NSEL Scam: SEBI Says Anand Rathi Commodities and Geofin Comtrade are 'Not Fit & Proper' Brokers
Market regulator Securities and Exchange Board of India (SEBI) has declared Anand Rathi Commodities Ltd and Geofin Comtrade Ltd (formerly Geojit Comtrade Ltd) as 'not fit & proper' to hold, directly or indirectly, the certificate of registration as commodity derivatives brokers with immediate effect.
 
In an order, Madhabi Puri Buch, whole time member of SEBI said, "Various courts and authorities in the country have made serious adverse observations against National Spot Exchange Ltd (NSEL) and paired contracts, observing the transactions to be violative of the Forward Contracts (Regulation) Act (FCRA) and to be in the nature of financing transactions that were violative of Maharashtra Protection of Interest of Depositors (MPID) Act. Even though these observations are yet to be established in a court of law, SEBI is justified in considering them when assessing the reputation of the parties concerned for the purpose of determining their fit and proper status since it is mandated with investor protection and in that context, it is justified in keeping a person with doubtful reputation out from the market rather than running the risk of allowing the market to be affected." 
 
"Anand Rathi Commodities by virtue of being a broker, and by its own admission, has facilitated transactions in the paired contracts for its clients on the NSEL platform. This in itself establishes a close association between the brokerage on the one hand and paired contracts and NSEL on the other. Over and above this, Anand Rathi Commodities, by its own admission, allowed itself to become a channel and instrument for NSEL to promote paired contracts amongst its client," the order says.
 
The order issued separately against Geofin Comtrade also mentions similar offences committed by the brokerage. 
 
SEBI is probing as many as 300 brokers for violation of rules colluding with the National Spot Exchange Ltd (NSEL) to defraud investors. In fact, the regulator has named several brokerage firms in a first information report (FIR). 
 
What this meant was that NSEL did not maintain sufficient underlying stock on trades it allowed even as brokers sold lucrative contracts to investors. This builds defaults and resulted in the exchange denying payments worth Rs5,600 crore in 2013. 
 
On 6 October 2016, SEBI appointed designated authorities to enquire into alleged violations of various provision of SEBI acts by the brokers. The designated authorities submitted its enquiry report on 11 April 2017. 
 
The Report found both Anand Rathi Commodities and Geofin Comtrade have carried out back-to-back pair contracts at NSEL for and on behalf of its constituents. "On behalf of its constituents, the brokers simultaneously entered into a ‘short term buy contract’ (for example, T+2 or two day settlement) and a ‘long term sell contract’ (T+25 or T+36 or settlement in 25 days or 36 days) with pre-determined price and profit for the buyer and seller, which itself violated the very concept of spot market for trading in commodities. The contracts were executed by the brokers in such a manner that it was always ensured that these contracts were registering a profit on the long-term positions. Thus, there existed a financing business where a fixed rate of return or assured returns were guaranteed to the investors of Anand Rathi Commodities and Geofin Comtrade, who had invested in these pair contracts. These paired contracts generated an assured return of 13% to 18% per annum, and therefore, in actuality, financial transactions were taking place through these pair contracts under the garb of doing commodities trading in spot market," the report had said. 
 
In its order, SEBI says, "Given the close association of Anand Rathi Commodities and Geofin Comtrade to NSEL and the paired contracts, and the relatability of the same to the brokerage, the serious adverse observations of the various courts and authorities have, in turn, seriously eroded the reputation and belief in competence, fairness, honesty, integrity and character of the Anand Rathi Commodities and Geofin Comtrade. Reputation is an important factor for consideration of fit and proper critera and the reputation of the Anand Rathi Commodities and Geofin Comtrade have been seriously eroded. Thus, I find that both Anand Rathi Commodities and Geofin Comtrade are not a fit and proper person to be granted registration or to operate as a commodity derivatives broker."
 
  • Like this story? Get our top stories by email.

    User

    COMMENTS

    Ajay Sharma

    6 months ago

    Is it just me? Or does anyone else have a major problem with SEBI being the one to dictate who is/not 'fit and proper'?

