Capital markets regulator Sebi has cancelled the registration of MMTC Ltd as a stock broker for its involvement in illegal “paired contracts” in a case pertaining to now defunct National Spot Exchange Ltd (NSEL).
While cancelling the licence, Sebi directed MMTC to allow its existing clients to withdraw or transfer their securities or funds held by it within 15 days.
In case a client fails to do so, the broker will transfer the funds and securities of such clients to another registered broker in the next 15 days under advice to the said clients, Sebi said in its order on Wednesday.
Going by the order, MMTC is a commodity derivatives broker registered with Sebi, from December 2015 and is currently a member of the Multi Commodity Exchange of India Ltd (MCX).
The broker made an application in September 2019 for surrendering its membership of MCX. However, the surrender application of MMTC is still pending with MCX.
In its order, Sebi said MMTC traded in “paired contracts”, which did not have regulatory approval.
“The noticee (MMTC) having traded in the ‘paired contracts’ on the NSEL, which was in violation of the conditions of the 2007 Exemption Notification and also the provisions of the Foreign Contribution Regulation Act (FCRA), seriously calls into question the integrity, honesty and lack of ethical behaviour on its part,” Sebi said.
By doing so, the stock broker failed to meet the “fit and proper” criteria mentioned in the intermediaries rules and accordingly Sebi has cancelled “the certificate of registration of the noticee (MMTC Ltd)”, it said.
In September 2009, NSEL introduced the concept of “paired contracts” for trading, which allowed buying and selling of 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 at a pre-determined price.
The trades for the buy contract and the sell contract used to happen on the NSEL on the same day at the same time but at different prices, involving the same counterparties. The transactions were structured in a manner that buyers of the short duration contract always ended up making profits.
The scheme of “paired contracts” traded on the NSEL had caused huge losses to investors to the extent of Rs 5,500 crore.
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