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TMI Blog2013 (6) TMI 905X X X X Extracts X X X X X X X X Extracts X X X X ..... (Stock brokers and Sub brokers) Regulations, 1992, SEBI Circular No. MRD/DoP/SE/CIR‐11/2008, dated April 17, 2008, Regulation 4.5.3 (e) of Part A of the Capital Market Regulations of the National Stock Exchange, Regulation 4.5.3 (e) of the Regulations (F O segment) of the National Stock Exchange and provisions of SEBI Circular No. MIRSD/SE/Cir‐19/2009 dated December 03, 2009. 3. SEBI has therefore initiated adjudication proceedings under Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the SEBI Act ) against the Noticee to inquire into and adjudge of under Section 15HB of SEBI Act (hereinafter referred to as the Act) and Section 23 H of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as SCRA ) for the allegations mentioned above. Appointment of Adjudicating Officer 4. SEBI vide order dated May 24, 2012 appointed the undersigned as Adjudicating Officer under Section 15‐I of the Act read with Rule 3 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the Adjudication Rules ) and under Section 23(I) of the SCRA read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Noticee is a broker with BSE and NSE and a Depository participant with CDSL. The Noticee pledged the securities of some of its clients after transferring the same into its beneficiary ownership account (BO account) with the clearing member, Stock Holding Corporation of India Limited (hereinafter referred to as SHCIL). The said pledge of securities was created with intent to avail of overall exposure in the market for intra‐day or positions held by the clients. However, it was alleged that the Noticee had pledged the said securities without the knowledge of the clients. Further, the clients even had credit balances in their respective accounts at the time when the pledge was created. Certain clients whose securities were pledged with SHCIL had not even traded during the period of pledge and had no debit balances and it amounts to a misutilisation of securities of the clients. 9. The inspection team conducted analysis of suzlon shares to further explain the said misutilisation of securities of the clients by the Noticee. It is observed that the Noticee had pledged a total of 30,000 suzlon shares on January 09, 2009 belonging to various clients with the clearing member, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity and the clients were provided immediate exposure for trading. The clients were satisfied through the operations and the authorization / permission letters given by them were kept with the Noticee as open letters without stipulating any particular period as they were using the facility very often and wanted to avoid pledging and unpledging charges by custodian. Further, whenever the pledging of shares was invoked from SHCIL, the shares were transferred to the margin account of SSL and from there the corresponding clients BO accounts were credited. The Noticee pledged shares from the clients BO accounts by transferring them to its account maintained with custodian until exposure was required. As and when exposure was not required or the client s accounts were in credit on running basis, shares were unpledged and transferred back to the client s BO account. The client s trading accounts were debited for the pledged shares and all the activities were monitored at the management level periodically. 12. The Noticee further submitted that as alleged in the SCN there have been few errors and omissions on the part of the noticee, however the same was not intentional and merely oc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into inter‐client adjustments for the purpose of settlement of the running account. This implies that SSL has not enforced the settlement of accounts on a quarterly /monthly basis for most of its clients and has not complied with the provision of inter‐client adjustments for the purpose of settlement of the running account as stipulated as per Clause 12 (e) and (i) of Annexure A to SEBI Circular No. MIRSD/SE/Cir‐19/2009 dated December 03, 2009. 15. With regards to the charge of not enforced the settlement of accounts on a quarterly /monthly basis for most of its clients, the Noticee submits that it has initiated steps to settle the client s accounts but due to the delay in availing the software programme to calculate the outstanding obligations on the settlement date and funds required to meet the margin obligations for the next five trading days along with the stiff resistance from the clients, the full compliance could not be met within the specified period. The Noticee has personally informed its clients about the SEBI s instructions regarding the quarterly settlement and implemented the quarterly settlement of funds and securities. It confirmed that the poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; (c) the repetitive nature of the default. 19. I observe that from the material available on record it is difficult to quantify any gain or unfair advantage accrued to the Noticee or the extent of loss suffered by the investors as a result of the default of the Noticee or to ascertain whether the defaults are repetitive in nature. I have taken note of the submissions that the Noticee had subsequently rectified the points of deviations or procedural error remarked by the inspection team. Order 20. In view of the above, after considering all the facts and circumstances of the case and exercising the powers conferred upon me U/S 15‐I(2) of the SEBI Act, 1992, I hereby impose a penalty of ₹ 50, 000/‐(Rupees Fifty Thousand Only) under section 15HB of SEBI Act on the Noticee. In my view, the penalty is commensurate with the default committed by the Noticee. 21. The above penalty amount shall be paid through a duly crossed demand draft drawn in favour of SEBI‐Penalties Remittable to Government of India and ..... 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