    AAR

    6 months ago

    Is there any action against Financial Technologies?

    MCX receives SEBI approval for Clearing Corp
    The Multi Commodity Exchange of India Ltd (MCX) on Wednesday said it has received the recognition from market regulator SEBI to launch operations of its subsidiary, Multi Commodity Exchange Clearing Corporation Ltd (MCXCCL) -- the first clearing corporation in the commodity derivatives market.
     
    MCXCCL, a wholly-owned subsidiary of MCX, will soon commence its operations and undertake collateral management, risk management functions and clearing and settlement of trades executed on the exchange, MCX said in a statement.
     
    According to the statement from India's leading commodity bourse, MCXCCL has state-of-the-art risk management system, including various online and offline risk management tools. 
     
    "It will be the central counter-party for all trades executed on MCX's trading platform and will collect margins from the members, effect pay-in and pay-out and oversee delivery and settlement process, and will also facilitate deliveries in various commodities across multiple locations in India," said the exchange. 
     
    Besides, MCXCCL will also provide electronic commodity accounting and receipts tracking facility through its portal -- Commodity Receipts Information Systems (COMRIS), according to MCX.
     
    Further, it will provide a settlement guarantee for all trades executed on MCX via Settlement Guarantee Fund (SGF), it added.
     
    "Setting up of MCXCCL is a vital step towards elevating MCX's risk management practices, as also mandated by the regulator. At MCX, we firmly believe in stronger risk management norms for the safety of our members," said Mrugank Paranjape, MD & CEO, MCX. 
     
    "We continue to enhance efficiencies in our systems and processes so that our members and their clients can trade with confidence. As we significantly step up our operational standards to adhere to regulatory requirements, we are also aware that advancement in risk management is the need of the hour."
     
    According to Narendra Ahlawat, the MCXCCL MD & CEO, the new entity will provide secure, capital-efficient counter-party risk management and post-trade services to the exchange's members and their clients.
     
    "It has a robust risk management framework to mitigate the risks it will undertake in its capacity as a clearing corporation," Ahlawat said.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • User

    India's Q1 gold demand up 15 percent: WGC

    The demand for gold in the first quarter of 2014 was 167.1 tonnes

     

    The demand for gold in India for the first quarter (January-March) of 2015 was at 191.7 tonnes, up by 15 percent as compared to the corresponding period of 2014, World Gold Council (WGC) said in a report on Thursday.
     
    The demand for gold in the first quarter of 2014 was 167.1 tonnes.
     
    "India's gold demand during the first quarter of 2015 was up 15 percent compared to the corresponding quarter last year, though it is still below the 5-year average," said Somasundaram P.R., managing director, India, World Gold Council.
     
    He attributed the growth to the muted demand in the same period last year due to crippling gold import policies coupled with weak economic sentiment and trade uncertainty at the time of the general elections.
     
    "In contrast, following the partial removal of the import curbs (with the exception of a duty reduction) and the budget announcements introducing new gold products, the environment for gold has been encouraging in the past few months, resulting in buying behaviour slowly returning to normalcy," he added.
     
    India's first quarter 2015 gold demand value was Rs.46,730.6 crore, a gain of nine percent in comparison with corresponding period a year ago when it was Rs.42,898.6 crore.
     
    Total jewellery demand in India for first quarter of 2015 was up by 22 percent at 150.8 tonnes as compared to 123.5 tonnes in Q1 of 2014. 
     
    Somasundaram said there are a number of factors that will shape a positive environment for gold this year. Like an upward revision of GDP growth, the government's approach to bringing gold into the mainstream economy and ensuring that gold becomes a fungible asset akin to any financial asset.
     
    Also the country's natural affinity with gold as a savings asset will support it becoming embedded in the financial sector and finally the modernisation of the jewellery trade, he said.
     
    "Notwithstanding the unseasonal rains in the early part of the calendar year which will impact the rural economy, full year demand expectations are in the range of 900-1,000 tonnes," he added.
     
  • User

    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 3 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)