Gee Kay Stocks and Shares has alleged unfair treatment at the hands of NMCE, which suspended its membership and barred it from trading without issuing prior notice.
Hemant Mayani, director, Gee Kay, is quite vocal about this arbitrary step. He said, Even our last trades have been cancelled by the exchange. Likewise, open positions that we have on behalf of our clients in gold futures (December and January) were also squared up arbitrarily on the same date, and we were not informed till much later.
When contacted by FE, Kailash Gupta, managing director, NMCE, said: Prima facie, we have the view that there is a fraud enacted by Gee Kay Stocks and Shares with the exchange. Beyond this, with matter under investigation, I cant disclose more information.
The sequence of events, as per Mr Mayani, goes thus. On October 27, 2003, Gee Kay was suspended, without prior notice or intimation, from trading membership of NMCE and trades conducted on October 24 were cancelled. The reason forwarded was that Gee Kay had given NMCE ID in Mumbai to one Dinesh Jindal, who was on that date not registered with the exchange as Gee Kays client.
Further, as per documents available, during the period October to December 2003, Gee Kay consistently followed up with the exchange seeking clarifications and reason for the above as well as status on open positions. The reason for the suspension, said Mr Mayani, is hard to digest since the said client had been trading since October 20 and all trades till October 24 were taken as valid. On December 23, the exchange authorities sent a brief note to Gee Kay stating that all outstanding positions had been squared up on October 27. No reference was given to the earlier reminders.
According to a leading analyst, such behaviour is alarming. Assuming that NMCE had a valid case regarding client notification, but was it strong enough to suspend an active member If so, was it necessary to suspend with immediate effect and with no prior notice and opportunity for any explanations This definitely does not augur well for the parties intending to be active on commodity exchanges, the analyst added.
Kewal Ram, chairman, Forward Markets Commission (FMC), said: We have received complaint against NMCE from Gee Kay last week. As per the procedure, we need to get both sides of the story. Appropriate directions have been given to concerned departments, and we should have details with us in 15-20 days. Consequently, we will come to know the facts.
Mr Mayani said being unilaterally suspended from trading privileges, without stating any reasons, without notice, without any intimation of any wrong-doing and without any opportunity to discuss the matter is not an issue that a member outfit can take in its stride.
According to Mr Mayani:
* In the case of Gee Kay, as in any other members case, it would mean a lot of inconvenience to clients, who have gone ahead and taken up positions.
* Squaring up positions arbitrarily, and not intimating till two months later, effectively means that the exchange authorities have the power to decide and treat any member like a defaulter on its own.
* In addition, even though it has been so long since the suspension, the NMCE authorities have not refunded the security deposit and V-sat deposit (total deposits amount is Rs 4.5 lakh). As Mr Mayani puts it, If we were not eligible for trading membership, there is no justification for holding on to the same.
* Also, the exchange authorities have not paid the dues as per the mark-to-market (MTM) for Gee Kays trades on October 24, 2003, amounting to Rs 11,63,000 and the MTM for our outstanding positions in gold futures.
However, Mr Gupta clarified, The exchange has the right to stop and suspend any membership if it discovers violation of rules and regulations. The matter is complex and unravelling it will take a little time. Hence, Gee Kays deposits and other money have been blocked by us, till our team investigates the issue completely.
As Mr Mayani put it, We are a reputed group with presence on different exchanges, and no other exchange has had these kind of issues with us, nor acted so arbitrarily. We had our transactions squared, trading privileges cancelled, money blocked. Besides, we have lost money and face in front of our clients.
Sunidhi Consultancy Services commodity analyst Manisha Gupta opined, Definitely, the NMCE and the concerned authorities (FMC), even up to the ministry, need to come up with solutions which are perceived as fair, just and not high-handed. There has to be recognition of possible frauds that can be perpetrated and ready solutions and penalties with transparent procedures for that.
Lastly, India is rapidly gaining value as one of the most transparent and safe trading markets, especially in equity. It can do without such events for growing commodities markets and hence, this is a wake-up call for the concerned authorities.