Capital market regulator Sebi on Wednesday slapped a fine of Rs 11 lakh on brokerage firm IIFL Securities for flouting stock broker rules and other regulatory norms.
The Securities and Exchange Board of India (Sebi) inspected IIFL Securities Ltd (IIFL) to look into various compliance requirements adhered by the brokerage firm.
The inspection was conducted for the period beginning April to July 2022.
Thereafter, a show cause notice (SCN) was issued to IIFL Securities on April 15, 2024 by the regulator.
In its 35-page order, Sebi observed that the noticee (IIFL Securities) has admitted to the allegations stated in the SCN in respect of the monthly/ quarterly settlement of client funds and securities stating that there was some technical error.
“I find that the circulars specifically mandate brokers to settle accounts and issue retention statements on a timely basis. However, the noticee failed to do so,” Sebi’s Adjudicating Officer Barnali Mukherjee said in the order.
While the noticee has now taken corrective action, it noted that it failed to settle the funds and securities on a monthly/ quarterly basis.
The regulator also alleged that the noticee did not do periodic reconciliation of client securities lying in DP accounts, with back office holding and also reported incorrect quantity in weekly holding statement in one instance for 1,835 shares valued at Rs 11.69 lakh.
As per Sebi norms, stock reconciliation is a critical process for all brokers to ensure that their physical inventory count matches the recorded data in their systems to make correct reporting to the exchange.
IIFL Securities admitted that it was a one-off case and a very small portion of the entire holding of shares valued at Rs 120.73 crore. Therefore, the noticee failed to reconcile 1,835 shares, and hence the allegation of violation of norms by the noticee stands established, the order said.
“I find that the noticee has given an ambiguous reply and not addressed the issue raised in the SCN regarding the passing of penalty on short reporting of upfront margin.
“The noticee has not given any reason why it had passed on a penalty to clients on account of short reporting of upfront margins amounting to Rs 24.22 lakh in the CM segment for 26 clients, Rs 56 lakh in Futures & Options segment for 13 clients and Rs 5.19 lakh in CD segment for 15 clients,” Mukherjee said.
Accordingly, IIFL Securities contravened the provisions of brokers’ rules.
IIFL Securities was under a statutory obligation to abide by and comply with the provisions of the circulars/ directions issued by Sebi and stock exchanges, which it failed to do during the inspection period, Sebi said.
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