sebi:WTM/GA/57/MIRSD/2/08

SEBI · SEBI · 2003-04-24 · G. Anantharaman, Whole Time Member

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

Facts / Headnote

Minor penalty of censure imposed on the stock broker

Provisions invoked

• s. 19
• s. 12
• s. 24

Regulations

• Reg. 13(4)
• Reg. 5(1)
• Reg. 13(2)
• Reg. 6

Parties

• SKSE Securities Limited

Holding

The Broker was found to have violated section 12 of the SEBI Act read with SEBI circular dated January 15, 2001 by permitting sub brokers to trade before obtaining certificate of registration and during suspension, violated SEBI circular dated August 5, 1996 by issuing contract notes without pre-printed serial numbers, and violated the Act read with the Broker Regulations and SEBI circulars by permitting high exposure without renewal of bank guarantees, allocating turnover limits higher than allowed by BSE, and relaxing margins where early pay-in instructions failed. A minor penalty of censure was imposed on the Broker.

Full text

1.1 SKSE Securities Limited (hereinafter referred to as the Broker), Member, National Stock Exchange of India Ltd. (hereinafter referred to as NSE) and Bombay Stock Exchange Ltd (hereinafter referred to as BSE) is registered with Securities and Exchange Board of India (hereinafter referred to as SEBI) as a stock broker. SEBI conducted an inspection of the books of accounts, records and other documents of the Broker during September 23, 2002 to September 28, 2002 for the period January 28, 2000 to September 23, 2002 (hereinafter referred to as the relevant period). The inspection carried out by SEBI observed certain irregularities / deficiencies committed by the Broker during the relevant period. It was inter alia observed that the Broker had allowed certain sub brokers to trade without the certificate of registration and that it had allowed a sub broker to trade during his suspension period. Besides, the inspecting authority had also observed discrepancies in the stock broker – sub broker agreement. 2.1 Pursuant to the aforesaid inspection, an Enquiry Officer was appointed by SEBI vide order dated April 24, 2003 under Regulation 5(1) of Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as the Enquiry Regulations) to enquire into the alleged irregularities/ deficiencies committed by the Broker during the relevant period. The Enquiry Officer issued a notice dated June 30, 200

SEBI), to trade during the latter’s suspension period, due to an error of mis representation of “no limit” as “no trading limit” granted to him by its junior official. The Broker added that as and when the same was noticed, Shri Anil Gandhi was called upon and advised not to create any new positions. In respect of contract notes without pre printed serial numbers, the Broker stated that it had started issuing the digitally signed contract notes. With regard to the permission of higher exposure limit without the renewal of bank guarantees, the Broker claimed that it had levied the penalty of Rs.1000/- to each member as per the decision of its governing board. The Broker stated that after giving total credit of margin against Rs.3.5 lacs, none of the members had exceeded the allowable exposure and turnover limits prevailing at the relevant time. It further added that though, the total limit allotted to sub brokers was Rs.7,399 lakhs which was above the limit allowed by BSE (6,068.84 lakhs), the actual limit utilized by the sub brokers was only Rs. 4,152.84 lakhs. Finally, the Broker requested to drop the charges taking into account the improved compliance level and also in view of the fact that the observations of the inspection report were already implemented in letter and spirit. The Broker also claimed that it had ensured that none of the observation of the SEBI report was repeated again. 3.3 SEBI granted an opportunity of hearing to the Broker on April 18, 2007. Shri Amit B

ii) Trading during the suspension period. iii) Issuance of contract notes without serial number. iv) Permissions of high exposure without renewal of bank guarantee. v) Enhancement of turnover limits and high exposure limits. vi) Allocation of high exposure as compared to the ceiling limit fixed by BSE. vii) Failure of early pay in instructions. 4.2 I note that the inspection conducted by SEBI found that the Broker had allowed certain sub brokers viz. Shital Securities, Shree Valabh Fiscal Services Pvt. Ltd., Golden Stock Holdings India Pvt. Ltd. and Elegant Equity Pvt. Ltd. to trade before the said sub brokers obtained the certificate of registration from SEBI. The details of the first trade of the said sub brokers and their date of SEBI registration are as follows: Sub Broker SEBI Registration Date First trade date Shital Securities 04/05/2000 12/04/2000 Shree Vallabh Fiscal Services (P) Ltd. 01/11/2001 22/10/2001 Golden Stock Holdings (I) Pvt. Ltd. 30/11/2001 12/04/2000 Elegant Equity Pvt. Ltd. 04/05/2000 12/04/2000 4.3 In respect of Elegant Equity Pvt. Ltd., the Broker stated that the sub broker was allowed to trade only from June 12, 2000, after the said sub broker was granted the certificate of registration. The Broker added that it did not allow the said sub broker to trade from April 12, 2000 as alleged. I note that the said explanation of the Broker was accepted by the Enquiry Officer. As regards the allegation pertaining to Golden Stock Holdings (I) Pvt. Ltd., I note

Source: SecMarx — sebi:WTM/GA/57/MIRSD/2/08. 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.