A man stops his motorcycle in front the Securities & Exchange Board of India in Mumbai, India (Photographer: Adeel Halim/Bloomberg News)  

NSEL Scam: SEBI Rejects Questions Over Its Jurisdiction To Probe Commodity Brokers

The market regulator dismissed questions over its jurisdiction in its probe into alleged mis-selling by five brokerages in the Rs 5,548-crore payments scam at the erstwhile National Spot Exchange Ltd.

The order, uploaded on its website, stems from Motilal Oswal Commodities Broker Pvt. Ltd.’s submission in a personal hearing in January this year. Apart from seeking inspection of documents used by the Securities and Exchange of India, the brokerage had raised concerns on the regulator acting against a commodity broker. At the time the scam was unearthed, the Forwards Markets Commission regulated the commodities market.

SEBI arbitrarily cherry-picked Motilal Oswal Commodities for inquiry proceedings out of pool of similarly placed 600 brokers who were trading on the NSEL in the similar manner without disclosing any basis for such selection, the firm had said in its reply to a show-cause notice—a copy of was reviewed by BloombergQuint.

SEBI, in its order, said “since the firm had applied with it for registration as a commodity broker, it has jurisdiction over the brokers”. The regulator allegation of “discrimination”, saying that it relied on “complaints” from NSEL and report by the Economic Offences Wing of the police.

Based on an audit of accounts, SEBI is probing five broking firms over their exposure: Anand Rathi Financial Services Ltd. (Rs 629 crore); India Infoline Commodities Pvt. Ltd (Rs 326 crore), Geofin Comtrade Ltd. (Rs 313.25 crore), Motilal Oswal (Rs 263 crore) and Phillip Commodities (Rs 140 crore). The firms have been charged with fraud, violation of broker regulation, Prevention of Money Laundering Act and Forward Contracts (Regulation) Act.

Brokers are yet to respond to BloombergQuint’s emailed queries.

SEBI, according to its order, has not initiated any proceedings in the NSEL matter against any other broker or investor.