National Spot Exchange limited (NSEl) crisis just got bigger as role of at least 32 brokerage firms has come under the scanner of the authorities for allegedly charging high transaction charges and providing portfolio management and margin funding services to their clients in violation of regulations.
As per sources, both market regulators, Securities and Exchange Board of India (SEBI) and Forward Market Commission (FMC), are looking into the role of these brokers, who were registered in both stocks and commodities markets. These brokers were working as Carrying and Forward (C&F) agents as well for NSEl without authenticating the whether or not the exchange had physical stocks of the various commodities that were being traded. The authorities are also in validating whether or not these C&F agents kept investors in the dark about non availability of commodities on which their clients were taking positions.
Among the 32 brokers, 14 are from Gujarat, seven from Rajasthan and others are from states like Maharashtra, Delhi, Andhra Pradesh and Punjab. The source further added that the regulators have already received complaints that margin funding happened with the broking firms and their associates financing nearly 80 to 90 per cent of exposure on NSEl, while balance was paid by high networth clients (HNIs).
They allegedly mis-sold the commodities forward contracts on NSEl to their investors as lucrative investment products garnering fully secure returns of up to 18 per cent under portfolio management services. The spot commodity bourse, promoted by Jignesh Shah headed Financial Technologies (FTIl), has been facing problems in settling Rs 5,600 crore dues of 148 member brokers, representing 13,000 investor clients, after it suspended trading on July 31 after Government directions.
NSEl has so far settled about Rs 244 crore against about Rs 5,600 crore dues to 13,000 investors. Earlier this week, police had attached properties of Shah, also a Director of NSEl and three others. Besides Shah, properties of Joseph Massey, also a Directorat the now defunct spot Exchange, and two others were attached by Mumbai Police’s Economic Offences Wing (EOW) which is investigating the scam.