sebi:15340

SEBI · SEBI · 2004-09-30 · Madhukar, Whole Time Member

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Facts / Headnote

Censure imposed on the sub-broker

Provisions invoked

• s. 19

Regulations

• Reg. 13(4)
• Reg. 5
• Reg. 3
• Reg. 15

Parties

• M/s. GDH Securities Pvt. Ltd.

Holding

The Whole Time Member censured M/s. GDH Securities Pvt. Ltd. for violating the Code of Conduct for sub-brokers by not faithfully executing orders at the market and for assisting other HSE members/sub-brokers in evading margins, and directed it to be more cautious in future.

Full text

1.1 M/s. GDH Securities Pvt. Ltd. is a sub broker having SEBI Registration No. INS230883535 (hereinafter referred to as the sub-broker), affiliated to M/s HSE Securities Ltd (hereinafter referred to as HSESL). 1.2 Securities and Exchange Board of India (hereinafter referred to as SEBI) conducted an inspection of the books of accounts and other documents of sub-broker and observed certain irregularities allegedly committed by sub-broker. 2.0 ENQUIRY PROCEEDINGS 2.1 In view of the above, SEBI vide order dated September 30, 2004 appointed an Enquiry Officer under Regulation 5 of SEBI (Procedure for holding Enquiry by Enquiry Officer and Imposing penalty) Regulations, 2002 (hereinafter referred to as Enquiry Regulations) to enquire into the irregularities observed during the inspection of books of accounts of the sub broker and the Enquiry Officer after conducting the Enquiry in terms of the Enquiry Regulations submitted his Enquiry Report dated August 31, 2005 and recommended a minor

3.0 CONSIDERATION OF ISSUES AND FINDINGS 3.1 I have carefully considered the findings of inspection, Enquiry report and the submissions made by the sub-broker before the Enquiry Officer. Though the inspection report lists a number of violations alleged to have been committed by the sub-broker, the Enquiry Officer has found the sub- broker guilty of following violations: (a) I note that it was alleged that the sub-broker has matched the transactions of its clients from its trading account directly and not routed through the broker and the stock exchange and in such transactions the sub- broker was contracting at rates different from the market rates. It was further alleged that the sub-broker charged GALA from its clients namely Pratap Reddy and Merbanc BSNV Securities Ltd. The sub-broker before the Enquiry Officer submitted that the transaction relating to the client, Pratap Reddy was not a direct matching transaction but was executed in NSE for the said client after adjusting the brokerage of HSES and the sub-broker. It was further submitted that as the transaction was involving very small quantity and other

I note that the Enquiry Officer in respect of the instance of executing trades for Merbanc BSNV Securities Ltd. did not accept the reply of the sub-broker that the said trade was resorted for assisting the said client to avoid client and rightly concluded that the sub-broker is guilty of violation of the provisions of B(1) of Code of Conduct for sub-broker under Schedule II of Regulation 15 of SEBI (Stock Brokers and Sub-Brokers) Regulations , 1992 which mandates a sub-broker to faithfully execute the orders at the market. (b) I further note that it was alleged from the findings of the Inspection that the sub-broker dealt with other HSE Members who were also registered sub-broker of HSESL on principal and agent basis to aid and assist them in evasion of market, exposure limit etc. The sub-broker in its reply before the Enquiry Officer submitted that it had done these transactions as the entities did not have trading terminal of HSESL. It also submitted that the shares were of the entities and not of their clients and enclosed copies of letters from these entities in this regard. The sub-broker further submitted that it has stopped doing any transaction with any of the HSE Members or sub-brokers. I note that the Enquiry Officer did not accept the aforesaid reply of the sub-broker and after taking into account the nature of the transactions rightly concluded that by executing such transactions on behalf of the said entities, the sub-broker had assisted these entities to evade m

Source: SecMarx — sebi:15340. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.