NSEL Brokers investigated by SEBI

SEBI ordered an audit report of brokerage firms involved in the NSEL crisis which came into light in 2013. It was due to the suspicion of these top brokerage firms being involved in the mis-selling of NSEL goods, according to the sources. However SEBI is facing difficulty in finalizing regulatory action in opposition to the brokers. It is because neither SEBI nor the previous commodities futures regulator, which has since merged with SEBI, were involved in oversight of NSEL, the three persons said on condition of anonymity. Investigation of brokers is probably completed and SEBI is lettering to the department of economic affairs in the finance ministry.

 Audit of brokers’ books was carried out by a third party, found that brokers mis-sold NSEL contracts by assuring high returns without ensuring delivery, said the second person. Mis-selling is one of the explanation areas that Sebi is considering while analyzing whether brokers complied with the ‘fit and proper’ criteria.

In case of NSEL brokers SEBI ordered audit books of top five brokers for the year of 2011, 2012 & 2013. These brokers involve Anand Rathi Financial Services Ltd (Rs.629 crore), India Infoline Commodities Pvt. Ltd (Rs.326 crore), Geojit Comtrade Ltd (Rs.313.25 crore), Motilal Oswal Commodities (Rs.263 crore) and Phillip Commodities (Rs.140 crore). 

A team was formed after the Ministry of finance asked SEBI to look into defaulting NSEL members. The team included executive directors heading three crucial Sebi divisions: surveillance, investigation and commodities. 

Around 200 brokers are alleged to have sold NSEL products by promising an assured return to investors to be sure. But there have been no specific complaints against them. When contacted the brokerage firms, their spokesperson had no idea or denied to comment on the same.

Even though the audit report is ready, Sebi is finding it difficult to finalize regulatory action as it is facing jurisdiction issues. SEBI was merged with the Forward Markets Commission (FMC), the commodities futures market regulator last year. FMC is one regulator which did not oversee NSEL, a commodities spot exchange.