In the NSEL case, Sebi cancels MMTC’s registration

Due to its participation in illicit “paired contracts” in a case involving the now-defunct National Spot Exchange Ltd (NSEL), capital markets regulator Sebi has revoked MMTC Ltd’s licence as a stock broker.

When the license was revoked, Sebi instructed MMTC to give its current customers 15 days to remove or transfer any securities or monies it was holding for them.

Sebi said in its ruling on Wednesday that if a customer fails to comply, the broker would transfer the money and securities of such clients to another registered broker in the next 15 days with the advise of the aforementioned clients.

 

According to the ruling, MMTC is an active member of the Multi Commodity Exchange of India Ltd (MCX) and a commodity derivatives broker registered with Sebi as of December 2015.

 

In September 2019, the broker submitted an application to resign from its membership in MCX. But MMTC’s surrender application with MCX is still pending.

 

According to Sebi’s ruling, MMTC traded in “paired contracts” in violation of the law.

 

Sebi stated: “The noticee (MMTC) seriously calls into question the integrity, honesty, and lack of ethical behavior on its part having traded in the ‘paired contracts’ on the NSEL, which was in violation of the conditions of the 2007 Exemption Notification as well as the provisions of the Foreign Contribution Regulation Act (FCRA).

 

By doing this, the stock broker violated the intermediaries regulations’ “fit and proper” requirements, and as a result, Sebi revoked “the noticee’s (MMTC Ltd.) certificate of registration,” it said.

 

In September 2009, NSEL introduced the idea of “paired contracts” for trading, allowing investors to simultaneously buy a short-term contract and sell a long-term contract at a predetermined price. This allowed investors to buy and sell the same commodity through two different contracts at two different prices on the exchange platform.

 

Previously, the transactions for the purchase contract and the sell contract occurred on the NSEL at the same time, at separate prices, and included the same counterparties. The way the trades were set up ensured that purchasers of the short-term contracts always came out ahead.

 

The “paired contracts” trading technique on the NSEL resulted in massive losses for investors totaling Rs 5,500 crore.