The main administrator of the capital market, SEBI has cancelled the registration of MMTC, as a stock broker. MMTC ia considered as India’s largest international trading company also known as a trading giant. It is also one of the major trading companies in all over Asia. It is a Government owning enterprise, with holding an ownership of 99 percent of the stake in paid up share capital.
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Why was this action taken by SEBI ?
The SEBI, Securities and Exchange board of India, took the action of cancelling after finding out the MMTC’s involvement in illegal action of “paired contracts” in a case, related to the National Spot Exchanage Limited, (NSEL), now inoperative.
The SEBI has permitted MMTC, to let the existing clients to make withdrawals and transfers, of their funds and securities, held by the company, within the tme frame of 15 days.
If in certain case, the client fails to withdraw within the time frame, the broker of the clients, will be allowed to transfer the securities and funds to another broker who is registered, after the mentioned time.
What makes the act illegal?
In the year, 2009, in September, the NSEL, validated the act of “paired contract” for trading, which denotes buying and selling of the same commodity, through two different contracts, at two different prices, on the exchange platform. Here, the investors could buy the short term contract, and sell a long term contract, and vice versa, at the price which is pre-determined.
However, looking back at the payment defect crisis, NSEL was filed for a case for the same.
Aftermath of which, the Forward Market Commission (FMC), had directed the NSEL for stoppage of launching paired contracts. This did ultimately led to the closure of the NSEL, and declared inoperative since July, 2013.
The Ministry of Consumer Affairs had directed NSEL to make a settlement of all their current contracts, and to not launch any new contracts.
Statements by SEBI
On the basis of the order, MMTC had been a commodity derivatives broker registered under SEBI, since December 2015, and is now presently a member of the Multi Commodity Exchange of India Limited, (MCX)
The broker had made an application in the year 2019, in September. However, the application of surrender by MMTC is still not approved under the MCX.
The strong statements were given by SEBI, mentioning that the trading practice by the MMTC, was violating the conditions as per the Exemptions Notification of 2007 simultaneously, going against the regulations of the Foreign Contribution Regulation Act, as well (FCRA). It further stated, that such behaviour has raised a question of integrity, honesty and lack of ethics form the side of MMTC.
Following this action, the stock broker has failed to be categorised under the “fit and proper” condition, which are into serious considerations under the intermediaries regulations.
Therefore, on such findings, SEBI cancelled the certificate of registration of MMTC.
It can be concluded that through such trading methods, the stock broker failed to abide by the regulatory approval, as the concept was already abolished since 2013.
What effect did NSEL had?
The transactions of the trading was structured in such a way, that the buyers of the short term contracts always ended taking away the profits.
This particular scheme of NSEL after analysis, was discovered to cause to many investors involved in the trading, and the figures of loss stood to an extent of Rs 5,500 crores.