IIFL Securities shares tank over 18% after Sebi bars broker from taking new clients for 2 years
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Improper marking of clients’ bank accounts is also another reason the regulator has imposed the penalty.
The regulator alleged that IIFL has not implemented SEBI rules framed in 1993 in its true spirit by 25 years. It has also continuously been found involved in unauthorized use of credit clients’ funds for the purpose of meeting the obligations arising out of its proprietary trades and the trades of debit balance clients.
“It is well established that IIFL has acted in a manner which, by no stretch of moderation, can be called careful and diligent. In fact, it has acted in flagrant disregard of basic due diligence expected from a stockbroker registered with SEBI,” the regulator said in its order on Monday.
IIFL Securities, in a stock exchange filing, said, “The said order pertains to inspections carried out for different periods from April 2011 to January 2017, which was prior to the issuance of Enhanced Supervision Circular dated September 26, 2016, by SEBI, which was made effective from July 1, 2017. The SEBI order applies the said Circular retrospectively even while confirming that after the Circular becoming effective there has been no non-compliance with the same.”
“It may be noted that the Order does not affect Company’s existing business with the existing clients. The company is in the process of preferring an appeal against the said Order before the Securities Appellate Tribunal,” IIFL Securities said.
SEBI said that in its series of inspections from April 2011 to June 2014, it had noticed these violations. And again during the March 2017 Inspection for the period of FY 2015-16 and 2016-17, these violations were observed.”Despite the findings of misuse of credit clients’ funds that were noticed and pointed out to it during the previous three supplementary inspections…, the Noticee (IIFL Securities) did not even make any attempt to correct its wrongdoings already brought to its notice and the same wrongdoing was caught once again,” SEBI whole-time member S K Mohanty said in his order.
“This clearly shows that the entire business operation of IIFL was being conducted in complete disregard to various laws and circulars issued by SEBI and Stock Exchanges.”
SEBI that said due to the fungibility of money, it is not possible to clearly identify the usage of clients’ funds out of such mixed funds by IIFL Securities for its own purposes.
“But, at the same time, the said behavior of the Noticee (IIFL Securities) can, by no stretch of the imagination, be called fair behavior towards its clients,” SEBI said.
At 10.02 am, the scrip was trading 13% lower at Rs 62 on BSE. However, on a year-to-date basis, the stock has declined 4%, while it has plunged over 8% in the last six months.
After a rigorous investigation into the matter for more than six years, SEBI has found IIFL Securities guilty and has barred it from adding any new clients.
“I observe that the notice has flagrantly violated the provisions of SEBI 1993 circular in various ways to clearly disregard the basic premise of the said circular both in letter and spirit in complete defiance of regulatory instructions,” Mohanty said.
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