Edelweiss, Kotak and JM Financials are among more than 300 brokerage houses named by the Securities and Exchange Board of India (SEBI) in a first information report (FIR) pointing to the violation of rules in the National Spot Exchange Limited (NSEL) scam.
The report says that these brokers were allegedly involved in illegal forward contracts at the NSEL in contravention of the Forward Contract Regulations Act 1952 (FCRA).
SEBI has termed the contracts as illegal on the basis that NSEL had authority to allow trading only in spot contracts which must be settled in 11 days. But NSEL issued paired contracts which went beyond the prescribed period of 11 days. Those transactions were in the nature of forward contracts and hence termed as illegal.
SEBI had issued show cause notices to five brokers earlier which charged them with illegal forward contracts and failure to do proper diligence such as physical verification of warehouses, stocks and checking claims of exchange on guaranteed returns.
A leading industry source said on the condition of anonymity that these charges will apply for all brokers who traded on the exchange. If any broking entity had done physical verification of stocks or any validation of NSEL claims on guaranteed returns, it would not have allowed any customer to trade.
The Economic Offences Wing (EOW) has issued summons to all the brokers mentioned in the FIR. As per the procedure, EOW is expected to summon the directors and officials of these brokerages and undertake forensic audit and verification of accounts.
In July 2013, Jignesh Shah-promoted NSEL had defaulted in payment of Rs 5,600 crore. Several investigative authorities have traced the money trail to NSEL and its 22 defaulting brokers who were commodity producers or suppliers.