sebi:WTM/PS/24/MIRSD/AUG/2013
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Facts / Headnote
Noticee held to have failed to collect margins in approved modes and to have wrongly reported margin collection; proceeding under Regulation 28 disposed with penalty commensurate with violations
Provisions invoked
- s. 19
- s. 138
Regulations
- Reg. 7
- Reg. 28
- Reg. 28(2)
- Reg. 19
- Reg. 27
- Reg. 28(1)
- Reg. 19(1)
- Reg. 27(i)
- Reg. 59
- Reg. 22
- Reg. 62
Parties
- SMC Global Securities Ltd.
Holding
The Designated Member held that SMC Global Securities Ltd., as clearing member, failed to collect upfront margins in permissible modes and wrongly reported margins to the exchange, contravening the Code of Conduct and applicable NSCCL/NSE circulars, warranting action under the Intermediaries Regulations.
Full text
Page 2 of 36 defaults by SSL. SEBI, therefore advised the NSE to examine the matter and to submit its report. 2. NSE vide its letter dated April 01, 2009 had inter alia informed SEBI that it conducted an inspection of the clearing operations of SMC Global pertaining to the Futures and Options (F&O) Segment during December 2008. The period selected for random inspection was from January 2008 to November 2008. NSE observed major violations relating to wrong reporting of margin and non-collection of dues from the trading members on time by SMC Global. NSE also informed that the observations and the replies of SMC Global were placed before its Internal Committee for Minor Action, which decided that a broad based audit be conducted by independent external auditors. Accordingly, M/s. Walker, Chandiok & Co., chartered accountants were appointed as the auditor. The auditors verified the books of accounts and other records of the noticee to certify the correctness of the amount reported to the stock exchange as margin received from the trading members including SSL, GYF and Nikunj Stock Brokers Limited ("NSB"). Pursuant to their examination, the auditors found that the noticee was not reporting correct margin to the stock exchange; initial margins were collected by the noticee in the form of cash, undated cheques, FDRs, Bank Guarantee, securities, immovable properties, third party shares etc.; and the noticee had allowed trading members to take excess exposure without collecting suffi
Page 3 of 36 4. After completing his enquiry, the DA vide his Report dated December 12, 2011, found the following contraventions/irregularities/lapses against the noticee, amongst his other observations and findings :
Page 4 of 36 dated November 08, 2001 and (iv) NSCCL Circular No. NSCC/F&O/C&S/65 4 dated February 09, 2007 5. The DA had recommended that the noticee may be prohibited, in terms of regulation 27 of the Intermediaries Regulations, from taking up any new assignment or contract or launch a new scheme for a period of 15 days. As the alleged violations were considered to be serious in nature, SEBI issued a show cause notice dated April 16, 2012 ("SCN") which enclosed a copy of the Report of the DA, directing the noticee to show cause as to why higher penalty should not be imposed against it as specified in regulation 27(i) to (v) of the SEBI (Intermediaries) Regulations, 2008. The SCN inter alia alleged that :
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Source: SecMarx — sebi:WTM/PS/24/MIRSD/AUG/2013. 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.