The Securities and Exchange Board of India (SEBI) is investigating alleged financial irregularities at the Metropolitan Stock Exchange of India (MSEI) on a complaint received from a whistle-blower.
The whistle-blower alleged that the exchange did not follow proper procedures in making certain payments, said three people familiar with the development.
The whistle-blower wrote to the exchange in August 2016 before writing to the regulator recently, after the exchange concluded that there was no merit in the complaint, they added.
The regulator had called the exchange officials on Friday to present their arguments. According to one of the sources, the whistle-blower alleged that the exchange made cash payments to brokers to trade on its currency derivatives segment and that some MSEI officials had colluded with the brokers to corner a part of the money.
ICICI Bank loan
“The letter alleges that a loan of ₹10 crore taken from ICICI Bank was used to give cash incentives to brokers to push trading volumes of currency derivatives, which is effectively the only functional segment of the exchange,” said a person on condition of anonymity.
“The books of MSEI have a lot of fishy entries to facilitate these payments and there is a strong possibility of exchange officials also acting in collusion with such brokers,” he added. He declined to be identified as the matter is under regulatory probe.
Market making or giving monetary incentives to brokers is not permissible in the currency derivatives segment, even as SEBI has allowed such incentives in equity derivatives. Currency derivatives is the only segment of MSEI that sees some amount of traction though its share has steadily declined over the years.
In the month of June, the average daily trading value in the currency segment was ₹676 crore, which translates to a 2% market share. In contrast, the BSE and the National Stock Exchange reported daily average turnovers of ₹17,236 crore and ₹15,464 crore, respectively.
This is a steep decline for MSEI, which in 2013 had clocked almost ₹12,000 crore daily and commanded a market share of more than 40%.
A MSEI source said the exchange had conducted its own investigation and concluded that the transactions were genuine. “As per law, the audit committee looked into the matter and sought an explanation from the board, which was duly submitted,” said an official from MSEI. “The matter was even referred to the internal auditor that submitted a report saying no suspicious transactions have been found. The audit committee deliberated on the matter on more than a couple of occasions before finally closing the matter in May,” he said, wishing not to be identified.
An e-mail query sent to MSEI remained unanswered till the time of going to press.
