Regulator’s action follows Motilal Oswal, India Infoline arms’ alleged role in the ₹5,600-cr. NSEL scam
The Securities and Exchange Board of India (SEBI) has declared Motilal Oswal Commodities Broker and India Infoline Commodities (IICL) unfit to function as commodity brokers on account of their alleged role in the ₹5,600-crore settlement scam at the National Spot Exchange Ltd (NSEL) that came out in the open in July 2013.
In two separate orders issued late on Friday, the capital markets regulator rejected the application for registration of the two entities and further directed that all existing clients should be allowed to move to other brokerages within 45 days.
This is the first set of actions against large brokerages alleged to have colluded with the spot exchange for marketing of the so-called pair contracts wherein clients were assured fixed returns of between 13% and 16% per annum.
Role in paired contracts
According to the SEBI order, the two entities “facilitated transactions in the said paired contracts for its clients on the NSEL platform” that establishes a close connection between the brokers and the exchange.
“Reputation is an important factor for consideration of fit and proper criteria and the reputation of the noticee has been seriously eroded. Thus, we find that the noticee is not a fit and proper person to be granted registration/to operate as a commodity derivatives broker,” SEBI said in the orders.
“IICL does not have any outstanding dues to any clients. IICL also does not have any proprietary position… However, IICL is seeking legal advice as regards to going for an appeal, in this matter. We would like to clarify to all our stakeholders and clients that this order has no impact on businesses of other companies of IIFL Group,” said an IIFL spokesperson.
A statement from Motilal Oswal Financial Services also said that Motilal Oswal Commodities Broker Pvt. Ltd. (MOCB) is in consultation with its lawyers to explore legal options.
“MOCB itself is the victim of scam like thousands of investors. We assure our esteemed stakeholders, including investors, that the said order against MOCB will have no impact on overall business activities of companies of Motilal Oswal group in any segment,” it said.
The NSEL scam is once again in the spotlight. 63 Moons Technologies, which was formerly known as Financial Technologies India Ltd. (FTIL), said that it had initiated the process to file suits claiming damages worth ₹10,000 crore against former Finance Minister P. Chidambaram and bureaucrats K.P. Krishnan and Ramesh Abhishek for alleged abuse of their powers and mala fide actions against the firm. 63 Moons is the parent of NSEL and was probed by various regulatory and investigative agencies.