Sebi (Securities and Exchange Board of India) has cancelled the registration of K R Choksey Commodity Brokers for facilitating its clients to trade on the platform of the National Spot Exchange Ltd (NSEL) in the illegal ‘paired contracts.’
By providing such 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 either statutory sanction or regulatory approval, Sebi said in its order.
“The conduct displayed by the noticee as a market intermediary, by indulging in participation/ facilitation in the trading in ‘paired contracts’ on the NSEL, by turning a blind eye to all the illegalities associated with those contracts and the fraudulent manner which trading in those ‘paired contracts’ taking place on the exchange platform of the NSEL, has seriously belied the trust of the Regulator in the integrity and intent of the platform of the NSEL,” Sebi said.
After committing such grave misconduct, K R Choksey Commodity Brokers can no longer be called a ‘fit and proper person’ for holding the certificate of registration as a commodity derivatives broker in the securities market, it added.
Sebi has asked the broker to allow its existing clients to withdraw or transfer their securities or funds held in its custody within 60 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 30 days thereon, under advise to the said client.
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, wherein the 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.
It was further noticed that trades for the buy contract (T 2 / T 3) and the sell contract (T 25/ T 36) used to happen on the NSEL on the same day at 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 ₹5,500 crore.
(With inputs from PTI)
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