New Delhi: Leading brokerage houses such as Edelweiss, Kotak and JM Financials are among the more than 300 brokers found to have violated rules in the Rs 5,600-crore National Spot Exchange Limited (NSEL) scam by the Securities and Exchange Board of India (Sebi).
“Sebi has already filed a first information report (FIR) with the Economic Offences Wing (EOW) against these brokers, alleging that they were involved in illegal forward contracts at NSEL in contravention of the Forward Contract Regulations Act 1952 (FCRA). Leading brokers such as Edelweiss, Kotak, JM Financials, among over 300 brokers, are involved in the scam,” said a top industry source.
Sebi has termed the contracts illegal on the basis that NSEL has authority to allow trading only in spot contracts, which must be settled in 11 days. But NSEL has issued paired contracts that went beyond the prescribed 11 days. Those transactions were in the nature of forward contracts and hence were termed as illegal.
In the NSEL case, Sebi had issued show-cause notices to five brokers earlier over illegal forward contracts and also for their failure to do proper diligence such as physical verification of warehouses, stocks and checking claims of exchange on guaranteed returns, amongst others.
The source, however, stated that these charges would apply for all the brokers who had done any trade on the exchange. “If any broking entity had done physical verification of stocks or any validation of NSEL claims on guaranteed returns, it would not have allowed any customer to trade on the exchange.”
The EOW has issued summons to all the brokers mentioned in the FIR. As per procedure, EOW is expected to summon the directors and officials of these brokerages and undertake forensic audit and verification of accounts.
Jignesh Shah-promoted NSEL had defaulted in July 2013 in payment of over Rs 5,600 crore. Several investigative authorities had traced the money trail to NSEL and its 22 defaulting brokers who were commodity producers or suppliers.
“These 300 non-defaulting brokers are capital market intermediaries, representing 13,000 investors who have lost their monies. But there are concerns in the market that the investigation process is nowhere near completion, even after six years,” the source said.