Mumbai: After Motilal Oswal and IIFL's commodity derivatives trading arms, the Securities and Exchange Board of India (Sebi) on Tuesday declared Geofin Comrtrade Ltd and Anand Rathi Commodities Ltd as not 'fit and proper' to do commodity derivatives trading.
The firms will need to transition the commodity trading business to other unrelated entities within 45 days.
'It is alleged that the firms have not conducted their operations as commodity brokers at NSEL in a fair and transparent manner. The integrity, reputation and character of the firms is questionable from the conduct of its business at NSEL (National Spot Exchange Ltd) as a commodity broker. In view of the seriousness of the matter, facts and circumstances of the case, the conduct of the firms (noticed) in its functioning as a commodity broker is questionable and has certainly eroded its general reputation, record of fairness, honesty and integrity and has therefore affected its status as a ‘fit and proper person', Sebi Whole Time member Madhabi Puri Buch said in the order.
The firms can appeal against the order within 45 days at the Securities Appellate Tribunal (SAT).
In a statement to the BSE, Geojit Finance said Geofin Comrtrade was not a subsidiary or associate.
"We are examining the order and will take necessary legal steps to file appeal against the order. ARCL and its clients and employees are in fact victims of this fraud perpetrated by NSEL. Sebi order rejects the application of registration of ARCL and has no impact on other businesses of the group," a statement from Anand Rathi Commodities said.
At least 300 more brokerages are likely to face Sebi action for trading in so-called prohibited paired contracts. Sebi has issued show cause notices to these firms in September last year.
Sebi held this view as the two brokerage firms indulged in the so-called illegal paired contracts on the NSEL trading platform, which violated the norms of the Forward Contract Regulation Act (FCRA) and the Maharashtra Public Interest Depositor (MPID) Act. That caused a serious ‘reputational’ risk for the firms, Sebi said.
In July 2013, NSEL was barred from launching any fresh contracts after it was found that it allowed paired contact on its platform, which were violating FCRA and the terms on which NSEL was granted registration as a spot exchange. As a result, the exchange was unable to meet its settlement obligations of around ₹5,548 crore to nearly 13,000 investors .