Sebi fines IIFL Securities for violating circulars and Securities Contracts Regulations

The regulator said that there were various instances where the clients' ledger balance was incorrectly reported.

The capital markets regulator has fined IIFL Securities Rs 11 lakh for violating various circulars and provisions under Securities Contracts (Regulations) Rules, including borrowing funds from clients.

In an order dated August 21, the Securities and Exchange Board of India noted that the broker had paid Rs 17.43 crore to 136 clients, to further a "fund-based agreement", which seemed to involve borrowing money from clients.

The broker was found to be maintaining two ledgers Margin Deposit Ledger and Trading Ledger. While verifying the first ledger and a sample of 20 clients, Sebi officials found that the broker was collecting from all these clients repeatedly and paying them an interest on the amount at a mutually agreed rate. The order said that Rs 15.51 crore was paid to the sample 20 clients and the interest was approximately 4-5 percent per annum.

While the client was found to be instructing the broker to create a fixed deposit, the ledgers showed that no such deposit had been created.

The clients' funds deposited in the Trading Ledger seemed to be used for trading and for meeting margin requirement, and the broker was paying the clients for use of this money.
It was also found that certain clients were receiving funds from IIFL Finance (NBFC) and that these clients were paying the same amount to the broker. The broker was paying an interest of approximately 11 percent for the use of these funds, said the order.

The other violations included incorrect reporting towards client ledger balances, breaching maximum allowable exposure limit toward Margin Trading Fund, reporting incorrect ledger balance in daily margin sent to two clients amounting to Rs 1.8 crore, passing on the penalty of short reporting to clients and short collection of margin.

The Sebi order said, "I find that the Noticee (IIFL Securities) was under a statutory obligation to abide by and comply with the provisions of the Circulars / directions issued by SEBI and stock exchanges, which they failed to do during the inspection period. The very purpose of the said provisions is to deter wrongdoing and promote ethical conduct in securities market. Noticee being a registered intermediary is expected to take the statutory compliances seriously and take extra care to maintain a high degree of professionalism in the conduct of their business. The violations as established above certainly deserve imposition of penalty."

(This is a developing story.)