New Delhi: Why has the investigation into a mega scam involving a huge sum of money gone around in circles rather than reach a conclusion? Whose are the hidden hands behind such a lack of targeted action?

It has been more than two-and-a-half-years since the irregularities of top brokerage houses surfaced in the Rs 5,600 crore NSEL payment default, with Securities and Exchange Board of India (SEBI), the market regulator, slapping show-cause notices to them. But for some reason, no one is talking about penalising the broking entities. Is it that they are “too influential to touch”?

The five are among India’s largest brokerages: Motilal Oswal Commodities, Anand Rathi Commodities, Geojit Comtrade, India Infoline Commodities and Philips Commodities. Their deeds have come to the fore, exposing their role at large in the NSEL crisis. Although the proceeds of the imbroglio have been traced to the 17 defaulters, so far only NSEL, FTIL and its founder have been prosecuted, and that too without any adjudication.

It is not only the market regulator SEBI but also other probe agencies such as Serious Fraud Investigation Office (SFIO) and Economic Offences Wing of Mumbai Police (EOW-Mumbai) that have found NSEL-related brokerages guilty. The SFIO, which recently submitted its report to the Ministry of Corporate Affairs (MCA), asked SEBI to move against the brokerage firms, including putting them through the not “fit and proper” test. After the SFIO report, SEBI—based on the findings of EOW-Mumbai—has issued another set of show cause notices to the five for their alleged involvement in the NSEL crisis, asking them why action should not be taken against them, and more importantly, why they should not be declared not “fit and proper”. And then sat back

Odd. For it was in 2015, when the then Additional Commissioner of Police and chief of EOW, Rajvardhan Sinha submitted his report to Forward Markets Commission, which, for reasons not known, was suppressed. This action has gone unchallenged by the government. This report stated that top five brokerages were allegedly involved in large-scale irregularities such as indulging in financing deals, trading without client permission, illegally changing unique client codes and re-routing funds through multiple accounts. Yet they seem to have a charmed life. Who are the VIPs who have given them such immunity from action by the agencies? Why have they bought the self-serving argument that action to uphold the law and ethics would damage rather than cleanse the share market?

The brokers have been accused of creating every possibility to trap small brokers to become part of the problem, when it is claimed by investigators that the whole non-compliance is on their side. While the punitive action that awaits these brokers would be declaring them not “fit and proper” for grave irregularities, the show cause notices sent to the other 300 brokers are only for illegal trading, which could attract minuscule penalty, if proven guilty. However, the Big Five brokers are now trying to club this to make it as an “industry issue”, using industry forums such as Association of National Exchanges Members of India (ANMI) and BSE Brokers Forum (BBF) to boost their cause.

SEBI remains silent. Is there anything more that remains to be investigated against these top five brokers? In Mumbai, it’s common talk that influential folks are building huge pressure to shift the spotlight solely back to NSEL. As a result, a former NSEL non-executive director, Joseph Massey has been arrested, while the same probe agency, EOW, reported that the proceeds of the crime have been traced to the actual defaulters. Actions against NSEL, FTIL and its promoters have been quick, including declaring them not “fit and proper” to a forced merger order of NSEL with FTIL. But when it comes to the big brokers the SEBI probe seems to have slowed down considerably.

Those close to the big brokers are claiming that any action against brokers could jeopardise market operations. The million dollar question is: Are top brokerages above the law? If so, the law should be amended to reflect such a reality. It’s high time that SEBI, as a prudent and unbiased regulator, adopted a proactive approach and decided whether the big brokers are or are not “fit and proper” in all market segments. It will be a path-breaking move, and will work to establish India as a country of law and not immune influentials. Market manipulators will get the message that no one is above law. India needs clean and transparent exchanges, and action against the big NSEL defaulter brokers will promote such a process. Wake up, SEBI!

Shantanu Guha Ray is Special Editor-Investigations, Business Television India.


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