The securities appellate tribunal (SAT) has quashed an order passed by market regulator Securities and Exchange Board of India (SEBI) derecognising the Indian Commodity Exchange (ICEX). The Tribunal also pulled up SEBI for not giving an opportunity to the Exchange to revive itself. This is the second setback for SEBI in this week. Earlier this week, SAT had set aside a 2019 SEBI order which declared five brokerages not 'fit and proper' in an alleged scam that broke out at the National Spot Exchange Ltd (NSEL) in 2013.
Justice Tarun Agarwala, presiding officer, and Meera Swarup, technical member of SAT, in an order on 16th June, said the COVID-19 lock-down had completely stopped physical trading in the commodity sector, especially in ICEX which was doing delivery-based contracts.
"In this hour of crisis, when every effort is being made to revive the country’s economy, it is also the duty of the regulator to ensure that the exchange revives itself, for which at least an opportunity should be given by the regulator, SAT said in its order.
“Heavens are not falling requiring the regulator to withdraw the recognition of ICEX as a recognised exchange. Some latitude to raise funds, and become compliant ought to have been granted,” the Tribunal added.
The finding of the executive director of SEBI—that it would be difficult for ICEX to raise funds and complete all compliances—is purely based on speculation and cannot be sustained, it said.
In May 2022, SEBI passed an order withdrawing the recognition
given to ICEX as a stock exchange. Its order was based on the argument that the Exchange fell short of the minimum net worth of Rs100 crore for exchanges. SEBI also pointed out that the exchange did not address various infrastructure issues pointed out by the regulator during inspections.
ICEX argued that it was operating on thin budgets and did not have the financial power to address the issues pointed out by SEBI.
In a 14-page ruling, SAT says that the Exchange was not accused of any illegal activity such as defrauding investors or misusing its status as a stock exchange for vested gains.
SAT has given ICEX, time of one year to bring in the required funds and meet the prescribed SEBI regulations. However, until the net worth criteria are met, ICEX has been asked to keep its trading operations closed. ICEX had voluntarily closed its trading operations in March 2022 and, currently, is only offering mutual fund-related products.
SAT also added that if ICEX manages to find the capital before the deadline, it could make an application with SEBI for resuming trading operations. The tribunal has asked SEBI to consider the request and pass appropriate orders.
The money in the Investor Protection Fund and Investor Services Fund of the Exchange will be utilised for settlement of any claims, if any, and not be utilised for any other purposes, said SAT.
As per the order, within the stipulated period, if the Exchange raises requisite funds and completes all compliances, it can move an appropriate application before SEBI for resuming trading operations which will be duly considered and an appropriate order passed.
SEBI can withdraw recognition if the Exchange fails to do so, SAT added.