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NSEL crisis: Over 30 brokers under regulatory scanner

NSEL crisis: Over 30 brokers under regulatory scanner

These stock brokers have come under regulatory scanner for inducing HNIs and other investors to trade on the spot market commodity exchange with promise of high returns.

As the NSEL crisis deepens, the role of at least 32 brokerage houses has been under the scanner on suspicion charging high transaction charges and the delivery of portfolio management and margin funds to their clients, in violation of regulations.

These corridors were apparently working as Carrying and Forward (C & F) agents, as well as National Spot Exchange Ltd (NSEL) without verifying the veracity of goods placed in the hold, and investors remain in the dark about the lack availability of commodities in which their customers being taken positions.

Margin financing is when corridors arrange to finance procurement of investors and charge money for those loans.

Sources said, several regulators including Sebi and FMC being investigated the role of these agents, which they were registered in both stocks and commodities markets.

Among the 32 corridors 14 are from Gujarat, Rajasthan and seven other states are like Maharashtra, Delhi, Andhra Pradesh and Punjab.

These corridors, with a large slope in NSEL, were charging Rs 25 per lakh of customer transactions.

Regulators have received complaints that happened margin funds with broking firms and their partners who finance 80-90 percent of NSEL exposure, while the balance was paid by High Networth Clients (HNIs) , sources said.

Brokers were apparently charging Rs 100 per lakh, as brokerage and additional commission to provide margin funds.

These stock brokers have come under regulatory scanner for inducing HNIs and other investors to trade on the spot market commodity exchange with promise of high returns.

It appears mis-sold commodities futures contracts on NSEL to investors investment products such as obtaining fully secure lucrative returns up to 18 percent under portfolio management services.

The spot commodity exchange, promoted by Financial Technologies Jignesh Shah-led (FTIL), has faced problems in solving Rs 5,600 million rupees of 148 member brokers, representing 13,000 customers investors, after the quote was suspended on July 31 after the government’s instructions.

So far NSEL has settled around Rs 244 million rupees against Rs 5,600 million rupees to 13,000 investors.

Earlier this week, EOW police had attached Shah properties, also director of NSEL and three others.

Besides Shah, Joseph Massey properties, also a Director of spot exchange already disappeared, and two others were added by the Mumbai Police Economic Offences Wing (EOW), which being investigated scam came to light in late July.

Reported: Business Today

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