Brokers taking undue advantage of Trading Clients

Trading Clients of NSEL had made huge financial gains while trading with the exchange. They made financial advances until July 2013, when the market paused due to government directions at that time. Trading clients of NSEL were lured into trading due to fixed costs of borrowing & a higher spread of returns against commodities by brokers. Purchase price & sale price of commodities with a fixed return of 13-14 % pa was clearly mentioned in the contract issued by brokers.

Trading Clients participated in financing schemes of commodities in which they had no specific domain knowledge or expertise. They invested large funds, without proper assessment of risk management. Billing activities were outsourced by trading clients to brokers who acted as a Clearing & Forwarding agents to fulfill requirement of contracts. Physical market side involved producing, buying, purchasing, storing and trading of commodities.

Brokers took due advantage of trading clients since they had no proper domain knowledge or expertise and all billing and trading activities were in their hands. None of the trading clients obtained VAT & TIN numbers against purchases & sales though specific nature of transactions were well known. Trading clients also never collected warehouse receipts from these brokers for purchases.

The High Court Committee on the 22^nd of January 2015 had directed NSEL to collect data of 13000 trading clients through their respective trading members and brokers in order to ensure and streamline the recovery process. Following the direction of the Honorable High Court Committee, NSEL issued the circular on February 2015 to trading members to collect the required information of the trading clients and furnish their details by February 2015. This would determine the legitimate, genuine, undisputed and clean claims of the trading members and their respective clients.

NSEL has stated that only 45 trading clients have verified their claims totaling to Rs.12 crores as of now. The Exchange had also disclosed of a large scale client code modifications done by NSEL brokers for a few months namely from April to July 2013. Value of client modifications stood at over Rs. 2000 crores as per most recent findings.