New Delhi, Jan 30 (IANS): In the ongoing investigation into the working of NSEL (National Spot Exchange Limited), the Economic Offences Wing has issued notices to 300 brokers after market regulator SEBI filed an FIR against them, sources told IANS on Tuesday.

The notices allege that forward contracts on NSEL were illegal. Another authority, SFIO, has recommended similar action against 148 brokers.

Illegality was alleged in this case because NSEL was set up to trade in spot transactions and not authorised to allow trading in forward contracts. Spot transactions must be settled within 11 days. The paired contracts issued by NSEL and passed on by brokers to their clients went beyond the prescribed period of 11 days, sources said.

If SEBI adjudicates, as it threatens in the notice, it will declare the 300 brokers as not ‘fit and proper' and they will be barred from the securities markets. This will have serious repercussions on the capital markets.

Uttam Bagri, chairman of the Bombay Stock Exchange Brokers' Forum, said: "Any across-the-board action on hundreds of intermediaries affects the entire financial ecosystem. The masterminds of the scam are attempting to divert regulatory attention by targeting brokers who are the victims themselves."

Another senior official at an industry forum said: "If SEBI stops 300 brokers from doing business, it will bring down the business. Millions of retail investors will panic and lose their money, and foreign investors will flee India."

While that may be an over-reaction, Wednesday's market hours will be interesting.