Motilal Oswal and IIFL commodity arms 'not fit and proper', rules Sebi
New Delhi: Market regulator Sebi has ruled that Motilal Oswal Commodities Broker and India Infoline Commodities are not "fit and proper" to act as commodity derivative brokers in connection with the Rs 5,600-crore scam at the now defunct NSEL.
Noting that reputation is an important factor for consideration of "fit and proper" criteria, the watchdog said the reputation of the two entities has been seriously eroded.
The rulings have come against the backdrop of the payment scam at the National Spot Exchange (NSEL) that came to light in 2013; and subsequently, many entities, including brokers, have come under the scanner of Sebi and other probe agencies.
Motilal Oswal Commodities and India Infoline Commodities are not "fit and proper" entities to be granted registration to operate as commodity derivatives brokers, according to two separate orders passed by Sebi on February 22.
The regulator has rejected the applications dated December 11 and December 16, 2015, filed by Motilal Oswal for registration as commodity derivatives broker. In the case of India Infoline Commodities, its application dated December 23, 2015 has been rejected. Both entities would cease to "act, directly or indirectly, as commodity derivatives brokers", as per the orders.
According to Sebi, the allegations against the Motilal Oswal and India Infoline that they are not fit and proper rests on twin basis.
One is the alleged violation of various laws and circulars with respect to the NSEL matter, and the second is the existence of various adverse observations by various courts/ authorities regarding the transactions in paired contracts on NSEL and the association of the two entities with such transactions and with the spot exchange, it noted.
"Both sets of allegation lead to serious questions about the reputation, integrity, character and competence" of the two entities, Sebi said in the orders.
The regulator noted that the paired contracts could not have been executed in such large volumes, across the large number of clients without the actions and facilitation of the two brokers. This facilitation is sufficient to establish their close association with the NSEL and paired contracts.