sebi:EAD-2/AO/23/2013-14
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Facts / Headnote
Noticee held liable for monetary penalty for violations of Code of Conduct clauses A(2) & A(5), Regulation 7 and 16H(3) of Broker Regulations, and various SEBI/NSE/NSCCL circulars
Provisions invoked
- s. 15A
- s. 15
- s. 15H
- s. 15B
- s. 15J
Regulations
- Reg. 7
- Reg. 16H(3)
- Reg. 16H
Parties
- Noticee (stock broker, name not specified in extract)
Holding
The Noticee was held liable for monetary penalty for violating Clauses A(2) & A(5) of the Code of Conduct in Schedule II read with Regulation 7 of the Broker Regulations, Regulation 16H(3) of the Broker Regulations, and various SEBI, NSE, and NSCCL circulars, including failures in KYC documentation, in-person verification, AML compliance, UCC uploading, margin collection, client outstanding balances, and third-party receipts.
Full text
Page 2 of 26 (g) Irregularities in handling of funds/securities, (h) Client’s outstanding balances and (i) Third party receipts. It was alleged that the Noticee has thus violated Clauses A(2) & A(5) of Code of Conduct for Stock Brokers given in Schedule II read with Regulation 7 of the SEBI (Stock Broker &Sub-Broker) Regulations, 1992 (hereinafter referred to as ‘Broker Regulations’), Regulation 16H(3) of Broker Regulations and certain Circulars issued by SEBI, NSE and National Securities Clearing Corporation Ltd. (hereinafter referred to as ‘NSCCL’) and consequently, liable for monetary penalty under sections 15A(c), 15B and 15HB of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’).
Page 3 of 26 5. The Noticee vide letter dated September 11, 2012 submitted its reply to the SCN. In the interest of natural justice and in order to conduct an inquiry as per Rule 4 (3) of the Adjudication Rules the Noticee was granted an opportunity of personal hearing on October 08, 2012 vide notice dated October 03, 2012. The personal hearing notice was sent to the Noticee by Registered Post which was delivered and acknowledged by the Noticee. The Authorized Representative (hereinafter referred to as ‘AR’) appeared for the hearing on behalf of the Noticee. During the course of hearing, AR reiterated the submissions made vide letter dated September 11, 2012. The AR also submitted that the Noticee has stopped all retail client activities and was now only servicing institutional clients.
Page 4 of 26 9. KYC Forms and Agreements: Allegation: It was alleged in the SCN that the Noticee had not maintained the client registration forms, member-client agreements and other related documents in an organized manner. With respect to Know your Client Forms and Agreements, the following discrepancies on the part of the Noticee were observed, (i) failure to provide KYC forms, (ii) undated member-client agreement, (iii) agreement executed after a lapse of 6 months from the date of franking/stamp duty paid, (iv) incomplete agreements, (v) trades were executed by the clients before the date of entering into an agreement with the member, (vi) financial details of the clients were not captured, (vii) blank authorizations obtained from the clients, (viii) brokerage to be charged by the Noticee was not indicated for any client, (ix) in-person verification of the clients was not done for any client by the Noticee, (x) periodic review of the clients credentials was not done for any client, (xi) supporting documents in respect of Identification, Residence, Bank & Demat were not obtained from the clients.
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Source: SecMarx — sebi:EAD-2/AO/23/2013-14. 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.