Sebi fines IIFL Securities, 5 Paisa for mistakes in client data

The orders noted that the material available on record has not quantified the amount of disproportionate gain or unfair advantage, if any, made by the brokerages and that the regulator has not alleged that either

Stock brokers IIFL Securities and 5 Paisa Capital have been fined Rs 3 lakh and Rs 2 lakh respectively, in two separate orders, for failing to act with due diligence and care as market intermediaries.

The orders, dated July 30, were passed by the Securities and Exchange Board of India (Sebi) that had examined the operations of the two brokerages with regard to wrong uploading of unique client codes (UCCs) in the Multi-Commodity Exchange of India (MCX) platform.

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According to the orders, the allegations against the brokerages were that they uploaded incorrect data of clients in the UCC database.

Details of some of the clients were wrongly entered to reflect that they were domiciled in Sikkim. The domiciled residents of Sikkim are exempted from payment of stamp duty on the commodity derivative transactions made by them.

IIFL had wrongly recorded 18 clients as domiciled in Sikkim and 5 Paisa had done so for 22 clients.

There were other mismatched entries too.

During the examination period, between July 2020 to June 30, 2022, IIFL Securities had made mismatched entries for 12,101 investors or 2.95 percent of their clients on MCX, including the 18 wrongly identified as from Sikkim; and 5 Paisa had made mismatched entries for 14,494 clients or 4.81 percent of their clients on MCX, including the 22 wrongly identified as from Sikkim.

The orders noted that the material available on record has not quantified the amount of disproportionate gain or unfair advantage, if any, made by the brokerages and that the regulator has not alleged that either.

The order issued against IIFL Securities noted that the brokerage "has been penalized earlier for the violation of provisions of code of conduct under Stock Brokers Regulations, 1992" and therefore "the violation is repetitive in nature".

The order issued against 5 Paisa was slightly different, in that, it noted that the brokerage has not been penalised earlier for the violation of provisions of Stock Brokers Regulations and therefore, "the violation is not repetitive in nature".

But both orders stated that as Sebi-registered intermediaries, they were expected to act "with due skill, care and diligence in the conduct of its business".