Sebi on Friday cancelled the registration of Pragya Commodity Brokers for facilitating its clients to trade in illegal "paired contracts" on the National Spot Exchange Ltd (NSEL).
By providing such a facility of taking exposure to 'paired contracts', the broker exposed its clients to the risk involved in trading in a trading product that did not have regulatory approval, Sebi said in the order.
"The noticee (Pragya Commodity Brokers) provided a platform to its clients to access a product which raised serious questions on the ability of the noticee to conduct proper and effective due diligence regarding the product itself.
"I hold that the Noticee does not satisfy the 'fit and proper person' criteria for holding the certificate of registration as a broker in the securities market and hence, the continuance of the Noticee as a broker will be detrimental to the interest of the securities markets," Sebi's Executive Director Pramod Rao said in the order.
Sebi has asked the broker to allow its existing clients to withdraw or transfer their securities or funds held in its custody within 15 days.
In case of failure of any clients to withdraw or transfer their securities or funds within this period, the broker will transfer the funds and securities of such clients to another broker within a period of the next 15 days thereon, under advice to the said clients.
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In September 2009, NSEL (now defunct) 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.
Under this arrangement, investors could buy a short-duration contract and sell a long-duration contract and vice-versa at the same time and at a pre-determined price.
Further, it was noticed that trades for the buy contract and the sell contract used to happen on the NSEL on the same day at the same time and at different prices, involving the same counterparties.
The scheme of 'paired contracts' traded on the NSEL ultimately caused a huge loss to investors to the extent of Rs 5,500 crore, the order noted.
Meanwhile, in a separate order, Sebi imposed penalties totalling Rs 46 lakh on 8 entities for manipulating the share prices of Funny Software Ltd (FSL).
The regulator received several complaints with respect to SMSs being circulated advising to buy the scrip of Funny Software Ltd (FSL).
Thereafter, BSE carried out its examination for the period April-September 2017 and submitted its findings to Sebi for a detailed investigation.
The scope of the investigation was to ascertain any violation of the provisions of the market norms by the suspected entities in trading in the scrip of FSL for the period April 2017 to February 2018.
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