NSEL Scam: SEBI Says Anand Rathi Commodities and Geofin Comtrade are 'Not Fit & Proper' Brokers
Moneylife Digital Team 26 February 2019
Market regulator Securities and Exchange Board of India (SEBI) has declared Anand Rathi Commodities Ltd and Geofin Comtrade Ltd (formerly Geojit Comtrade Ltd) as 'not fit & proper' to hold, directly or indirectly, the certificate of registration as commodity derivatives brokers with immediate effect.
In an order, Madhabi Puri Buch, whole time member of SEBI said, "Various courts and authorities in the country have made serious adverse observations against National Spot Exchange Ltd (NSEL) and paired contracts, observing the transactions to be violative of the Forward Contracts (Regulation) Act (FCRA) and to be in the nature of financing transactions that were violative of Maharashtra Protection of Interest of Depositors (MPID) Act. Even though these observations are yet to be established in a court of law, SEBI is justified in considering them when assessing the reputation of the parties concerned for the purpose of determining their fit and proper status since it is mandated with investor protection and in that context, it is justified in keeping a person with doubtful reputation out from the market rather than running the risk of allowing the market to be affected." 
"Anand Rathi Commodities by virtue of being a broker, and by its own admission, has facilitated transactions in the paired contracts for its clients on the NSEL platform. This in itself establishes a close association between the brokerage on the one hand and paired contracts and NSEL on the other. Over and above this, Anand Rathi Commodities, by its own admission, allowed itself to become a channel and instrument for NSEL to promote paired contracts amongst its client," the order says.
The order issued separately against Geofin Comtrade also mentions similar offences committed by the brokerage. 
SEBI is probing as many as 300 brokers for violation of rules colluding with the National Spot Exchange Ltd (NSEL) to defraud investors. In fact, the regulator has named several brokerage firms in a first information report (FIR). 
What this meant was that NSEL did not maintain sufficient underlying stock on trades it allowed even as brokers sold lucrative contracts to investors. This builds defaults and resulted in the exchange denying payments worth Rs5,600 crore in 2013. 
On 6 October 2016, SEBI appointed designated authorities to enquire into alleged violations of various provision of SEBI acts by the brokers. The designated authorities submitted its enquiry report on 11 April 2017. 
The Report found both Anand Rathi Commodities and Geofin Comtrade have carried out back-to-back pair contracts at NSEL for and on behalf of its constituents. "On behalf of its constituents, the brokers simultaneously entered into a ‘short term buy contract’ (for example, T+2 or two day settlement) and a ‘long term sell contract’ (T+25 or T+36 or settlement in 25 days or 36 days) with pre-determined price and profit for the buyer and seller, which itself violated the very concept of spot market for trading in commodities. The contracts were executed by the brokers in such a manner that it was always ensured that these contracts were registering a profit on the long-term positions. Thus, there existed a financing business where a fixed rate of return or assured returns were guaranteed to the investors of Anand Rathi Commodities and Geofin Comtrade, who had invested in these pair contracts. These paired contracts generated an assured return of 13% to 18% per annum, and therefore, in actuality, financial transactions were taking place through these pair contracts under the garb of doing commodities trading in spot market," the report had said. 
In its order, SEBI says, "Given the close association of Anand Rathi Commodities and Geofin Comtrade to NSEL and the paired contracts, and the relatability of the same to the brokerage, the serious adverse observations of the various courts and authorities have, in turn, seriously eroded the reputation and belief in competence, fairness, honesty, integrity and character of the Anand Rathi Commodities and Geofin Comtrade. Reputation is an important factor for consideration of fit and proper critera and the reputation of the Anand Rathi Commodities and Geofin Comtrade have been seriously eroded. Thus, I find that both Anand Rathi Commodities and Geofin Comtrade are not a fit and proper person to be granted registration or to operate as a commodity derivatives broker."
Ajay Sharma
5 years ago
Is it just me? Or does anyone else have a major problem with SEBI being the one to dictate who is/not 'fit and proper'?
5 years ago
Is there any action against Financial Technologies?
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