In the NSEL crisis which came into light in 2013
there is latest development in terms of fraudulent behavior of Brokers. SEBI
completed investigation against top 5 brokerage firms involved. According to
Sebi official the delays by brokers occurred when Sebi was not their regulator.
At the time when violations took place in NSEL contracts the Sebi or FMC were
never under the ambit in the first place.
It is stated that from a regulatory perspective
if Sebi would have faced jurisdiction issues if it would have tried to act against
the 24 NSEL Defaulters and Brokerage firms involved. In the NSEL crisis, since
FMC itself had no regulatory jurisdiction over the commodity spot and
ready-delivery contracts. Hence, Sebi may not assume jurisdiction which was
originally never there mentioned by Tejesh Chitlangi, partner at law firm IC
Legal.
As the merger of FMC and Sebi took place brokers
are abided by the Securities Act and have come under the purview of the Sebi broker
regulations. In the current rules applied for brokers, Sebi evaluates brokers
and intermediaries to make sure they meet its ‘fit and proper’ criteria.
Sebi also has the rights to impose rules on
brokers unlike FMC, where brokers were governed by exchange guidelines. The
regulator can act against an intermediary for violation of FUTP and under
Section 11B for protecting the rights of investors if it finds the conduct of a
broker questionable.
One of the official mentioned that code for
brokers will be strict and very precise for do’s and don’ts. There will be eye
on the broker who carry out misrepresentation, lack of due diligence, material
un-disclosed conflicts and/or any other shortcomings on part of such brokers. Sebi
would be well within its right to penalize them in case of any faulty practices. Sebi, on its
part, is going to refer the report to the department of economic affairs. They
would apprise the ministry of their findings with respect to the NSEL brokers
as they move towards finalizing a course of action.
Trading was stopped on NSEL in July 2013 after the payments
crisis, which assumed the dimensions of a scam, surfaced at the supplies
bourse, which is 99.99% owned by Financial Technologies India Ltd
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