SEBI Cancels Way2Wealth Commodities' Broker Registration in NSEL Case
Moneylife Digital Team 27 February 2023
Market Regulator Security and Exchange Board of India (SEBI) has cancelled the registration of Way2Wealth Commodities Pvt Ltd for dealing in or facilitating paired contracts on the National Spot Exchange Ltd (NSEL) platform and failing to satisfy the 'fit and proper' criteria.
In an order, Dr Anitha Anoop, chief general manager (CGM) of SEBI, says, "...I am constrained to conclude that the Noticee provided access to its clients to participate in a product which raises serious questions on the ability of the Noticee to conduct proper and effective due diligence regarding the said product itself...Further, it is also not the case of the noticee that the said first information report (FIR) filed by SEBI is either stayed or quashed by any competent court qua the noticee or otherwise. In view of the above, I hold that the noticee does not satisfy the 'fit and proper person' criteria specified in Schedule II of the intermediaries' regulations and hence, the continuance of the noticee as a broker will be detrimental to the interest of the securities market."
Way2Wealth Commodities is also asked to allow its existing clients, if any to withdraw or transfer their securities or funds held in its custody, within 15 days.
Dr Anoop observed that there were enough red flags for a reasonable person to come to conclude that what was being offered as 'paired contracts' on NSEL were not spot contracts in commodities.
A report by the economic offences wing (EOW) of Mumbai police mentioned Way2Wealth Commodities as one of the brokers who had client or money exposure at the time of default of Rs8.72 crore. On 24 September 2018, SEBI has filed the FIR against brokers involved in the paired contracts on the NSEL platform.
In September 2009, NSEL allegedly introduced the concept of 'paired contracts', i.e. buying and selling the same commodity through two different contracts at two different prices on its platform wherein investors could buy a short-duration settlement contract and sell a long-duration settlement contract and vice versa at the same time. It entailed the occurrence of buy trades (trading plus two (T+2) / T+3) and sell trades (T+25 / T+36) on the same day at different prices on the platform of NSEL. The transactions were structured so that buyers of the short duration contract always made profits.
In its contention, Way2Wealth Commodities submitted that the revised criteria introduced in 2021 should not be made applicable retrospectively as the present proceedings essentially pertain to transactions carried out by it on the NSEL platform from 2012 onwards for six months.
However, Dr Anoop rejected the contention. "The execution of the trades in 'paired contracts' were not permitted under the 2007 exemption notification and were purely financial contracts promising assured returns under the garb of spot trading in commodities, as observed by Forward Markets Commission (FMC) in its order. Therefore, Way2Wealth Commodities, by its conduct and as a member of the NSEL, has promoted and/or dealt in 'paired contracts' which were held to be in the nature of financing transactions by the Supreme Court. Way2Wealth Commodities, by providing access for taking exposure to 'paired contracts' has exposed its clients to the risk involved in trading in a product that did not have regulatory approval," she says.
(QJA/AA/MIRSD/DOP/24170/2022-23 Date: 27 February 2023)
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