Anonymous letter prompts ICEX board to order a forensic audit

A copy of the letter, which alleges misuse of liquidity incentives scheme, was also senr to Sebi

The board of the Reliance ADAG-anchored Indian Commodity Exchange (ICEX) has ordered a forensic probe after an unsigned letter to it alleged the exchange’s top management misused the Liquidity Enhancement Scheme (LES), according to people in the know. The same letter has also been forwarded to markets regulator, the Securities and Exchange Board of India (Sebi).

Under the LES, the exchange was allowed to give financial incentives to those who helped increase liquidity in illiquid contracts. 

The sources said the board, via video conferencing on Monday, had discussed the issue, besides its response to Sebi and the implications of ordering a forensic audit. The board again met on Tuesday. Reliance Exchangnext is the largest and anchor shareholder of ICEX, with a 16.33 per cent stake; Central Warehousing Corporation is the second-biggest shareholder with 11.05 per cent holding.

In 2014, the exchange had to suspend trading, which could be resumed only after thee years. At that time, a string on allegations triggered by the imposition of commodity transaction tax (introduced in July 2013) had played spoilsport. Currently, the exchange of late has been able to make its presence felt in contracts like diamonds futures, which are yet not traded anywhere. Steel and paddy are the other commodities traded on the exchange.

According to the sources, an adverse audit report could hurt its plans for expansion. The ICEX is planning to launch electricity futures on its platform and currently in talks with the Indian Energy Exchange (IEX) to sell a 15 per cent stake. ICEX executives were not available for comments.