Latest News | NSEL Case: Sebi Cancels Registration of Alpha Commodity

New Delhi, Apr 29 (PTI) Capital markets regulator Sebi on Friday cancelled the registration of Alpha Commodity for facilitating its clients to trade in illegal contracts on National Spot Exchange Ltd (NSEL) and failing to fulfil the "fit and proper" criteria.

By providing such a facility for taking exposure to 'paired contracts', the broker has engaged itself in trades capable of exposing its clients to the risk involved in trading in a product that did not have regulatory approval, Sebi said in its order.

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The act raised "doubts on the competence of the noticee (Alpha Commodity) to act as an honest and diligent registered securities market intermediary," it added.

"By indulging in participation/ facilitation in the trading in 'paired contracts' on NSEL, with an aim to earn illegal profit by turning a blind eye to all the illegalities taking place on the exchange platform of NSEL, has seriously hampered the trust of the regulator in the integrity of the Noticee," Sebi said.

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The broker was a member of NSEL and had facilitated trading in paired contracts on the NSEL platform.

After committing such grave misconduct, Alpha Commodity can no longer be called a "fit and proper person" for holding the certificate of registration as a commodity derivatives broker in the securities market, it added.

Sebi has asked the broker to allow its existing clients to withdraw or transfer their securities or funds held in its custody within 60 days.

In case of failure of any clients to withdraw or transfer their securities or funds within this period, the broker will transfer the funds and securities to another broker within 30 days thereon, under advice to the said client.

In September 2009, NSEL (now defunct) introduced the concept of ‘paired contracts' for trading which allowed buying and selling in the same commodity through two different contracts at two different prices on the exchange platform, wherein the investors could buy a short duration contract and sell a long duration contract and vice versa at the same time and at a pre-determined price.

It was further noticed that trades for the buy contract (T+2 /T+3) and the selling contract (T+25/ T+36) used to happen on the NSEL on the same day at the same time and at different prices, involving the same counterparties.

The scheme of ‘paired contracts' traded on the NSEL ultimately caused a huge loss to the investors to the extent of Rs 5,500 crore.

In a separate case, the regulator has barred 13 entities from the capital markets for five years for diverting the IPO proceeds for purposes other than the purposes stated in the prospectus in the matter of Aster Silicates Ltd.

Sebi found that substantial portions of the IPO proceeds were transferred/diverted for purposes other than the purposes disclosed in the prospectus and instead, were diverted for some other oblique reasons and the same has been ostensibly perpetrated by the company's directors in collusion with other entities.

The order came after Sebi investigated the Initial Public Offer (IPO) of equity shares of Aster Silicates Ltd. (now known as Shri Aster Silicates Ltd).

The company came out with an IPO to raise Rs 53.10 crore by way of issue of 45 lakh equity shares in July 2010.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)