On Wednesday, the capital market regulator SEBI imposed a ₹11 lakh fine on brokerage firm IIFL Securities for violating stock broker regulations and other related norms.
SEBI conducted an inspection of IIFL Securities Ltd, focusing on the period from April to July 2022, to evaluate the firm’s compliance with regulatory standards.
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 highlighted in the notice, particularly concerning the monthly and quarterly settlement of client funds and securities. The firm attributed these issues to a technical error.
SEBI’s Adjudicating Officer, Barnali Mukherjee, stated in the order, as reported by PTI, that the circulars explicitly require brokers to settle accounts and issue retention statements promptly, a responsibility that the firm failed to fulfill.
Although IIFL Securities has since implemented corrective measures, SEBI observed that the firm did not settle funds and securities on a monthly or quarterly basis as required.
The regulator also found that IIFL Securities did not periodically reconcile client securities in depository participant (DP) accounts with their back-office records. In one instance, the firm inaccurately reported 1,835 shares valued at ₹11.69 lakh in a weekly holding statement.
According to SEBI regulations, stock reconciliation is vital for brokers to ensure that their physical inventory matches the recorded data in their systems for accurate reporting to the exchange.
IIFL Securities responded, acknowledging that the issue was an isolated incident, affecting a small fraction of their total shareholding, which is valued at ₹120.73 crore. Nonetheless, the failure to reconcile the 1,835 shares confirmed the violation of regulations, as noted in the order.
Additionally, SEBI stated that IIFL Securities provided an ambiguous response and did not adequately address the issue raised in the show-cause notice concerning the penalty for short reporting of upfront margins. The firm did not justify why it passed on penalties to clients due to short reporting of upfront margins, amounting to ₹24.22 lakh in the cash market segment for 26 clients, ₹56 lakh in the Futures & Options segment for 13 clients, and ₹5.19 lakh in the Currency Derivatives segment for 15 clients.
SEBI emphasized that IIFL Securities had a legal obligation to comply with the directives issued in the circulars by SEBI and the stock exchanges. However, during the inspection period, the firm failed to meet these requirements.
