Orders third-party audit against brokers, including Anand Rathi Commodities, India Infoline and Geofin, to check for discrepanies highlighted by a court-appointed committee
The stock and commodity markets regulator, Securities Exchange Board of India, has started probe against five brokers named in the interim order of Bombay High Court-appointed committee on National Spot Exchange Ltd (NSEL).
In its interim order passed on March 31, the court-appointed committee had highlighted discrepancies of the brokers in NSEL case.
On this basis, the regulator wants to find out divergence through special auditing of five brokers before giving 'fit and proper' status to them.
It has issued third-party audit letter last week for auditing Anand Rathi Commodities, India Infoline Commodities, Geofin Commtrade, Philip Commodities and Motilal Oswal Commodities.
The committee mainly found discrepancies including unique client code modification, mis-selling of products, false assurance of return, trading without client authority and funding either by the member or NBFC.
The regulator will give nod of 'fit and proper' only after clearance from special auditing.
'Fit and proper' status is essential for brokers operating in regulated framework. After the merger of Sebi and Forward Markets Commission (FMC), brokers have to apply for registration with Sebi, which individually gives 'fit and proper'status after inspecting all aspects.
Sebi is acting on brokers after eight months of its merger with FMC.
Ketan Shah, complainant against brokers, told dna, "Sebi took eight months to commence action against brokers. It is little late on the regulator's part.''
However, Sebi had formed an investigative team-cum-committee to look into the allegations against the brokers of NSEL in March before the interim order of the committee was passed.
The team included the executive directors heading three of Sebi's crucial divisions — surveillance, investigation and commodities. This team will also examine these brokers to establish whether they indulged in mis-selling and client code modification.
A senior Sebi official told dna on condition of anonymity, "If we find any discrepancy in the audit, then we will do forensic audit on brokers. And till then 'fit and proper' of these brokers will be on hold. Interim order help us in investigation but we are already investigating all these angles."
In NSEL case, Mumbai Police Economic Offence Wing (EOW) had arrested three broking officials, including Anand Rathi Commodities, India Infoline and Geofin Commotrade for mis-selling and client code modification. At the time of bail application argument, brokers said the NSEL circular and mentioned that the exchange itself allowed client code modification. EOW had done forensic audit on brokers and now Sebi has sought forensic details from EOW.
As per disclosures by NSEL, the Indian Bullion Markets Association, a trading arm of NSEL, has the highest exposure at Rs 1,159 crore; Anand Rathi has an exposure of Rs 629 crore; India Infoline Commodities of Rs 326 crore; Geojit Comtrade of Rs 313.25 crore; Systematix Commodities of Rs 277 crore; Motilal Oswal Commodities Rs 263 crore and Phillip Commodities Rs 140 crore.
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 "Orders third-party audit against brokers, including Anand Rathi Commodities, India Infoline and Geofin, to check for discrepanie")
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