Sebi imposes ₹11 lakh penalty on IIFL Securities for violating stock broker regulations

Capital market regulator Sebi on Wednesday slapped a fine of ₹11 lakh on brokerage firm IIFL Securities for flouting stock broker rules and other regulatory norms.

Sebi conducted an inspection of IIFL Securities Ltd covering the period from April to July 2022 to assess the firm’s adherence to regulatory requirements.

Following the inspection, Sebi issued a show cause notice to IIFL Securities on April 15, 2024. In its 35-page order, Sebi noted that IIFL Securities acknowledged the issues outlined in the notice, particularly regarding the monthly and quarterly settlement of client funds and securities, attributing the problems to a technical error.

"I find that the circulars specifically mandate brokers to settle accounts and issue retention statements on a timely basis. However, the noticee failed to do so," Sebi's Adjudicating Officer Barnali Mukherjee was quoted as saying in the order by PTI.

Although the notice has since taken corrective measures, it was observed that it failed to settle funds and securities on a monthly or quarterly basis.

The regulator also claimed that the noticee neglected to periodically reconcile client securities in DP accounts with back office records and, in one instance, inaccurately reported the quantity of 1,835 shares worth ₹11.69 lakh in a weekly holding statement.

According to Sebi regulations, stock reconciliation is crucial for brokers to ensure that their physical inventory matches the recorded data in their systems for accurate reporting to the exchange.

Here's IIFL Securities response

IIFL Securities acknowledged that this was an isolated incident, affecting a small portion of their total shareholding valued at ₹120.73 crore. Consequently, the failure to reconcile the 1,835 shares confirms the noticee's violation of regulations, as stated in the order.

"I find that the noticee has given an ambiguous reply and not addressed the issue raised in the SCN regarding the passing of penalty on short reporting of upfront margin. The noticee has not given any reason why it had passed on a penalty to clients on account of short reporting of upfront margins amounting to ₹24.22 lakh in the CM segment for 26 clients, ₹56 lakh in Futures & Options segment for 13 clients and ₹5.19 lakh in CD segment for 15 clients," Mukherjee said.

According to Sebi, IIFL Securities had a legal obligation to adhere to and follow the directives outlined in the circulars issued by Sebi and stock exchanges. However, during the inspection period, the company did not fulfill this requirement.

(With inputs from PTI)