The market regulator in an order stated that "the Noticee, by providing a platform for taking exposure to paired contracts has exposed its clients to the risk involved in trading a product that did not have regulatory approval, thereby raising doubts on the competence of the Noticee to act as a registered securities market intermediary".
Capital markets regulator Sebi on Thursday cancelled the registration certificate of Celebrus Commodities Ltd for allegedly allowing its clients to trade in illegal contracts on National Spot Exchange Ltd (NSEL) and failing to fulfill the “fit and proper” criteria.
The market regulator in an order stated that “the Noticee, by providing a platform for taking exposure to paired contracts has exposed its clients to the risk involved in trading a product that did not have regulatory approval, thereby raising doubts on the competence of the Noticee to act as a registered securities market intermediary”.
The broker was member of NSEL and had facilitated trading in paired contracts on the NSEL platform.
In September 2009, NSEL introduced the concept of “paired contracts” on its platform, which involved buying and selling the same commodity through two different contracts at two different prices wherein investors could buy a short duration settlement contract and sell a long duration settlement contract and vice versa, with the same counterparty at the same time.
Forward Markets Commission found that 55 contracts offered for trade on NSEL were with settlement periods exceeding 11 days and all such contracts traded on NSEL were in violation of FCRA and the condition that no short sale by members of the exchange shall be allowed was not being met by NSEL.
Since Celebrus was member of the NSEL and had participated in / facilitated trading in paired contracts on the NSEL platform, Sebi initiated enquiry proceedings against them and appointed a designated authority to enquire into whether they were ‘fit and proper’ to continue to hold the certificate of registration as Trading and Clearing Member.
Designated authority concluded that it was not “fit and proper” in terms of stock broker regulations and intermediaries regulations and recommended cancellation of registration certificate.
“The Noticee by allowing its clients to trade in paired contracts,which were ex facie illegal as noted above and that too for a period of over five months, has failed in conducting its business in conformity with the standards expected to be maintained by registered securities market intermediaries,” Sebi said.
Through separate orders, Sebi levied fine of Rs 5 lakh each on Bina Chowdhary, Gaurishankar Bhawsar (HUF) and Goutam Agarwal HUF for indulging in fraudulent and manipulative trading in illiquid stock options segment on the BSE.
The fraudulent trades conducted by the entities are in violation of provisions of the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) norms.