Leverage Instruments, Abans Commodities, Purvag Commodities and Comtrade Commodities Services.