The forensic audit of e-series contracts at the National Spot Exchange (NSEL) has revealed that the turnover in the segment was created artificially with the help of Indian Bullion Market Association (IBMA), a subsidiary of NSEL. The audit has pointed out instances of NSEL employees executing trades through the IBMA terminals — some even after resigning from the exchange.
According to the forensic audit mandated by the Forward Markets Commission and done by Chokshi & Chokshi, IBMA, in which NSEL holds 60.88% stake, indulged in “match trades” to create volumes in the absence of any new market participant.
“IBMA, as a trading member, executed frequent intra-day buy and sell trades of e-series units in its proprietary account through various user ID terminals allocated by NSEL. This enable substantial turnover and volumes of NSEL,” says the audit report.
“These trades were executed at the same price, which neither resulted in any profit/loss to IBMA, nor created any additional market participant on the exchange platform, but had an effect of indicating a high daily turnover and traded volumes. Evidence on record indicated these match trades by IBMA accounted for 95% (approx) of the total e-series turnover of the exchange,” adds the report.
The audit report further states that while NSEL, as part of its management response to the auditors, has said IBMA was a market maker, there was no evidence on record available with NSEL to establish it had appointed IBMA as market maker.”
Meanwhile, in a separate statement on Monday, NSEL said the forensic auditors have moved beyond their terms of reference, which was solely to undertake a verification of physical stocks lying with the custodian vis-ŕ-vis the records of CDSL, NSDL and the exchange.
“Since the auditors have digressed far beyond the terms of reference (ToR), NSEL has appropriately responded to the same in its management response and has requested FMC to consider the same before taking necessary steps,” said an NSEL spokesperson.
Further, the spot exchange has reiterated issues raised in the audit report were based on actions “taken solely under the direction of the erstwhile MD and CEO Anjani Sinha and his team against whom criminal actions have been initiated.”
The report also states NSEL had not “segregated bank accounts between e-series and other products” and so there was “no evidence available to indicate the outstanding balance pertained to money relating to paired contracts.” The report has highlighted various corporate governance issues at the