NSEL Case: Sebi Cancels Registration Of Nirmal Bang Commodities

NSEL Case: Sebi Cancels Registration Of Nirmal Bang Commodities

SEBI revokes Nirmal Bang Commodities' registration over illegal 'paired contracts' trading on NSEL, questioning the brokerage's integrity and due diligence. Investors affected by the scheme suffered losses over Rs 5,600 crore. Nirmal Bang must transfer client funds and securities within set deadlines.

Capital markets regulator Sebi on Wednesday cancelled the registration of brokerage house Nirmal Bang Commodities for facilitating its clients to trade in illegal 'paired contracts' on the now defunct National Spot Exchange Ltd.

Sebi said 'paired contracts' on NSEL were not spot contracts in commodities.

The brokerage (noticee), driven by its desire to earn brokerage, provided a platform for its clients to access a product which raised serious questions on its ability to conduct proper and effective due diligence regarding the product itself, the regulator said in an order.

Further, Sebi said the act of the brokerage house in offering access to 'paired contracts' also seriously calls into question its integrity, honesty and lack of ethical behaviour.

"I hold that the noticee failed to comply with the 'fit and proper person' criteria specified in schedule II of the Intermediaries Regulations on continuous basis," Sebi Whole Time Member Ashwani Bhatia said in the order.

The regulator also asked the brokerage house to allow its existing clients or transfer their securities or funds held in its custody within 15 days.

In case of failure of any clients to withdraw or transfer their securities or funds within this period, the entity will transfer the funds and securities of such clients to another broker within a period of the next 15 days thereon, under advice to the clients.

In September 2009, NSEL introduced the concept of 'paired contracts' for trading, which allowed buying and selling of the same commodity through two different contracts at two different prices on the exchange platform.

The scheme of 'paired contracts' traded on the NSEL, investors had suffered losses of more than Rs 5,600 crore, as per the order.

In a separate order, the markets watchdog suspended the certificate of registration of Five Square Agro Gold for a period of three months for its involvement in illegal paired contracts in the same matter.

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