sebi:WTM/KMA/MIRSD/31/01/2009

SEBI · SEBI · 2005-02-10 · Dr. K. M. Abraham, 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

Certificate of registration of the stock broker Sure Capital Private Limited (Registration Number INB 111092137) cancelled

Provisions invoked

• s. 19

Regulations

• Reg. 199
• Reg. 17(1)
• Reg. 28(2)

Parties

• Sure Capital Private Limited

Holding

The certificate of registration of stock broker Sure Capital Private Limited was cancelled for violating the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 and various SEBI circulars, including non-maintenance of statutory books, failure to issue contract notes, non-maintenance of client database, dealing with an unregistered sub-broker, failure to collect margin, and providing a trading terminal to an unauthorised entity.

Full text

Page 2 of 6 Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (since repealed) to enquire into the alleged violations committed by the Broker, as stated therein. The Enquiry Officer, vide report dated February 10, 2005 recommended the imposition of penalty of cancellation of the certificate of registration of the Broker. The Enquiry Officer observed that the Broker inter alia violated the provisions of various circulars of SEBI.

Page 3 of 6 kept silent on this issue, even before me. The Broker chose not to controvert the findings of the Enquiry Officer. In terms of SEBI circular dated February 11, 1997, it is the duty of a stock broker to maintain a database of their clients. Subsequently, vide circular dated April 11, 1997, SEBI had once again advised the stock brokers to follow its previous circular dated February 11, 1997. In the circular dated April 11, 1997, SEBI had further advised that the stock brokers might seek supplementary information, if any, so as to satisfy themselves about the background of the clients. As per the said circulars, it would be the responsibility of the stock brokers to provide for client details as and when need arose. The said requirements are made in conformity with the Know Your Clients (KYC) norms. A stock broker has to ensure that he fulfils the primary requirement of obtaining documents such as client registration forms, member client agreements etc. as required under the aforesaid circulars. The object is to facilitate the stock brokers to assess the client before he takes up trading for the clients. When a stock broker fails to perform the said primary requirement and if he executes transactions on behalf of such clients without knowing their

Page 4 of 6 4. It was also observed by the Enquiry Officer that the Broker had dealt with unregistered sub broker. It was alleged that the Broker had dealt with an unregistered sub broker namely, Sure Consultancy Private Limited. I note the submission of the Broker before the Enquiry Officer that, it had stopped trading with the aforesaid entity. This very submission of the Broker would indicate that it had dealt with an unregistered sub broker. It is not the case of the Broker that the said entity had a valid registration with SEBI as a sub broker. In terms of SEBI circular dated March 31, 1997, no stock broker shall deal with a person who is acting as a sub-broker unless he is registered with SEBI. The said circular inter alia stipulate that, it shall be the responsibility of the stock broker to ensure that his clients are not acting in the capacity of a sub-broker unless he is registered with SEBI as sub-broker. It would lead to the conclusion that the Broker violated the SEBI circular dated March 31, 1997. Besides, the Broker had admittedly failed to collect margin. Thus, the Broker violated SEBI circular dated May 17, 2002.

Source: SecMarx — sebi:WTM/KMA/MIRSD/31/01/2009. 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.