SEBI, the regulatory authority overseeing the financial markets in India, has taken the decision to revoke the stock broker license of the state-owned enterprise MMTC Ltd.
This action comes in response to MMTC’s involvement in unlawful ‘paired contracts’ linked to the National Spot Exchange Ltd (NSEL) case, without obtaining the necessary regulatory approvals.
In light of these circumstances, SEBI has directed MMTC to allow its existing clients the choice to either withdraw or transfer their funds and securities within a designated period of 15 days.
For those clients unable to comply within this timeframe, MMTC is obligated to transfer their funds and securities to another duly registered broker.
This transition process will be conducted within the subsequent 15 days, with advance notice being provided to the impacted clients.
SEBI has communicated that MMTC’s engagement in ‘paired contracts’ trading on the National Spot Exchange Limited (NSEL) represents a violation of the 2007 Exemption Notification as well as the Foreign Contribution Regulation Act (FCRA).
SEBI’s concern stems from the fact that these actions raise serious doubts about MMTC’s ethical behavior, integrity, and credibility.
The regulatory body asserts that such conduct demonstrates a lack of adherence to the criteria of being considered “fit and proper” in accordance with the intermediary regulations.
As a result, SEBI has made the decision to annul MMTC Ltd’s registration certification. MMTC had been authorized as a commodity derivatives broker by SEBI since December 2015 and had also been a member of the Multi Commodity Exchange of India Ltd (MCX).
In a report issued by the dedicated investigative authority in 2020, it was revealed that MMTC, while operating as a stockbroker for NSEL, had facilitated the trading of ‘paired contracts’ on NSEL’s trading platform.
This activity was a direct violation of relevant provisions within the Forward Contracts (Regulation) Act of 1952. The concept of ‘paired contracts’ was introduced by NSEL in September 2009, enabling trading on their platform.
These contracts offered users the ability to simultaneously buy and sell identical commodities using two separate contracts at differing prices.
In essence, investors could purchase a contract with a shorter duration and trade it against a long-term contract, or vice versa, at a pre-agreed fixed price. Despite involving the same trading parties, the transaction prices were distinct.
The investigative report highlighted that this transaction structure guaranteed profits for buyers of short-term contracts.