There is an interesting twist in the NSEL saga now. Arun Jaitley, in a written reply to a Lok Sabha question, has said that SEBI will examine and take necessary action against defaulting brokers in the NSEL scam. In other words, after chasing Jignesh Shah and the defaulters of NSEL, the heat has now been turned on the stock brokers through whom investors bought paired contracts that resulted in their losing more than ₹5,574 crore.

There is no doubt that NSEL operated in a very lax manner and is guilty of various lapses including allowing trading of forward contracts on its exchange platform when it was allowed to trade only spot contracts, not ensuring that the underlying commodities were stored in its warehouses and not maintaining a Settlement Guarantee Fund. It is also true that ingenious paired contracts created by entities associated with NSEL were peddled by intermediaries to investors touting them to be guaranteed return instruments. This was clearly a case of mis-selling since these instruments were actually means of providing short-term finance to entities associated with the exchange.

While it is right to go after the guilty and make them pay for their lapses, the investors of NSEL also need to reflect if they could have averted the loss if they had asked some hard questions to their broker. For instance — how can an instrument that is based on commodity trading give an assured return? It is only when investors become more alert that fly-by-night operators like NSEL, Saradha or PACL can be checked.

Lokeshwarri SK, Sr Deputy Editor and Head of Research

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