Markets regulator the Securities and Exchange Board of India (Sebi) has declared Motilal Oswal Commodities Brokers (MOCB) and India Infoline Commodities (now IIFL Commodities) as ‘not fit and proper’ to conduct the commodity derivatives broking business directly or indirectly, as part of its action in the National Spot Exchange Ltd (NSEL) case.
Both firms were commodity derivatives brokers and were found guilty of facilitating transactions in the paired contracts on the NSEL platform.
In view of the close association of these brokers to NSEL and the paired contacts, and the relatability of the same, the serious adverse observations of the various courts and authorities have, in turn, seriously eroded their reputation and belief in competence, fairness, honesty, integrity and character, Sebi said in two separate orders.
"In the interest of investors and to protect the integrity of the securities market, declare that the two firms are not fit and proper person to hold, directly or indirectly, the certificate of registration as commodity derivatives broker and hereby reject the application filed for registration as commodity derivatives broker. Thus, the noticees shall cease to act, directly and indirectly, as a commodity derivative broker,” said the Sebi orders.
"In case of failure of any clients to withdraw or transfer their securities or funds within 45 days from the date of this order, the Noticee shall transfer its balance clients with their corresponding securities and funds to another person, holding a valid certificate of registration to carry on such activity, within a further period of 30 days. Such person should not be directly or indirectly related to the Noticee," the orders read.
MOCB said its own group had investment of Rs 58.7 crore, due from NSEL on the date of default. “MOCB itself is the victim of scam like thousands of investors. MOCB is aggrieved by this order and it is in consultation with its lawyers to explore legal options before it,” said a MOCB spokesperson.
IIFL Commodities said it does not have any outstanding dues to any clients not any proprietary position. “The order mentions that SEBI has initiated similar enquiry proceedings against approximately 300 brokers and there will be no discrimination. However, we are seeking legal advice as regards to going for an appeal, in this matter,” the spokesperson said.
Both MOCB and IIFL Commodities clarified that this order would have no impact on their other businesses.
The NSEL scam involved 13,000 investors trading through over 300 brokers in paired and e-series contracts without having actual underlying goods in warehouses.