sebi:CO/02/MRD/06/2004

SEBI · SEBI · 2004-02-25 · G.N. Bajpai, Chairman

This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.

Facts / Headnote

Warning imposed on Bama Securities Ltd. under Regulation 13(1)(a) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002

Provisions invoked

• s. 12

Regulations

• Reg. 7
• Reg. 13(2)
• Reg. 5
• Reg. 3
• Reg. 4
• Reg. 19
• Reg. 13(1)(a)

Parties

• Bama Securities Ltd.

Holding

The Broker was held guilty of non-co-operation with inspecting officials for failing to produce missing contract notes and client registration forms, and guilty of not obtaining client acknowledgements; charges of irregular serial numbering, time stamping, and dealing through unregistered sub brokers were not established. A minor penalty of warning was imposed.

Full text

2 c. whether adequate steps for redressal of grievances of the investors are being taken and the conditions of registration as a Broker are complied with. 1.3 The inspection of the books of accounts was conducted in the second week of January, 2001 by a team of SEBI officials under the provisions of Regulation 19 (1) of SEBI (Stock Brokers and Sub Brokers) Regulations, 1992. 1.4 The inspection report of SEBI pointed out certain irregularities on the part of the Broker. The irregularities pointed out were as follows: a. irregularities in the issuance of the contract notes ; b. clients’ agreement and registration forms not available in few cases; and c. the Broker has dealt with unregistered sub brokers. 1.5 Pursuant to the above irregularities observed by the SEBI officials while carrying out the inspection of the Broker, an Enquiry Officer was appointed by the Chairman under Regulation 5 (1) of SEBI (Procedure for Holding enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as “the said Regulations”) to enquire into possible violations, inter alia, of SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 by the Broker . 2.0 ENQUIRY REPORT AND RECOMMENDATION : 2.1 The enquiry officer, after conducting the enquiry as per the procedure laid down in the said Regulations submitted a report dated 25.02.2004. 2.2 The Enquiry Officer found that the Broker has violated clause A(5) of the Code of Conduct read with Regulation 7 of the SEBI (Stock

3 has violated section 12 of the SEBI Act and Rule 3 of SEBI (Stock Broker and Sub Broker Rules) Regulations, 1992 and various circulars issued by SEBI. In the light of the above , the Enquiry Officer recommended that a ‘warning’ may be issued to the Broker to be careful in future in adopting the systems and procedures. 3.0 SHOW-CAUSE NOTICE AND HEARING : 3.1 Pursuant to the above a Show Cause Notice dated 22nd March 2004 was issued to the Broker along with a copy of the enquiry report, wherein he was called upon to show cause in terms of Regulation 13(2) of the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 as to why the action as considered appropriate should not be taken against him. The hearing before the member has been dispensed with as the same is not considered necessary under the provisions of the said Regulations. 4.0 REPLY TO THE SHOW CAUSE NOTICE : 4.1 The broker submitted a reply vide letter dated 12th April 2004 stating that they have complied with the various requirements under the Securities Laws in the past and are willing to do the same in future and are following the best standards that are expected from a broking house. The Broker also expressed his desire for personal hearing in the matter. 5.0 CONSIDERATION OF ISSUES AND FINDINGS : 5.1 I have considered the facts of the case, the findings of the Enquiry Officer, the reply of the Broker to the show cause notice and other mat

4 5.2 As to the irregularities in the issuance of the contract notes i.e., the contract notes did not bear the pre printed serial number, they were not stamped in few cases, they did not contain the acknowledgement of the client and in some cases they were missing altogether, the Broker submitted that the serial numbers were generated on daily basis through computer software. The serial number were printed concurrently with printing of the contract notes . The NSE vide its circular dated NSE/CMPT/1620 dated 03.05.2000 had asked all the members to implement a running serial number from 01.07.2000, which the Broker has done. Further, I find that among other requirements, all the trading members of the Exchange were required to issue only pre-printed contract notes with separate running serial numbers of each type of the contract notes namely (1) contract notes issued by members acting for constituents as Brokers and Agents and (2) contract notes issued by members dealing with constituents as Principals . The trading members are permitted to issue contract notes with the contract numbers printed serially through their back office software system. The members are therefore required to issue contract notes bearing a continuous serial number. The trading members were advised to issue serially numbered contract notes wherein the serial number should be initialized every year on January 01. Complying with this required change in the back office software and further the Broker contend

Source: SecMarx — sebi:CO/02/MRD/06/2004. 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.